RNS Number:2657P
Marlborough Stirling PLC
02 September 2003
For immediate release 2nd September 2003
Marlborough Stirling plc
Interim results for six months ended 30th June 2003 (unaudited)
Key features
Financial
* Total turnover of #56.0m (2002: #60.7m)(1)
* Adjusted pre-tax profit of #2.6m (2002: #8.3m)(2)
* Reported pre-tax loss of #5.0m (2002: profit of #2.8m)(3)
* Adjusted diluted earnings per share 0.9p (2002: 2.7p)(2)
* Reported diluted loss per share 2.7p (2002: diluted earnings per share
of 0.2p)
* Net cash of #14.7m (2002: #5.8m)
* 2003 revenue visibility of around #105m; 2004 revenue visibility of over
#60m
Operational
* Sun Life Financial system implementation and policy migration nearing
successful conclusion
* Lamda delivery to Sanlam and South African business re-focus
* Exweb's performance underlines key role in enabling financial services
distribution
* Key strategic initiative to extend Exweb's capabilities supported by
Friends Provident, Scottish Equitable and Standard Life
* Two significant point-of-sale systems completed
* Headcount reduced from 1,900 to 1,700
* On target to achieve #10m annualised cost reduction between second
halves of 2002 and 2003
(1) Total turnover represents group turnover together with the group's share
of turnover from joint ventures
(2) Figures include the group's share of the results of joint ventures and are
before charges for goodwill amortisation and impairment, employee share
options, reorganisation costs and amounts written off investments
(3) Includes #1.9m (2002: #0.1m) written off investments based on the share
price of 27.0 pence at 30th June 2003. Based on the share price of 42.5
pence at 1st September 2003, the carrying value would have would have
increased by #3.3m relative to the position at 30th June 2003
Commenting on the results, Huw Evans, chairman and chief executive, said:
"The first half's results are in line with expectations and satisfactory given
the difficult market conditions. The decisive actions taken to reduce costs have
maintained underlying profitability despite lower turnover. There are a number
of positive signs that the financial services market is recovering from the
recent period of uncertainty, including growth in Exweb volumes and the level of
interest in our outsourcing solutions. However, many customers and prospects
continue to delay investment decisions and software sales in particular remain
weak. Nonetheless, our more focused market propositions and refreshed drive for
new business are generating good interest and we therefore look forward to the
future with cautious optimism, though we continue to monitor the situation very
closely.
Our outsourcing operations demonstrate our unique ability to drive huge savings
for our clients by re-engineering both their systems and business processes
while delivering best in class customer service. The performance of Exweb once
again highlights its importance to the industry and underlines the prospects for
full electronic trading. We remain highly confident that our solutions are
strongly suited to enabling the transformation of financial services to a truly
competitive, consumer focused and efficient marketplace."
An analyst briefing will be held at UBS Investment Bank's offices at 1 Finsbury
Avenue at 9:30 a.m. today.
For further information
Marlborough Stirling Huw Evans, Chairman & Chief Executive 01242 547000
Bob Beveridge, Finance Director
Citigate Dewe Rogerson Toby Mountford/Alex Brown 020 7638 9571/07949 245956
Chairman's statement
Introduction
Our results for the first half of 2003 are reasonable, given the continued
difficult market conditions. These conditions particularly affected our software
and consultancy activities, meaning that we took additional action to align our
resources against demand. Nevertheless, there is evidence that the market is
reacting favourably to some of our newer, more tailored software solutions.
There are a number of actions that we have taken over the last six to twelve
months to position the group for a return to profitable growth. These include
investment in new product and business launches, reducing our cost base and
improving delivery and co-operation across the group to harness fully our
considerable combined intellectual capital. This drive is having a positive
effect on all aspects of our business and we are already beginning to feel the
benefits.
There is an increasing level of new business interest across the group and we
are more proactively and successfully engaging with our clients and
demonstrating the unique value of our products and services. We do see many
opportunities ahead for the business and are convinced we will capitalise on
those effectively, whilst recognising that many investment decisions have long
lead times.
Whilst challenges undoubtedly remain, I believe that we are firmly on track for
a return to the profitable growth that shareholders expect and we look to the
future with cautious optimism.
Operating review
Life, pensions & investments
Activity in our UK life and pensions software business included the final phase
of software development, including with-profits functionality, as part of the
wider project with Sun Life Financial of Canada (SLF).We also commenced system
testing prior to the final policy portfolio migration which remains on track to
complete this month. This software project is now almost complete. The Lamda
implementation for AXA also continued, albeit with a reduced financial
contribution relative to 2001 and 2002. This year activity to date has focused
on developing Lamda in preparation for the migration of policies from AXA's
Tandem and IBM legacy systems onto Lamda. Finally, we carried out incremental
development work related to regulatory changes, particularly the new regulations
on statutory money purchase illustrations (SMPI) for a number of clients.
