Final Results - Year Ended 31 December 1999

Parity Group PLC 7 March 2000 Parity Group plc Preliminary Results for the year ended 31 December 1999 Parity profits rise as its strategic e-volution gathers pace Parity Group plc, the e-business and software services group, announces strong results in its Solutions business as the Group continues to benefit from its increasing focus on e-business. Financial Summary: Turnover £m Profit before Tax* £m 1999 % change 1999 % change E-BUSINESS/ SOLUTIONS Parity Solutions 59.7 20.3 9.0 30.8 SOFTWARE SERVICES Parity EuroSoft 74.0 13.6 4.9 13.5 TelTech 43.9 8.9 4.3 21.5 Parity Resources 136.6 1.1 7.4 (20.5) Central costs (4.1) Interest (net) (0.2) Total 314.2 8.3 21.3 6.4 * Before goodwill amortisation and exceptional items Central costs are no longer allocated to business units and 1998 comparative profits have been restated accordingly. Highlights* + Group turnover up 8% to £314.2 million (1998 : £290.2 million); + Profit before goodwill amortisation, exceptional items and taxation up 6% to £21.3 million (1998 : £20.0 million); + Profits up 31% in Parity Solutions, the Groups' end-to-end e-business solutions provider; + Basic earnings per share up 5% to 9.6p (1998 : 9.15p) + Total dividends up 10% to 2.5p; + Strategic move into ASP services with a partnership agreement with Infobank International Holdings plc to build an on-line procurement service (an 'e- Hub'), targeted initially at Utilities companies and their suppliers; + Three niche acquisitions in Parity's strategic e-business evolution + April : TMS Information Solutions, a developer of intranets and knowledge management systems + December : Interactive Developments, one of the leading web architects in the UK + December : Comtec Computer Training; + The Group today announces its second move into ASP e-business services with an agreement with e-docs, a leading US e-billing system company, to set up a web-based on-line billing service in the UK. Commenting on the results, Parity Group Chairman Philip Swinstead said: 'The UK Solutions business continues to prosper with an exceptional level of interest in web and e-business projects. This division will continue to forge strategic partnerships in its Application Service Provider initiatives and is increasing its internal investment in enabling technology. The future strategy is to drive strongly into a leadership position in the UK, while working with the Group's international software services businesses to create new cells of e-business and web expertise in each of their markets. In line with this strategy, the Group today announces its second move into ASP e- business services with an agreement with e-docs, a leading US e-billing system company, to set up a web-based on-line billing service in the UK. 'Our international Software Services businesses are now seeing increasing demand across Europe and the USA. The UK staff agency has made a steady start to the year and is expected to benefit from its investment programme from next year. 'The Group will continue to invest to support its new strategy through internal evolution and acquisitions. The Board intends to concentrate on achieving a good short-term performance for shareholders, while investing in skills and services to deliver superior long-term growth.' For further information please contact: Parity Group plc Telephone: 0207 831 3113 (on the day) Philip Swinstead, Executive Chairman Telephone: 0207 776 0800 (thereafter) Ray King, Group Finance Director Michael Harrington, Group Communications Director Financial Dynamics Telephone: 0207 831 3113 Giles Sanderson Jon Earl Introduction This was a year of great change and much progress for Parity. I am pleased to report that the Group increased its earnings per share, revenues and dividends in markets much affected by the Y2K lockdown. All business units, apart from the UK staff agency, increased both revenues and operating profits as shown in the table below. The Group's drive into e-business gathered pace through the year with acquisitions, internal investment programmes and more recently the announcement of the Group's first e-hub in strategic partnership with Infobank International Holdings plc. Today the second initiative is announced with e- docs, a leading US on-line billing system company. This strategic thrust is led by the UK Solutions business whose annualised revenues are now running at £80 million and which is migrating rapidly to internet-related projects. Having started its e-business move towards the end of 1998, Parity has already made substantial progress and in the UK now has a leading-edge capability throughout a typical e-business project life cycle. Equally the Group has not ignored these trends in its UK, Continental European and US software services businesses, where