CHARTERIS PLC ( Charteris or the Company or the Group ) FINAL RESULTS ANNOUNCEMENT

Transcription

1 22 November 2011 CHARTERIS PLC ( Charteris or the Company or the Group ) FINAL RESULTS ANNOUNCEMENT Charteris plc, the business and IT consultancy, announces its final audited results for the year ended 31 July Key points Revenue of 12.5m (: 15.4m) Loss before taxation and exceptional charges was 806k (: 840k loss) Improved underlying trading before exceptional items in second half, compared with that reported at the half-year stage Diluted loss per share before exceptional charges of 1.67p (: 2.03p loss) Net funds at 31 July 2011 of 692,000 (Net debt at 31 July 1,447,000) following disposal of property assets and repayment of bank loan Commenting on the results, Cliff Preddy, Chairman, said: Trading conditions for Charteris were challenging throughout the financial year ended 31 July 2011 (FY11). Faced with weaker than expected performance in the second quarter, an urgent recovery plan was prepared and decisive action was taken. We also undertook an asset reduction programme to eliminate the bank loan and provide additional working capital. Notwithstanding the challenges, the general outlook for the Company is improving as a result of the increased focus on our core competencies and strengths, coupled with the leaner organisation. Underlying performance in the first quarter of the financial year ending 31 July 2012 has continued at the improved level seen in FY11 Q4 and we have better visibility of the sources and potential sources of H2 revenues than would normally be the case at this stage in the year. This gives the Board confidence that a return to reliable, profitable month-on-month trading can be delivered, assuming no material increase in economic pressures. The key challenge continues to be timely conversion of identified opportunities into revenue. Press enquiries: Charteris plc Allan Barr, Chief Executive Patrick Carter, Finance Director Tel: Beaumont Cornish (Nominated Adviser) Roland Cornish Tel:

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3 CHAIRMAN S STATEMENT Overview Trading conditions for Charteris were challenging throughout the financial year ended 31 July 2011 (FY11). Faced with weaker than expected performance in the second quarter, an urgent recovery plan was prepared and decisive action was taken. This plan featured a fundamental reorganisation of the business around the Company s core specialist capabilities, essential changes to the management and sales teams, actions to match resources with expected forward revenue, and steps to generate significant additional savings in central overhead and operating costs. We also undertook an asset reduction programme to eliminate the bank loan and provide additional working capital. Execution of the plan resulted in the delivery of an improved underlying trading position before exceptional items in the second half (H2) compared with that reported at the half year (H1) stage. Results Revenue for the year ended 31 July 2011 was 12.5m (: 15.4m). Loss before taxation and exceptional items was 0.8m ( 0.5m in H1, 0.3m in H2) (: loss 0.8m). Exceptional items consisted of redundancy costs of 0.2m, impairment of goodwill of 2.1m, and a loss on the disposal of freehold property of 0.3m (: Exceptional items comprising redundancy costs of 0.2m). Taking these into account, the loss before taxation was 3.5m (: 1.0m) resulting in a loss per share of 8.2p (: 2.49p loss). Net funds on 31 July 2011 were 0.7m (: net debt 1.4m). The impairment of goodwill results from a re-assessment of future plans and budgets for the Company s business activities concerned with building solutions based on the Microsoft Dynamics product suite. Further details are provided in the Finance Director s report. The directors have not recommended a dividend (: nil). Business Overview Charteris provides business consultancy services that drive and support change programmes that are centred on customers (or citizens in the local government arena) and internal users of services; it also provides specialist IT consulting expertise focused on the effective application of Microsoft technologies. The Company has particular market sector knowledge in both the public sector and commercial sector (including manufacturing and supply chain, multi-channel retail, and support services). The two primary service areas where Charteris aims to offer quality delivery, at demonstrable value for money are: Business Consulting: This service area involves the Company helping its clients better align themselves with their customers. This includes advising businesses on system, process and people change to enable them to deliver products and services with enhanced service levels and operational efficiency. These activities are supported by the depth of experience in the Charteris team of organisational design, programme and project management, business process improvement and customer research. Revenues held up well in this service area across both private and public sectors, with healthy gross margin and a welcome financial contribution. Microsoft Technologies: The most significant current activity in this service area is the provision of rare expertise in the Microsoft product suites to the UK mid-market and public sector. We deliver cost effective IT infrastructure and software solutions, including Cloud Computing and telephony platforms, and support clients through any consequential change programme. Confidence levels in pursuing and executing this business stream remain high and our market presence strengthened considerably in the latter months of the year. Our other activity in this service area is the delivery of Enterprise Resource Planning (ERP) and Customer Relationship Management (CRM) solutions for clients that achieve rapid performance improvement and return on investment. These solutions are centred upon the Microsoft Dynamics range of products. The Company s largest project, which accounted for significant revenue in the previous financial year, was concluded successfully in H1. Whilst CRM activity has been sustained, new sales in the ERP area have continued to disappoint, resulting in a localised reorganisation to align the processes and marketing approach with our other Microsoft activities under common leadership