Outside the UK, following a number of phases of Lamda implementation work for
Sanlam in South Africa, they exercised their right to acquire a full licence for
the Lamda system that we have delivered to them for potential use or sale in
Africa. We will continue to provide some consultancy services to them as well as
benefit from any sales of Lamda they achieve to third parties, in both software
and outsourcing contexts. We also refocused our operation there to diversify its
activities and capitalise on new opportunities such as the provision of
outsourced underwriting services. Elsewhere, Life Strategies delivered its
strongest half year performance since its acquisition in 2000.
During the first half of 2003, we commenced active marketing of our recently
developed new business module to our Lamda solution, for delivering straight
through processing for life and protection insurance products. It has generated
strong interest from a number of potential clients and we have commenced paid
work for one client.
In outsourcing, there have been a number of significant milestones achieved on
the SLF contract since it commenced in March last year. Compared to 2000, our
client has reduced its operating costs by around 40% and we have delivered
enhanced customer service standards whilst reducing customer services headcount
by one third. The contract has also been extended from 5 years to 7 years. As
such, Marlborough Stirling will continue to benefit from substantial recurring
turnover from this project throughout this period. Once the migration completes,
SLF's operating cost reduction will increase to around 60% lower than 2000,
providing a clear benchmark for the scale of savings that can be generated
through combined technology and process re-engineering.
Elsewhere in our outsourcing business, the GE Pensions contract has commenced
satisfactorily. During the first half we also secured our first offshore
outsourcing project in the Isle of Man. In May 2003, we acquired a majority
shareholding in Otter Risk Solutions, an underwriting and claims risk management
outsourcing business, a complementary extension to our existing outsourcing
business. Its initial trading has exceeded expectations and its outlook for the
remainder of 2003 is buoyant.
The outsourcing sales pipeline is encouraging. There is a good level of
opportunities in the mainstream UK life and pensions outsourcing market, driven
by a continuing trend of product providers closing to new business and
considering outsourcing. We believe that the combination of our strong reference
site at Sun Life Financial, our proven re-engineering expertise and the new
business potential of linking with Exweb leaves us strongly placed to secure new
contracts on both closed and open book bases. Although this augurs well for 2004
and beyond, lead times in this area of the business are particularly long and
unpredictable.
Distribution
Exweb has continued to perform well across all its activities with robust
performances in terms of subscriber numbers, quotation volumes and the provision
of ancillary services. In addition, there has been a strong emphasis on
investing for the future through the launch of new services and developments
expected to result in the introduction of further services, both of which are
intended to drive future growth.
As at 30th June 2003, Exweb subscriber numbers were 18,219 compared to 18,127
and 18,270 at 30th June 2002 and 31st December 2002 respectively. This is a
strong performance in the context of the significant recent difficulties faced
by the IFA market and the consolidation that has been occurring in the IFA
industry.
During the first half of 2003, quote volumes were higher than the second half of
2002 but lower than the comparable period last year. Actual quote volumes in
these three periods were 49m, 45m and 54m respectively. The overall quote volume
statistics disguise very different performances between the investment and
protection sides of the industry. Quote volumes for many life and protection
insurance products increased relative to both halves of 2002 whilst volumes of
investment product quotes fell, reflecting the effects of three years of
deteriorating equity market conditions.
During the period, we also undertook significant work to integrate our Exweb
quote and new business services with IFAengine, Bankhall's member portal,
following the strategic alliance concluded with Bankhall in December 2002. In
addition, we launched a new compliance centre on Exweb that targets non-network
Exweb subscribers with a range of compliance services from third party
providers. The initial service provider is Bankhall and other providers will
join the service in due course.
Looking to the future, activity focused particularly on implementing our
strategy of developing Exweb into a full service electronic trading platform.
Exweb's capabilities are being extended to provide new services such as more
comprehensive electronic new business processing, online product valuations, an
integrated client database providing a single view of clients' personal and
policy details and a single password and entry point to all participating
product providers. The new service will be branded Exweb Gold and be available
to IFAs at an increased subscription level.
This significant project involves an investment in 2003 of around #3m which we
anticipate will bring additional revenues from 2004 onwards. Reflecting the
industry's support for this key initiative, three major product providers,
Friends Provident, Scottish Equitable and Standard Life have entered into medium
term contracts committing to revenues relating primarily to the provision of
both quotation and electronic new business processing transaction services. We
expect other leading product providers to join this initiative in the near
future.
Activity in our distribution software and consultancy business was lower than
the comparable period last year reflecting the conclusion of former Crisp
projects. Nevertheless, substantial work was undertaken on two significant
point-of-sale systems for Wesleyan and Friends Provident and we expect to
continue work on both these implementations for the remainder of the year. In
relation to Officeweb we completed the head office implementation for Tenet with
work on the member system continuing in the second half. We also carried out
work on a new Officeweb implementation for Norwich and Peterborough Building
Society to support its IFA business.
