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Share Name | Share Symbol | Market | Type |
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Melco Resorts & Entertainment Ltd | TG:MAS | Tradegate | Ordinary Share |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
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0.05 | 0.93% | 5.45 | 5.35 | 5.45 | 5.40 | 5.35 | 5.35 | 6,900 | 22:50:17 |
RNS Number:2387I Marlborough Stirling PLC 04 March 2003 4th March 2003 Marlborough Stirling plc Preliminary results announcement for year ended 31st December 2002 Marlborough Stirling, a leading provider of software and services to the mortgage, life, pensions and investment market sectors, announces its results for the year ended 31st December 2002. Key features Financial Turnover (including joint ventures) up 65% to #121.0m (2001: #73.4m) Organic turnover growth of 38%(1) Adjusted pre-tax profit of #11.3m (2001: #15.0m)(2) Reported pre-tax loss of #34.5m (2001: profit of #9.3m), reflecting #32.7m of one-off non-cash items Net cash at 31st December 2002 of #9.1m (2001: #7.5m) Adjusted diluted earnings per share of 3.5p (2001: 5.9p)(2) Reported basic loss per share of 20.0p (2001: earnings of 3.6p) Operational Significantly increased scale in life and pensions outsourcing Largest ever contract for group with Sun Life Financial of Canada Further major outsourcing contract with GE Pensions Strengthened position in distribution market Strategic alliances with two major IFA groups, Bankhall and The Tenet Group Successful launch of Officeweb and initial contract wins Important software implementations for AXA Sun Life, MCAP Mortgage Corporation and Birmingham Midshires Headcount of just under 1,900 at year end down by over 500 from peak levels with further reorganisation announced since 2003 revenue visibility currently #90m Organic turnover growth is based on (i) including turnover related to the SLFoC outsourcing contract that is disclosed under acquisitions in the accounts as a result of the contract having been effected through an acquisition and (ii) excluding turnover relating to the Exchange FS businesses acquired in November 2001 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 Commenting on the results, Graham Coxell, Chief Executive said: "During a year of unprecedented upheaval and uncertainty for our customers the strong growth in outsourcing helped to offset weakness in software sales. In the circumstances our financial performance is reasonable. Although we see some early, encouraging signs of renewed interest in software in the early part of this year we have taken firm steps to reduce costs in order to maintain profitability in a year in which we are assuming sales will be slightly lower than in 2002. 2002 was a year of transformation for Marlborough Stirling. In our first full year as a public company we have built upon our established strength in life and pensions and mortgage point of sale and administration systems by demonstrating large scale outsourcing expertise and integrating the UK's leading intermediary trading platform into our operations and strategy. Not only has this given us greater visibility over future revenues and resilience to withstand the impact of a downturn in software sales but it ensures we are uniquely well placed to play a leading role in the transformation of the UK financial services market. Marlborough Stirling now has a complete range of point of sale (front office) and administration (back office) solutions, integrated to provide seamless end-to-end capability at lowest cost. Our customers' needs are changing rapidly and our solutions give them the flexibility they need to emerge as winners in the new, consumer led financial services market." An analyst briefing will be held at Citigate Dewe Rogerson's offices at 26 Finsbury Square at 9:30 am today. For further information Marlborough Stirling 01242-547000 Graham Coxell, Chief Executive Bob Beveridge, Finance Director Citigate Dewe Rogerson 020-7638-9571 Toby Mountford/Alex Brown Chairman's statement Introduction The markets in which Marlborough Stirling operates are undergoing a period of massive change. This change will transform totally the way in which the financial services industry operates within the next few years. This upheaval will undoubtedly present significant opportunities to the group as well as challenges such as those we faced in 2002. Marlborough Stirling itself has undergone a significant transformation over the last twelve months. In our first full year as a public company, two key strategic initiatives were successfully completed: The integration of Exchange FS into our portfolio of services and strategy Securing the Sun Life Financial of Canada (SLFoC) outsourcing contract These two developments build on Marlborough Stirling's established strength in life and pensions and mortgage point of sale and back office administration systems. The group now possesses the UK's leading intermediary trading platform in the financial services market and is able to demonstrate large scale outsourcing expertise. Together they will play a key role in supporting our mission to be a key enabler of the transformation of financial services to a competitive, highly efficient, consumer led industry. Marlborough Stirling now has a complete range of point of sale (front office) and administration (back office) solutions, together with straight through processing capabilities for life insurance, pension and mortgage customers. Our transformed presence in distribution through the Exchange portal (Exweb) leaves us well placed to extend our capabilities into other financial services vertical markets. The significant changes being implemented within our own business in 2002 coincided with a marked deterioration in market conditions in certain of the markets we serve. This was particularly the case for the UK life and pensions industry which was materially affected by falls in equity markets of over 30% during the year, ultimately to the lowest levels experienced in over six years. In the medium term, we believe these difficulties will bring positive momentum to our own business. However, in 2002, the unprecedented uncertainty for our customers led to deferrals and cancellations of commitments to suppliers, from which we were not immune. This in turn contributed to our financial performance for the year falling well below our initial expectations