RNS No 3302r
POLICY MASTER GROUP PLC
8 April 1999
PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 1998
FINANCIAL HIGHLIGHTS
* The Company's results in the first year as a publicly quoted
company represent a substantial improvement on 1997.
* Operating profit before goodwill amortisation up 35 per cent. at #1.1m
(1997: #0.8m*).
* Turnover has increased by 30 per cent. to #11.3m (1997: #8.7m*).
* Adjusted EPS+ of 7.5 pence (1997: 5.5 pence*).
* The Company continues with an effective nil rate of corporation
tax with #4.1m of tax losses available at the year-end.
* Recurring revenue of #4.7m (1997: #3.9m*).
* A final dividend of 1p per share is proposed.
* and ** refers to the notes following the accounts.
CHAIRMAN'S STATEMENT
REVIEW OF RESULTS
Turnover of #11.3m represents a 30 per cent. growth on 1997, * reflecting
the ongoing strong demand for Policy Master's products and
services. Operating profit before goodwill amortisation was #1.1m,
up 35 per cent. on 1997.* Operating profit margins before goodwill
amortisation moved up from 8.9 per cent. to 9.3 per cent.
Adjusted earnings per share (EPS) of 7.5p for the year was up 36 per cent.
on 1997+. The adjusted EPS is based on operating profits before
the effect of the interest charges and amortisation of goodwill
arising from the MBO in January 1997.
Net assets improved during the year to end at #4.2m. Operating
activities generated #662,000 of cash during the year. Principal
uses of cash during the year included the purchase of the premises
adjoining the Head Office at Sutton Coldfield and of Swift
Financial Systems Ltd. Arrangements post-year end have been made
to put in place a mortgage on the property repayable over a ten-
year period.
Although growth was experienced in all areas of the business, it
was particularly pleasing to see delivery to the first Gemini and
Sirius customers. Interest in Sirius has been particularly strong,
resulting in a growing order book. The success of Sirius confirms
Policy Master's abilities to produce high-value tailored solutions
designed to maintain the business needs of an increasing number of
specialists in our market. The traditional business of UK broking
systems benefited from three significant orders during 1998 which
added 150 new sites. One of these customers, CGU, continues to
install Policy Master systems into its tied agents in 1999.
Sales overseas were 17 per cent. of total turnover, a similar level to
previous years and the Group's considerable recurring revenue
continued to grow to #4.7m (#3.9m in 1997), representing 42 per cent. of
total sales.
ACQUISITION
Following the Company's successful flotation in July, on 15
October Policy Master purchased the share capital of Swift
Financial Systems Ltd. Historically Swift was primarily involved
in the development of a new Windows-based Life & Pensions back-
office system for the Independent Financial Adviser (IFA). Policy
Master research indicated this was a market-leading product that
had already secured a number of prestige sales. Since the
acquisition, the business has been integrated into Policy Master
and continues to broaden the functionality of its product range.
As well as making sales to IFAs, of particular benefit to existing
Policy Master customers will be the integration of the Swift
product with PM Broking, thus providing full inter-operability for
the composite broker.
During the course of 1999 it is anticipated that the Swift product
will make an increasing contribution to the Group's results.
STRATEGIC REVIEW
Following the advent of new products and the Group's entry into
solution sales, the management team identified a need for a new
structure to meet the needs of the growing diversity of customers.
A full strategic review by the management team has led to the
introduction of a new channel structure for 1999. This will allow
for customer segmentation and is discussed in more detail later.
CURRENT TRADING AND FUTURE PROSPECTS
The Group starts 1999 with a strong order book. As well as
expanding its Sirius solution sales, the Group continues to
install broking systems at a high run rate. 1999 should also see
the benefits of the Swift product range as it becomes established
with an even stronger customer base.
EMPLOYEES
Although the employment market for certain specialist skills
remains difficult, the Group has continued to grow its workforce
to meet resource requirements to support its growing sales.
Following the Swift acquisition, total headcount has now reached
220, and staff turnover continues to better the industry average.
The Group launched an Employee SAYE scheme in October 1998 with 77
people subscribing to the scheme, in addition to the sizeable
number of staff that participated in the share offers at the time
of the MBO and flotation. In line with the Group's continued
commitment to wider employee share ownership, a further scheme
will be introduced during 1999.
Finally, on behalf of the whole Board I thank all of our staff for
their continuing commitment and contribution to the Group's
success.
John A Kimberley
Chairman
CHIEF EXECUTIVES STATEMENT
A YEAR OF GROWTH
1998 was very exciting year for Policy Master as making our entry
to the Alternative Investment Market (AIM) of the London Stock
Exchange, it was a year in which we started to see the benefits of
our ongoing investment in new technology.
