Preliminary Results

K3 Business Technology Group PLC 03 April 2008 KBT K3 BUSINESS TECHNOLOGY GROUP PLC ('K3' or 'the Group') IT solutions supplier to the supply chain industry Announces Preliminary Results for the Year to 31 December 2007 Highlights * Excellent results reflecting strong organic growth and partial benefits of earnings enhancing acquisitions * Revenue increased by 25% to Â£34.15m (2006: Â£27.35m) * Adjusted profit before tax*1 rose by 78% to Â£4.72m (2006: Â£2.66m) Profit before tax rose by 43% to Â£3.68m (2006: Â£2.57m) * Cash generated from operations increased by 182% to Â£6.23m (2006: Â£2.21m) * Adjusted earnings per share*2 rose by 60% to 16.8p (2006: 10.5p) Earnings per share rose by 41% to 13.4p (2006: 9.5p) * Dividend of 0.5p proposed (2006: nil) * Recurring revenues from licence and maintenance fees now totals Â£13.8m on annualised basis * Three highly complementary acquisitions completed: - two manufacturing software businesses (MBL and Index) and a retailer software provider (Landsteinar) - full benefits to be evident in 2008 * Disposal of non-core business, Elucid, in February 2007 * Board views the prospects for 2008 positively - sales pipeline at record levels *1 Calculated before amortisation of acquired intangibles of Â£0.90m (2006: nil) and share-based payment costs of Â£0.15m (2006: Â£0.09m). *2 Calculated before amortisation of acquired intangibles of Â£0.90m (2006: nil), share-based payment costs and related tax charge of Â£0.11m (2006: Â£0.06m) and loss on disposal of operations including the related tax charge of Â£0.14m (2006: Â£0.11m). Tom Milne, Chairman, commented, 'K3 made excellent progress over the year as results demonstrate. The three acquisitions we made during the year have added critical mass to the business and significantly enhanced recurring income streams and operating cash flow. We have yet to exploit the full benefits of all our acquisitions and see significant potential to come from them in future. We continue to look for complementary acquisition opportunities that will enhance our existing product range and skills or bring additional routes to market. Our product range is now also sufficiently broad to consider the acquisition of 'feeder' businesses, with established customer bases in our chosen sectors. These will provide predictable, recurring income streams but also deliver opportunities for cross-selling as customers upgrade their existing software solutions with newer Microsoft products. We continue to view the Group's prospects for 2008 positively.' Enquiries: K3 Business Technology Andy Makeham, Chief Executive T: 020 7448 1000 (today) Group plc David Bolton, Chief Finance Officer Thereafter: 01282 864111 Biddicks Katie Tzouliadis T: 020 7448 1000 Daniel Stewart (NOMAD) Paul Shackleton T: 020 7776 6550 CHAIRMAN'S STATEMENT Overview K3 made excellent progress over the year as results demonstrate. Revenue for the 12 months to 31 December 2007 increased by 25% to Â£34.15m and adjusted profit before tax*1 rose by 78% to Â£4.72m, with adjusted earnings per share*2 increasing by 60% to 16.8p. Profit before tax rose by 43% to Â£3.68m with earnings per share increasing by 41% to 13.4p. Both legs of the business, the Retail Software Division and the Manufacturing Software Division, performed well. In addition, during the year, we acquired three complementary businesses, two in manufacturing software and one in retail software. These made partial contributions to this year's results but, more significantly, they greatly enhance prospects for the Group for 2008 and beyond. The acquisition of McGuffie Brunton Limited ('MBL') in April 2007 transforms our Manufacturing Software Division. As the only other domestic distributor of SYSPRO, it makes K3 the sole supplier in the UK for a system which is widely recognised as the leading software range in mid-tier manufacturing. The merger of MBL with our existing SYSPRO business brings substantial benefits which will be more evident in 2008. One immediate benefit I am pleased to highlight is MBL's large customer base which delivers substantial recurring income from annual licence and maintenance fee renewals. Just before the end of the financial year we acquired Index Computer Systems Limited ('Index'), a leading reseller of Microsoft Dynamics AX (Axapta) suite of business software and a Microsoft Gold Partner. Index takes the Manufacturing Software Division into the complementary field of 'process' manufacturing and, as one of the fastest growing solutions in the market for larger manufacturing companies, Axapta opens up exciting new opportunities for the Division. Prospects for the Retail Software Division have been enhanced with the purchase of Landsteinar Nederlands BV ('Landsteinar') in August 2007. Based in Holland, Landsteinar distributes the same software as our UK business and so is a complementary business in an area we understand. Importantly, it also gives us a European footprint. We see our UK business gaining from Landsteinar in terms of product enhancement but, more significantly, we believe we can use our marketing and sales expertise to grow the Landsteinar business. An important development in 2007 was our investment to incorporate a multi-channel solution in our Retail