and the consequent need to reduce our cost base. With great regret, we were forced to seek compulsory redundancies during the year beyond those implemented either as part of the SLFoC outsourcing contract or the integration of Exchange FS Group plc. Overall group headcount (including that within our mortgage outsourcing joint venture) reduced from approximately 2,400 at its peak when we commenced the SLFoC contract in March 2002 to just under 1,900 at 31st December 2002. For a company particularly dependent on its people this has been a difficult period and the board is acutely conscious of the efforts and contribution of all members of staff. However, we believe that as a result of this process we will emerge with a more focused business, better positioned to operate profitably in the ongoing demanding market conditions and to deliver growth in new areas and geographies as opportunities arise. Dividend The Board continues to support a progressive dividend policy, consistent with the cash generative nature of the business. However, the recent fall in the company's share price has led to a significant impairment in the carrying value of the company's shares held in employee related share trusts. Unfortunately, this has the effect of reducing distributable reserves to the extent that it would be imprudent for the Board to declare a dividend for 2002 despite the company's significant cash resources. During the year the group's net cash position strengthened to #9.1m (2001: #7.5m). Outlook In recent months, certain areas of the business, particularly life and pensions and mortgage outsourcing, Officeweb and mortgage software in both the UK and Canada, have been experiencing encouraging levels of interest. However, our UK life and pensions software business continues to show weakness. Our visibility for 2003, in terms of contracted and recurring turnover, is currently approximately #90m, a satisfactory position at this stage in the year. Marlborough Stirling's sales activities have always been characterised by long lead times. Further, some of the initiatives we are pursuing have significant strategic value but will only enhance our financial performance in the medium term. We expect to make good operational progress in 2003 whilst building the foundations for improving our future financial performance. This includes continuing to review our cost base to enable the group to operate in 2003 with similar margins at lower turnover levels than achieved in 2002. In order to maximise synergies and efficiencies, we recently announced the proposed relocation of employees based in our Halesowen office. In addition, as a final stage in our recent reorganisation programme, we have restructured the group into four business units, to facilitate greater focus and accountability. We expect these developments to result in additional employees leaving the group during the first half of the year. Marlborough Stirling retains a strong position in its markets. Our solutions deliver demonstrable business benefits and return on investment at a time when our customers need our solutions more than ever. Our infrastructure is at the core of our customers' operations and we have a broad range of strong reference clients. We have an unparalleled depth of understanding of our markets and are committed to being a key enabler of transformation in financial services. With our highly skilled employees, I am certain that the foundations are in place for us to exploit the substantial opportunities ahead. Operating review Marlborough Stirling plays a leading role in the transformation of financial services to a consumer-led, competitive and efficient marketplace, by providing comprehensive software and service solutions for: Point of sale Back office administration of policies and mortgages at lowest cost Straight through processing which enables full integration of point of sale and back office administration systems We achieve this by working with our customers who are both distributors and providers of financial products who choose to partner with us because of our:- In depth knowledge of the market and the needs of both existing and prospective customers Vision and insight into the future consumer-led market and the transformation process necessary to get there Experience in delivery of large successful solutions to over 80 clients Commitment to play a leading role in the creation of a truly competitive and efficient financial services market Uniquely in this marketplace our range of solutions now covers direct and indirect sales support, back office administration and the ability to join front and back office with seamless straight through processing. In addition to developing and implementing process and system solutions directly for our customers we offer either a partial or full outsourced service. The current key areas of focus within our strategy are closely related to the key growth trends in the UK retail financial services industry, namely distribution, life and pensions (particularly via an outsourcing arrangement), and mortgages. Business review Distribution In 2002, Marlborough Stirling's distribution business accounts for 26% of total turnover (2001: 8%). The intermediary part of our distribution business enjoyed good levels of activity across both portal services and software in the year, but activity in the distribution software business targeting product providers was below our expectations. The Exchange portal (Exweb) continued to perform well, increasing subscriber numbers by 6% in the year to 18,270 at 31st December 2002 (2001: 17,254). Despite some slowdown in growth in the second half of the year, this increase is particularly encouraging given Exweb's already strong market position. The volume of quotations and illustrations generated through Exweb grew from 89 million in 2001 to 99 million in 2002. A number of key initiatives commenced to enhance further the market position of Exweb and its value to intermediaries, product providers and Marlborough Stirling. These included: A strategic alliance with Bankhall that will bring additional subscribers to and usage of Exweb as well as new services to the portal's subscribers A contract with The Tenet Group that involves Officeweb being integrated with the portal's quotation and new business functionality The agreements with Bankhall and Tenet are particularly important as both organisations are