RNS Number:7005Q
Charteris PLC
09 October 2003
CHARTERIS PLC
PRELIMINARY RESULTS
Charteris plc, the business and IT management consultancy, announces its
preliminary results for the year ended 31 July 2003.
Key points
*In a difficult market, revenue reduced to #12.2M (2002: #19.1M)
*Profit before tax, goodwill and exceptional staff costs of #14K (2002:
#1,758K)
*Cash balances remain strong at #3.3M (31st July 2002: #4.9M)
*Good progress in our diversification strategy with major new clients in
the retail and supply chain sectors and growth in revenues in the public
sector.
*Significant reduction in our cost base to align with reduced revenue.
*Dividend maintained at 0.4p per share
Commenting on the results, David Mann, Chairman, said:
"In its first six years of trading, Charteris established an excellent record
for strong growth with emphasis on profitability and cash generation. After a
few months of the current year, it became clear that it would not be possible
for the Company to maintain that in the short term. Some key sales opportunities
had not developed as planned and in general the time to convert prospects into
orders was being extended.
At the end of the financial year Charteris had a sales pipeline that was
stronger and more broadly based than at any time during the financial year. The
market is beginning to show some signs of improvement, but the Directors expect
recovery to be gradual. We currently see good prospects for the Company to
achieve some year-on-year growth in revenue in the financial year 2003/04. A
significant new contract with KCI International and another contract that we
expect to sign shortly have helped to underpin our confidence."
2003 2002
#'000 #'000
Turnover 12,174 19,087
Profit before tax, exceptional staff costs and 14 1,758
goodwill amortisation
(Loss)/profit before tax (625) 1,588
Diluted earnings per share before exceptional staff 0.00p 2.91p
costs and goodwill amortisation
Dividend per share 0.4p 0.4p
Total cash balance 3,309 4,909
Press enquiries:
David Pickering, Chief Executive Tel: 020 7600 9199
Zoe Biddick, Biddicks Tel: 020 7448 1000
CHAIRMAN'S STATEMENT
In its first six years of trading, Charteris established an excellent record for
strong growth with emphasis on profitability and cash generation. After a few
months of the current year, it became clear that it would not be possible for
the Company to maintain that in the short term. Some key sales opportunities had
not developed as planned and in general the time to convert prospects into
orders was being extended. This was particularly true in the financial services
sector, which had accounted for a large proportion of the Company's revenue in
previous years. Good progress was being made with the strategy of
diversification in other markets, particularly retail and government, but not
fast enough to compensate for the downturn in finance. This pattern continued
throughout the remainder of the year, with conditions worsening during the year
before starting to improve a little towards the end.
In the light of the delays on new orders, the Directors gave very careful
consideration to striking the right balance between making significant cost
reductions to improve performance in the short term and preserving the
fundamental strengths of the business for the medium term. The Company's cost
base in the current financial year, excluding the amortisation of goodwill and
exceptional items, has been reduced by just under one third (compared to the
previous financial year). This has been achieved through headcount reduction and
tight management of overhead spend. The Company's flexible remuneration policies
have also helped to align professional costs with reduced revenue.
Results
Turnover in the year ended 31 July 2003 was #12.2m (compared to #19.1m in the
year ended 31 July 2002). Profit before exceptional costs (associated with
redundancy programmes) and the amortisation of goodwill was around break even at
#14k. Loss before tax was #625k (compared to a profit of #1,588k). The Company's
financial position remained strong with total cash balances at the end of the
period of #3.3m (compared to #4.9m).
The Directors are recommending the payment of a dividend of 0.4p (the same as in
the previous year). If approved, the dividend will be paid on 2 December 2003 to
shareholders on the register on 7 November 2003.
Strategy
We have developed a three-year strategic plan for getting Charteris back onto
its course of strong growth. This is based on the continued development of the
Company's services in business consulting, project management and technology
across an increasing range of industry sectors. Through the practice structure
we are complementing our foundation skills and capabilities with specialised
offerings appropriate to the various markets.
The Directors have taken the opportunity of a low share price to arrange for
about a million shares to be bought by the Company's Employee Benefit Trust. The
shares are being used to provide special incentives to the managers and sales
staff for the achievement of the strategic plan.
Prospects
At the end of the financial year Charteris had a sales pipeline that was
stronger and more broadly based than at any time during the financial year. The
market is beginning to show some signs of improvement, but the Directors expect
recovery to be gradual. We currently see good prospects for the Company to
achieve some year-on-year growth in revenue in the financial year 2003/04. A
significant new contract with KCI International and another contract that we
expect to sign shortly have helped to underpin our confidence.