software. This is a significant step for us and the customer base, given the increasing importance of online sales for retailers. The three acquisitions we have made considerably strengthen the Group, adding critical mass to our existing operations, increasing our presence within our chosen markets sectors and broadening our market opportunities. The full benefits of the acquisitions, and particularly of Landsteinar, will be more fully felt in trading results for 2008. Results will continue to be weighted towards the second half of the year since the majority of licence fee revenues in the Manufacturing Software Division occur in October. However the weighting in the financial year to 31 December 2008 will be less marked following the acquisition of Landsteinar. The Board remains optimistic about the Group's prospects for 2008. Financial Results These full year results are reported under International Financial Reporting Standards as endorsed by the EU ('IFRS') for the first time. Accordingly, comparative results for the prior year, ending 31 December 2006, have been restated. The impact on our operating results of adopting IFRS is not significant. However, it has resulted in a reduction in the amortisation of intangible assets arising on acquisitions and a small change in the level of holiday pay accruals. Group revenue for the year to 31 December 2007 increased by 25% to Â£34.15m from Â£27.35m last year. This included a nine month contribution from MBL, a four month contribution from Landsteinar but only a very limited contribution from Index, which we acquired in mid December. In total, the acquisitions contributed Â£7.23m to Group revenue. Adjusted profit from operations*1 for the year rose by 97% to Â£5.76m (2006: Â£2.92m). After amortisation of acquired intangible assets of Â£0.90m (2006: nil) and share-based payment costs of Â£0.15m (2006: Â£0.09m), the profit from operations was Â£4.71m (2006: Â£2.83m), an increase of 66% on last year. Adjusted profit before tax*1 rose by 78% to Â£4.72m (2006: Â£2.66m) and adjusted earnings per share*2 increased by 60% to 16.8p (2006: 10.5p). After taking into account amortisation of acquired intangibles of Â£0.90m (2006: nil), and share-based payment costs of Â£0.15m (2006: Â£0.09m), profit before taxation increased by 43% to Â£3.68m (2006: Â£2.57m) and the earnings per share rose by 41% to 13.4p (2006: 9.5p). At 31 December 2007, the Group's cash balance stood at Â£3.09m (2006: Â£2.27m) and the balance of bank and other loans was Â£16.48m (2006: Â£1.57m). The rise in borrowing resulted from loans taken out to finance the cash element of the acquisitions of MBL, Landsteinar and Index. Dividend Reflecting the substantial progress the business has made, the Board is delighted that the Group is in a position to commence the payment of dividends and is pleased to propose a net dividend of 0.5p per share (2006: nil). This will be paid on 11 June 2008 to shareholders on the register at the close of business on 16 May 2008, subject to shareholder approval at the Annual General Meeting, which is to be held at the offices of K3 Supply Chain Solutions Limited, Baltimore House, 50 Kansas Avenue, Salford Quays, Manchester M50 2GL on 4 June 2008 at 10.30 am. Review of Operations Retail Software Division The Retail Software business generated total sales of Â£20.47m, an increase of 25% over last year (2006: Â£16.44m) and the adjusted profit from operations*3 rose by 79% to Â£2.91m (2006: Â£1.63m) against the same period last year. These results included only four months contribution from Landsteinar, which was acquired in August 2007. Landsteinar generated revenues of Â£1.61m and an adjusted profit from operations*4 of Â£0.57m. The core UK business performed extremely well, with sales increasing by 15% over the year to Â£18.86m (2006: Â£16.44m) and adjusted profit from operations*5 rising by 44% to Â£2.34m (2006: Â£1.63m). These strong results were driven both by a number of major new customer wins and new orders from existing customers. The total value of the new orders secured during the year was Â£5.3m. Reflecting both the growth in the customer base last year and our initiatives to focus on customer account management, services and support revenue rose by 41% to Â£13.72m (2006: Â£9.75m) while revenue from existing customers increased by 24% to Â£7.84m (2006: Â£6.31m). We signed our first large scale multi-channel retail contract in December with The White Company, the luxury home accessories retailer. This prestigious win provides us with an excellent reference site and we believe this high growth sector will be an important area for us in 2008. The acquisition of Landsteinar, for an initial Â£9.75m, in August 2007 was a highly attractive move for us. The Netherlands-based company is very closely related to our core UK business, both being distributors of the Microsoft Dynamics software suite. Landsteinar has a strong domestic and overseas customer base and some very close retail relationships, most notably with Inter IKEA System B.V. ('IKEA'), the global home furnishing business. In recent years, it developed and now retains the worldwide rights to software modules for IKEA. Landsteinar operates a low-cost sales model which means that it has the