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FI Group PLC (XAN)

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Monday 17 January, 2000

FI Group PLC

Interim Results - 6 Months to 31 October 1999

FI Group PLC
17 January 2000

Hilary Cropper, Chairman                     Tel: 0171 831 3113 (on the day)
Jo Connell, Group Managing Director
Geoffrey Dunn, Group Finance Director        Tel: 01442 233339 (thereafter)

Giles Sanderson/Edward Bridges               Tel: 0171 831 3113

                                  F.I.GROUP PLC
                         INTERIM RESULTS ANNOUNCEMENT
                     FOR THE 6 MONTHS ENDED 31 OCTOBER 1999
F.I.GROUP PLC ('F.I GROUP' or 'FI') is a leading supplier of business technology
and change management services, for major organisations in the Banking,
Government, Insurance, Leisure, Retail, Telecomms Transport and Utilities
sectors. The Group operates in the UK, Europe, India and the USA.

F.I.GROUP has enjoyed another six months of growth in revenues and profits.

(All  comparisons  are  with  the  first six months  trading  of  the  1998/99
financial  year.  The current period figures also include FI's  share  of  the
joint venture company, First Banking Systems and 4.5 months contribution  from
OSI  Group Holdings Limited, acquired on 21 June 1999. Key features state  the
results pre-amortisation of goodwill where appropriate).

                                  KEY FEATURES
*    Turnover up 34% to £145.4m (1998/99: £108.9m).
*    Operating profit up 69% to £12.0m (1998/99: £7.1m).
*    Operating margin rose from 6.5% to 8.3%.
*    Profit before tax up 51% to £11.4m (1998/99: £7.5m).
*    Basic earnings per share, ahead 35% to 3.55p (1998/99: 2.62p).
*    Dividend per share increased 43% to 0.9p (1998/99: 0.63p).
*    Order bank up 13% to £303m (£267m as at 30 April 1999).

*    Revenues grew in each industry sector with proportions of Group turnover
  as follows: Finance Sector 47% of Group turnover (full year 1998/99: 41%),
  Services Sector 31% (full year 1998/99: 35%) and Retail Sector 22% (full year
  1998/99: 24%).
*    Acquisition of OSI Group Holdings Limited, a business consulting and
  management support services company, for consideration of £105.5m
*    Significant extension to First Banking Systems, FI's joint venture with
  Bank of Scotland
*    Additional contracts signed with Alba Life (previously known as Britannia
  Life) (£10m), Royal and SunAlliance (£6.5m), Barclays (£5m) and £3m contracts
    from each of Texas Utilities, Yorkshire Electricity, Thames Water and the
  Department for Education and Employment
Commenting on current trading, F.I.GROUP's Chairman, Hilary Cropper, CBE said:

'Longer term, the outlook for large outsourcing contracts remains buoyant and
the sales prospects are healthier than they have been for some time. All
organisations are increasingly concerned about the ongoing value and
effectiveness of their in-house IT provision. FI's combination of consultancy,
applications management and offshore software development is uniquely placed to
grasp the opportunity this creates.

The second half year is on track and the Board remains confident that long term
shareholder value will continue to be created.'

Chairman's Statement for the Interim Report

The half year saw significant progress for the Group and we are pleased to
report a strong set of interim results from F.I.GROUP despite the highly unusual
market conditions which have been caused by the millennium date change.

In June 1999 we completed the acquisition of OSI Group Holdings Limited ('OSI'),
the management consultancy and project management company, and in October won a
major extension to First Banking Systems ('FBS'), our joint venture with Bank of
Scotland, to incorporate the applications portfolio for their Capital Bank

Financial Results

For the purpose of comparison with previous periods the summary results are
shown both before and after goodwill amortisation.

Summary                     Pre-amortisation     Post-amortisation
Turnover                    up 34% to £145.4m    up 34% to £145.4m
Operating profit            up 69% to £12.0m     up 42% to £10.1m
Profit before tax           up 51% to £11.4m     up 26% to £9.5m
Profit after tax            up 51% to £7.9m      up 15% to £6.0m
Basic earnings per share    up 35% to 3.6p       up 3% to 2.7p
Fully diluted earnings
per share                   up 38% to 3.5p       up 5% to 2.6p

(All comparisons against the same six month period last year.)

