Strong platform for future growth
eg solutions plc (AIM: EGS), the back office optimisation software company, announces its interim results for the six months ended 31 July 2016.
- The Company has ended the first half of the financial year securing a number of new contract wins together with a particularly strong forward order book of £16.2m, providing good visibility of future revenues
- Significant contract wins include:
- Three new contracts delivered by the Company’s US partner Aspect Software Inc, including a major contract with a leading social networking corporation
- A new contract with the UK’s largest consolidator of closed life assurance funds
- A successful proof of concept project with a major financial services group in Singapore
- Repeat contracts secured with a UK Business Process Outsourcer and a European investment bank
- New senior executives appointed to support the Board’s growth aspirations
Figures in £m
|Unaudited Six months ended 31 July|
|Gross margin %||53.6%||66.0%|
|Profit / (loss) before tax||(£1.51m)||(£0.33m)|
|Earnings per share – diluted||(5.2p)||(0.7p)|
|4 Year order book||£16.2m||£15.5m|
*adjusted for Share Option Charges, non-recurring legal fees and redundancy costs in current year and Share Option Charges in prior year.
Chief Executive’s Review
Whilst the early part of the year has yielded revenue and EBITDA below our expectations, the board is encouraged by the increase in contract wins towards the end of the first half together with a strong pipeline of new business.
During the latter part of the period, the Board conducted a review of its business involving a critical assessment of its product, the market the business operates in and the quality, depth and scale of its internal resources.
In terms of product, the review concluded that the Company has an industry leading product suitable for UK and international markets which is fit for purpose and can comfortably accommodate the Board’s significant growth aspirations over the next few years.
In terms of the marketplace, the review concluded that the back office workforce optimisation market continues to develop well, both within the UK and internationally. More than ever businesses are seeking to continuously improve their end-customer experience and better utilise their resources to drive efficiencies. The Board concluded that the Company has clear visibility of the market and is ideally placed to satisfy customer needs with its market-leading product.
The findings of the review have been supported by the significant increase in new contracts secured in recent weeks and the strong current order book. New contracts secured in the Asia-Pacific region are particularly encouraging given our short time operating in this market.
Partner channel relationships continue to be an exciting prospect for the Company and a major strategic platform for growth. Aspect Software Inc. has delivered three new contract wins in the period, including a significant new contract with a leading social networking corporation. This landmark contract win by Aspect demonstrates the capability of the Company’s software in this new market segment.
However, the Board’s review also concluded that the breadth and depth of the Company’s sales resources and channels are insufficient to fulfil the Board’s growth objectives for the forthcoming years. Accordingly a restructure has been implemented within the management team to increase focus on revenue generation and recruit the required management skills to support growth. These structural changes are almost complete and set the Company in a strong position going into the second half of the financial year and beyond.
The Board is pleased with margin earned on its contracted sales for the period. Whilst there has been some gross margin decline, this does not reflect pricing pressure but is related to lower overall volume throughput. The Company has continued to invest in developing its Software and Client Implementation teams in preparation for the busy period ahead. Increased revenues in the second half are expected to return overall margin to normalised levels.
The non-recurring expenditure relates to legal costs and redundancies following the restructure.
In a period of investing for future growth, we are satisfied with our cash balance and the forecast future cash balance for the remainder of the financial year.
Following the referendum on 23 June 2016, the Board has reassessed its business in terms of foreign exchange risk. The Board has concluded that there is minimal risk as a result of pre-agreed prices that protect the GBP price.
The Board has set a medium term target of growing revenues to £12m over the next two financial years and is focused on ensuring that the company’s infrastructure is right-sized to meet this objective. The Company’s business model provides a high degree of operating leverage such that approximately 30% of incremental sales are expected to flow through to EBITDA.
Notwithstanding the previously announced slow start to the current financial year, the Board takes confidence from recent new contract wins and the strength of the order book. As a result of improved operational efficiency, the year-end EBITDA outturn is anticipated to be in line with market expectations on lower revenues.
The information contained within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014. Upon the publication of this announcement, this inside information is now considered to be in the public domain.