potential to achieve high levels of profitability from sales growth. We believe that there are significant synergies between Landsteinar and our UK software business in product development and marketing and we are starting to exploit these as we move into 2008. Manufacturing Software Division The Manufacturing Software businesses generated total sales of Â£13.5m (2006: Â£8.85m) and an adjusted profit from operations*6 of Â£3.42m (2006: Â£1.64m). These are excellent results and include a nine month contribution from MBL, which was acquired in April, but only a very small contribution from Index, acquired in December. The year saw major changes in the Manufacturing Software Division with the acquisition of MBL. The merger of the business with its 'sister' company, IEG, is now completed and we have rebranded the combined entity as K3 Supply Chain Solutions ('SCS'). The logic for acquiring MBL, the only other UK distributor of the SYSPRO range of Enterprise Resource Planning ('ERP') software, was compelling. Bought for a total consideration of Â£13.80m, MBL's fit with IEG, which comprises our core business within this Division, is highly complementary. Significantly, it also means that K3 is now the sole UK distributor for this market leading ERP software. The combined IEG and MBL customer base now totals approximately 450 companies and the enlarged SYSPRO business, SCS, generated combined sales of Â£10.4m and adjusted profit from operations*7 of Â£2.45m in 2007. This was after absorbing the costs of the merger of Â£0.25m. It is especially encouraging to see that, as expected, the average order value increased steadily during the year. Of the revenues generated from SCS, approximately half is derived from recurring annual licence fees and maintenance income, the majority of which is invoiced in October each year. This has the effect of weighting the performance of this Division heavily towards the second half of the financial year. The acquisition of Index, in December 2007 for Â£3.01m, has broadened our product base, adding Microsoft Dynamics AX software, one of the fastest growing enterprise resource planning solutions worldwide. Index also holds the intellectual property rights for complementary modules in the food and process manufacturing vertical markets. Our Walton-on-Thames business saw revenue reduce, as expected, from Â£3.50m to Â£3.05m and profitability rise as a result of structural changes implemented in anticipation of this reduction. The adjusted profit from operations*8 increased by 36% to Â£0.97m (2006: Â£0.71m). The business has now extended its offering to include Customer Relationship Management and business support and we expect the revenue level to stabilise in 2008. Disposal In February, we sold our Elucid business to Sanderson Group plc, as it had become a non-core part of the Group. Elucid's multi-channel software solution is focused on smaller catalogue and mail order companies rather than our target market of larger retailers. The loss in the period was Â£0.14m and the Group generated Â£1.08m of cash from its disposal. Outlook The three acquisitions we made during the year have added critical mass to the business and significantly enhanced recurring income streams and operating cash flow. Recurring revenue, which derives from licence fee renewals and associated support, now totals approximately Â£13.8m on an annualised basis and represents a highly predictable income stream. We have yet to exploit the full benefits of all our acquisitions and see significant potential to come from them in future. We continue to look for complementary acquisition opportunities that will enhance our existing product range and skills or bring additional routes to market. Our product range is now also sufficiently broad to consider the acquisition of 'feeder' businesses, with established customer bases in our chosen sectors. These will provide predictable, recurring income streams but also deliver opportunities for cross-selling as customers upgrade their existing software solutions with newer Microsoft products. Results for the current year will continue to be more significantly weighted towards the second half but Landsteinar will boost first half performance compared to 2007. We continue to view the Group's prospects for 2008 positively. Tom Milne Chairman *1 Calculated before amortisation of acquired intangibles of Â£0.9m (2006: nil) and share-based payment costs of Â£0.15m (2006: Â£0.09m). *2 Calculated before amortisation of acquired intangibles of Â£0.9m (2006: nil), share-based payment costs and related tax charge of Â£0.11m (2006: Â£0.06m) and loss on disposal of operations including the related tax charge of Â£0.14m (2006: Â£0.11m). *3 Calculated before amortisation of acquired intangibles of Â£0.24m (2006: nil) and share-based payment costs of Â£0.07m (2006: Â£0.03m). *4 Calculated before amortisation of acquired intangibles of Â£0.24m. *5 Calculated before share-based payment costs of Â£0.07m (2006: Â£0.03m). *6 Calculated before amortisation of acquired intangibles of Â£0.66m (2006: nil) and share-based payment costs of Â£0.08m (2006: Â£0.04m). *7 Calculated before amortisation of acquired intangibles of Â£0.65m (2006: nil) and share-based payment costs of Â£0.05m (2006: Â£0.02m). *8 Calculated before share-based payment costs of Â£0.04m (2006: Â£0.02m). BUSINESS REVIEW CURRENT YEAR OPERATIONS SUMMARY The Board considers the key performance indicators by which it measures the performance of the Group to be revenue, gross margin and profit from operations, adjusted for amortisation of acquired intangibles and share-based payment costs. The performance indicators used by the Group are summarised as follows: 2007 2006 Revenue (Â£000) 34,146 27,346 Gross margin percentage 67% 61% Adjusted profit from operations (Â£000) 5,760 2,918 Operating cash percentage 108% 76% Adjusted EPS (pence) 16.8p 10.5p Percentage of recurring revenue 36% 30% Staff retention percentage 77% 77% The Group's financial statements have been prepared under International Financial Reporting standards as endorsed by the EU ('IFRS') for the first time. Prior year balances have been restated in accordance with IFRS. 2007 was a year of controlled growth for the business with the focus being on improving margins within existing businesses whilst targeting growth through a number of key strategic acquisitions. The business has performed strongly with revenue up 25% and profit from operations up 66%. Good progress was made in both divisions. Our Retail Software Division continued its impressive record with a further 25% growth in sales to Â£20.47m (2006: Â£16.44m). Following last year's investment in the division, significant progress was made in the newly targeted markets of Fashion and Home Retail, including major new sales to several high street retailers including Clinton Cards and Agent Provocateur. We also signed our first large scale multi-channel retail contract with The White Company, which will provide us with an excellent reference site going forward in this high growth sector. The UK retail division contributed revenue of Â£18.86m (2006: 16.44m) and adjusted profit from operations*1 of Â£2.34m (2006: 1.63m). Whilst multi-channel mid-tier retail solutions remain important to K3, in February, we sold our Elucid business to Sanderson Group plc, as it had increasingly become non-core to our ongoing operations focusing very much at the lower end of the marketplace. In August 2007, we acquired Landsteinar Nederland B.V. ('Landsteinar'), a distributor of Microsoft Dynamics NAV with a strong domestic and overseas customer base. It also owns the worldwide rights to software modules specifically designed for the franchise operations of Inter IKEA B.V. ('IKEA'), the global home furnishings business. The business contributed revenue of Â£1.61m and adjusted profit from operations*2 of Â£0.57m since acquisition. Our SYSPRO based Manufacturing Software Division grew 94%, with adjusted profit from operations*3 up 163%, and included a nine month revenue contribution of Â£5.57m and Â£1.95m adjusted profit from operations*3 from McGuffie Brunton (acquired in April 2007). Following its acquisition, the business was merged with our existing SYSPRO business (Information Engineering Group, 'IEG') onto one site in Manchester during the second half and the merged business rebranded as K3 Supply Chain Solutions. The benefits of the merger of these businesses will be seen in 2008. K3 is now the sole distributor in the UK of the Microsoft-centric SYSPRO brand of manufacturing software. Our Walton business has continued to perform ahead of our expectations with revenue in the current year of Â£3.05m (2006: Â£3.50m) and adjusted profit from operations*4 of Â£0.97m (2006: 0.71m). Revenue dropped as we transferred new business activity to our Manchester offices, however, the unit is also increasingly generating business outside its traditional product areas including leads for our SYSPRO businesses and opportunities in Customer Relationship Management ('CRM'). Late in the year, the acquisition of Index Computer Systems Limited ('Index') in December broadened our product range to include Microsoft Dynamics AX software, one of the fastest growing Enterprise Resource Planning solutions worldwide. Index also holds the intellectual property for complementary modules in the food and process manufacturing markets. Our policy of focusing on Microsoft based business solutions continues to serve us well and as one of the larger Microsoft business partners in the UK, we remain well placed to benefit from Microsoft's ongoing investment in the business solutions sector. K3 is a member of Microsoft's Inner Circle, which is reserved for its top 60 partners worldwide, and we continue to pursue our goal to become the UK's market leading supplier of Microsoft-based supply chain management solutions to small and medium sized companies. In 2008, we expect to expand our footprint within the Retail and Manufacturing software sectors. We have also identified potential acquisition targets in both the manufacturing and retail markets which would complement our existing offerings for these sectors. DIVISIONAL REVIEW Retail Software Division 2007 2006 Revenue (Â£000) 20,473 16,435 Gross margin percentage 57% 51% Adjusted profit from operations*5 (Â£000) 2,912 1,628 Percentage of recurring revenue 22% 18% Staff retention percentage 80% 72% The Division continued to grow strongly during 2007, with sales increasing by 25% to Â£20.47m