Margins at the operating profit level, before interest and the amortisation of
goodwill, increased to 8.3%, up from 6.5%, primarily as a result of changes in
the business mix, increased efficiencies and lower levels of employee bonus and
profit share.

The Consolidated Group Balance Sheet at 31 October 1999 reflects the acquisition
of OSI. Shareholders' funds now stand at £94.7m compared with £17.2m last year,
whilst there is now £108.3m of goodwill arising from that acquisition after
amortisation of £1.9m. This goodwill is being written off over a period of 20
years in line with generally accepted accounting standards.

Cash generation within the core FI businesses remains strong and cash balances
are healthy at £17.6m, despite having used £16.2m of free cash to fund the
acquisition of OSI. The rise in creditors due after more than one year,
primarily reflects the bank facility put in place to part finance the OSI

Business Performance

It is well acknowledged that market conditions during the period were difficult
temporarily. As we had expected, the 'millennium freeze' of live IT systems and
customers' desire for stability throughout the period led to few new outsourcing
opportunities and a reduction in demand for contractor resources. Work directly
related to Y2K preparation reduced faster than expected, contributing only £4.8m
of turnover compared to £17.3m in the equivalent period last year. Stripping out
this effect, the total applications management business, ie including FBS and
IIS Infotech, grew by some 31%, reflecting the continuity and robustness of FI's
long-term partnerships with customers.

The book-to-bill ratio (ie the relationship between orders taken to revenues
recognised) for the previous 12 month period was 1.2 times, resulting in an
order bank of £304m as at 31 October 1999, up from £267m as at 30 April 1999.
Large orders include: £10m from Alba Life (previously known as Britannia Life);
£6.5m from Royal and SunAlliance; £5m from Barclays; £34m from Bank of Scotland;
and in excess of £3m each from Texas Utilities, Yorkshire Electricity, Thames
Water and the Department for Education and Employment.

The industry mix by business sector shows finance moving forward slightly to 47%
(full year 1998/99 41%), with services at 31% (full year 1998/99 35%) and retail
at 22% (full year 1998/99 24%). Applications management remains the Group's main
activity at 54% of turnover, although the acquisition of OSI has increased the
proportion of consultancy from 11% (full year 1998/99) to 24%.

Our Indian subsidiary, IIS Infotech, produced an excellent performance. Turnover
is up 50% for a reported seven month period, (thereby synchronising the
financial periods of IIS with those of the Group). The six month comparison
showed real growth of 31% in revenues despite the for relatively high levels of
Y2K work in the previous period. The growth in IIS's revenues net of the Y2K
effect was 77%. The reduction in the demand for contractor resources led to an
8.7% decrease in revenues from FI Recruitment's external business. FI Academy's
revenue grew by 3.8%.

OSI's results for four and a half months are incorporated, showing an operating
profit of £1.0m on turnover of £22.2m. In line with most other major consultancy
organisations, OSI was affected by the Y2K slowdown resulting in lower than
usual utilisation levels. As a consequence operating margins of 4.5% were
abnormally low. The strategic rationale for the acquisition remains as
compelling as ever and we are delighted with the quality and commitment of the
consultants and project managers who have been welcomed into the Group.
Significant opportunities for cross fertilisation of customer accounts are
apparent and the two organisations are already working well together to maximise
synergies as the market picks up in 2000.

Customer demand for e-business consultancy and development is growing fast, as a
result of which internet-related and customer relationship management (CRM) work
has leapt to almost 10% of turnover. To give greater emphasis to this important
area, it is our intention to form a separate e-solutions practice within the
Outsourcing business.

The combination of OSI and IIS is having a marked effect on the geographic
analysis of our business with almost 14% of turnover by source delivered outside
the United Kingdom and almost 10% by destination (up from 8% and 3%
respectively). This is consistent with the Group's ambitions for international

Acquisition of OSI

On 21 June 1999, FI completed the acquisition of OSI, a business consulting and
management support services company based in London. The acquisition cost of
£105.5m was financed by the issue of new shares, together with a new bank loan
facility, FI loan notes and existing cash reserves. Goodwill arising on
consolidation amounted to £110.2m and is being amortised over a 20 year period.