At the time of our flotation, we said that Sirius, our new
Microsoft Windows-based technologies and products, positioned us
well to exploit several opportunities for growth:
* increased market share of packaged systems
* higher-value contracts from larger customers
* supplying high-valued tailored solutions to more sophisticated
and specialist organisations which are evolving from the changes taking
place in the market.
I am pleased to report that we have been able to exploit these
opportunities.
Increased Market Share
1998 has been our best year ever for sales of new systems. We
took orders for over 200 new sites, 75 per cent. of them displacing
existing systems from major competitors. These gains include
multi-site systems to A-Plan and to Secure Trust, two of the UK's
larger retail broking chains. We were also delighted to win a
contract to supply new systems to the 100-strong, tied agent base
of CGU. These sales have increased our market share and have
stimulated interest from other organisations seeking technology
which is both innovative and cost-effective.
Larger Contracts
As in previous years, we continue to be successful in increasing
our average order value by attracting a number of larger broking
customers such as RA Rossborough in the Channel Islands. We are
actively targeting this end of the market and have continued to
achieve further notable contract wins.
Tailored Solutions
We believe the provision of tailored solutions, built using our
component-based Sirius technology, is the Group's most exciting
opportunity for growth. Development of the Sirius components began
in 1996 and during 1998 we were able to start the build and
deployment of our first customer solutions, which included
developments for Royal Bank Insurance Services and MiniBus Plus,
the UK's leading provider of minibus insurance. Importantly, we
enter 1999 with a strong order book to provide Sirius solutions
for a wide range of customers.
NEW PRODUCT LAUNCHES
As well as delivering our first Sirius systems, we also released
new versions of existing products. Notable new product versions
included DocuMaster Enterprise (DME), an enhanced version of our
document & image management software for larger and more complex
organisations. We also added more functionality and more
commercial lines products to our Gemini software.
For 1999 we are delighted to have gained significant support from
major insurance companies to provide funding to develop Gemini II,
our new generation of Windows-based personal lines insurance
systems. We believe Gemini II will enable us to further increase
our market share of packaged systems and to provide more advanced
systems for direct marketers and call centre operations.
Later in the year we plan to launch our next generation of
packaged products for brokers with our new 'Sirius for Broking'
back-office software. We believe that the strong functionality of
this new product, combined with its use of the Windows
environment, will enable us to win new business and secure
additional upgrade revenues from existing customers.
ACQUISITION OF SWIFT
For some time we have believed there is significant opportunity in
providing software for independent financial advisers (IFAs). Our
own broker customers with IFA arms to their business had been
asking for Windows software with more specialist features and
better compliance monitoring. Rather than build our own new
generation of Life & Pensions software, we resolved to acquire a
specialist software house that would strengthen this part of our
portfolio. With Swift Financial Systems, we gained a market-
leading Windows product, a customer base of corporate IFAs,
pension providers and life insurers as well as a team of
specialist staff and developers. Policy Master customers have
reacted well to the Swift acquisition and a strong sales line is
being built both for new and existing customers.
PARTNERSHIPS
Policy Master sees partnerships, such as our relationship with
Microsoft and Compaq, as pivotal in enabling us to provide the
'total solution' of end-user application, third-party software and
hardware that our customers increasingly require. Our relationship
with Microsoft has strengthened since our Sirius technology was
awarded their Designed for BackOffice(TM) logo accreditation, ahead
of any other insurance software house worldwide, in 1997. We have
now earned Microsoft Solution Provider Partner status, once
again ahead of our competitors. Our partnership relationship
with Compaq is more recent, having been formed during 1998.
Together we have already been able to present a number of
innovative system propositions that have enabled us to win some
large contracts as well as providing a cost-effective bundled
offering for smaller businesses.
STRENGTHENED MANAGEMENT TEAM
The addition of divisional directors to two new roles on the
operating board has strengthened our management team. Mike Dodd,
who joined us as Business Development Director, is well known in
the industry and was previously the Sales and Marketing Director
of one of our competitors, Quotel. Mike's role is to develop
strategies for growth and increased market share for our UK broker
and insurer business. Mike Payne joined us as Corporate Solutions
Director, bringing senior management experience gained in banking
and financial organisations, to help exploit our opportunities for
solution sales.