and adjusted profit from operations*5 rising by 79% to Â£2.91m over the previous year. These excellent results reflected a strong performance of our core UK business which generated revenue of Â£18.86m (2006: Â£16.44m) and adjusted profit from operations*6 of Â£2.34m (2006: Â£1.63m) but also included four months of trading from our acquisition, Landsteinar. Landsteinar's revenue contribution was Â£1.61m and it delivered adjusted profit from operations*7 of Â£0.57m. I am pleased to report that this result was in line with our expectations at the time of its acquisition. While the acquisition of Landsteinar was a key event in 2007 for the Retail Software Division, our focus during much of the year was on consolidating the growth the Division had achieved over the previous two years. Two major initiatives were on margin enhancement and customer account management. As part of this process, we made some key new appointments, rationalised the cost base in certain areas and invested in staff training. I am pleased to highlight that margins improved by 6 percentage points to 57% and that revenue from existing customers increased by 24% to Â£7.84m. We continued to recruit directly chargeable staff to satisfy the demand created by sales and overall, the number of people employed in our core UK business increased from 134 to 145 during 2007. The contract base continues to grow well and the Division secured a number of high profile customer wins, including: Clinton Cards, the specialist retailer of greeting cards; BHSF, the insurer and employee benefits provider; Rymans, the stationery chain; and Agent Provocateur, a leading lingerie retailer. At the same time, we secured major orders from the existing customer base. The combined value of new orders was Â£5.3m, although the full impact of a number of these wins will fall into our results for financial year to 31 December 2008. I am also pleased to report that consultancy revenues increased by 41% to Â£9.42m from Â£6.67m. With online sales representing an increasingly significant channel to market for retailers, it is important that our software offering encompasses multi-channel sales. Our product development team completed a new software module to address this demand and, in December, we won our first mid-range multi-channel order, from The White Company, the luxury home accessories retailer. As we move into 2008, we see further opportunities in this area. The acquisition of Landsteinar in August 2007 is a significant step forward in the ongoing development of the Retail Software Division. Based in The Hague, Landsteinar was established in 2001 and is a leading distributor of Microsoft Dynamics NAV software. It is, in effect, the sister company of our core UK business, Alpha Landsteinar, which we acquired in 2004. In total, Landsteinar has some 43 retail customers and supports over 300 stores across 15 countries. In particular, it has a close relationship with IKEA, for which it developed, and now owns, the worldwide rights to specific software modules designed for IKEA's overseas stores, which are franchised operations. The business has historically operated a very low cost base, with minimal marketing expenditure. We see considerable potential to grow sales and strong synergies with the UK business on product offering and marketing. As we move into 2008, we believe that there are significant opportunities in the multi-channel, fashion, electronic point of sale ('EPOS') and customer relationship management ('CRM') sectors. We are looking at strategic partnerships to extend our product offering further. Disposal In February, we disposed of our Elucid business to Sanderson Group plc. Since Elucid's multi-channel software solution was focused on smaller catalogue and mail order companies rather than the mid-range retail sector, we viewed it as non-core. The business generated sales of Â£0.18m (2006: Â£2.06m) and an operating loss of Â£0.08m (2006: adjusted profit from operations*8 of Â£0.08m). We are now providing our mid-tier multi-channel solution as part of our overall Microsoft Dynamics based retail solution. Manufacturing Software Division 2007 2006 Revenue (Â£000) 13,495 8,849 Gross margin percentage 84% 81% Adjusted operating profit*9 (Â£000) 3,417 1,644 Percentage of recurring revenue 58% 51% Staff retention percentage 74% 88% The acquisition of MBL, in April 2007, has transformed the Manufacturing Software Division as results demonstrate. Including a nine month contribution from MBL, the Division generated sales of Â£13.5m (2006: Â£8.85m) and an adjusted profit from operations*9 of Â£3.42m (2006: Â£1.64m). Significantly, recurring revenues, derived from annual licence fee renewals, rose by 74% to Â£7.89m (2006: Â£4.53m). The benefits of the acquisition are both strategic and financial. As the only other UK distributor of the SYSPRO range of Microsoft-based enterprise resource planning ('ERP') software for manufacturing and distribution companies, the strategic advantage of combining it with our IEG business was compelling. Additionally, in adding critical mass, our enlarged business is now well positioned to bid for larger contracts which MBL and IEG, as smaller, independent companies, would not have previously bid for. We also saw