Workforce numbers expressed as half yearly average full-time equivalents have
increased by 314 year on year largely as a result of the OSI acquisition. The
percentage of contractors and associate suppliers has fallen to 23% of the total
headcount and 30% of the UK headcount, down from 29% and 38% as at 31 October
1999 respectively, as we have taken the opportunity to reduce dependency on more
expensive resources.

Shareholder Issues

The Board

On 9 November 1999, FI announced Sir Peter Thompson's planned retirement from
the Board on 31 December 1999. After nine years of tremendous growth and success
for the Group, his contribution can hardly go unrecorded. He joined the Board in
October 1990 to help lead the workforce buyout and to establish the culture of
continuing workforce share ownership which has been the mainspring of the
Group's success. FI's entry into the world of outsourcing partnerships and its
subsequent flotation have all been key milestones under Sir Peter's guidance.
Without his support, the employee buyout of FI in 1991 simply would not have
happened. The Board, Employees and Shareholders all owe Sir Peter an enormous
debt of gratitude and wish him every good fortune in the years ahead.

September's Annual General Meeting was also the leaving day for David Best who,
as Group Finance Director for nearly seven years (per release of 6 September
1999), played a major role in steering the Group forward through flotation and
the acquisitions of IIS Infotech and OSI. David goes with our thanks and good

Joining the Board, we are pleased to welcome Andrew Buxton, previously Chairman
of Barclays PLC, as Deputy Chairman (announced on 9 November 1999) and Geoffrey
Dunn (announced on 6 September 1999) as Group Finance Director. Both will
significantly strengthen the Board especially in the Group's international

Last, but not least, the appointment of Jo Connell as Group Managing Director,
effective from 1 January 2000, was announced on 9 November 1999. Over the years
Jo has contributed to every successful phase of FI's evolution. I look forward
to working closely with her and continuing the winning formula in the years


On the back of these results the Board has declared an interim dividend of 0.9p
per share which is 43% ahead of the same period last year. The dividend will be
paid on 6 April 2000 to shareholders on the register on 28 January 2000.
Dividends charged to the profit and loss account were £2.4m (H1 1998/99: £1.3

Workforce Share Ownership

The Board continues to believe that in a service business such as F.I.GROUP,
employee involvement in share ownership is a key driver in encouraging the
motivation and retention of staff and in ensuring that interests of both
employees and shareholders are aligned.

In addition, it believes that it can be a strong driver in helping integrate new
organisations within the Group. Accordingly, the Directors are pleased to report
that even allowing for the financing of the OSI acquisition the workforce of the
enlarged group and related Trusts still hold 39% of the Group's issued share

Since the year-end, Group employees have benefited as part of their salary
arrangements from profit sharing of 8.5% of salary, reflecting their input to
last year's excellent results.

In addition, the ShareSave scheme, was rolled out successfully during the Autumn
to our new colleagues at OSI with 72% of OSI UK staff participating, meaning
that 81% of UK staff now are personally interested in the success of the Group
through ShareSave. This compares to a UK average share scheme takeup of 43%.

As ever, FI has sought to make the schemes available on similar terms to
overseas staff, and now run schemes in the US, Europe and India. Including
overseas participants, 58% of our employees now participate in ShareSave, which
compares to a world-wide average of 30%.

The August 1999 All-Employee Share Option Scheme also attracted strong interest
with employees buying shares worth over £500,000.


There are early signs that the market will pick up again in the Spring and our
assumption is that momentum will start to build from March/April 2000 onwards.

Longer term, the outlook for large outsourcing contracts remains buoyant and the
sales prospects are healthier than they have been for some time. All
organisations are increasingly concerned about the ongoing value and
effectiveness of their in-house IT provision. FI's combination of consultancy,
applications management and offshore software development is uniquely placed to
grasp the opportunity this creates.

Customers' preparations for EMU have been postponed until the UK Government
gives a firmer steer on the likelihood of entry. Our involvement in EMUrelated
projects over the last six months has, therefore, been confined to consultancy
assignments to plan some of the changes required. EMU conversion for consumer
organisations will be extensive and our assumption at present is that this could
generate significant income beyond 2001.