GOING FORWARD
Customer Segmentation and Channels to Market
Policy Master's customer base is becoming more diverse, ranging
from the sole trader IFA to the multi-national underwriter. Our
research makes it clear that different types of customers have
different needs, expectations and budgets. This year, we recognise
this by a reorganisation of our sales and support activities by
market segment and channels to market rather than by product. Our
aim is to provide each of our customers with a service that more
fully matches their requirements and circumstances. We believe
that this will lead to a measurable improvement in customer
satisfaction and will help to increase sales.
Emergent Technologies and a Changing Market
Over the last few years, the insurance industry has undergone
significant change with the growth of direct writing, insurer and
intermediary consolidation and the emergence of tied agents.
Policy Master has turned much of this change into opportunity and
we are now serving many of these new channels to market. In the
future, we see the emergent electronic commerce technologies of
the internet and interactive digital television as one of the
strongest factors driving further change in our industry. Our
customers will look to us to provide software that enables them to
survive and compete in the world of E-commerce. With this in mind,
we have already developed the software that will allow our broker
and insurer customers to extend their systems to electronically
service their end-user clients. We are also working on a project
with a major customer to allow them to sell insurance using
digital television. Consequently, we have high expectations from
our E-commerce applications in the years ahead.
Continued Growth
The Group is exceptionally well placed to exploit its considerable
opportunities. We have a quality customer base, a good reputation
and a track record, a whole new range of state-of-the-art products
and technologies and a clear vision for the Group's future. We
have an excellent team of people who are highly motivated with a
sense of ownership of the Group and its objectives. All of this we
believe will enable us to continue to achieve strong organic
growth in our marketplace of insurance and financial services.
Whilst our focus is very much on organic growth, we also believe
there are opportunities for further acquisition. We will be
looking for opportunities that would enable us to widen our
corporate customer base, acquire more skilled staff and expand our
activities internationally.
In summary, we enter 1999 with confidence in our people, our
products and our ability to exploit the opportunities for growth
that being a technology provider to the insurance and financial
services market presents at this time.
Stephen J Verrall
Chief Executive
GROUP PROFIT AND LOSS ACCOUNT
For the year ended 31 December 1998
1998 1997
# #
Turnover
Continuing operations
- ongoing 11,116,558 8,195,069
- acquisitions 221,847 -
---------- ---------
11,338,405 8,195,069
Cost of sales 6,235,452 4,798,936
---------- ---------
Gross profit 5,102,953 3,396,133
Distribution costs 1,534,275 936,957
Administrative expenses
(excluding goodwill amortisation) 2,508,538 1,701,223
---------- ----------
Operating profit before goodwill
amortisation 1,060,140 757,953
Goodwill amortisation (129,253) (103,806)
---------- ---------
Operating profit
Continuing operations
- ongoing 905,326 654,147
- acquisitions 25,561 -
-------- -------
930,887 654,147
Interest receivable 39,163 22,970
Interest payable and similar charges (272,660) (241,509)
--------- ---------
Profit on ordinary activities
before taxation 697,390 435,608
Tax on profit on ordinary activities (368) (690)
Profit for the financial period
attributable to members of the parent
company 697,022 434,918
Dividends
Equity dividends on ordinary shares 141,333 -
Non-equity dividend on cumulative
participating preferred ordinary
shares 1,473 2,758
------- -----
142,806 2,758
------- -----
Retained profit for the financial
period 554,216 432,160
Earnings per share (p) ------- -------
- basic 5.88 5.65
- diluted 5.86 5.65
There have been no recognised gains or losses during the year
other than the profit for the year.
The 1997 results are for a statutory 14 month period and include
11 months of trading of Policy Master Plc, a subsidiary
undertaking, compared with 12 months in 1998.