4 In June, Charteris was honoured to receive the accolade of 2011 Country Partner of the Year for the United Kingdom from Microsoft. This is a tribute to the effort, skill and dedication of the Charteris management and staff involved with the Company s activities in the application of Microsoft technology and products. Board Composition As previously announced, David Pickering stepped down as Chief Executive on 31 January 2011 and retired as a director on 31 March 2011; and Martin Chitty, previously Business Development Director, left the Company on 26 April Subsequent to the year end, Mark Wells, Non-Executive Director, left the Board on 31 August David, Martin and Mark have our best wishes for their future endeavours. Also as previously announced, Allan Barr assumed responsibility on 1 February 2011 for the day-to-day management of the Company and the delivery of the recovery plan. Allan was appointed Chief Executive and a director of the Company on 6 April Outlook Following considerable hard work and flexibility from management and staff, the recovery plan has had a significant impact in reducing the break-even point for the business. Markets remain tough because of public sector austerity measures and general economic conditions, and the Company continues to suffer from subdued business confidence in the wider economy which manifests itself in protracted sales cycles and increased competition in certain of our markets. Notwithstanding the challenges, the general outlook for the Company is improving as a result of the increased focus on our core competencies and strengths, coupled with the leaner organisation. Underlying performance in the first quarter of the financial year ending 31 July 2012 has continued at the improved level seen in FY11 Q4 and we have better visibility of the sources and potential sources of H2 revenues than would normally be the case at this stage in the year. This gives the Board confidence that a return to reliable, profitable month-on-month trading can be delivered, assuming no material increase in economic pressures. The key challenge continues to be timely conversion of identified opportunities into revenue. As our client credentials testify, it is Charteris strong reputation for effective and reliable delivery of value-for-money solutions supported by an excellent team of consulting and IT professionals which continues to ensure that we work with so many high quality organisations and household names. The Board believes that, following the Company s restructuring, it has the necessary market offerings, expertise and opportunities to build on this position through the coming year. Cliff Preddy Non-Executive Chairman 22 November 2011 CHIEF EXECUTIVE S STATEMENT Operating Review A core element of the recovery plan implemented in H2 was a restructuring which by the year end had simplified our organisation into two distinct practices; Business Consulting and Microsoft Technologies. Each practice offers a clearly defined set of services to our clients: services where we can provide deep specialist skills and have a proven track record of exemplary delivery. Post the restructuring, Business Consulting retained the long-term client relationships which it inherited and then extended with new clients, principally in the commercial sector. Microsoft Technologies broadened and deepened its client base for Cloud, custom development, knowledge sharing and information storage, unified communications and infrastructure projects; but struggled in the Dynamics AX area to secure new projects at a scale sufficient to replace a multimillion pound AX implementation which was successfully delivered into live operation towards the end of H1. The restructuring was supported by cost reduction initiatives to reduce our operating cost base and asset sales to reduce debt and improve our liquidity position. All intended actions were completed in H2 and led to a more clearly focused and leaner organisation going into the new financial year. In H2 we secured sales of new and extension work sufficient to meet our needs for continued operation rather than a return to growth. This was against a backdrop of markets for our services which remain tight and highly competitive. In that context, our client base and the quality of work we do for them are two of our most important assets, as illustrated in sections below on each of the service areas. Business Consulting Charteris has traditionally been strong in the provision of advisory and programme management services in the homeland security sector. This continued throughout the year, with engagements to some of the most significant long-term programmes in this field. For a global non-governmental organisation (NGO) we conducted a comprehensive review of the - 4 -