cost saving opportunities with IEG and MBL selling the same software product, in the same territories, both from head offices in Manchester. One of the key objectives during the year was to achieve a merger that would optimise the synergies and cost benefits. The integration of MBL took place during the second half of the year, with the benefits achieved offsetting the Â£0.25m of integration costs. MBL's 11,000 sq ft head office in Salford Quays has now been refurbished and become our northern Manufacturing Software Division headquarters. The combined MBL and IEG businesses, now rebranded as K3 Supply Chain Solutions ('SCS'), contributed sales of Â£10.40m (2006: Â£5.35m) and adjusted profit from operations*10 of Â£2.45m (2006: Â£0.93m) to the Division's overall results. The MBL acquisition brought with it a particularly strong telesales and marketing team with a comprehensive sales prospect database. Lead intake across the Division increased significantly following the acquisition and we secured 19 new customers during the year. It was also encouraging to see that the average order value of these new wins was higher than last year. Significant new wins included a contract worth Â£0.65m with a distribution company based in Northern Ireland. We secured this win by integrating SYSPRO with MBL's warehouse management system (for which we own the intellectual property rights) and an innovative vehicle scheduling and route planning package. The project is of particular note as it potentially opens up a new marketplace to us in the distribution sector. A major customer within IEG has been slower than anticipated in placing additional business during 2007. However, we anticipate significant new orders from this customer in 2008. SCS launched a new network infrastructure service in September, which is generating significant levels of interest from the existing customer base, and we see good opportunities to roll out this service across existing and new customers. In January 2007, we restructured our Walton-on-Thames based manufacturing systems business unit to remove cost and maximise profitability. As part of the restructuring, we transferred new sales activity to our Manchester head office. While this resulted in a 13% decrease in revenues to Â£3.05m (2006: Â£3.50m), adjusted profit from operations*11 increased by 36% to Â£0.97m (2006: Â£0.71m). In mid December, we completed our second acquisition within the manufacturing sector, buying Microsoft Gold partner, Index. Index further strengthens our manufacturing product portfolio. Whilst our existing SYSPRO business is focused on 'discrete' manufacturing, Index's area of specialisation is 'process' manufacturing. It therefore broadens our offering, bringing with it distribution rights to Microsoft Dynamics AX and complementary modules which extend the Dynamics AX functionality to support food and process manufacturers. On an annualised basis, Index's revenue in 2007 was Â£2.11m, with customers including: British Bakels, the global ingredients manufacturer; MBMG, a leading UK supplier of fresh produce; Jeyes Group, the international household and hygiene product manufacturer; and Abel and Cole, a leading organic delivery company. We see Index as providing us with growth opportunities at the higher end of the mid-tier market and larger manufacturing companies which we can exploit with K3's marketing and sales capabilities. K3 remains the largest supplier of manufacturing solutions to the SME market in the UK and with our newly invigorated Manufacturing Software Division, market leading products, substantial customer base and strong pipeline, we believe 2008 will deliver another strong performance. Central Division Central costs for the year were Â£0.49m (2006: Â£0.43m) reflecting the costs of strengthening the central management team and ancillary costs. Andy Makeham Chief Executive *1 Calculated before share based payment costs of Â£0.07m (2006: Â£0.03m). *2 Calculated before amortisation of acquired intangibles of Â£0.24m (2006: nil). *3 Calculated before amortisation of acquired intangibles of Â£0.65m (2006: nil). *4 Calculated before share-based payment costs of Â£0.04m (2006: Â£0.02m). *5 Calculated before amortisation of acquired intangibles of Â£0.24m (2006: nil) and share-based payment costs of Â£0.07m (2006: Â£0.03m) *6 Calculated before share-based payment costs of Â£0.07m (2006: Â£0.03m). *7 Calculated before amortisation of acquired intangibles of Â£0.24m (2006: nil) *8 Calculated before share-based payment costs of nil (2006: Â£0.01m). *9 Calculated before amortisation of acquired intangibles of Â£0.66m (2006: nil) and share-based payment costs of Â£0.08m (2006: Â£0.04m). *10 Calculated before amortisation of acquired intangibles of Â£0.65m (2006: nil) and share-based payment costs of Â£0.05m (2006: Â£0.02m). *11 Calculated before share-based payment costs of Â£0.04m (2006: Â£0.02m). CONSOLIDATED INCOME STATEMENT For the year ended 31 December 2007 Notes 2007 2006 Â£'000 Â£'000 Revenue 34,146 27,346 Cost of sales (11,415) (10,641) ------------------------ Gross profit 22,731 16,705 Administrative expenses (18,019) (13,872) ------------------------ Profit from operations before amortisation of acquired intangibles and cost of