web and e-business related skills are increasingly in demand. A new executive Board was appointed in the latter part of the year to implement the new e-business strategy across the Group. Results Group turnover increased by 8% to £314.2 million (1998: £290.2 million) and pre-tax profit before goodwill and exceptional items grew by 6% to £21.3 million (1998: £20.0 million). On this basis, earnings per share increased by 5% to 9.6p (1998: 9.15p). Movements in exchange rates had little net effect on the results. Growth in both turnover and profit was comfortably into double figures in most of our business units, as shown in the table below. The only exception was the UK Staff agency business unit where, as expected, Y2K lockdown had the most significant impact within the Group. Turnover £m Profit before Tax* £m 1999 % change 1999 % change E-BUSINESS/SOLUTIONS Parity Solutions 59.7 20.3 9.0 30.8 SOFTWARE SERVICES Parity EuroSoft 74.0 13.6 4.9 13.5 TelTech 43.9 8.9 4.3 21.5 Parity Resources 136.6 1.1 7.4 (20.5) Central costs including net interest (4.3) Total 314.2 8.3 21.3 6.4 *Before goodwill amortisation and exceptional items. Central costs are no longer allocated to business units and 1998 comparative profits have been restated accordingly. The Group also recorded an exceptional operating charge of £2.5 million relating to the Scheme of Arrangement in July 1999 and associated corporate finance activities, as well as reshaping the Board and the Group's senior management. This investment will provide flexibility for the future growth and strategic development of the Group. Dividend The Board is recommending a final dividend for the year of 1.57p (1998: 1.47p). This brings the total dividend for the year to 2.50p (1998: 2.27p), an increase of 10%. The final dividend will be payable on 3 July to all shareholders on the register at the close of business on 7 April. Cash Flow The Group recorded a strong operating cash inflow before exceptional items of £23.4m (1998 : £16.5m), reflecting tight working capital controls and a significant reduction in working capital in Parity Resources due to the soft market conditions in the latter part of the year. Acquisition outflows amounted to £14.8m (1998: £nil) and at the end of the year the balance sheet remained strong with net debt of only £1.6m (1998: net cash of £8.9m). Management and organisation At the end of the 1998, the Board decided that Philip Swinstead should move back into a full-time Executive Chairman role to oversee the changes in strategy and management that would be needed for the next phase of Parity's growth. A new Executive Board was formed and has been fully operational since September. Ray King (ex Diageo) is now Group Finance Director and is also overseeing Parity Resources. Rick Bacon (ex Bullough) was appointed Managing Director of the international software services businesses, Teltech and Parity EuroSoft. Keith Jennings, Managing Director of Parity Solutions, also joined the Board and is leading the implementation of the Group's e-business strategy. There have also been a number of key appointments at senior management level. There are now the following main strands to the Group's business: + e-business/Solutions Parity Solutions + Software Services - International Parity EuroSoft and Teltech - UK Staff agency Parity Resources Acquisitions Early in the year, Parity Solutions started its evolution into an e-business services company, an important element of which involved a number of strategic acquisitions. In April, TMS Information Solutions, a developer of intranets and knowledge management systems, was acquired for £6.8 million. TMS has now been integrated fully into Parity Solutions. This was followed in December by the acquisition of Interactive Developments ('Idev'), one of the leading web architects in the UK, for a total of £9.1 million. At the same time, in a separate deal, the Group acquired Comtec Computer Training ('Comtec') for a total of £7.2 million. Group Review 1999 was a year of contrasting halves, with the first half retaining some of the buoyancy of 1998. However, from early autumn onwards, trading conditions became progressively tougher for all our businesses as the impact of the Y2K lockdown was felt. In the UK, good momentum was maintained in Parity Solutions, but a sharp decline in the staff agency market affected Parity Resources in the last quarter. The international markets were more solid, particularly in the USA where demand began to rise again towards the end of the year. Parity Solutions, which now includes the fully merged operations of TMS, produced an excellent profit performance for the year, with revenues up 20% and profits up 31%. Tight control of costs produced a further improvement in margins to 15.1% (1998: 13.9%). Among