5 IT management, control and procurement structures and processes, delivering recommendations which will enable multimillion pound reductions in their technology expenditure. Local and Regional Government currently faces the daunting challenge of improving frontline service delivery to citizens with a simultaneous imperative to reduce costs. We have helped our longest standing client in this sector to achieve precisely this desired outcome over the last 12 months. This success has led to Charteris engaging with other similar authorities in the sector, to propagate best practice and ultimately to support them in achieving the same end. Beyond this, and through work with new clients, we have developed capability in the creation and operation of social enterprises and in controlled management of the benefits realisation element of change projects. In the Commercial sector demand for programme management held up well. We have established a long-term relationship with a high-street retailer, helping them deliver their impressive portfolio of on-line and in-store projects. We continue to perform a similar role supporting delivery for a client who supplies outsourced pension administration services. Individual customer focused projects worthy of note include a strategic review of the on-line operations of a value retailer and providing customer improvement advice to a major airline. Microsoft Technologies Charteris is recognised by Microsoft as one of a small number of leading UK based partners who have full-stack capability, i.e. we can deliver solutions which encompass all core Microsoft technologies, rather than just being monoline providers of a single technology. Indeed, the expertise we have provided for clients in the fields of business collaboration and integration, infrastructure optimisation, and custom development of systems that run both in the Cloud and on-premises, contributed to Charteris being named Microsoft UK Partner of the Year for In the Commercial sector we continued to provide services to a major bank to enhance systems that underpin their wholesale banking credit risk modelling and capital reporting processes. We also undertook a project that successfully migrated an organisation providing psychometric testing services to a cloud-based infrastructure. We commenced a major ongoing.net development project for a financial services organisation, in preparation for the introduction of auto enrolment in pensions. Our most notable projects in the infrastructure space were planning the disaggregation of infrastructure resulting from the demerger of a household name business from a global brand and the desktop and server infrastructure rollout for a rapidly growing global business in the energy sector. In Dynamics we successfully completed one of the largest manufacturing and distribution implementations of AX ever undertaken in the UK, as well as smaller implementations for an on-line and mail order clothing retailer and for the head office function of a large services group. Finally, in H2 we delivered a payroll and human resources system to a provider of care homes services, started an implementation for a manufacturer and global distributor of fire suppression systems and incepted a major AX version upgrade for a supplier of industrial gases. Traditionally our public sector clients in this service area have been in Scotland and have been focused on our infrastructure services. This situation has evolved over the last 12 months, with increasing interest and business south of the border. We carried out a large number of projects for a wide diversity of public sector clients, most notably an infrastructure consolidation project for a large local council and a cloud-based collaboration platform for another public body of similar scale. Reorganisation A new organisational structure was put in place for H2. In the new structure, each practice now has clear responsibility for its own marketing, sales, operational delivery and specialist consulting professionals. The quality of the sales pipeline, the engagement of staff at all levels in developing business, and internal confidence generally, have all benefited from this approach. Central costs have also been reduced, following the organisational simplification. This has led to an increased focus on sales and delivery performance, with clear accountability for profit delivery. Given the significant fall in the revenue base, a further programme of overhead and operating costs reductions was also initiated. Other actions to reinforce the Company s financial position included an office move in Edinburgh, with subsequent cost savings notwithstanding the fact that the new office is in a more desirable location. It was also decided that neither the London office nor the Northleach office meets the future needs of the business and they were put on the market with the intention of relocating to more suitable rented properties in due course. Sale of the freehold of the London office was completed at the end of FY11. Charteris Team It has been a challenging year for the company, adjusting to a new, smaller and leaner reality. The journey would not have been possible without the active support of all our staff, whether in a sales, consulting, management or administrative role. The level of commitment and flexibility shown has been exceptional. Our clients perceive these self-same qualities in our work and express it in their loyalty