share-based payments 5,760 2,918 Amortisation of acquired intangibles (896) - Cost of share-based payments (152) (85) ------------------------ Profit from operations 4,712 2,833 Finance income 45 21 Finance expense (1,081) (283) ------------------------ Profit before taxation 3,676 2,571 Tax expense (761) (846) ------------------------ Profit for the year 2,915 1,725 ======================== All of the profit for the year is attributable to equity shareholders of the parent. Earnings per share Basic 1 13.4p 9.5p Diluted 1 13.1p 9.5p CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE For the year ended 31 December 2007 2007 2006 Â£'000 Â£'000 Exchange differences on translation of foreign operations 1,082 (15) Exchange difference on hedge of net investment in foreign operations (536) - ----------------------- Net profit recognised direct in equity 546 (15) Profit for the year 2,915 1,725 ----------------------- Total recognised income and expense for the year 3,461 1,710 ======================= All of the above recognised income and expense is attributable to equity holders of the parent. CONSOLIDATED BALANCE SHEET As at 31 December 2007 Notes 2007 2006 Â£'000 Â£'000 ASSETS Non-current assets Property, plant and equipment 1,305 416 Goodwill 31,494 15,684 Other intangible assets 12,282 273 Deferred tax assets 466 191 Available-for-sale investments - 1,398 -------------------------- Total non-current assets 45,547 17,962 ========================== Current assets Trade and other receivables 10,984 8,622 Cash and cash equivalents 3,085 2,267 -------------------------- Total current assets 14,069 10,889 -------------------------- Total assets 59,616 28,851 ========================== LIABILITIES Non-current liabilities Long-term borrowings 4 12,437 711 Other non-current liabilities 3 564 - Deferred tax liabilities 3,508 - -------------------------- Total non-current liabilities 16,509 711 ========================== Current liabilities Trade and other payables 2 14,704 11,848 Current tax liabilities 639 1,003 Short-term borrowings 4 4,043 861 -------------------------- Total current liabilities 19,386 13,712 -------------------------- Total liabilities 35,895 14,423 ========================== EQUITY Share capital 5,926 4,872 Share premium account 5 1,588 1,388 Other reserves 5 10,448 6,070 Translation reserve 5 531 (15) Retained earnings 5 5,228 2,113 -------------------------- Total equity attributable to equity holders of the parent 23,721 14,428 ========================== Total equity and liabilities 59,616 28,851 ========================== CONSOLIDATED CASHFLOW STATEMENT For the year ended 31 December 2007 2007 2006 Â£'000 Â£'000 Cash flows from operating activities Profit before tax 3,676 2,571 Adjustments for: Share-based payments charge 152 85 Depreciation of property, plant and equipment 308 329 Amortisation of intangible assets and development expenditure 1,078 118 Profit on sale of property, plant and equipment (4) (27) Loss on sale of disposal group 121 - Interest received (45) (21) Interest expense 1,081 283 Decrease (increase) in trade and other receivables 594 (2,276) (Decrease) increase in trade and other payables (733) 1,146 -------------------------- Cash generated from operations 6,228 2,208 Interest paid (1,243) (256) Income taxes (paid) received (2,074) 21 -------------------------- Net cash generated from operating activities 2,911 1,973 -------------------------- Cash flows from investing activities Acquisition of subsidiaries, net of cash acquired (18,947) (18) Deferred consideration paid (121) (40) Acquisition of trade investments - (1,398) Development expenditure capitalised (372) (229) Proceeds from sale of trade investments 1,398 - Proceeds from sale of disposal group 1,081 - Purchase of property, plant and equipment (271) (146) Proceeds from sale of property, plant and equipment 51 40 Interest received 45 21 ------------------------- Net cash absorbed by investing activities (17,136) (1,770) ------------------------- Cash flows from financing activities Proceeds from issue of share capital 263 1,825 Proceeds from long-term borrowings 16,586 - Payment of long-term borrowings (1,915) (379) Payment of finance lease liabilities (125) (256) ------------------------- Net cash generated from financing activities 14,809 1,190 ------------------------- Net change in cash and cash equivalents 584 1,393 Cash and cash equivalents at start of year 2,267 874 Exchange gains on cash and cash equivalents 234 - ------------------------- Cash and cash equivalents at end of year 3,085 2,267 ========================= NOTES 1. Earnings per share The calculations of earnings per share are based on the profit for the year and the following numbers of shares. 