RNS Number:2284M
Focus Solutions Group PLC
12 June 2003
12 June 2003
Preliminary Announcement
Focus Solutions Group plc
Focus Solutions announces preliminary results
(for the year ended 31st March 2003)
Highlights
* Turnover increased by 30% to #6.6 million (2002: #5.1 million)
* Operating loss* decreased by 13% to #2.5 million (2002: #2.9 million) and
reduced in the second half to #0.7 million (1H 2003: #1.8 million)
* Operating loss* for continuing UK operations decreased by 50% to #1.4 million
(2002: #2.9 million) and reduced to #0.1 million in the second half. (1H 2003:
#1.3 million)
* Operating loss of #3.0 million (2002: #2.9 million)
* Cash and money market deposits of #1.7 million (2002: #4.6 million); debt free
* Recurring revenue increased to #1.2 million, 17% of turnover (2002: 11%)
* Major contracts wins during the year include:
- #960,000: one of the top 5 insurance companies**
- #400,000: Misys IFA Services
- #250,000: Zurich Advice Network (ZAN)
*before reorganisation costs, amortisation of goodwill and tax. (see
consolidated profit & loss account for reconciliation)
** contract prohibits publicity
Announcing today (subject to separate announcement)
New Finance Director appointed
John Streets, Chief Executive, said:
"Last year market conditions continued to be challenging but we are pleased to
announce that the Group grew revenues by 30 per cent. Cost cutting measures
enabled us to significantly reduce operating losses in the UK and further cost
benefits are anticipated in this financial year. The sale of 51% of the US
operation, which took place in March 2003, will allow the Group to target its
resources on its core business and reduce its cash exposure. Our solutions and
technology are now delivering significant benefits to an expanding blue chip
customer base. With a continued focus on costs, this positions us well to
further improve financial performance this year."
Enquiries:
Focus Solutions Group plc 01926 468300
John Streets
Martin Clements
Citigate Dewe Rogerson 020 7638 9571
Chris Barrie
Sara Batchelor
Chairman's Statement
Business Review
In my first annual report as Chairman, I am pleased to report that the Group has
made progress during tough trading conditions in our markets. In an environment
of low top line growth, revenue growth at Focus has been strong with turnover up
30%. Actions taken earlier in the year reduced the Group's operating losses
before reorganisation costs and amortisation of goodwill from #1.7 million in
the first half of the year to #0.8 million in the second half, despite the
difficulties experienced in our former US subsidiary, Focus Solutions Inc (FSI).
Operating losses in the continuing UK operations were halved to #1.4 million
(2002: #2.9 million) and reduced to #0.1 million in the second half of the year.
(H1 2002: #1.3 million).
The Group has continued to expand its market share in the UK life insurance
market. Whilst the majority of turnover came from our existing customer base,
which includes seven of the top ten life and pensions companies, we won some
significant new customers during the year including Prudential, Paymentshield,
and Misys IFA Services. Good progress was made on developing our recurring
revenue which includes annual licence fees, support and maintenance and volume
related revenue. This increased to 17% of turnover (#1.2 million), compared to
11% (#0.6 million) last year.
Market conditions in the US proved to be particularly tough. Whilst
opportunities were identified and developed, these did not generate any revenue
during the year. The Board believed that its US subsidiary, acquired in April
2002, would continue to need significant cash investment and so took the
decision to sell 51% of its stake to the management of FSI for a nominal
consideration. The sale was completed in March 2003 and the Group will no longer
be responsible for any costs in relation to FSI. By retaining a 49% investment
in FSI, the Group will ensure that shareholders continue to benefit from any
future success of the US Group in the North American market.
Financial Performance
Turnover for the year ending 31st March 2003 was #6.6 million compared with #5.1
million in the previous financial year. Operating losses after reorganisation
costs and amortisation of goodwill were #3.0 million, including a loss of #1.6
million from the Group's discontinued US operations. This compared to an
operating loss of #2.9 million in 2002.