6 Our desired state is stable, profitable growth. Good progress was made in H2. The goal remains to be achieved, but the organisation has the strength, opportunity and talent to realise its true potential. Allan Barr Chief Executive 22 November 2011 FINANCE DIRECTOR S REPORT Financial Review The Group recorded an improved underlying trading position in the six month period ended 31 July 2011, but incurred an overall a loss before tax and exceptional charges for the year of 0.81m (: 0.84m). Set out below is an explanation of the key financial elements of the Group s performance. Trading The year has seen a decline in overall Group revenues of 19% as a result of lower business volumes, particularly in the Microsoft Dynamics and retail sectors. The business has accordingly continued to take action to keep its costs aligned to forecast revenues. Consulting resources have been adjusted in line with projected demand for services, and overheads reduced through a management restructuring in the second half of the financial year, the benefits of which were not fully realised until the beginning of the 2011/12 financial year. Short-term demands for specialised services that cannot be met by existing employees are being met by the use of associates. Key Performance Indicators The key performance indicators used by the Group are utilisation of professional staff and average fee rates. As a professional services business, where staffing is the principal cost, it is vital to ensure that the available resource is matched with workload. This is primarily done through the close monitoring of the utilisation of consultants and taking action accordingly. Average fee rates in certain areas of the business came under further pressure during the year as a result of competitive pressures (both on-shore and off-shore) in certain of our markets. Goodwill Impairment The continuing economic uncertainty has resulted in opportunities with new customers for ERP replacement projects not converting in the short term. A number of material projects have also now come to a natural end in that area. This has affected the short to medium term prospects for the ERP business acquired with SIG Consulting Limited in The business has been restructured to reduce costs and take advantage of opportunities being generated elsewhere in the business, especially around CRM. However, the directors believe that given the continuing tough economic conditions, it is appropriate to take a prudent approach and have therefore fully written off the carrying value of goodwill in that area resulting in a non-cash charge of 2.1m. Borrowings and banking facilities The Company s principal tangible fixed asset, Charteris House, was sold at the end of July The monies were applied to fully repay the Group loans of 1.85m and reduce other indebtedness thereby improving the net current asset position. As disclosed in the Annual Report, the Group restructured its banking facilities in November and meets its dayto-day working capital requirements by means of an invoice discounting facility of up to 1.5m. This currently bears interest at 4% above base rate and is secured against a fixed and floating charge over the assets of the Company and its subsidiaries. Cash flow There was a cash outflow from operating activities of 0.3m (: 0.5m). After financing and investing activities relating to the sale of Charteris House and repayment of the loan, the overall cash outflow was limited to 0.2m (: 0.7m). Net funds on 31 July 2011 were 0.7m (: net debt 1.4m) comprising cash of 1.1m (: 0.9m) offset by drawdown against the Company s invoice discounting facility of 0.4m (: Bank loans 2.3m). Cash includes 0.5m of VAT received on the sale of Charteris House and paid to HMRC at the end of August The Group s trade receivable days at year end has reduced to 37 days (: 65 days). This improvement is principally due to the payment of a major outstanding account and introduction of a new timesheet and project financial management IT system that has made a significant difference to the accuracy and timeliness of the month-end invoicing cycle. Capital expenditure was 0.1m (: 0.1m), reflecting essential IT asset renewals and IT system improvements as noted above. Going Concern The Board regularly reviews the adequacy of resources available and considers the options to increase the availability of working capital if and when required. The nature of the Group s business is such that there is inherent uncertainty over the - 6 -

