Interim Results

RNS Number:7815H
Trace Group PLC
21 February 2003

Trace Group plc ("Trace" or the "Group")
Interim results for the six months to 30th November 2002

Trace Group plc, one of the UK's leading software solutions providers, announces
its interim results for the six months to 30th November 2002.

Key points:

*         Turnover #8.4 million (2001 - #10.5 million) with lower package sales
*         Operating loss of #191,000 before goodwill
*         Cash generation of #663,000 and cash balances up to #1.57 million
*         Net assets equivalent to 68p per share after acceleration of goodwill
          write off of #1.93 million

Commenting on the results, Clive Ingham, Chairman, said:

"We are obviously not impervious to and have suffered from the difficult
conditions in the IT sector. Whilst we expect a better performance for the Group
in the second half, we are also taking the action we deem necessary to reduce
costs. Our prospective business book is as good as, and in many cases better
than, it has ever been. I believe that each area within the Group is capable of
generating good profits and that the Group can produce the results that we have
come to expect. I am optimistic about our future."

TRACE GROUP PLC
UNAUDITED INTERIM RESULTS FOR THE SIX MONTHS ENDED 30TH NOVEMBER 2002

CHAIRMAN'S STATEMENT

Results

The markets in which we operate have shown few signs of improvement over the six
months under review. Whilst our diversity has to some extent sheltered us,
financial markets have been particularly difficult and the lack of new business
in this sector has had an adverse impact on the Group's results.

Turnover for the six months ended 30 November 2002 declined to #8.4 million
(2001 - #10.5 million) with the majority of the downturn coming from our
financial market businesses. Package sales were significantly down, reflecting a
general slowdown of investment decisions, with bespoke revenues also suffering
as margins have come under pressure. On the positive side, we have seen
improvements in our property management software sales and our recruitment
business is also making progress. Furthermore, our regular recurring maintenance
and facilities management income, which is a bedrock of our operations,  has
increased to #2.8 million (2001 - #2.4 million) with all business areas sharing
in the improvement.

The lack of package sales in particular has impacted gross margins which have
reduced to 14.4% (2001 - 24.6%). After net operating expenses which were reduced
compared with last year, we are reporting an operating loss before amortisation
of goodwill of #191,000 (2001 - profit #1.109 million).

We have, as we do every six months, carried out a review of the acquisition
accounting in relation to Datawise. The board has concluded that, based on the
terms of the purchase agreement, current performance, the state of the market
and a prudent view of the future, it is unlikely that the Company will be
required to distribute the full earn-out consideration as previously recorded in
the accounts. As a result, the Board has revised the amount of share capital
expected to be issued to #500,000, with a corresponding reduction in goodwill in
the balance sheet. The board has also considered the revenue streams that can be
reasonably expected to be generated by Datawise in the short to medium term. As
a result, we have decided to accelerate the amortisation of goodwill by
processing an impairment adjustment of #1.6 million. We remain committed to
maximising the potential of Datawise, but it is our view that the current and
continuing state of the market makes it difficult to justify the level of
goodwill being carried forward at this time without adjustment. As a result, we
are reporting a loss per share of 13.86p (2001 - earnings per share of 3.12p),
with goodwill amortisation accounting for 12.89p of this total (2001 - 2.19p).

Principally as a result of the accelerated write off of goodwill, the Group's
net assets have reduced to #10.3 million (May 2002 - #15.4 million).
Nevertheless, this still represents net assets of 68p per share, underpinned in
the main by freehold properties. Our net current asset position has been
maintained at #1.75 million and cash balances have improved, as anticipated last
time, to #1.57 million (May 2002 - #0.91 million).

Group Operations

Trace Isys continues to be the strongest performer in the Group. Although
trading has been broadly in line with budget, results are below last year's
levels in what is becoming a tougher market. As brokers grapple with difficult
conditions, they are deferring, extending or in some cases shelving plans for
investment which in turn has impacted package sales and bespoke work that
normally flows from new business. However, on the positive side most of our
clients, whilst critically considering their spend in all areas, have maintained
their commitment to us as they see it helping them to increase their focus on
cost control and generally enhance their position in the market. During the
first half there have been some notable successes, including the first
implementation of the Lexis document management system which has been fully
integrated with our TWINS e-Broking product. A project to enable electronic
messaging for a major European carrier is nearly complete and the new look and
feel of our TWINS Transaction Server product has been well received by our user
base. Whilst we expect that trading conditions over the next six months are
unlikely to change significantly, we will be looking to develop demand for our
new document management and web based offerings as well as improving the
efficiency, facilities and technology and thereby value of our core products.