Mortgages
Although new mortgage software sales in the UK were limited during the first
half, our business continues to support many of the largest lenders in the UK
mortgage industry. In the half year, we extended our contract to provide
Northern Rock with a significant range of services related to their successful
use of Omiga as a key software platform that sits at the heart of their UK
mortgage lending operation. Birmingham Midshires upgraded their mortgage
processing software to the latest version of Omiga. A successful implementation
has resulted in them using this key system at both of their operating centres
and enabled them to process a significant increase in business volume with
similar numbers of employees. We also launched a new surveying and conveyancing
workflow solution, Instruct by Net, and completed its initial implementation for
Direct Valuations.
In Canada we have begun to reap very tangible benefits from our focus on
cross-selling Omiga into this market. Following the implementation completed for
MCAP Mortgage Corporation last year, demand for Omiga has continued to
strengthen and we have started paid work for one other client.
Marlborough Stirling Mortgage Services (MSMS), the group's joint venture with
Egg for the provision of mortgage outsourcing services, servicing clients such
as Standard Life Bank, London Mortgage Company and Egg, performed in line with
expectations albeit with slightly lower turnover than in 2002 due to the end of
a short-term contract in the second half of last year.
Board change
The Board concluded in the period that it was appropriate to make a change in
our leadership that resulted in Graham Coxell leaving the group. Graham made a
significant contribution to Marlborough Stirling over many years particularly in
leading the company through a period of significant growth and change between
2000 and 2003. We wish him well for the future. The process of identifying his
successor is proceeding and we will report further on progress as soon as
practical.
Financial review
Turnover
Total turnover, including Marlborough Stirling's share of turnover from joint
ventures, for the six months ended 30th June 2003 was #56.0m (2002: #60.7m).
Strong performances were achieved by our outsourcing and portal services
businesses but, as expected, software and consultancy sales were below last
year's levels. Total turnover in the period comprised 42% from software and
consultancy, 43% from outsourcing and 15% from portal services (2002: 51%, 35%
and 14% respectively).
Life and pensions turnover increased by 1% to #38.4m (2002: #38.1m) with higher
outsourcing turnover, reflecting a full 6 months contribution from the SLF and
GE Pensions contracts, offset by lower turnover from software and consultancy.
Turnover in distribution decreased by 22% to #12.0m (2002: #15.4m) largely
reflecting weakness in the software and consultancy part of the business
including the conclusion of former Crisp projects. Portal services turnover
decreased by 4% to #8.2m (2002: #8.5m (excluding turnover attributable to the
portal services joint venture in Germany that was disposed of in 2002)), a
robust performance in challenging market conditions. Turnover from IFA
subscriptions was slightly higher than in the first half of 2002 and a growth in
quotation turnover relating to life and protection insurance products was offset
by declining turnover from investment product quotes.
Turnover in mortgages decreased by 21% to #5.6m (2002: #7.2m) with lower levels
of activity in software and consultancy in the UK and slightly lower turnover at
MSMS.
Turnover by market served comprised 69%, 10% and 21% from life, pensions and
investments, mortgages and distribution respectively (2002: 63%, 12% and 25%
respectively). The geographic breakdown of turnover by destination in the period
shows 10% of total turnover (2002: 5%) coming from outside the UK market. The
increased contribution from our international operations reflects growth in
Canada and Ireland.
Cost of sales
Cost of sales amounted to #29.1m in the period (2002: #27.2m), resulting in a
gross margin of 46% (2002: 53%). The increase in cost of sales relative to 2002
largely reflects the fact that the SLF outsourcing contract was only in place
for four months of the first half of 2002. A better indication of underlying
trends in cost of sales is gained by comparing the first half of 2003 with the
second half of 2002 as the SLF outsourcing contract was in place for the full
six months in both cases. On this basis, cost of sales decreased by 5% from
#30.7m to #29.1m and gross margins were similar (H2 2002: 47%).
Operating expenses
Operating expenses (excluding charges for goodwill amortisation, employee share
options and reorganisation costs) decreased by 1% to #22.5m (2002: #22.7m). A
better indication of underlying trends in operating expenses is gained by
comparing the first half of 2003 with the second half of 2002 as the SLF
outsourcing contract was in place for the full six months in both cases. On this
basis, operating expenses decreased by 8% from #24.5m to #22.5m.
Research and development expenditure was #1.9m (2002: #4.1m) with the key
project being the commencement of development of Exweb into a full electronic
trading platform. Research and development work was also undertaken in the
period in relation to our end-to-end solution for life and protection products.
Research and development expenditure is expected to be slightly higher in the
second half of the year, reflecting an acceleration in Exweb development
activity.
Reorganisation costs
During the first half of 2003, a #2.1m charge was incurred relating to
reorganisation of the group that included the relocation of employees based in
our Halesowen office and implementation of a voluntary redundancy programme.
These actions resulted in a total of approximately 100 employees leaving the
group during the first half of 2003 and will generate annualised savings of over
#3m from the second half of 2003.