The second half year is on track and the Board remains confident that long term
shareholder value will continue to be created.

I would like to thank all the workforce for their efforts in producing these
highly commendable results in what were somewhat unusual trading circumstances.

Consolidated profit and loss account

                 Note    Ongoing  Acquisition    6 months    6 months Year to
                     (unaudited)  (unaudited)   to 31 Oct          to      30
                           £'000        £'000        1999 31 Oct 1998   April
                                              (unaudited) (unaudited)    1999
                                                    £'000       £'000   £'000
Group and share
of joint
turnover            3    123,202       22,177     145,379     108,857 228,353
Less: share of
joint venture's
turnover                  11,813            -      11,813       6,285  14,543
Group turnover           111,389       22,177     133,566     102,572 213,810
Operating costs          102,704       21,207     123,911      95,834 199,356
Group operating
profit              3      8,685          970       9,655       6,738  14,454

Share of
profit in joint
venture                                             2,341         367   1,789
Total operating
profit before
amortisation of
Group and share
of joint
venture                                            11,996       7,105  16,243

Amortisation of
arising on
acquisition         6                               1,872           -       -

Total operating
profit :
Group and share
of joint
venture                                            10,124       7,105  16,243

Net interest
receivable          4                               (585)         440     782

Profit on
before taxation                                     9,539       7,545  17,025

Taxation            5                               3,537       2,339   5,278

Profit on
after taxation                                      6,002       5,206  11,747

interests                                               -        (27)       -

attributable to
shareholders                                        6,002       5,179  11,747

Dividends                                           2,378       1,322   3,915
Retained profit
for the period                                      3,624       3,857   7,832

Earnings per share -
before goodwill
  - basic                                           3.55p       2.62p   5.86p
  - fully diluted                                   3.45p       2.50p   5.80p

Earnings per share -
after goodwill
  - basic                                           2.71p       2.62p   5.86p
  - fully diluted                                   2.63p       2.50p   5.80p

Dividend per
share                                               0.90p       0.63p   1.90p

Statement of total recognised gains and losses
                                                 6 months    6 months Year to   
                                               to 31 Oct   to 31 Oct      30 
                                                     1999        1998   April
                                              (unaudited) (unaudited)    1999
                                                    £'000       £'000   £'000
Profit attributable
to shareholders                                     6,002       5,179  11,747
Exchange differences
on retranslation of
net assets of
undertaking                                          (74)       (346)   (116)
Total recognised
gains                                               5,928       4,833  11,631

Consolidated balance sheet
                            Notes    31 Oct 1999   31 Oct 1998       30 April
                                     (unaudited)   (unaudited)           1999
                                           £'000         £'000          £'000

Fixed assets
Intangible assets             6          108,285             -              -
Tangible assets                           17,932        13,801         15,545

Investments in joint
Share of gross assets                      5,626         1,373          1,524
Share of gross
liabilities                              (5,059)       (1,111)        (1,015)
                                             567           262            509
Investments in associates                      -            29              -
                                         126,784        14,092         16,054

Current assets                7           72,317        56,477         57,277

Creditors due within one
year                                      61,478        49,189         48,736

Net current assets                        10,839         7,288          8,541

Total assets less current
liabilities                              137,623        21,380         24,595
Creditors due after more
than one year                             39,856         1,191            167
Provisions for
liabilities and charges                    3,018         2,581          3,532
Minority interest - non
equity                                         -           452              -

Total equity
shareholders' funds                       94,749        17,156         20,896

Consolidated cash flow statement
                            Notes    6 months to   6 months to        Year to
                                     31 Oct 1999   31 Oct 1998       30 April
                                     (unaudited)   (unaudited)           1999
                                           £'000         £'000          £'000
Cash (outflow) inflow
from operating activities     8            (890)         3,891         20,544

Dividends from joint
venture                                    1,632             -            762

Returns on investments
and servicing of finance                   (647)           427            727

Taxation                                   (162)         (320)        (4,555)