Charteris continues to have strong growth ambitions. The Directors believe that
the Company has maintained the strengths to deal with the challenges of current
market conditions, and established the foundations for new and broadly based
growth as conditions improve.
CHIEF EXECUTIVE'S STATEMENT
This third year of the economic down-turn has challenged businesses, large and
small. For the management consultancy industry the last 18 months has probably
been the most difficult period it has ever faced. Charteris is clearly not
immune to these conditions and it has been a difficult year for the Company.
Charteris maintained its track record of double-digit growth through the first
two years of the economic down-turn. Although budgets were tightened through
that period, organisations were continuing selectively to commit expenditure on
business and technology change initiatives. By working closely with current and
prospective clients we were able to win a significant proportion of these
increasingly scarce opportunities, several of which were large programmes.
This year, whilst our focus on business development was undiminished, and client
relationships remained strong, we witnessed increasingly severe cut backs in
clients' external spending. The time to convert prospects into orders continued
to be extended, particularly in the financial services sector where a
significant proportion of our revenues have traditionally been derived. The
result was that as several major client programmes came to successful completion
in the first half of the year, we were unable fully to replace these revenues
with new business.
During the second half of the year, although trading conditions continued to be
difficult, we began to see the positive effects of our diversification strategy,
the foundations of which we established 18 months ago. Central to this was the
strengthening of our position in several target market sectors which had
high-growth potential and which would complement our existing markets, notably
retail and the supply chain, and the public sector.
Widening the Reach of the Business
In my report last year I announced the establishment of a market-sector-based
Practice Structure which would increase further our focus on the specific needs
of our existing and target markets. In its first year this structure has enabled
Charteris to work through the current challenges in the most difficult markets
while giving additional emphasis to building up business in other sectors.
The progress we have made this year in retail and in the public sector is
proving the effectiveness of this approach. Our retail business increased by 17%
compared with the previous financial year. We have developed important new
relationships, such as at Marks & Spencer where we have provided project and
technical management services.
In the manufacturing sector we have supported KCI, the global manufacturer of
innovative medical devices, on developing an IT strategy and defining the
business requirements for a new ERP solution. We are delighted that this work
has culminated in the international division of KCI awarding us a #2.3M contract
to implement the solution across fifteen countries over the next eighteen
months. The development of our relationship with KCI demonstrates how Charteris
can add value through the business and IT change lifecycle. It will provide a
strong platform for further growth in this sector.
Our business in the public sector grew by 115%, albeit from a small base. We
were delighted to be selected by the Office of Government Commerce for their
services catalogue (S-Cat), which will give us greater access to expanding
public sector markets. This year we won new clients in both local and central
government, and in recent months we were selected by the Cabinet Office to
support a major new programme.
Whilst we saw reduced activity in the financial services sector this year, there
were some very notable achievements. Charteris programme managers were engaged
in the successful completion of a two-year, post-takeover, integration programme
within one of the leading high-street banks. Our business consultants also
helped establish the operating framework for a new bank as it migrated its
entire credit card customer base to a new operating environment and strategic
technology platform.
In the technology sector, our relationship with Microsoft has continued to grow,
with Charteris technical consultants and project managers working alongside
Microsoft to deliver major .NET projects to some of its largest clients such as
HM Government. During the year we also delivered a groundbreaking,
enterprise-level e-trading solution for vehicle fleet re-marketing across
Europe. As one of the first fully end-to-end .NET solutions, this project will
be a strong reference for further advanced technical solutions using .NET
technology.
The Charteris Team
The achievement of revenues this year has required considerable extra effort and
determination from the team in addressing a market for consulting services that
has been under a great deal of pressure. Whether in winning business or
delivering it, the need to stand out from the crowd has never been greater.
Charteris people with their no-nonsense commitment to client delivery have done
just that.
Clients continue to grapple with the imperatives of business and technology
change in highly cost-conscious circumstances. When they reach for external
assistance their priorities are unambiguously: value, skill and delivery. The
experience and versatility of Charteris people have again been the
differentiating factors that have enabled us to connect with these priorities in
our traditional markets and, all the more so this year, in developing market
sectors.
I would like to thank everyone on the Charteris team for the resilience and
commitment they have displayed in this challenging year. It has made all the
difference.
Business Outlook
Work done in the business this year has been vital for the future development of
Charteris. Building on the practice structure now established, we have developed
a three-year strategy for increased penetration of our target markets. We see
considerable potential in the retail, public sector and technology markets. With
the good relationships we have maintained with a range of financial services
organisations, we anticipate increased levels of business in due course.