notable projects undertaken during the year was a large contract with the Department of the Environment, Transport and the Regions (DETR) for the supply of services and infrastructure for the development of a new administration system for the Rent Service agency. We also supplied a substantial range of consultancy and system integration services from networking to e-commerce to the Post Office to help improve services to customers and services from suppliers. At the same time, Parity Solutions led the Group's move into the burgeoning e-business arena, with an extensive programme of staff retraining and recruitment, supported by the acquisitions of TMS and Idev. These two additions provide Parity with a market-leading capability in both web- enablement and knowledge management. With over 100 specialist experts in web design and e-business, Parity Solutions now provides genuine end-to-end e- business solutions and has a considerable and rapidly growing pipeline of new business opportunities. The acquisition of Comtec, a leading UK Microsoft and Lotus authorised training provider, has greatly increased Parity Training's presence in the delivery of e-business enabling technologies, including Windows 2000, making it a major UK player. In Software Services, our expanding international businesses provide IT skills, training and, increasingly, full project teams for long-term clients in mainland Europe and the USA. In the former, Parity EuroSoft's turnover grew by 14% and profits were up 13% in sterling terms. Market conditions in Germany and Switzerland were good in the first half but slowed towards the end of the year. The performance in Germany was particularly impressive, a result of investment in new sales management and a subsequent increase in new clients. Market conditions in Benelux were tougher, but the training and permanent recruitment services grew strongly. Our US business, TelTech, had another excellent year, with profits growth of 22% in sterling terms on revenues up 9%. While some of TelTech's traditionally strong sectors such as airlines and banking had a quiet year, this was more than compensated for by an increase in revenues from the pharmaceutical and insurance sectors and by a very successful entry into the cable telecoms sector. TelTech's projects division also showed a steady improvement in performance, with major projects carried out for Eastman Kodak and GE Medical Systems. Parity Resources, our UK staff agency, was significantly affected by the Y2K lockdown, particularly in the last few months of the year, and suffered a 21% reduction in profits relative to the strong performance in 1998. We have now begun a programme of financial investment in management, systems and marketing of the business, which will continue throughout 2000. The range of services offered is also being widened to allow Parity Resources to provide a one-stop resourcing solution to IT directors. During 1999 the Board received expressions of interest in acquiring the UK staff agency business. Considering shareholder value in the long term and the level of price indicated by prospective buyers, it was decided not to pursue this course of action and in October the Board withdrew from discussions. The market for self-employed IT consultants is expected to pick up strongly in the UK this year, and the investment in Parity Resources outlined above will help ensure that it takes advantage of the opportunities. Current Trading and Prospects The UK Solutions business continues to prosper with an exceptional level of interest in web and e-business projects. There is a trend towards creating prototype websites to gain experience of e-business applications. This division will continue to forge strategic partnerships in its Application Service Provider initiatives and is increasing its internal investment in enabling technology. The future strategy is to drive strongly into a leadership position in the UK, while working with the international Software Services business units to create new cells of e-business and web expertise in each of their markets. In the USA, the market in the North East has improved strongly and the Group looks forward to expanding its US presence whilst extending its e-business involvement following the UK model. The Continental European business is expanding steadily after a quiet last quarter to 1999, and there are now signs of increasing demand which is expected to pick up strongly in the second half. The UK staff agency has made a steady start to the year and is expected to benefit from its investment programme from next year. The migration of all the Group's businesses into the e-business arena will continue through 2000 and Parity will maintain its strategy of growing a strong, balanced international Group with end-to-end