Capital expenditure and
financial investment                     (2,982)       (3,689)        (8,187)

Net cash (outflow) inflow
before financing
acquisitions                             (3,049)           309          9,291

Cash purchase of
subsidiary undertaking        6         (48,130)          (29)        (1,846)
Net overdraft acquired
with subsidiary
undertaking                   9          (2,882)             -              -

Equity dividends paid                    (2,899)       (1,737)        (3,020)

Cash (outflow) inflow
before management of
liquid resources                        (56,960)       (1,457)          4,425

Management of liquid
resources                     9            9,964       (2,440)        (7,295)

Issue of new share
capital                                   21,232           492            810

Issue costs of new share
capital                                    (120)          (81)           (79)

Repayment of loans           10          (2,915)         (532)        (1,330)

New loans                    10           33,575             -              -

Increase (decrease) in
cash at bank and in hand      9            4,776       (4,018)        (3,469)

Notes to the Accounts

1  The figures for the year to 30 April 1999 are abridged from the Group's
financial statements for the year, which received an unqualified auditor's
report and which have been delivered to the Registrar of Companies.

2  The accounting policies set out in the Accounts for the year to 30 April 1999
have been applied for the purposes of this statement.

 3 Geographic analysis       6 months ended 31 October 1999 (unaudited)
                         Turnover by  Turnover by    Operating      Net assets
                         destination       source       profit        employed
                                                                     by source
                               £'000        £'000        £'000           £'000
   United Kingdom - Group    120,201      113,651        6,283          87,453
   India                         874       10,199        1,162           5,679
   United States of
  America                      7,473        6,969          160           1,050
   Rest of World               5,018        2,747          178               -
                             133,566      133,566        7,783          94,182
   United Kingdom - joint     11,813       11,813        2,341             567
                             145,379      145,379       10,124          94,749

                             6 months ended 31 October 1998 (unaudited)
                               £'000        £'000        £'000           £'000
   United Kingdom - Group     99,360       93,762        6,192          11,210
   India                         795        6,465          453           5,597
   United States of
  America                      2,345        2,345           93             510
   Rest of World                  72            -            -               -
                             102,572      102,572        6,738          17,317
   United Kingdom - joint
  venture                      6,285        6,285          367             262
                             108,857      108,857        7,105          17,579
   Share of associate
  undertaking                                                               29
   Minority interest                                                      (452)

                                         Year ended 30 April 1999
                               £'000        £'000        £'000           £'000
   United Kingdom - Group    205,578      188,634       12,170          14,757
   India                       3,031       20,032        2,178           5,177
   United States of
  America                      5,144        5,144          106             454
   Rest of World                  57            -            -               -
                             213,810      213,810       14,454          20,388
   United Kingdom - joint
  venture                     14,543       14,543        1,789             508
                             228,353      228,353       16,243          20,896

In accordance with FRS 9, the Group's turnover includes £4,643,000 (6 months
ended 31 October 1998 £2,561,000, year ended 30 April 1999 £6,527,000) billed to
the joint venture for the supply of services.

 4 Net interest (payable)        6 Months to 31  6 Months to 31        Year to
  receivable                           Oct 1999        Oct 1998  30 April 1999
                                    (unaudited)     (unaudited)          £'000
                                          £'000          £'000

   Interest receivable
      Group                                 629            617           1,140
      Joint ventures                         63             13              55

                                            692            630           1,195
   Interest payable
      Bank loans and overdrafts          (1,277)             -               -
      Finance charges payable
     under finance leases                     -           (190)           (343)
      Other                                   -              -             (70)
                                         (1,277)          (190)           (413)
                                           (585)           440             782

5 Taxation
                                 6 Months to 31 6 Months to 31         Year to
                                       Oct 1999       Oct 1998        30 April
                                    (unaudited)    (unaudited)            1999
                                          £'000          £'000           £'000

   UK Corporation tax
    - current year                        2,780          2,211           4,425
     - prior year                             -              -              97
   Overseas taxes                            43             10             199
   Deferred taxes                             -              -             (17)
   Share of joint venture
  taxation                                  714            118             574
                                          3,537          2,339           5,278

6 Analysis of the acquisition of OSI Group Holdings Ltd

On 21 June 1999, the company acquired 100% shareholding in OSI Group Holdings
Ltd, a company specialising in business project management, IT procurement and
change management.  The acquisition was financed by the issues of new ordinary
shares together with a new bank loan facility, FI loan notes and existing cash
resources.  In addition, share options over ordinary shares have been granted to
OSI employees.