We remain realistic about general market conditions. Whilst some positive
indications are starting to emerge, we expect that improvement will be gradual.
However, despite the difficult circumstances this year, we have ensured that the
fundamental strengths of the business are preserved and that the seeds are sown
for future growth. By maintaining our focus on business development, we have
built a healthy pipeline of prospects for the new year. We are confident that an
increasing number of leading organisations will experience the difference that
Charteris brings.
FINANCE DIRECTOR'S REVIEW
Operating Costs
We have managed our costs very carefully to minimise spend whilst maintaining
the core strengths in the business. Our cost base, excluding exceptionals and
goodwill amortisation, has been reduced by just under one third compared with
the previous financial year. Within this, staff costs have decreased by one
third to #7.8m (FY02: #11.7m). This has been achieved partly through our
remuneration model, which links consultants' income to individual billings, and
partly through our redundancy programmes, which resulted in the loss of sixteen
members of staff. We have reduced our use of associates through the course of
the year and other external charges (which also includes project expenses) have
decreased by 23%. Our administrative expenses have been subjected to continual
scrutiny and a substantial reduction in discretionary spend has been achieved.
As a result we have reduced our overhead spend by 24% to #935k (FY02: #1,235k).
Cash Generation
The Group's cash balance remains strong and was #3.3m at year end (2002: #4.9m).
Net of our mortgage the balance was #2.1m (2002: #3.5m). There was a cash
outflow from operating activities of #1.1m arising from exceptional costs and a
significant decrease in our creditor balances. The reduction in creditors
reflects a reduced use of associates, whose terms generally provide for invoices
to be settled upon payment by the ultimate client, and reduced fee share
payments due to staff at year end. We paid #300k as the balance of our FY02
corporation tax in the first half of this year and made a dividend payment of
#161k in November 2002. The Group's debtor days improved to 49 at 31 July 2003,
compared with 51 last year.
Capital expenditure was reduced to #43k as part of our cost reduction programme
(FY02: #249k). In January 2003 we sold a property acquired as part of the assets
of The Mandelbrot Set (International) Limited for #76k, making a profit of #11k.
On 25 July 2003 the Charteris plc General Employee Benefit Trust (the Trust)
purchased 952,000 ordinary shares of 1p each in the Company at 15.5p and on 1
August 2003 the Company lent the Trust #126k to enable it to pay for the shares.
Financial Instruments
The Group is financed through shareholder funds, retained earnings and a #1.3m
mortgage. The Company has an agreed overdraft facility with National Westminster
Bank plc of #250k, which has not been used.
The Group manages its treasury position by placing surplus cash on short term
deposit. The Group does not speculate with derivative instruments and continues
to conduct all of its business in sterling.
CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 JULY 2003
Notes 2003 2002
#'000 #'000
Turnover 12,174 19,087
-------------- --------------
Other operating income - (40)
Other external charges 3,320 4,312
Staff costs
- exceptional 3 464 -
- other 7,828 11,692
Depreciation 128 168
Goodwill amortisation 175 170
Administrative expenses 935 1,235
-------------- --------------
12,850 17,537
OPERATING (LOSS)/PROFIT BEFORE
GOODWILL AMORTISATION AND
EXCEPTIONAL STAFF COSTS (37) 1,720
Goodwill amortisation (175) (170)
Exceptional staff costs (464) -
OPERATING (LOSS)/PROFIT (676) 1,550
Interest receivable 119 134
Interest payable and similar (68) (96)
charges
PROFIT ON ORDINARY ACTIVITIES
BEFORE TAXATION, GOODWILL
AMORTISATION AND EXCEPTIONAL
STAFF COSTS 14 1,758
Goodwill amortisation (175) (170)
Exceptional staff costs (464) -
(LOSS)/PROFIT ON ORDINARY
ACTIVITIES BEFORE TAXATION (625) 1,588
Taxation 117 (551)
-------------- --------------
(LOSS)/PROFIT ON ORDINARY
ACTIVITIES AFTER TAXATION AND
FOR THE FINANCIAL YEAR (508) 1,037
Dividends proposed 4 (158) (161)
-------------- --------------
RETAINED (LOSS)/PROFIT FOR THE (666) 876
YEAR
=============== ===============
(LOSS)/EARNINGS PER SHARE 5
Basic (1.26)p 2.89p
Diluted (1.26)p 2.50p
Basic before amortisation of 0.00p 3.37p
goodwill and exceptional staff
costs
Diluted before amortisation of 0.00p 2.91p
goodwill and exceptional staff
costs
Turnover and operating profit all derive from continuing operations.