7 commencement of projects and the timing of cash flows arising from clients thereafter (see note 2). However, the Directors believe that, taking into consideration actions which could be taken in response to reasonable cash flow sensitivities, the Group will continue to operate within its agreed facilities. Patrick Carter Finance Director 22 November

8 CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 JULY 2011 Continuing operations Notes 2011 Revenue 12,512 15,423 Other external charges (2,389) (2,872) Staff costs (9,016) (11,423) Other administrative expenses (4,428) (2,099) (15,833) (16,394) Operating loss before exceptional items (671) (783) Redundancy costs (235) (188) Impairment of goodwill (2,100) - Impairment and loss on disposal of property, plant and equipment (315) - Operating loss (3,321) (971) Finance costs (135) (57) Loss before taxation and exceptional items (806) (840) Redundancy costs (235) (188) Impairment of goodwill (2,100) - Impairment and loss on disposal of property, plant and equipment (315) - Loss before taxation (3,456) (1,028) Taxation Loss for the financial year attributable to owners of the parent (3,328) (1,018) Loss per share Basic and diluted 4 (8.17)p (2.49)p No dividend was proposed in respect of the financial years ended 31 July or CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 2011 Loss for the financial year (3,328) (1,018) Deferred tax being income recognised directly in equity (4) 5 Total comprehensive income for the year attributable to owners of the parent (3,332) (1,013) - 8 -

9 CONSOLIDATED BALANCE SHEET 31 JULY Notes Non-current assets Goodwill 3,979 6,079 Other intangible assets Property, plant and equipment 27 3,143 Deferred tax asset ,118 9,328 Current assets Trade and other receivables 2,348 3,958 Current tax credit - 16 Cash and cash equivalents 1, ,424 4,838 Non-current assets classified as held for sale Total assets 7,752 14,166 Current liabilities Invoice discounting facility (384) - Trade and other payables (2,864) (3,868) Borrowings - (185) Provisions (58) (33) Deferred consideration - (100) (3,306) (4,186) Total assets less current liabilities 4,446 9,980 Non-current liabilities Borrowings - (2,126) Deferred tax liability (34) (152) (34) (2,278) Net assets 4,412 7,702 Equity Called up share capital Share premium account 2,606 2,568 Merger reserve 2,573 2,573 ESOP reserve (194) (194) Other reserve Retained earnings (1,033) 2,297 Total equity attributable to owners of the parent 5 4,412 7,

10 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 JULY Loss before taxation (3,456) (1,028) Adjustments for: Depreciation and impairment of property, plant and equipment Amortisation of intangible assets Good will impairment 2,100 - Share-based payments 2 - Net interest expense Loan Finance costs 31 2 Operating cash flows before movements in working capital (809) (871) Decrease in receivables 1, Decrease in payables (979) (475) Cash used by operations (178) (545) Net corporation taxes repaid Interest paid (104) (55) Net cash outflow from operating activities (264) (517) Investing activities Disposal of property, plant, equipment and software 2,575 - Purchase of property, plant, equipment and software (80) (101) Acquisition of SIG Consulting Limited (earn out) (60) - Net cash from investing activities 2,435 (101) Financing activities Dividends paid - (82) Drawdown of loan (net of fees) - 25 Repayment of borrowings (2,343) - Net cash from financing activities (2,343) (57) Decrease in cash and cash equivalents (172) (675) Cash and cash equivalents at the beginning of the year 864 1,539 Cash and cash equivalents at the end of the year