Two of our businesses, Trace Financial and Datawise, operate in financial
markets, specifically the wholesale banking sector. This sector has suffered as
clients and potential clients have cut back on expenditure and reduced or
deferred investment in software and systems. This has had a major impact on our
two businesses who are having difficulty in securing new package sales,
experiencing lengthening decision making timeframes and difficulty in closing
deals as potential buyers remain cautious and uncertain. There has also been a
downward pressure on rates for bespoke and services work and a reduction in the
use of external resources.

In spite of this, Trace Financial has performed at similar levels to last year.
Our CLOVERLEAF Finance product has been sold and integrated in a new area of the
financial market which opens the possibility of broadening the sales focus for
this product. Furthermore, using CLOVERLEAF Finance we have signed a strategic
partnership with OpenLink to provide SWIFT functionality for their banking
software and the first installation is progressing well. Consultancy and
software development revenues have held up well with our clients continuing to
use our resources at similar levels to those employed historically. We remain
very active in the sales arena and have bids in progress in several areas
including electronic trade confirmation and SWIFTNet support. Our CAMS product
continues to be widely promoted with activity and interest remaining high. We
are now supporting three live clients in their corporate actions businesses and
are well placed to service additional clients once the market returns to
investment mode. We expect that our activity in this area as well as in the
messaging arena should help us to continue to perform at least at current levels
for the remainder of the year.

Datawise has had some success in selling its ISO15022 solution but not at the
level which we hoped. The state of the market, combined with the deferral by
SWIFT of the deadline for compliance, allowed the many potential ISO15022
clients to go for the options of either doing nothing and using manual systems
for low volumes of transactions, or making modifications to existing software
rather than investing in new systems. This has been a bitter blow to all players
in this market, none of whom have made a large number of sales. We invested
heavily in this area and consequently our results have suffered significantly.
As a result, we have redeployed resources into WebTM, our browser based secure
data collection system, using IP technology. We completed the successful
implementation of this product for Deutsche Bank in the USA and the project to
develop and implement this system won first place in the prestigious "Best in
Remote Banking" Microbanker awards in October. The recent acquisition of
Deutsche Bank's North American custodian operations by State Street has slowed
further deployment at that site though we believe that this is only temporary.
The product was launched at SIBOS towards the end of last year and was received
with a good degree of interest. We have hopes for a roll out of WebTM into other
clients though the activity has not yet been matched by results. Datawise has
now developed a number of web based innovative products and we hope to see a
steady growth in revenues. We are disappointed to report, due to a combination
of all the factors above that Datawise has made a loss during the last six
months. However, we have already instigated a number of measures which should
significantly improve the financial position in the second half. This action
will enable us to maintain all our service levels and retain the support of our
loyal and solid customer base.

Trace Solutions has continued to operate at last year's improved levels making
new sales into both the managing agent and corporate sectors. Our core TRAMPS
product has firmly re-established its reputation for reliability and
functionality and Trace Solutions is again the leader in the chartered surveyor
market, with 14 of the top 20 businesses using TRAMPS. From this platform we are
seeing potential business for TRAMPS not only in our traditional areas, but also
in sectors new to us, including local authorities and ports. Work has continued
on the development and integration of our Trace Investment Forecaster product
and there are now several clients ready for implementation. We believe that the
success of this product should open up new corporate opportunities. Within our
client base, we are seeing a good take up of our TRAMPS modules and Business
Objects software, which improves and enhances our products' reporting and data
manipulation capabilities. Our recently offered facilities management service,
which allows clients to outsource the support and maintenance of key aspects of
their infrastructure, continues to grow. Our outsourced property management
accounting service and temporary and permanent placement service is also growing
in support of the large installed TRAMPS user base. We continue to develop
partnership opportunities with other suppliers to add value to our products and
plan to focus on the larger corporate sector, looking to develop long term
relationships with major businesses. The functionality of TRAMPS is continually
and critically assessed to help us determine where to improve and broaden its
scope further.

Trace Employer Services has continued to grow its core fully managed payroll
business, with new orders taken this half being at their highest ever level.
However, the loss of certain legacy customers mentioned last time means that
this area is not expected to generate a contribution this year. The orders being
taken are increasing in size and from small beginnings we are now dealing with a
growing number of payrolls in the 1,000 plus heads category. We have recently
invested in new hardware which will handle the new software that we are
developing. This software will give us a modern and efficient payroll system,
responsive to current needs and allowing us to continue to improve the
efficiency of our managed payroll service, the quality of our operation and
hence our profitability. As this process continues, our ability to handle ever
larger payrolls will become clear and we would hope to use this position to help
fuel our growth. In addition, the new software will give us the opportunity to
consider a re-entry into the bureau market place.