e-business capabilities. The Group will continue to invest to support this strategy through internal evolution and acquisitions. The Board intends to concentrate on achieving a good short-term performance for shareholders while investing in e-business skills and services to deliver superior long-term growth. Group Profit and Loss Account For the year ended 31 December 1999 Unaudited Audited 1999 1998 Before exceptional Exceptional items items Total Total £'000 £'000 1999 1999 Notes TURNOVER 2 314,154 - 314,154 290,200 OPERATING COSTS 3 (292,853) (2,542) (295,395) (270,073) OPERATING PROFIT 21,301 (2,542) 18,759 20,127 Net interest payable (198) - (198) (95) PROFIT ON ORDINARY ACTIVITIES BEFORE GOODWILL 21,322 (2,542) 18,780 20,032 AMORTISATION AND TAXATION Goodwill amortisation (219) - (219) - PROFIT ON ORDINARY 21,103 (2,542) 18,561 20,032 ACTIVITIES BEFORE TAXATION Taxation on Ordinary (7,074) 255 (6,819) (6,613) activities PROFIT ON ORDINARY 14,029 (2,287) 11,742 13,419 ACTIVITIES AFTER TAXATION Dividends (3,773) - (3,773) (3,335) RETAINED PROFIT FOR THE 10,256 (2,287) 7,969 10,084 FINANCIAL YEAR Earnings per Ordinary 4 share - Basic 9.46p (1.54)p 7.92p 9.15p - Diluted 9.28p (1.51)p 7.77p 8.84p Earnings per Ordinary 4 share before goodwill amortisation and exceptional items - Basic 9.61p 9.15p - Diluted 9.42p 8.84p Group Balance Sheet At 31 December 1999 Unaudited Audited 1999 1998 £'000 £'000 Notes FIXED ASSETS Intangible assets 22,370 - Tangible assets 6,123 3,790 Investments 1,497 1,316 29,990 5,106 CURRENT ASSETS Debtors 57,117 59,628 Taxation recoverable after more than 3 87 one year 12,997 12,446 Cash at bank and in hand 70,117 72,161 CREDITORS: amounts falling due within one year (810) (590) Variable rate loan notes payable (59,751) (51,023) Other creditors (60,561) (51,613) NET CURRENT ASSETS 9,556 20,548 TOTAL ASSETS LESS CURRENT LIABILITIES 39,546 25,654 PROVISIONS FOR LIABILITIES AND (770) (1,310) CHARGES NET ASSETS 38,776 24,344 CAPITAL AND RESERVES 7 Called up share capital 7,598 7,404 Shares to be issued 1,986 - Capital redemption reserve 50 - Share premium account 1,554 - Other reserves 34,390 30,440 Profit and loss account (6,802) (13,500) EQUITY SHAREHOLDERS' FUNDS 38,776 24,344 Group Cash Flow Statement For the year ended 31 December 1999 Unaudited Audited 1999 1998 Total Total Notes £'000 £'000 NET CASH FLOW FROM OPERATING ACTIVITIES BEFORE EXCEPTIONAL ITEMS 5 23,404 16,451 Exceptional items (2,298) - NET CASH FLOW FROM OPERATING ACTIVITIES 21,106 16,451 RETURNS ON INVESTMENTS AND SERVICING OF FINANCE Interest received 229 181 Interest paid (411) (276) NET CASH OUTFLOW FROM RETURNS ON INVESTMENTS (182) (95) AND SERVICING OF FINANCE TAXATION PAID (8,338) (5,568) CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT Purchase of tangible assets (2,980) (2,261) Sale of tangible assets 69 118 Purchase of own shares by ESOP (560) (241) Cash received by ESOP from option 545 - exercises Release from restricted deposit account - 596 NET CASH OUTFLOW FROM CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT (2,926) (1,788) ACQUISITIONS AND DISPOSALS Purchase of subsidiary undertakings (15,674) - Cash received from businesses acquired 861 - NET CASH OUTFLOW FROM ACQUISITIONS AND (14,813) - DISPOSALS EQUITY DIVIDENDS PAID (3,547) (2,862) NET CASH (OUTFLOW)/INFLOW BEFORE (8,700) 6,138 FINANCING FINANCING Issue of Ordinary shares 2,752 15 Repayment of loan notes (2,105) (627) Payment of deferred consideration (1,544) (5,218) Increase in borrowings 10,236 - NET CASH INFLOW(OUTFLOW) FROM FINANCING 9,339 (5,830) INCREASE IN CASH IN THE PERIOD 6 639 308 Reconciliation Of Movements In Shareholders' Funds For the year ended 31 December 1999 Unaudited Audited 1999 1998 Total Total £'000 £'000 Profit for the year attributable to 11,742 13,419 shareholders Dividends (3,773) (3,335) Retained earnings 7,969 10,084 Other recognised (losses)/gains (1,200) 387 Goodwill on acquisitions deducted from - (138) reserves 1,177 15 Share options exercised 4,500 - Shares issued to vendors 1,986 - Shares to be issued to vendors Net increase in shareholders' funds 14,432 10,348 Shareholders' funds at start of year 24,344 13,996 Shareholders' funds at end of year 38,776 24,344 Statement of Total Recognised Gains and Losses For the year ended 31 December 1999 1999 1998 Total Total £'000 £'000 Profit for the year attributable to 11,742 13,419 shareholders Currency translation differences on (1,200) 387 foreign currency net investments Total recognised gains and losses for 10,542 13,806 the year 1. BASIS OF PRESENTATION The financial information for the year ended 31 December 1999 does not constitute the full statutory accounts for the year, which have not yet been delivered to the Registrar of Companies. The auditors have not made any report on the full statutory accounts. The Annual Report will be posted to shareholders in April 2000. The results for the year ended 31 December 1998 are an extract from the Company's statutory accounts for that year. Those statutory accounts have been reported on by the Company's auditors and delivered to the Registrar of Companies. The report of the auditors was unqualified and did not contain a statement under Section 237(2) or (3) of the Companies Act 1985. 