These actions, combined with around 40 employees in South Africa transferring to
Sanlam, previously planned headcount reductions relating to our project for Sun
Life Financial of Canada and natural attrition resulted in group headcount
reducing from approximately 1,900 at 31st December 2002 to around 1,700 at 30th
June 2003.
Earnings and taxation
Reported pre-tax losses for the period were #5.0m (2002: profit of #2.8m)
reflecting goodwill amortisation charges of #3.6m, #1.9m written off the
carrying value of the company's shares held in employee share trusts and
reorganisation costs of #2.1m. The amount written off the carrying value of the
company's shares in the period was based on the share price of 27.0 pence at
30th June 2003. Based on the share price of 42.5 pence at 1st September 2003 the
carrying value would have increased by #3.3m relative to the position at 30th
June 2003.
Underlying profit, namely operating profit, including the results of joint
ventures but before charges for goodwill amortisation, employee share options
and reorganisation costs, amounted to #2.5m (first half of 2002: #8.4m; second
half of 2002: #3.1m).
The group's underlying taxation rate, based on pre-tax profit, including the
results of joint ventures but after adding back goodwill amortisation and
impairment and amounts written off investments, was 30.0% (2002: 31.6%).
Dividend
No interim dividend is being paid. As was the case in 2002, this is because
falls in the company's share price have significantly reduced distributable
reserves, that must be sufficient to meet the cost of any dividend payments, as
a result of impairment in the carrying value of the company's shares held in
employee related share trusts. The Board intends to reinstate dividend payments
as soon as practicable.
Cash flow and borrowings
Operating cash flow was #6.3m (2002: #3.0m), representing 265% of group
operating profit before charges for goodwill amortisation and impairment,
employee share options and reorganisation costs ('underlying operating profit').
This strong operating cash flow performance reflects a reduction of over #1m in
trade debtors relative to 31st December 2002, together with an increase in
deferred income from #12.9m to #20.0m, offset to some extent by a reduction in
other creditors and provisions. The increased deferred income relates primarily
to payments due or received from clients supporting the development of Exweb's
electronic trading capability, the Sun Life Financial outsourcing and software
contracts and other software implementations. #13.7m of the deferred income
balance is expected to unwind during the next 12 months.
During the first half of 2003, there were also significant reductions in the
levels of capital expenditure and tax payments relative to recent periods.
Overall, reflecting principally the above factors, during the first half of 2003
Marlborough Stirling moved from an opening net cash position of #9.1m to a
closing net cash position of #14.7m.
The Group's net cash position is currently expected to reduce slightly by the
end of 2003. This is based on the assumption of improved underlying
profitability on the one hand and on the other on reductions in deferred income
balances, utilisation of existing employee related reorganisation provisions
once the SLF migration programme concludes and increased capital expenditure
relative to the first half. The increase in capital expenditure will reflect
investment in network and Exweb infrastructure.
Outlook
Trading since the half year has continued broadly in line with expectations.
Exweb has maintained its resilient operating and financial performance, Otter
Risk Solutions has been experiencing buoyant demand for its services and the
financial contribution of our Canadian business has increased significantly as
Omiga software opportunities come to fruition. At this stage, our visibility for
2003, in terms of contracted and recurring turnover, is around #105m.
During the recent difficult market conditions, we have taken a number of
decisive steps to put the business on a sound footing to return to profitable
growth:
* We are close to completing the re-engineering of Sun Life Financial's UK
business which will give us a unique outsourcing reference site
* Our Canadian business is experiencing increasing levels of activity
driven by successful cross-selling of Omiga, one of the group's key
software products
* We are beginning to see the benefits of launching new services on Exweb
and this programme of innovation is set to continue for a number of years
* We have launched Otter Risk Solutions into a market with very significant
demand for its services and expanded offshore in South Africa to meet
demand
* Our life and protection STP solution has gained strong market traction
in the UK
* We expect to have reduced our costs by a total annualised amount of
approximately #10m between the second halves of 2002 and 2003
As a result we are cautiously optimistic about the short-term outlook for the
group. Our pipeline of sales prospects is stronger than it has been at any time
in the last 12 months. However, recent experience of the time taken to close new
contracts, points to us remaining conservative about the outturn for 2003.
Regarding 2004, our visibility, in terms of contracted and recurring turnover,
is over #60m. At this stage, we are working towards a return to growth in
turnover and earnings in 2004 and we will provide firmer guidance on the
prospects for next year in the new year.