GROUP BALANCE SHEET AT 31 DECEMBER 1998
1998 1997
# #
Fixed assets
Intangible assets 2,992,386 2,161,050
Tangible assets 1,461,820 366,785
--------- ---------
4,454,206 2,527,835
Current assets
Stocks 143,671 31,680
Debtors 3,195,550 2,084,143
Cash at bank and in hand 122,852 513,097
--------- ----------
3,462,073 2,628,920
Creditors: amounts falling
due within one year
(2,815,675) (1,805,511)
---------- ---------
Net current assets 646,398 823,409
---------- ---------
Total assets less current liabilities 5,100,604 3,351,244
Creditors:
amounts falling due after more than
one year (744,742) (2,006,817)
Accruals and deferred income
Deferred income (202,113) (357,125)
---------- ---------
4,153,749 987,302
---------- ---------
Capital reserves
Called up share capital 143,448 63,855
Share capital to be issued 250,000 -
Share premium account 2,320,775 38,137
Merger reserve 453,150 453,150
Profit and loss account 986,376 432,160
---------- -------
4,153,749 987,302
---------- -------
Shareholders' funds:
Equity 4,151,634 952,806
Non-equity 2,115 34,496
--------- -------
4,153,749 987,302
--------- -------
GROUP STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 1998
1998 1997
# #
Net cash inflow from operating
activities 661,966 842,234
-------- -------
Returns on investments and servicing
of finance
Interest received 37,748 20,570
Interest paid (203,627) (135,838)
Interest element of finance lease
rental payments (23,414) (4,181)
Issue costs on long-term loans (40,000) (104,903)
Cumulative participating preferred
ordinary dividends paid (2,970) (1,261)
------- --------
(232,263) (225,613)
-------- ---------
Taxation
Corporation tax paid
(including advance corporation tax) (374) (316)
-------- ------------
Capital expenditure and financial investment
Payments to acquire tangible
fixed assets (842,691) (214,447)
--------- ------------
Acquisition
Purchase of subsidiary undertaking (426,678) (2,252,207)
Net overdraft acquired with subsidiary
undertaking (154,925) (30,174)
--------- -----------
(581,603) (2,282,381)
--------- -----------
Net cash outflow before financing (994,965) 1,880,523)
Financing
Issue of ordinary and cumulative participating
preferred ordinary share capital 2,725,000 125,059
Share issue costs (362,769) (43,097)
New long-term loans 500,000 1,000,000
Repayment of long-term loans (800,000) (200,000)
Repayment of unsecured loan stock (1,467,000) -
Movement on unsecured loan stock issued - 1,467,000
Repayment of capital element of
finance leases and hire purchase
contracts (66,667) (25,428)
--------- ---------
528,564 2,323,534
----------- ----------
(Decrease)/Increase in cash (466,401) 443,011
----------- -----------
NOTES
1. The summary of the results for the year ended 31 December
1998 does not constitute full financial statements within the
meaning of Section 240 of the Companies Act 1985. The full
statutory accounts have received an unqualified audit report but
have not yet been delivered to the Registrar of Companies. The
statutory accounts for the period ended 31 December 1997 have
received an unqualified audit report and have been delivered to
the Registrar of Companies. The statutory accounts for the
periods ended 31 December 1998 and 31 December 1997 did not
contain statements under Section 237(2) or (3) of the Companies
Act 1985.
2. The calculation of basic earnings per ordinary share is based
on earnings of #695,549 (1997: #432,160), being profit for the
year of #697,022 (1997: #434,918) less preference dividends in
respect of shares of #1.473 (1997: #2,758), and on 11,834,988
ordinary shares (1997: 7,647,760) ordinary shares, being the
weighted average number of ordinary shares in issue during the
year.
The diluted earnings per share is based on profit for the
year of #695,549 (1997: #432,160), and on 11,863,149 (1997:
7,647,760) ordinary shares, calculated as follows:
1998 1997
No. No.
Basic weighted average number of shares 11,834,988 7,647,760
Dilutive potential ordinary shares:
Executive share options 33 -
Deferred consideration 28,128 -
---------- ---------
11,863,149 7,647,760
---------- ---------
** The adjusted EPS is calculated from operating profit before goodwill
amortisation and on 14,133,327 ordinary shares of 1p being the share
capital structure in place on 31 December 1998. This effectively assumes the
flotation proceeds were received at the beginning of the year and the interest
costs and the MBO loan costs have been added back to profit.
3. The dividend, when approved by the shareholders at the AGM, will be payable
on 25 May 1999 to shareholders on the register on 23 April 1999.
4. The Annual General Meeting will be held at Swinfen Hall Hotel, Nr
Lichfield, Staffs on Tuesday 18 May 1999 at 10.00am.
5. Copies of the Report and Accounts for the year ended 31 December 1998 are
being sent to shareholders in due course. Further copies are available
from the Company's registered office at Policy Master House, Reddicroft,
Sutton Coldfield, West Midlands B73 6BN.
* Policy Master Group PLC (PMG) was incorporated on 5
November 1996 as Foray 978 Limited to effect the management buy-
out of Policy Master Plc (PM). It acquired the entire share
capital of PM on 27 January 1997 and accordingly, its consolidated
financial statements for the period ended 31 December 1997 include
only eleven months trading for PM. For the purposes of comparison
1997 was prepared on a combined basis, incorporating the eleven
months trading results disclosed in the PMG financial statements
aggregated with the one months trading included in PM's financial
statements prior to acquisition. This approach is entirely
consistent with figures presented in the prospectus at the time of
flotation.
END
FR CCOCBKDKBKQK
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