1998 comparative figures for dividends and earnings per share have been restated to reflect the three for one share adjustment following the Scheme of Arrangement. Basis of consolidation The consolidated financial statements incorporate the results of Parity Group plc and its subsidiary undertakings drawn up to 31 December. The combination of Parity Group plc and Parity Limited (formerly Parity plc) has been accounted for on a merger accounting basis as if it had occurred on 1 January 1998. The subsidiaries acquired during the year have been accounted for on an acquisition accounting basis. 2. SEGMENTAL ANALYSIS The Group provides information technology services through its e- business/Solutions and Software Services business segments. 1999 Turnover Profit before Net assets taxation £'000 £'000 £'000 e-business/Solutions United Kingdom 59,692 9,031 3,906 Software Services Continental Europe 73,960 4,905 14,735 USA 43,935 4,300 5,385 United Kingdom 136,567 11,686 7,373 254,462 16,578 31,806 Central costs including net interest payable (4,287) Non-operating assets and liabilities (19,062) Before exceptional items and goodwill 21,322 16,650 Goodwill (219) 22,370 Exceptional items (2,542) (244) 314,154 18,561 38,776 1998 Turnover Profit Net assets before taxation £'000 £'000 £'000 e-business/Solutions United Kingdom 49,633 6,902 (2,409) Software Services Continental Europe 65,109 4,322 13,080 USA 40,327 3,538 4,838 United Kingdom 135,131 9,278 16,179 240,567 17,138 34,097 Central costs including net interest payable (4,008) Non-operating assets and liabilities (7,344) Before exceptional items and goodwill 20,032 24,344 Goodwill Exceptional items 290,200 20,032 24,344 Central costs are no longer allocated to businesses and 1998 comparative profits have been restated accordingly. There is no material difference between turnover and profit by origin and by destination. Turnover for Software Services in the UK as shown above excludes £3,532,000 (1998 - £2,914,000) of inter-segmental turnover. 3. EXCEPTIONAL ITEMS Exceptional costs of £2,542,000 were incurred during the year in respect of the following items: Scheme of Arrangement and associated corporate finance activities (£1,639,000) and the restructuring of the Board and senior management (£903,000). 4. EARNINGS PER ORDINARY SHARE The calculation of basic and diluted earnings per Ordinary share is based on the following: 1999 1998 £'000 £'000 Before exceptional Exceptional items items Total Total Profit on ordinary 14,029 (2,287) 11,742 13,419 activities after taxation The calculation of basic and diluted earnings per Ordinary share before goodwill and exceptional items is based on profit after tax, adjusted for goodwill and exceptional items, of £14,248,000 (1998: £13,419,000). The weighted average number of Ordinary shares used in the calculation of the basic and diluted earnings per share are as follows: 1999 1998 Average Average Number Number i) Basic weighted average number of shares Shares in issue 149,165,867 148,060,290 Adjustment for shares held by ESOP (907,938) (1,313,010) 148,257,929 146,747,280 ii) Dilutive weighted average number of shares Shares in issue 149,165,867 148,060,290 Adjustment for options 2,038,625 3,781,827 151,204,492 151,842,117 The number of Ordinary shares in issue at 31 December 1999 was 151,957,011. The Directors have proposed a final dividend of 1.57p (1998: 1.47p) per Ordinary share, payable on 3 July to shareholders on the register at the close of business on 7 April. 5. RECONCILIATION OF OPERATING PROFIT TO NET CASH INFLOW 1999 1998 £'000 £'000 Operating profit before exceptional items 21,301 20,127 Depreciation of tangible assets 1,890 1,753 Amortisation of intangible assets 219 - Gain on issue of own shares held by ESOP to option holders (166) - Loss/(profit) on disposal of tangible 20 (51) assets 5,594 (12,350) Decrease/(increase) in debtors (4,914) 7,015 (Decrease)/increase in creditors (540) (43) Utilisation of provisions Net cash flow from operating activities 23,404 16,451 before exceptional items 6. ANALYSIS OF NET DEBT At 1 Other January Cash non-cash 1999 flow changes £'000 £'000 £'000 Cash at bank and in hand 12,446 1,106 - Overdrafts (3,005) (467) - 9,441 639 - Variable rate credit facilities - (10,236) - Variable rate loan notes (590) 2,105 (2,325) 8,851 (7,492) (2,325) Acquired At 31 December