Consolidated profit and loss account
For the six months ended 30th June 2003
Six months ended Six months ended Year ended
30th June 2003 30th June 2002 31st December 2002
Note (unaudited) (unaudited) (audited)
#000 #000 #000
Turnover (including share of joint 2 55,986 60,655 121,008
ventures)
Less share of turnover of joint (1,950) (2,255) (4,353)
venture
Group turnover 54,036 58,400 116,655
Cost of sales 3 (29,132) (27,204) (57,862)
Gross profit 24,904 31,196 58,793
Operating expenses 3 (28,102) (28,008) (83,649)
Group operating (loss)/profit (3,198) 3,188 (24,856)
Share of operating (loss) of joint
ventures and associates (53) (259) (352)
Total operating profit before charges for
goodwill amortisation and impairment, employee
share options and reorganisation costs 2,469 8,373 11,470
Goodwill amortisation - subsidiaries (3,440) (4,781) (9,496)
- joint venture (125) (125) (250)
Goodwill impairment charge - - (23,622)
Employee share option (charge)/credit (37) - 778
Reorganisation costs (2,118) (538) (4,088)
Total operating (loss)/profit
including share of joint ventures and (3,251) 2,929 (25,208)
associates
Interest receivable - group 663 485 900
- joint ventures 6 38 49
Amounts written off investments 6 (1,867) (100) (9,052)
Interest payable (536) (557) (1,167)
(Loss)/profit on ordinary activities before (4,985) 2,795 (34,478)
taxation
Tax on (loss)/profit on ordinary 4 (134) (2,464) (3,016)
activities
(Loss)/profit on ordinary activities after (5,119) 331 (37,494)
taxation
Equity minority interests (4) - -
Retained (loss)/profit for the financial period (5,123) 331 (37,494)
(Loss)/earnings per share 5 (2.7)p 0.2p (20.0)p
Diluted (loss)/earnings per share 5 (2.7)p 0.2p (20.0)p
Adjusted earnings per share 5 1.0p 3.1p 3.8p
Adjusted diluted earnings per share 5 0.9p 2.7p 3.5p
Consolidated statement of total recognised gains and losses
For the six months ended 30th June 2003
Six months ended Six months ended Year ended
30th June 2003 30th June 2002 31st December 2002
(unaudited) (unaudited) (audited)
#000 #000 #000
(Loss)/profit on ordinary activities after (5,119) 331 (37,494)
taxation
Exchange adjustments offset in (64) 21 195
reserves
Total gains and losses recognised in the (5,183) 352 (37,299)
period
Consolidated balance sheet
At 30th June 2003
30th June 2003 30th June 2002 31st December 2002
(unaudited) (unaudited) (audited)
Note #000 #000 #000 #000 #000 #000
Fixed assets
Goodwill 47,473 78,966 50,746
Intangible assets 502 580 537
Tangible assets 15,232 16,727 16,566
Investments - interests in own 6 8,101 19,511 10,477
shares
Investment in joint ventures:
share of gross assets 2,196 2,498 2,430
share of gross (1,193) (1,498) (1,467)
liabilities
goodwill arising on 375 625 500
acquisition
1,378 1,625 1,463
Total fixed assets 72,686 117,409 79,789
Current assets
Debtors 7 30,416 38,657 32,831
Current asset investments 627 - 529
Cash at bank 25,722 21,533 21,486
56,765 60,190 54,846
Creditors
Amounts falling due within one 8 (34,757) (40,967) (38,329)
year
Net current assets 22,008 19,223 16,517
Total assets less current 94,694 136,632 96,306
liabilities
Creditors
Amounts falling due after more
than one year 9 (13,074) (8,307) (7,007)
Provisions for liabilities and 10 (4,953) (7,913) (7,535)
charges
Net assets 76,667 120,412 81,764
Capital and reserves
Called up share capital 2,257 2,257 2,257
Share premium account 43,881 43,956 43,879
Capital redemption reserve 6 6 6
Merger reserve 44,646 68,268 44,646
Shares to be issued 6 1,040 21
Profit and loss account (14,194) 4,885 (9,045)
Equity shareholders' funds 76,602 120,412 81,764
Equity minority interests 65 - -
Capital employed 76,667 120,412 81,764
Consolidated cash flow statement
For the six months ended 30th June 2003
Six months ended Six months ended Year ended
30th June 2003 30th June 2002 31st December 2002
Note (unaudited) (unaudited) (audited)
#000 #000 #000
Net cash inflow from operating 11 6,342 3,012 11,549
activities
Return on investments and servicing of finance
Interest paid (435) (445) (929)
Interest received 520 485 900
Interest element of finance lease (97) (90) (212)
rentals
Net cash (outflow) from returns on
investments and servicing of finance (12) (50) (241)
Taxation (paid) (697) (1,756) (3,242)
Capital expenditure and financial investment
Purchase of tangible fixed assets (1,191) (3,508) (5,844)
Proceeds from exercise of share 509 1,266 1,348
options
Sale of tangible fixed assets 69 15 102
Net cash (outflow) for capital
expenditure and financial investment (613) (2,227) (4,394)
Acquisitions and disposals
Purchase of subsidiary undertakings (262) (3,369) (4,866)
Investment in joint ventures - (74) (72)
Sale of associate undertakings 333 334 334
Net cash acquired with subsidiary undertakings 358 3,486 3,486
Net cash inflow/(outflow) for
acquisitions and disposals 429 377 (1,118)
Equity dividends - (1,244) (1,244)
Net cash inflow/(outflow) before management of
liquid resources and financing 5,449 (1,888) 1,310
Management of liquid resources
(Increase) in short-term deposits (30) - (529)
with banks
Net cash (outflow) from management of liquid resources and (30) - (529)
financing
Financing
Capital element of finance lease rentals and
increase/(decrease) in advances from finance (237) 491 400
houses
Issue of ordinary share capital 2 214 227
(Decrease) in borrowings (79) (79) (158)
Repayment of loan and promissory notes (49) (1,140) (3,206)
Net cash (outflow) from financing (363) (514) (2,737)
Increase/(decrease) in net cash in
the period 12 5,056 (2,402) (1,956)
1. Basis of preparation
The financial information contained on pages 7 to 16 does not constitute
statutory accounts within the meaning of section 240 of the Companies Act 1985.