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.
CONSOLIDATED BALANCE SHEET
FOR THE YEAR ENDED 31 JULY 2003
Notes 2003 2002
#'000 #'000
FIXED ASSETS
Intangible assets 3,130 3,305
Tangible assets 2,583 2,732
Investments 202 57
--------------- ----------------
5,915 6,094
--------------- ----------------
CURRENT ASSETS
Debtors 1,723 3,667
Cash at bank and in hand 3,309 4,909
--------------- ----------------
5,032 8,576
CREDITORS: Amounts falling due (2,160) (5,076)
within one year
--------------- ----------------
NET CURRENT ASSETS 2,872 3,500
--------------- ----------------
TOTAL ASSETS LESS CURRENT 8,787 9,594
LIABILITIES
CREDITORS: Amounts falling due (1,092) (1,261)
after more than one year
PROVISIONS FOR LIABILITIES AND (32) (26)
CHARGES
--------------- ----------------
NET ASSETS 7,663 8,307
=============== ================
CAPITAL AND RESERVES
Called up share capital 6 419 412
Share premium account 2,544 2,540
Merger reserve 3,284 3,284
Other reserves 19 8
Profit and loss account 1,397 2,063
--------------- ----------------
EQUITY SHAREHOLDERS' FUNDS 7 7,663 8,307
=============== ================
CONSOLIDATED CASHFLOW STATEMENT
FOR THE YEAR ENDED 31 JULY 2003
Notes 2003 2002
#'000 #'000
Cash flow from operating 8a (1,093) 1,982
activities
Returns on investments and 8b 52 40
servicing of finance
Taxation (300) (687)
Capital expenditure and 8b 53 (249)
financial investment
Acquisitions 8b - 77
Equity dividends paid (161) -
--------------- ---------------
CASH (OUTFLOW)/INFLOW BEFORE USE
OF LIQUID RESOURCES AND
FINANCING (1,449) 1,163
Management of liquid resources 8b 1,528 (2,758)
Financing 8b (151) (61)
--------------- ---------------
DECREASE IN CASH IN THE YEAR (72) (1,656)
=============== ===============
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS
2003 2002
#'000 #'000
Decrease in cash in the year (72) (1,656)
Cash outflow from change in debt 156 130
Cash (inflow)/outflow from (decrease)/ (1,528) 2,758
increase in liquid resources
--------------- ---------------
Change in net funds resulting from cash (1,444) 1,232
flows
Amortisation of loan arrangement fees (1) (2)
--------------- ---------------
MOVEMENT IN NET FUNDS IN THE PERIOD (1,445) 1,230
OPENING NET FUNDS 3,503 2,273
--------------- ---------------
CLOSING NET FUNDS 2,058 3,503
=============== ===============
NOTES:
1. The financial information contained in this document does not
constitute statutory accounts within the meaning of section 240
Companies Act 1985. The figures for the year ended 31 July 2003
have been extracted from the annual accounts in respect of which
the auditors have not yet signed their audit report. The audited
statutory accounts for the year ended 31 July 2003 will be
delivered to the Registrar of Companies in due course. The figures
for the year ended 31 July 2002 have been extracted from the
audited statutory accounts for that year which have been filed with
the Registrar of Companies and received an unqualified auditors'
report which did not contain a statement under section 237 (2) or
(3) Companies Act 1985.
2. The accounting policies adopted are consistent with those used in
previous years.
3. Included in staff costs are exceptional staff costs of #463,578
(2002: #Nil) being redundancy costs following reductions in the
number of staff in November 2002 and February 2003.
4. DIVIDEND
The Directors recommend that a dividend of 0.4p per share is
payable. Dividends payable to the trustee of the group's employee
benefit trust are waived under the terms of the trust deed; the
amount of the proposed dividend so waived is #9,574. If approved,
the dividend will be paid on 2 December 2003 to eligible
shareholders on the register at close of business on 7 November
2003.
5. (LOSS)/EARNINGS PER SHARE
The calculations of (loss)/earnings per share are based on the
following (losses)/profits and numbers of shares.