11 NOTES: 1. BASIS OF PREPARATION The financial information in this announcement does not constitute statutory financial statements as defined in section 434 of the Companies Act The statutory accounts for the year ended 31 July 2011 form the basis for the financial information presented by the directors in this final results announcement and will be delivered to the Registrar of Companies following the Company s Annual General Meeting. The audit report on these financial statements contained an Emphasis of Matter paragraph as follows: In informing our opinion on the financial statements, which is not modified, we have considered the adequacy of the disclosure made in note 2 which indicates continued uncertainty over the level of demand for the Group s services and the timing of the settlement of outstanding receivables on major projects. In response to this uncertainty, the directors have considered the actions they would take in response to a fall in the anticipated level of revenues and/or timing of settlement of receivable balances. On this basis, the directors believe that the Group will continue to operate within the agreed banking facilities. These conditions, along with other matters as set forth in note 2 indicate the existence of a material uncertainty which may cast significant doubt about the group s ability to continue as a going concern. The financial statements do not include any adjustments that would result if the Company were unable to continue as a going concern. Copies of the Company s report and financial statements will be sent to shareholders shortly and will be available at the registered office of the Company and on the Company s website 2. SIGNIFICANT ACCOUNTING POLICIES - GOING CONCERN The Company meets its day-to-day working capital requirements through a 1.5m invoice discounting facility that is subject to a rolling 3 month notice period, bears interest at 4.0% over base rate and is secured against a fixed and floating charge over the assets of the Company and its subsidiaries. The finance available under this facility is determined by the level and ageing profile of debtors at any point in time and therefore it is subject to fluctuations in the timing of both invoicing and settlement. The Directors have prepared projected cash flow information for the next twelve months taking account of projected revenues and the Company s weighted pipeline of sales opportunities. The Directors have taken into consideration actions they could take in response to reasonable cash flow sensitivities arising from adverse movements in trading performance and/or timing of settlement of receivables including obtaining new finance facilities and disposal of the remaining freehold property. On this basis, the Directors believe that the Group will continue to operate within the agreed facilities. Whilst the Directors believe the going concern basis is appropriate, the nature of the Group s business is such that in the current economic conditions there is inherent uncertainty over the commencement of major projects, timing of cash flows arising from clients thereafter and the availability of alternative finance should this be required. Formally, these circumstances represent a material uncertainty that casts significant doubt upon the Company s ability to continue as a going concern and therefore it may be unable to realise its assets and discharge its liabilities in the normal course of business. Nevertheless, after making enquiries and considering the uncertainties described above, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. For these reasons, they continue to adopt the going concern basis of accounting in preparing the annual financial statements. 3. DIVIDEND The Directors do not recommend that a dividend is paid (: nil)

12 4. LOSS PER SHARE The calculations of loss per share are based on the following profits and numbers of shares Loss after tax for the financial year before exceptional items (678) (830) Redundancy costs (235) (188) Impairment and loss on disposal of fixed assets (315) - Impairment of goodwill (2,100) - Loss after tax for the financial year (3,328) (1,018) Weighted average number of shares 2011 No. of shares 000 No. of shares 000 For basic earnings per share 40,964 40,857 Dilutive effect of share options 1,788 2,367 For diluted earnings per share 42,752 43,224 The weighted average number of shares for the purposes of basic and diluted earnings per share excludes those owned by the Group s employee benefit trust. Loss per share 2011 Basic and diluted (8.17)p (2.49)p Basic and diluted before exceptional items (1.67)p (2.03)p 5 STATEMENT OF CHANGES IN EQUITY August 7,702 8,797 Loss for the year (3,328) (1,018) Dividends - (82) Deferred tax (4) 5 Share based payments 2 - Issue of new shares July ,412 7, This final results announcement was approved by the Board on 22 November Copies of this announcement will be available on the Company s website: 7. The AGM will take place at 10:00am on Wednesday, 4 January 2012 at the offices of Baker Tilly, 9th Floor, 25 Farringdon Street, London