Accordingly, the company's auditors have not made a report under section 235 of
the Companies Act 1985 on these financial statements.
The results shown above for the year ended 31st December 2002 are extracted from
the group's full financial statements which were reported on by the company's
auditors in accordance with section 235 of the Companies Act 1985.
Accounting policies
The accounting policies used in these statements are consistent with those used
in the 2002 financial statements. Statutory financial statements for the year
to 31st December 2002 have been delivered to the Registrar of Companies.
2. Segmental information
In the following analyses, those by business are based on the group's management
structure.
Geographical analysis
By origin
Profit/(loss) Turnover by
Turnover before taxation destination
#000 #000 #000
Six months ended 30th June 2003 (unaudited)
United Kingdom - group 50,642 (1,667) 48,248
- joint venture 1,950 (53) 1,950
Rest of the world - group 3,394 (1,532) 5,788
- joint venture - - -
55,986 (3,252) 55,986
Other - (1,733) -
55,986 (4,985) 55,986
Six months ended 30th June 2002 (unaudited)
United Kingdom - group 55,967 3,990 55,415
- joint venture 2,127 (128) 2,127
Rest of the world - group 2,433 (902) 2,985
- joint venture 128 (131) 128
60,655 2,829 60,655
Other - (34) -
60,655 2,795 60,655
Year ended 31st December 2002 (audited)
United Kingdom - group 109,261 (23,271) 108,568
- joint venture 4,226 (157) 4,226
Rest of the world - group 7,394 (1,585) 8,087
- joint venture 127 (195) 127
121,008 (25,208) 121,008
Other - (9,270) -
121,008 (34,478) 121,008
Business analysis
Six months ended Six months ended Year ended 31st
30th June 2003 30th June 2002 December 2002
(unaudited) (unaudited) (audited)
Profit/ Profit/ Profit/
(loss) (loss) (loss)
before before before
Turnover taxation Turnover taxation Turnover taxation
#000 #000 #000 #000 #000 #000
Software and consultancy - group 23,752 (3,708) 30,607 1,195 57,837 (27,833)
Services
Outsourcing - group 22,113 601 19,248 1,520 43,147 3,735
- joint venture 1,950 (53) 2,127 (128) 4,226 (157)
Portal services - group 8,171 (92) 8,545 373 15,671 (758)
- joint venture - - 128 (131) 127 (195)
55,986 (3,252) 60,655 2,829 121,008 (25,208)
Other - (1,733) - (34) - (9,270)
55,986 (4,985) 60,655 (2,795) 121,008 (34,478)
Software and consultancy turnover includes licence fees of #3,483,000 (2002:
#3,221,000).
In addition to the above analysis of the group's results, turnover can be
analysed according to the market served as follows:
Six months ended Six months ended Year ended 31st
30th June 2003 30th June 2002 December 2002
(unaudited) (unaudited) (audited)
#000 #000 #000
Six months ended 30th June 2003
(unaudited)
Life, pensions and investment
Software and - group 16,266 18,874 32,316
consultancy
Outsourcing - group 22,113 19,248 43,147
38,379 38,122 75,463
Mortgage
Software and - group 3,692 5,026 9,971
consultancy
Outsourcing - joint venture 1,950 2,127 4,226
5,642 7,153 14,197
Distribution
Software and - group 3,794 6,707 15,550
consultancy
Portal services - group 8,171 8,545 15,671
- joint venture - 128 127
11,965 15,380 31,348
55,986 60,655 121,008
3. Group operating profit
Operating loss of #3,198,000 (2002: profit of #3,188,000) is stated after
charging goodwill amortisation of #3,565,000 (2002: #4,906,000) and
reorganisation costs of #2,118,000 (2002: #538,000). The reorganisation costs
were incurred in connection with the relocation of employees based in the
group's Halesowen office and the subsequent closure of this office and other
initiatives aimed primarily at reorganising the group's management structure and
reducing headcount related costs.
Research and development costs for the six months to 30th June 2003 were
#1,926,000 (2002: #4,064,000).