Loss on ordinary activities before tax was #3.9 million (2002: #2.6 million),
after #0.9 million loss on the disposal of the US operations. Losses after tax
were #3.4 million, after a corporation tax credit of #0.4 million against the
costs of investment in research and development for the two years ending March
2002.
Results for continuing operations, (the UK business), show revenue in the second
half increasing by 33% over the first half year, reflecting a traditional
pattern of sales; in general, 40% of turnover usually occurs in the first half
of the year and 60% in the second half, reflecting customer spending patterns.
This revenue growth, combined with cost cutting measures taken at the half year,
reduced operating losses for the continuing operations significantly. Operating
loss before reorganisation costs and amortisation of goodwill was #1.4 million
(2002: #2.9 million) and #0.1 million in the second half of this year compared
to #1.3 million in the first half.
Cash and money market deposits at 31st March 2003 were #1.7 million, compared
with #2.2 million at 30th September 2002 and #4.6 million at the end of the last
financial year, and the balance sheet is debt free.
Loss per share for the year ending 31st March 2003 was 13.4p, compared with a
loss of 10.3p for the year ending 31st March 2002. In view of the current losses
the Directors are not recommending the payment of a dividend.
People
The Group has achieved substantial growth to date and during the year a number
of changes to the Board were made to help take the Group forward to its next
phase of growth.
In December 2002, Richard Jephcott stepped down as Chairman to allow him to
assist the Group in the strategic development of its software business. I took
up the position of non-executive Chairman, following my appointment to the Board
in July 2002 as Deputy Chairman. I would like to thank Richard for his valuable
contribution to the development of the business since flotation. I look forward
to using my international experience in the IT and financial services industries
and my business network developed over 30 years with the Unisys Corporation, to
help the Group achieve its strategy and create shareholder value.
Lin Johnstone also joined the Board in July 2002 as a non-executive director
bringing valuable expertise in the global exploitation of leading edge
technology.
In addition, Martin Clements has been appointed to the Board as Finance Director
today, June 12th 2003. Sue Hele has stepped down as Finance Director but will
continue to support the Group within the Finance team. As Focus enters the next
phase of its development, the Group will benefit enormously from Martin's
experience in developing high profile software companies both in the UK and
internationally. I would like to extend my thanks to Sue for her commitment and
contribution to the Group during the last two and half years.
The strong growth of the Group's revenue from its existing customer base is
testament to the reputation of our staff for both their technical expertise and
responsiveness to customer requirements. To achieve these results in the current
environment has required both flexibility and commitment from our staff for
which I am extremely grateful.
Outlook
The need to reduce costs coupled with forthcoming changes in regulation will
continue to drive insurance companies and others in the financial services
industry towards electronic trading.
However, customers are still reviewing expenditure carefully and the insurance
market remains volatile. Consequently, we will continue to reduce costs and
target resources on our core market to maintain the Group's improving financial
performance in a challenging environment. The Group will continue to move
towards delivering value for shareholders by strengthening its position as a
leading provider of electronic trading solutions to the life and pensions
industry and working to fully realise the potential of its software, goal:
technology, in other market sectors.
Chief Executive's Statement
The Group has achieved both revenue growth and reduced costs in an environment
where delays and revisions to orders and contracts were a common occurrence.
Our strategy is to design, deliver and implement e-trading solutions for the
financial services markets, built using goal:technology, our XML toolkit, and to
exploit the potential of goal:technology in other markets through partners. This
strategy has delivered results with increased revenue from both new and existing
customers in the UK life and pensions market.
Underpinning our solutions revenue is a growing recurring revenue stream. At
#1.2 million, this now represents 17% of our turnover, as against 11% last year.
During the year we won several large licence contracts including our first order
worth approximately #1 million over four years.
Software that incorporates goal:technology has now been distributed to
approximately 40,000 users within the UK life insurers and the IFA community.
This represents a significant foothold in our core market and provides an
important reference for other markets outside the financial services sector.