2003 2002
#'000 #'000
Profit for the financial year
before goodwill amortisation
and exceptional staff costs 1 1,207
Goodwill amortisation (175) (170)
Exceptional staff costs (net (334) -
of tax relief)
--------------- ---------------
(Loss)/profit for the (508) 1,037
financial year
=============== ===============
2003 2002
No. of No. of
Weighted average number of shares shares
shares '000 '000
For basic (loss)/earnings per 40,289 35,853
share
Dilutive effect of share - 5,171
options
Contingent share - 470
consideration for
subsidiary
--------------- ---------------
For diluted (loss)/earnings 40,289 41,494
per share
================ ================
The weighted average number of shares for the purposes of basic (loss)/
earnings per share excludes those owned by the Group's employee benefit
trust.
6 SHARE CAPITAL 2003 2002
#'000 #'000
Authorised:
100,000,000 ordinary shares of 1p each 1,000 1,000
=========== ===========
Allotted, issued and fully paid:
41,873,514 ordinary shares of 1p each (2002: 419 412
41,174,252 )
=========== ===========
Share issues:
On 4 October 2002, 564,262 ordinary shares of 1p each were issued at
143p each to satisfy the total deferred consideration in connection with
the acquisition of The Mandelbrot Set (International) Limited.
On 20 December 2002, the Company allotted 75,000 ordinary shares of 1p
each at 1.33p per share following the exercise of share options by an
employee.
On 10 March 2003, a further 60,000 ordinary shares of 1p were allotted
at 6.83p per share as a result of another employee exercising share
options.
7. RECONCILIATION OF MOVEMENT IN EQUITY
SHAREHOLDERS' FUNDS 2003 2002
#'000 #'000
(Loss)/profit for the financial (508) 1,037
year
Dividends (158) (161)
--------------- ---------------
(666) 876
New share capital issued net of 11 67
costs
Deferred share consideration in (6) (330)
respect of acquisition
Premium on options exercised in 17 2
EBT
--------------- ---------------
Net (reduction in)/addition to
equity shareholders' funds (644) 615
Opening equity shareholders' funds 8,307 7,692
--------------- ---------------
Closing equity shareholders' funds 7,663 8,307
=============== ===============
8. CASH FLOWS 2003 2002
#'000 #'000
a Reconciliation of operating (loss)/
profit to net cash (outflow)/inflow
from operating activities
Operating (loss)/profit (676) 1,550
Depreciation 128 168
Profit on disposal of fixed assets (12) -
Amortisation of goodwill 175 170
Amounts written off investments 1 -
Decrease/(increase) in debtors 2,066 (360)
(Decrease)/increase in creditors (2,774) 547
Decrease in provisions (1) (93)
--------------- ---------------
Net cash flow from operating (1,093) 1,982
activities
=============== ===============
b Analysis of cash flows for headings
netted in the cash flow
Returns on investments and servicing
of finance
Interest received 119 134
Interest paid (67) (94)
--------------- ---------------
Net cash inflow from returns on
investments and servicing of
finance 52 40
=============== ===============
Capital expenditure and financial
investment
Purchase of tangible fixed assets (43) (249)
Sale of tangible fixed assets 76 -
Purchase of own shares (1) -
Sale of own shares 21 -
--------------- ---------------
Net cash inflow/(outflow) from
capital expenditure and financial
investment 53 (249)
=============== ===============
Acquisitions
Purchase of subsidiary
undertaking - 77
--------------- ---------------
Net cash inflow for
acquisitions - 77
=============== ===============
Management of liquid
resources
Decrease/(increase) in
term bank deposits 1,528 (2,758)
--------------- ---------------
Net cash inflow/(outflow) 1,528 (2,758)
from management of liquid
resources
=============== ===============
Financing
Issue of ordinary share
capital 5 52
Expenses paid in connection - 17
with share issues
Repayment of mortgage loan (156) (130)
--------------- ---------------
Net cash outflow from
financing (151) (61)
=============== ===============
At At
1 August Other 31 July
2002 Cash flow changes 2003
c Analysis #'000 #'000 #'000 #'000
of net
funds
Cash in 459 (72) - 387
hand, at
bank
Bank 4,450 (1,528) - 2,922
deposits
--------------- --------------- --------------- ---------------
4,909 (1,600) - 3,309
Debt due (145) 156 (170) (159)
within 1
year
Debt due (1,261) - 169 (1,092)
after 1
year
--------------- --------------- --------------- ---------------
Total 3,503 (1,444) (1) 2,058
=============== =============== =============== ===============
9. *This preliminary announcement was approved by the Board on 8 October 2003.
Copies of this announcement are available at the office of the Company's
Nominated Advisor, KBC Peel Hunt Limited (111 Old Broad Street, London, EC2N
1PH).
10. *The AGM will take place at 11am on 1 December 2003 at Charteris House, 39/
40 Bartholomew Close, London, EC1A 7JN.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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