with Exchange 1999 subsidiaries movements £'000 £'000 £'000 Cash at bank and in hand - (555) 12,997 Overdrafts - (83) (3,555) - (638) 9,442 Variable rate credit facilities (12) 4 (10,244) Variable rate loan notes - - (810) (12) (634) (1,612) Reconciliation of net cash flow to movement in net debt £'000 Increase in cash in the period 639 Loan notes issued less repaid (220) Increase in borrowings under variable rate credit (10,236) facilities (12) Borrowings acquired with subsidiary undertakings (634) Exchange movements Movement in net cash in the period (10,463) Net cash at 1 January 1999 8,851 Net debt at 31 December 1999 (1,612) 7. SHAREHOLDERS' FUNDS Group Ordinary Preference Shares Capital share share to be redemption capital capital issued reserve £'000 £'000 £'000 £'000 Shareholders' funds as at 1 January 1999 7,404 Share options exercised 128 Issue of preference shares 50 Redemption of preference shares (50) 50 Transfer to legal reserves Shares issued to vendors 66 Shares to be issued to vendors 1,986 Retained profit for the year Exchange adjustments 7,598 - 1,986 50 Group Profit & Share Other loss premium reserves account Total £'000 £'000 £'000 £'000 Shareholders' funds as at 1 January 1999 30,440 (13,500) 24,344 Share options exercised 1,049 1,177 Issue of preference shares 50 Redemption of preference shares (50) (50) Transfer to legal reserves 21 (21) - Shares issued to vendors 1,554 2,880 4,500 Shares to be issued to vendors 1,986 Retained profit for the year 7,969 7,969 Exchange adjustments (1,200) (1,200) 1,554 34,390 (6,802) 38,776 Opening shareholders' funds have been restated as if the merger of Parity Group plc and Parity plc had occurred on 1 January 1998. Ordinary share capital of £7,404,000 represents the nominal value of the theoretical number of Parity Group plc shares as at 1 January 1999, reflecting the three for one share exchange which occurred at the time of the Scheme of Arrangment. The opening balance on other reserves of £30,440,000 represents the difference between the restated Parity Group plc share capital discussed above and the aggregate of the share capital of £2,468,000, share premium of £35,350,000 and other reserves of £26,000 of Parity plc as at 31 December 1998, as disclosed in the Parity plc Report & Accounts for the year then ended. The cumulative amount of goodwill which has been written off to reserves, including £219,000 amortised during the year, was £69,510,000. The premium of £2,880,000 arising on the shares issued to vendors as part of the purchase consideration for Idev and Comtec has been taken to other reserves in accordance with Section 131 of the Companies Act 1985. The premium of £1,554,000 arising on the shares issued to one of the vendors of Idev following the redemption of the loan notes of £1,575,000, which formed part of the purchase consideration for that company, has been taken to the share premium account. 8. ACQUISITIONS The Group purchased TMS Information Solutions, the Interactive Development Group of Companies (Idev) and the Comtec Group of Companies (Comtec) in the year. The cost and resulting goodwill arising on these acquisitions was as follows: TMS Idev Comtec Total £'000 £'000 £'000 £'000 Cash 6,557 4,000 4,630 15,187 Loan notes - 1,575 750 2,325 Shares - 1,425 1,500 2,925 Deferred consideration - 1,986 92 2,078 Fees and other costs incurred 202 105 180 487 Total consideration 6,759 9,091 7,152 23,002 Goodwill 5,847 9,013 7,729 22,589 Goodwill arising on the acquisitions is being amortised over 20 years, being the period over which the Directors estimate that the values of the underlying businesses are expected to exceed the values of the underlying tangible assets. The loan notes issued to one of the vendors of Idev were redeemed on 17 December 1999 and the redemption proceeds were exchanged for 464,464 Ordinary 5p shares at that date. The payment of the deferred consideration in respect of Idev is conditional upon the achievement of certain quarterly revenue targets for the financial years ended 31 December 2000 and 2001 and the vendors remaining in full employment for these periods. The deferred consideration comprises shares to be issued to the vendors of Idev, falling due on a quarterly basis from March 2000 to December 2001, in eight instalments. If the deferred consideration is paid in full, a total of 530,814 Ordinary 5p shares will be issued. The payment of the deferred consideration in respect of Comtec is not conditional and will be paid in cash in 2000. The value of the deferred consideration has been stated at fair value, based on the mid market price of the Company's shares as at 31 December 1999, to take account of the movement in share price between the date of acquisition and year end.

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