Solutions for the Life and Pensions Market
The UK life and pensions industry has faced both falling stock markets and an
increasingly competitive environment during the year. Proposed changes in
regulation covering the way products are sold are moving forward and a new
distribution channel, able to give advice on and sell life and pensions products
from a small number of defined providers, will be introduced early next year by
the Financial Services Authority. This adds an additional channel to the life
companies' already complex distribution model and puts further pressure on
insurers to cut their cost base, in particular to reduce their administrative
expenses.
Our multi-channel advice solution, (MCA), was launched in July 2002 to help life
insurance companies to address these issues. Built using goal:technology, MCA
allows insurers to develop and launch new products rapidly into multiple
channels to market. The following contracts are evidence of our success and
demonstrate the Group's ability to increase its penetration across its blue chip
customer base.
Solutions for Direct Sales
Zurich Advice Network, (ZAN), was the first customer to use MCA to support the
sales of de-regulated products through its 3,500 strong direct sales force.
ZAN's decision criteria were speed to market and cost, which resulted in a
#250,000 project. The initial business results showed a significant increase in
the percentage of business placed electronically and a fast take up and
acceptance of the new system.
Solutions for Tied channels
Increased sales productivity and the reduction in error rates were some of the
benefits delivered by RIO, the point of sale solution developed by Focus for
Norwich Union Life. During the year, Norwich Union signed an open ended contract
extension with Focus for a minimum term of two years, to support the roll-out of
RIO to Norwich Union's tied building society partners and its joint venture
partner. RIO, described by Norwich Union as a 'world class point of sale
solution', was further endorsed when it won the Financial Sector Technology
Award for 'Best Use of IT in Insurance'.
Solutions for the Independent Financial Adviser (IFA) channel
Focus's market leading position in this channel to market gave its customers a
fast start to electronic trading whether through integrating goal:technology
into the leading IFA software products, through deploying products on the
leading industry portals, or through extending their reach into Europe as the
following examples demonstrate:
- Misys IFA Services integrated goal:technology into its own end to end IFA
desktop product, mi-solution. Six months on, there are now over 2,000 subscriber
users.
- Paymentshield, a leading provider of general insurance products to the
mortgage intermediary market to over 16,500 IFAs, is also in the process of
integrating goal:technology into its solution, INERTIA.
-Insurance companies such as Standard Life have taken advantage of Focus's
design and development services to get a fast start in bringing their products
to market electronically.
-Skandia has extended the reach of goal:technology even further, using goal:
technology to capture applications for new policies in its European extranet.
Product development - goal:technology - a 21st century approach
The traditional approach to building software has resulted in many legacy
systems with long lead times for development, and software that is difficult and
costly to change and maintain. With speed and flexibility becoming key
differentiators of company performance, these old models no longer make
commercial sense.
Our customers are looking for solutions that enable them to gain competitive
differentiation in their markets. They are looking for fast development
timescales, solutions that are built in 90 days and can deliver return on
investment within the current budget year.
goal:technology is unique in meeting these requirements and underpinning the
delivery of solutions to customers facing tough trading environments. goal:
technology is now delivering proven benefits for 22 customers for both Microsoft
and Java environments, running both on-line and off-line.
Investment in goal:technology has continued during the year with 16% of turnover
spent on product development. In addition to product enhancements, goal:
technology has been integrated with other major applications including IBM's
Websphere*, BEA's Weblogic* and Oracle's 9i* applications servers.
*registered trademarks
Strategy
The market drivers for change in the UK life and pensions industry will continue
to drive the need for e-trading solutions to support an increasing number of
distribution channels. Straight through processing (STP) of customer
transactions from point of sale to back office policy administration systems
will become essential to support low margin products such as stakeholder
pensions.
Focus will continue to concentrate its resources on the life and pensions market
and related markets such as mortgages and the general insurance products
associated with house purchases. Selling solutions for multiple distribution
channels will enable the Group to increase penetration of its existing customer
base and grow its major accounts. Through exploiting its market sector expertise
the Group can build new components using goal:technology that can be re-used;
driving up margins and increasing speed to delivery.