4. Tax charge on profit on ordinary activities
Six months ended Six months ended Year ended
30th June 2003 30th June 2002 31st December 2002
(unaudited) (unaudited) (audited)
#000 #000 #000
Analysis of charge in the period
Current tax
UK corporation tax at 30% on profits for the 104 - (197)
period
Adjustment in respect of previous periods (16) (40) (191)
88 (40) (388)
Overseas tax 8 161 246
Total current tax (credit)/ 96 121 (142)
charge
Deferred tax origination and reversal of timing
differences
- current year charge 45 2,343 2,813
- prior year charge (7) - 276
38 2,343 3,089
Share of joint venture - - 69
Tax charge on (loss)/profit on ordinary 134 2,464 3,016
activities
5. Earnings per share
Basic earnings per share (EPS) is calculated by dividing the earnings
attributable to ordinary shareholders by the weighted average number of ordinary
shares in issue during the period. Shares held by the Employee Share Ownership
Trusts are treated as cancelled.
For diluted earnings per share, the weighted average number of ordinary shares
in issue is adjusted to assume conversion of all potentially dilutive ordinary
shares. This includes share options in issue where the exercise price is less
than the average market price together with other convertible and contingently
issuable shares.
Six months ended Six months ended Year ended
30th June 2003 30th June 2002 31st December 2002
(unaudited) (unaudited) (audited)
#000 #000 #000
Earnings
(Loss)/profit attributable to ordinary (5,119) 331 (37,494)
shareholders
Goodwill amortisation 3,565 4,906 9,746
Employee share option (credit)/ 37 - (563)
charge
Reorganisation costs 1,483 377 2,862
Goodwill impairment charge - - 23,622
Amounts written off 1,867 100 9,052
investments
Profit before charges for goodwill
amortisation and impairment, employee share
options, reorganisation costs and amounts 1,833 5,714 7,225
written off investments
Weighted average number of shares
Basic 190,012,532 186,809,349 187,707,473
Diluted 3,416,702 28,421,622 21,257,102
Diluted number of shares 193,429,234 215,230,971 208,964,575
(Loss)/earnings per share (pence)
Basic (2.7) 0.2 (20.0)
Adjusted basic (i) 1.0 3.1 3.8
Diluted (ii) (2.7) 0.2 (20.0)
Adjusted diluted (i) 0.9 2.7 3.5
(i) Adjusted EPS and adjusted diluted EPS are calculated before charges for
goodwill amortisation and impairment, employee share options,
reorganisation costs and amounts written off investments. This
supplementary EPS information has been provided as the directors consider
it gives a clearer indication of the underlying trading performance of the
Group.
(ii) In the six months ended 30th June 2003 and the year ended 31st December
2002, the group made a loss; consequently the effect of share options in
these periods was anti-dilutive. Therefore, there is no difference between
the weighted average number of shares for the basic and diluted loss per
share. The dilutive effect on the adjusted EPS is shown.
6. Interests in own shares
Total
#000
At 1st January 2003 10,477
Adjustment to market value (1,867)
Shares transferred on exercise of employee (509)
options
At 30th June 2003 8,101
The value of the interest in own shares held in employee related share trusts
has been assessed and marked to market at the balance sheet date. Based on the
share price of #0.27 at 30th June 2003 and the 33,888,706 shares held by these
trusts at that date, an amount of #1,867,000 has been provided in the period
against the carrying value of the interest in own shares. Based on the latest
available share price of #0.425 on 1st September 2003, an increase in the
carrying value relative to the position at 30th June 2003 of #3,253,000 would be
required.
7. Debtors
Six months ended 30th Six months ended Year ended
June 2003 (unaudited) 30th June 2002 31st December 2002
(unaudited) (audited)
#000 #000 #000
Trade debtors 17,712 21,481 18,958
Corporation tax recoverable 690 71 555
Deferred taxation 2,763 2,975 2,798
Accrued income 3,285 6,072 6,270
Prepayments and other debtors 5,966 8,058 4,250
30,416 38,657 32,831
Included in deferred taxation above is an estimated asset of #1,048,000
recoverable in excess of one year.
8. Creditors: amounts falling due within one year
Six months ended 30th Six months ended Year ended
June 2003 (unaudited) 30th June 2002 31st December 2002
(unaudited) (audited)
#000 #000 #000
Bank and other borrowings 6,440 7,875 7,515
Trade creditors 2,292 3,376 3,268
Corporation tax - 1,408 309
Overseas tax 196 283 328
Other tax and social security 3,725 4,533 3,684
Other creditors 1,383 - 636
Accruals 5,725 7,644 9,052
Payments on account and deferred income 13,678 10,108 12,865
Deferred consideration on acquisitions 1,318 5,740 672
34,757 40,967 38,329
9. Creditors: amounts falling due after more than one year
Six months ended 30th Six months ended Year ended
June 2003 (unaudited) 30th June 2002 31st December 2002
(unaudited) (audited)
Bank and other borrowings 5,168 7,842 5,389
Deferred consideration on acquisitions 1,048 - 1,048
Other creditors 548 465 570
Payments on account and deferred income 6,310 - -
13,074 8,307 7,007
10. Provisions for liabilities and charges
Six months ended 30th Six months ended Year ended
June 2003 (unaudited) 30th June 2002 31st December 2002
(unaudited) (audited)
Employee related reorganisation provisions 1,657 5,386 3,544
Property related reorganisation provisions 3,092 1,443 3,823
Other provisions 204 1,084 168
4,953 7,913 7,535
The movement in provisions for the six months period to 30th June 2003 is
detailed below.