Prospect has continued to build on its improved performance in the last half
year to report a good profit, ahead of the prior year and budget figures. The
restructuring that took place towards the end of last year has resulted in a
refocusing of the company, away from being only a niche player, towards becoming
a highly professional recruitment consultancy able to recruit across a broader
range of business critical requirements. This has led to an increased focus on
business development and the recruitment of consultants who have extensive
experience of both creating and maintaining client relationships. This approach
is generating good results and the remaining niche area of Prospect, operational
research and decision support, continues to provide a solid base for the
business. Prospect's market includes a number of businesses whose own clients
are impacted by current market and political uncertainties. However, the current
structure and pipeline of business indicate that the company has the ability to
continue to progress once the uncertainties have been lifted.

The Future

Trace Isys, Trace Financial and Prospect all look likely to continue to trade
around current levels in the second half. Trace Solutions and Trace Employer
Services continue to take new orders and look likely to improve on their first
half performance. The measures already introduced by Datawise should generate a
much improved result and consequently we expect a better performance for the
Group in the second half.

Our markets and sector remain difficult and commentators are finding it hard to
predict when this might change. Despite this, and the loss sustained so far, I
am optimistic about our future. We have invested and will continue to invest on
a prudent and controlled basis in our software to ensure that we provide best of
breed solutions. We have a significant client base with whom our relationships
and reputation are excellent. Our staff are of the highest calibre and morale
within the company is good. We have built a solid base.

Our prospective business book is as good as, and in many cases better than, it
has ever been. Each area of the business has some significant quotations
outstanding. Success in winning any will significantly enhance that area's
performance with a major knock-on effect for the Group. In current markets the
difficulty remains in converting these and predicting accurately when this might
happen.

We are obviously not impervious to and have suffered from the difficult
conditions in the IT sector, with clients delaying decisions and rates under
pressure and so we are therefore also taking the action we deem necessary to
reduce costs. I believe that each area within the Group is capable of generating
good profits and that the Group can produce the results that we have come to
expect.

Once again on behalf of the board I would like to thank all our staff. They are
the backbone of our services led company.

Clive Ingham
CHAIRMAN        21st February 2003


Press enquiries:             Richard Wolfe or Peter Stolerman at Trace Group plc

                             Telephone:        [phone]
                             Fax:              020 7825 1001
                             Website:          www.tracegroup.com


TRACE GROUP PLC
UNAUDITED CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE SIX MONTHS ENDED 30TH NOVEMBER 2002


                                                        6 months to          6 months to          Year to
                                                      30th November        30th November         31st May
                                                               2002                 2001             2002
                                                              #'000                #'000            #'000

TURNOVER                                                      8,432               10,475           20,630

Cost of sales                                                (7,216)              (7,892)         (15,072)


GROSS PROFIT                                                  1,216                2,583            5,558 

Net operating expenses                                       (1,407)              (1,474)          (2,839)

Operating (loss)/profit before amortisation and
impairment of goodwill                                         (191)               1,109            2,719 

Amortisation of goodwill                                       (329)                (329)            (659)

Impairment of goodwill                                       (1,600)                   -                -

OPERATING (LOSS)/PROFIT                                      (2,120)                 780            2,060 

Interest payable net                                            (15)                  (9)             (14)

(LOSS)/PROFIT ON ORDINARY ACTIVITIES BEFORE TAX              (2,135)                 771            2,046 

Tax credit/(charge) on (loss)/profit on ordinary
activities                                                       60                 (305)            (750)
                                                                 
(LOSS)/PROFIT ON ORDINARY ACTIVITIES AFTER TAX AND
RETAINED FOR THE PERIOD                                      (2,075)                 466            1,296 
                                                             
EARNINGS PER SHARE
Basic earnings per share before goodwill                     (0.97)p                5.31p           13.04p
Amortisation and impairment of goodwill                     (12.89)p              (2.19)p          (4.39)p

BASIC EARNINGS PER SHARE                                    (13.86)p                3.12p            8.65p

DILUTED EARNINGS PER SHARE                                  (13.86)p                3.12p            8.65p


Notes:

1.       Following an impairment review, the value of goodwill has been reduced
         by #1.6 million (2001 - #nil).

2.       The tax charge is estimated by reference to the loss on ordinary
         activities before tax, excluding the charges for amortisation and 
         impairment of goodwill.