Whilst Focus has a clear opportunity to become a leading provider of e-trading
solutions in the UK, extension into the life and pensions markets overseas will
be through partners, including FSI in the US. FSI has a non-exclusive licence to
continue to use goal:technology to build its solutions for the North American
life assurance market.
As organisations look for more cost effective ways of automating business
processes, the demand for business process management software is growing. goal:
technology addresses a critical part of this emerging requirement: the ability
to handle complex processes that change frequently and require interaction with
the end user.
A recent Butler Group audit described goal:technology as 'particularly strong in
the insurance sector but also of benefit to organisations that have a large user
base and requirements that are complex and variable.' It also identified the
growth of web services and business process management as areas of future
opportunities for the product. (Butler Group Technology Audit: Focus Solutions
goal:technology. Alan Rogers, May 2003)
Focus will continue investing to ensure that our goal:technology XML toolkit
exploits the recent advances in data capture led by the W3C internet standards
authority. A partnership programme has been set up to extend the reach of goal:
technology into other market sectors, targeting software companies and systems
integrators, where goal:technology can add value to their solutions and cut the
costs of development and maintenance.
The Annual General Meeting will be held on 24th July at 4.30pm at the offices of
Focus Solutions Group plc in Leamington Spa.
Focus Solutions Group plc
Consolidated Profit and Loss Account
For the year ended 31 March 2003
Year ended Year ended
31 March 31 March
2003 2002
#'000 #'000 #'000 #'000
Continuing Discontinued Total
Operations Operations
Turnover 6,583 - 6,583 5,073
Operating loss before
Re-organisation costs and
Amortisation of Goodwill (1,358) (1,119) (2,477) (2,859)
Re-organisation costs (64) (129) (193) -
Amortisation of Goodwill - (343) (343) -
-------- --------- ------ ---------
Operating loss (1,422) (1,591) (3,013) (2,859)
Loss on disposal of US - (897) (897) -
operations
-------- --------- ------ ---------
Loss on ordinary activities (1,422) (2,488) (3,910) (2,859)
before interest
Net interest receivable 89 (12) 77 269
-------- --------- ------ ---------
Loss on ordinary activities (1,333) (2,500) (3,833) (2,590)
before taxation
Taxation 401 - 401 -
-------- --------- ------ ---------
Loss on ordinary activities
after taxation and retained
loss for the year (932) (2,500) (3,432) (2,590)
======== ========= ====== =========
Loss per ordinary share (13.4p) (10.3p)
No separate statement of total recognised gains and losses has been presented as
all such gains and losses have been dealt with in the profit and loss account.
Group Balance Sheet
31 March 2003
2003 2002
#'000 #'000
Fixed assets
Intangible assets - -
Tangible assets 224 383
--------- --------
Current assets
Debtors 1,704 1,438
Investments - Money Market Deposits 656 3,830
Cash at bank and in hand 1,039 780
--------- --------
3,399 6,048
--------- --------
Creditors: Amounts falling due within one year 1,848 1,504
--------- --------
Net current assets 1,551 4,544
--------- --------
Total assets less current liabilities 1,775 4,927
--------- --------
Net assets 1,775 4,927
========= ========
Capital and reserves
Called up share capital 2,567 2,508
Share premium 9,427 9,426
Merger reserve 220 -
Profit and loss account (10,439) (7,007)
--------- ---------
Shareholders' funds - equity interests 1,775 4,927
========= =========
Approved by the Board on 12 June 2003
Consolidated Cash Flow Statement
For the year ended 31 March 2003
Year ended Year ended
31 March 31 March
2003 2002
#'000 #'000
Net cash outflow from operating activities (2,375) (3,121)
Returns on investments and servicing of finance 73 282
Taxation 345 -
Capital expenditure and financial investment (159) (197)
Acquisitions and disposals (802) -
---------- ---------
Cash outflow before management of liquid
resources and financing (2,918) (3,036)
Management of liquid resources 3,174 3,252
Financing 3 (24)
---------- ---------
Increase in cash in the year 259 192
========== =========
Reconciliation of net cashflow to movement in
net funds
Increase in cash in the period 259 192
Change in net funds resulting from financing 3 24
Cash outflow from decrease in liquid resources (3,174) (3,252)
---------- ---------
Movement in net funds in the year (2,912) (3,036)
Net funds at start of year 4,607 7,643
---------- ---------
Net funds at end of year 1,695 4,607
========== =========
Notes to the Financial Statements
for the year ended 31 March 2003
1. Accounting policies
The figures have been extracted from the audited financial statements of Focus
Solutions Group plc for the year ended 31 March 2003. The report of the auditors
for the period ended 31 March 2003 contains no qualification or statement under
sections 237(2) or (3) of the Companies Act 1985. The 2003 annual report and
financial statements will be filed with the Registrar of Companies after the
Annual General Meeting. The financial information contained in this announcement
does not constitute statutory accounts within the meaning of section 240 of the
Companies Act 1985.