2007 2006 Number of Number of shares shares Denominator Weighted average number of shares used in basic EPS 21,695,518 18,075,153 Effects of: Employee share options and warrants 641,022 87,053 --------------------------- Weighted average number of shares used in diluted EPS 22,336,540 18,162,206 =========================== Certain employee options and warrants have not been included in the calculation of diluted EPS because their exercise is contingent on the satisfaction of certain criteria that had not been met at the end of the year. In addition, certain employee options have also been excluded from the calculation of diluted EPS as their exercise price is greater than the weighted average share price during the year (i.e. they are out-of-the-money) and therefore would not be advantageous for the holders to exercise those options. The alternative earnings per share calculations have been computed because the directors consider that they are useful to shareholders and investors. These are based on the following profits (losses) and the above number of shares. 2007 2006 Earnings Per share Per share Earnings Per share Per share amount amount amount amount Basic Diluted Basic Diluted Â£000 p p Â£000 p p Numerator Profit for the year (for both basic and diluted EPS) 2,915 13.4 13.1 1,725 9.5 9.5 Amortisation of acquired intangibles (net of tax) 492 2.3 2.2 - - - Share-based payments (net of tax) 106 0.5 0.4 59 0.4 0.3 Loss on sale of disposal group (net of tax) 137 0.6 0.6 106 0.6 0.6 ----------------------------------------------------------- Adjusted EPS 3,650 16.8 16.3 1,890 10.5 10.4 =========================================================== The loss on sale of a disposal group (net of tax) in 2007 relates to Elucid on which the pre-tax loss was Â£0.12m and the tax charge was Â£0.02m, and that in 2006 relates to the income tax expense arising from the profit on the sale during 2004 of the operations based at Crewe. 2. Trade and other payables - current 2007 2006 Â£'000 Â£'000 Trade payables 2,733 1,676 Other tax and social security taxes 2,694 1,626 Other payables 623 80 Deferred consideration 320 960 Accruals 3,458 2,965 --------------------------- Total financial liabilities, excluding loan and borrowings, classified as financial liabilities measured at amortised cost 9,828 7,307 Deferred income 4,876 4,541 --------------------------- 14,704 11,848 =========================== 3. Other non-current liabilities 2007 2006 Â£'000 Â£'000 Deferred consideration 474 - Other payables 90 - -------------------------- 564 - ========================== 4. Loans and borrowings 2007 2006 Â£'000 Â£'000 Non-current Bank loans (secured) 12,378 356 Finance lease creditors 59 98 Loans from related parties - 257 --------------------------- 12,437 711 -------------------------- Current Bank loans (secured) 3,346 335 Finance lease creditors 43 129 Loans from related parties 654 397 --------------------------- 4,043 861 --------------------------- Total borrowings 16,480 1,572 =========================== 5. Reserves Share Other Translation Retained premium reserve reserve earnings Â£'000 Â£'000 Â£'000 Â£'000 At 1 January 2007 1,388 6,070 (15) 2,113 Proceeds on share issue 73 4,378 - - Share-based payment credit - - - 221 Options exercised 127 - - - Own shares acquired - - - (21) Translation differences on overseas operations - - 546 - Profit for the year - - - 2,915 -------------------------------------------- At 31 December 2007 1,588 10,448 531 5,228 ============================================ 6. The recommend the payment of a dividend of 0.5p per share (2006: nil) to be payable to shareholders on the register on 16 May 2008. 7. These financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs and IFRIC interpretations) as endorsed by the European Union ('endorsed IFRS') and with those parts of the Companies Act 1985 applicable to companies preparing their accounts under endorsed IFRS. This is the first time the company has prepared its financial statements in accordance with endorsed IFRSs, having previously prepared its financial statements in accordance with UK accounting standards. Details of how the transition from UK accounting standards to endorsed IFRSs has affected the group's reported financial position, was included in the Group announcement dated 6 September 2007. 8. The financial information set out above does not comprise the Company's statutory accounts. Statutory accounts for the previous financial year ended 31 December 2006 prepared under UK GAAP have been delivered to the Registrar of Companies. The auditors have reported on those accounts; their report was unqualified and did not include references to any matters to which the auditors drew attention by way of emphasis of matter without qualifying their opinion and did not contain any statement under section 237(2) or (3) of the Companies Act 1985. The auditors have given an unqualified opinion on the accounts for the year ended 31 December 2007; their report did not include references to any matters to which the auditors drew attention by way of emphasis of matter without qualifying their opinion and it did not contain any statement under section 237(2) or (3) of the Companies Act 1985. These will be delivered to the Registrar of Companies following the annual general meeting. 9. This preliminary announcement was approved by the Board of directors on 3 April 2008. 10. The full financial statements will be posted to shareholders on or around 7 May 2008. Further copies will also be available from the Company's registered office at Linden Business Centre, Linden Road, Colne, Lancashire, BB8 9BA from that date. This information is provided by RNS The company news service from the London Stock Exchange

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