3.       The calculation of basic earnings per share for the 6 months ended 30th
         November 2002 is based on the loss attributable to the shareholders and 
         on the weighted average number of ordinary shares in issue during the 
         period of 14,959,334 (2001 - 14,989,334). As the average fair value of 
         a Trace share throughout the period has been less than the average 
         exercise price for outstanding share options, there is no dilution 
         effect this period and basic and diluted earnings per share are the 
         same.

4.       No interim dividend has been declared (2001 - nil).

5.       The above results all derive from continuing operations.




TRACE GROUP PLC
UNAUDITED BALANCE SHEET AS AT 30TH NOVEMBER 2002

                                                   30th November      30th November          31st May 
                                                            2002               2001              2002 
                                                           #'000              #'000             #'000 
FIXED ASSETS
Intangible assets                                          1,266              6,600             6,233 
Tangible assets                                            7,032              7,904             7,112 
Investments                                                  267                267               267 

                                                           8,565             14,771            13,612 

CURRENT ASSETS

Stocks                                                       899                495               896 
Debtors                                                    4,332              4,274             6,339 
Cash at bank and in hand                                   1,574              2,011               911 

                                                           6,805              6,780             8,146 

TRADE AND OTHER CREDITORS FALLING DUE
WITHIN ONE YEAR                                           (5,049)            (6,184)           (6,362)

NET CURRENT ASSETS                                         1,756                596             1,784 
                                                                                                      
TOTAL ASSETS LESS CURRENT LIABILITIES                     10,321             15,367            15,396 

CREDITORS FALLING DUE
AFTER MORE THAN ONE YEAR                                       -                (16)                - 

NET ASSETS                                                10,321             15,351            15,396 

CAPITAL AND RESERVES
Called up share capital                                      759                761               759 
Share capital to be issued                                   500              3,500             3,500 
Other reserves                                             9,062             11,090            11,137 


EQUITY SHAREHOLDERS' FUNDS                                10,321             15,351            15,396 


Notes:

1.       The Company applied Financial Reporting Standard No. 19 for the first
time at 31st May 2002. The comparative figures as at 30th November 2001 have
been restated accordingly, with the balances shown as debtors and other reserves
being increased by #300,000.

2.       The interim results for the six months ended 30th November 2002 and
2001 have neither been audited nor reviewed and do not constitute statutory
accounts within the meaning of section 240 of the Companies Act 1985. The
results and cash flow for the year to 31st May 2002 and the balance sheet as at
that date have been extracted from the financial statements of the Company for
that period, which have been delivered to the registrar of companies and which
carry an audit report that is unqualified and includes no matter of adverse
comment. All of the financial information presented has been prepared following
consistent accounting policies.

3.       This announcement is being circulated to all shareholders and copies
will be available to the public at the company's registered office at 224-232
St. John Street, London EC1V 4QR.


TRACE GROUP PLC
UNAUDITED CASH FLOW FOR THE SIX MONTHS ENDED 30TH NOVEMBER 2002

                                               6 months to           6 months to             Year to 
                                             30th November         30th November            31st May
                                                      2002                  2001                2002 
                                                     #'000                 #'000               #'000 

NET CASH INFLOW FROM OPERATING ACTIVITIES              974                   407                 470 
                                                       
RETURNS ON INVESTMENTS AND SERVICING OF
FINANCE                                                (15)                   (9)               (14)
                                                       
UK CORPORATION TAX PAID                               (127)                 (277)            (1,138)

CAPITAL EXPENDITURE AND FINANCIAL
INVESTMENT                                            (138)                  (59)              (259)
                                                      
ACQUISITIONS                                             -                     -                 (4)

NET CASH INFLOW/(OUTFLOW) BEFORE FINANCING             694                    62               (945)

FINANCING                                              (31)                  (53)              (146)

INCREASE/(DECREASE) IN CASH                            663                     9             (1,091)




Note:

Reconciliation of operating (loss)/profit to net cash inflow from operating
activities:


                                                6 months to          6 months to            Year to 
                                              30th November        30th November           31st May 
                                                       2002                 2001               2002 
                                                      #'000                #'000              #'000 

Operating (loss)/profit                              (2,120)                 780              2,060 
Amortisation and impairment of goodwill               1,929                  329                659 
Depreciation                                            256                  279                532 
(Profit)/loss on disposal of tangible fixed              (1)                  12                 14 
assets
(Increase) in stock and work in progress                 (3)                (280)              (680)
Decrease/(increase) in debtors                        1,558                1,016               (743)
Decrease/(increase) in unbilled receivables             509                 (778)            (1,123)
(Decrease) in creditors                              (1,154)                (951)              (249)

NET CASH INFLOW FROM OPERATING ACTIVITIES               974                  407                470 



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