The accounts have been prepared on the basis of the accounting policies set out
in the group's 31 March 2002 accounts. Statutory accounts for 2002 have been
delivered to the Registrar of Companies. The auditors have reported on those
accounts. Their report was unqualified and contained no qualification or
statement under sections 237(2) or (3) of the Companies Act 1985.
2. Acquisition and Disposal of MPO Group Incorporated
On 30 April 2002, the Group acquired the business of MPO Group Incorporated (now
Focus Solutions Inc). The acquisition was accounted for on the acquisition
accounting basis in accordance with the requirements of FRS 6. The goodwill
arising on acquisition is noted below. On 31 March 2003 the Group sold 51% of
the issued share capital of Focus Solutions Holdings Inc (which owned 100% of
Focus Solutions Inc) to the US management of Focus Solutions Inc for a nominal
consideration. At the same time the Company retired from the Board of FSHI and
now has no significant influence over the affairs of this business. The loss on
disposal of the Group is noted below.
Year ended
31 March
2003
#'000
Acquisition
Shares issued 274
Cash 452
Acquisition costs 350
Fixed Assets acquired (25)
Debtors acquired (6)
Creditors acquired 6
Loan acquired 144
-----------
Goodwill on acquisition 1,195
===========
Disposal
Net Liabilities (115)
Goodwill not amortised 852
Costs of disposal 160
-----------
Loss on disposal 897
===========
MPO Group Inc reported losses of $713,000 for the period 28 September 2000 to 28
February 2002, and $112,000 for the period 1 March 2002 to 30 April 2002.
The assets were acquired at full value therefore requiring no adjustment.
The acquisition contributed net cash outflows during the year of #811,000 from
operating activities.
There are no tax impacts as a result of this disposal.
3. Loss per ordinary share
Year ended Year ended
31 March 31 March
2003 2002
#'000 #'000
Earnings attributable to ordinary shareholders
Loss for the financial year (3,432) (2,590)
========= ==========
Weighted average number of ordinary shares issued
during the year (000's)
25,628 25,084
--------- ----------
Basic loss per share (13.4p) (10.3p)
========= ==========
FRS 14 requires presentation of diluted EPS when a company could be called upon
to issue shares that would decrease net profit or increase net loss per share.
For a loss making company with outstanding share options, net loss per share
would only be increased by the exercise of out-of-the-money options. Since it
seems inappropriate to assume that option holders would act irrationally, and
there are no other diluting future share issues, diluted EPS has not been
presented.
4. Reconciliation of operating loss to operating cash flows
Year ended Year ended
31 March 31 March
2003 2002
#'000 #'000
Operating loss (3,013) (2,859)
Depreciation 320 337
Profit on sale of tangible fixed assets (3) (4)
Amortisation of goodwill 343 -
Increase in debtors (206) (914)
Increase in creditors 184 319
--------- -----------
Net cash outflow from operating activities (2,375) (3,121)
========= ===========
This information is provided by RNS
The company news service from the London Stock Exchange
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