Provision at Provision at
31st December Established Utilised 30th June 2003
2002
Employee related reorganisation 3,544 2,118 (4,183) 1,479
provisions
Property related reorganisation 3,823 - (731) 3,092
provisions
Other provisions 168 323 (109) 382
7,535 2,441 (5,023) 4,953
11. Reconciliation of operating profit to operating cash flow
Six months ended Six months ended Year ended
30th June 2003 30th June 2002 31st December 2002
(unaudited) (unaudited) (audited)
#000 #000 #000
Group operating (loss)/ (3,198) 3,188 (24,856)
profit
Depreciation charge 2,643 2,125 4,504
Goodwill and intangible asset amortisation and 3,487 4,781 33,190
impairment
(Profit) on sale of tangible fixed assets (18) (5) (32)
Adjustment for unrealised profit on sales to 40 158 169
joint venture
Decrease/(increase) in 2,614 (2,991) 2,641
debtors
Increase/(decrease) in 3,356 (1,787) 1,033
creditors
(Decrease) in provisions (2,582) (2,457) (5,100)
Net cash inflow from operating activities 6,342 3,012 11,549
12. Analysis of movement in net cash
At 1st Exchange Finance At 30th June
January 2003 differences leases 2003
Cash flow Acquisitions
#000 #000 #000 #000 #000 #000
Cash at bank and in hand 21,486 3,696 358 182 - 25,722
Overdrafts (5,048) 1,002 - (20) - (4,066)
16,438 4,698 358 162 - 21,656
Current asset investments 529 30 - 68 - 627
Bank and term loans (3,325) 79 - - - (3,246)
Other loans (148) 49 - (15) - (114)
Finance leases and advances
from finance houses (4,383) 237 - (4) (32) (4,182)
9,111 5,093 358 211 (32) 14,741
13. Acquisitions
On 14th May 2003 Otter Risk Solutions issued convertible ordinary shares to the
Group for a consideration of #250,000. These shares convert into between 74% and
80% of Otter's ordinary share capital after 18 months trading by Otter under the
group's ownership, with the final level of the group's shareholding based on
Otter's financial performance.
Otter Risk Solution's turnover between the date of acquisition and 30th June
2003 amounted to #162,000 and its operating profit was #17,000.
The acquisition has been accounted for by adopting acquisition accounting.
14. Availability of interim report
Further copies of the interim report can be obtained from our registered office
at Allen Jones House, Jessop Avenue, Cheltenham, GL50 3SH.
Independent review report to Marlborough Stirling plc
Introduction
We have been instructed by the company to review the financial information which
comprises the profit and loss account, balance sheet, statement of total
recognised gains and losses, cash flow statement and the related notes. We have
read the other information contained in the interim report and considered
whether it contains any apparent misstatements or material inconsistencies with
the financial information.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by the directors. The directors are
responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority which require that the accounting
policies and presentation applied to the interim figures should be consistent
with those applied in preparing the preceding annual accounts except where any
changes, and the reasons for them, are disclosed.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
issued by the Auditing Practices Board for use in the United Kingdom. A review
consists principally of making enquiries of group management and applying
analytical procedures to the financial information and underlying financial data
and, based thereon, assessing whether the accounting policies and presentation
have been consistently applied unless otherwise disclosed. A review excludes
audit procedures such as tests of controls and verification of assets,
liabilities and transactions. It is substantially less in scope than an audit
performed in accordance with United Kingdom Auditing Standards and therefore
provides a lower level of assurance than an audit. Accordingly we do not express
an audit opinion on the financial information. This report has been prepared for
and only for the company for the purpose of the Listing Rules of the Financial
Services Authority and for no other purpose. We do not, in producing this
report, accept or assume responsibility for any other purpose or to any other
person to whom this report is shown or into whose hands it may come save where
expressly agreed by our prior consent in writing.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30th June 2003.
PricewaterhouseCoopers LLP
Chartered Accountants
London
1st September 2003
Notes:
(a) The maintenance and integrity of the Marlborough Stirling plc website is
the responsibility of the directors; the work carried out by the auditors
does not involve consideration of these matters and, accordingly, the
auditors accept no responsibility for any changes that may have occurred to
the interim report since it was initially presented on the website.
(b) Legislation in the United Kingdom governing the preparation and
dissemination of financial information may differ from legislation in other
jurisdictions.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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