  Net assets at date of
                                     Book value    Adjustments    Fair Value
                                          £'000          £'000         £'000
   Tangible fixed assets                  2,356           (119)        2,237
   Debtors                               17,685             27        17,712
   Cash                                     164              -           164
   Creditors due within one year        (17,296)             -       (17,296)
   Creditors due after more than
  one year                               (7,462)             -        (7,462)
                                         (4,553)           (92)       (4,645)
   Goodwill arising on
  acquisition                                                        110,157

   Discharged by:
   Cash                                                               37,858
   Costs associated with the                                          10,272
   Loan notes                                                          7,938
   Shares                                                             49,444

   Amortisation of Goodwill:
   At 21 June 1999                                                   110,157
   Charge to profit and loss
  account                                                              1,872
   At 31 October 1999                                                108,285

7. The analysis of current assets is as follows:
                                     31 October     31 October
                                           1999           1998    30th April
                                    (unaudited)    (unaudited)          1999
                                         £000's         £000's        £000's
   Trade debtors                         42,773         32,255        25,511
   Amounts due from joint venture         2,689            733           723
   Amounts to be billed on
  contracts                               2,684          2,598         2,926
   Other debtors                          6,595          3,109         5,353
   Recoverable advance
  corporation tax falling due
  after more than one year                    -            422             -
   Cash on deposit and at bank           17,576         17,360        22,764
                                         72,317         56,477        57,277

8. Reconciliation of operating profit to net cash (outflow) inflow from
operating activities.
                                    6 Months to    6 Months to       Year to    
                                        31 Oct         31 Oct      30 April
                                           1999           1998          1999
                                    (unaudited)    (unaudited)          
                                          £'000          £'000         £'000
   Operating profit                      10,124          7,105        16,243
   Share of operating profit in          (2,341)          (367)       (1,789)
  joint venture
                                          7,783          6,738        14,454
   Depreciation charge                    2,642          2,300         4,004
   (Profit) loss on sale of
  tangible assets                           (63)            75           (30)
   Amortisation of goodwill               1,872              -             -
   Exchange differences                     (74)          (346)           16
   (Increase) decrease in debtors        (2,201)        (1,866)        1,484
   (Decrease) increase in
  creditors and provisions              (10,849)        (3,010)          616
                                           (890)          3,891       20,544

9. Analysis of change of funds          6 months ended 31 October 1999

                               At                           On            At
                       1 May 1999     Cash flow    acquisition   31 Oct 1999
                            £'000         £'000          £'000         £'000
   Cash at bank and in                                                  
  hand                      3,564         7,658         (2,882)        8,340
   Cash deposits
  maturing in one
  year                     19,200        (9,964)             -         9,236
                           22,764        (2,306)        (2,882)       17,576
   Loans                   (1,540)      (30,660)        (4,416)      (36,616)
                           21,224       (32,966)        (7,298)      (19,040)

10.Reconciliation of net cash flow to movement in net funds

                                   6 Months to       6 Months to      Year to 
                                   31 Oct 1999       31 Oct 1998     30 April
                                   (unaudited)       (unaudited)         1999 
                                         £'000             £'000        £'000
   Increase (decrease) in cash
  in period                              4,776            (4,018)      (3,469)
   Cash outflow on repayment of
loans                                    2,915               532        1,330
 Cash (inflow) from new loans          (33,575)                -            -
 Cash (inflow) outflow from
(decrease) increase in liquid
resources                               (9,964)            2,440        7,295
                                       (35,848)           (1,046)       5,156
 Loans and finance leases
acquired with subsidiary
undertaking                             (4,416)                             -
                                       (40,264)           (1,046)       5,156
 Net funds at 1 May                     21,224            16,068       16,068
 Net funds at period end               (19,040)           15,022       21,224


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