amongst the largest providers of support and distribution services to the IFA market and they will align the IT strategy for their businesses with use of our infrastructure for the intermediary market. However, our core strategic objective for Exweb is to make it a key enabler of electronic trading and straight through processing in financial services distribution. This has the potential to deliver substantial efficiencies, cost savings and competitive advantage to product providers, intermediaries and other distributors. It will also allow Exweb to participate actively in the complex distribution relationships likely to arise as a consequence of regulatory change. These include new environments such as multi-tied partnerships, whether developed by parties that are currently life and pensions companies, retail banks, mortgage lenders, IFAs or other current or potential distributors. Our relationship with parties such as Bankhall and Tenet are early examples of these types of arrangements. Exweb's substantial existing subscriber base and its extensive connectivity across financial services position the group well to benefit from the expected significant increase in electronic trading revenues in financial services as these developments unfold. We commenced implementation of this strategy during the period in conjunction with a number of major product providers. Exweb's electronic trading capabilities will be extended from the current focus on the provision of quotation and other product information. Initially this will involve developing infrastructure to support the provision of services such as electronic new business processing and online product valuations. Ultimately, it is expected to embrace more complex services such as customer data aggregation. It is expected that the first phase of these services will become operational in late 2003 and increasingly significant new transactional revenues will result from 2004 onwards. Turning to the software element of our distribution business, in March 2002 we launched Officeweb, which manages all aspects of an intermediary's business administration and can be integrated seamlessly with Exweb. Increasing our involvement in infrastructure provision for the intermediary market is central to our strategy of maximising our presence in the distribution market. Officeweb is expected to play a key role in achieving this goal. Since Officeweb's development commenced, a number of contracts have been secured with clients such as Chase de Vere, The Tenet Group and Thomson's Group and we aim to further increase its market penetration. New business activity in our distribution software business targeting product providers was disappointing, reflecting the difficult market conditions. However, we continued work on a number of implementations for clients such as Wesleyan, Royal London and Friends Provident. We are currently undertaking the first implementation of Omiga with full point of sale functionality for the life and pensions market, representing a strategic extension from its previous role in the mortgage market. Life, pensions and investment In 2002, Marlborough Stirling's life, pensions and investment business accounted for 62% of total turnover (2001: 75%). The challenging market conditions had a marked impact on the life, pensions and investment business with substantial increases in activity relating to outsourcing helping to offset weakness in software sales. Significant developments during the year included the major outsourcing contracts for Sun Life Financial of Canada (SLFoC) and GE Pensions and continuation of the Lamda software implementation for AXA Sun Life. Substantial progress was made in increasing our presence in the outsourcing market, a key part of the group's strategy. In particular, the scale of our life and pensions outsourcing activities was completely transformed by securing an outsourcing contract with SLFoC involving the administration of around 800,000 policies. Despite delays in completing the migration of SLFoC's policies from its legacy mainframe systems onto Lamda, 600,000 policies had been migrated by the end of 2002 and the overall programme is expected to be completed by the third quarter of 2002. The penultimate portfolio migration of around 50,000 policies should occur by the end of March 2003. We have begun to realise efficiencies under the SLFoC contract enabling us to implement planned reductions in headcount. Permanent headcount reduced by approximately 100 between commencement of the contract and 31st December 2002. In addition, SLFoC endorsed the strength of our performance late in the year by extending the outsourcing contract from 5 years to 7 years, giving it an expected value of over #125 million in turnover over its life. Significant cost transformation has been achieved for SLFoC's operations and it is already acting as a strong reference site for potential clients to the group. We have developed the operation into a showcase for the industry in terms of achieving high customer service at significantly reduced cost. During the year the group secured a further major outsourcing contract with GE Pensions with a value of #11 million over 5 years. Part of this contract is being administered out of the same offices in Basingstoke as the SLFoC contract. The most significant project for the life, pensions and investment software business in 2002 was our Lamda implementation for AXA Sun Life, on which substantial progress was made. In May, the first phase of the implementation went live enabling the launch of investment bonds. The second phase then went live in October, enabling AXA Sun Life to launch a number of products into the group pensions market. We are in the early stages of managing the migration of policies from AXA Sun Life's Tandem and IBM legacy systems onto Lamda which is expected to continue throughout 2003. Elsewhere, Marlborough Stirling WebTech, based on the Isle of Man, has continued the good progress apparent since its acquisition in August 2000. It has either completed or is in the process of implementing projects to install Genesis Life, the group's solution for offshore portfolio bond management, for Prudential Europe Management Services, Isle of Man Assurance and a new entrant to the offshore market based in the Isle of Man and Ireland. Life Strategies, our actuarial and management consultancy based in Ireland, performed satisfactorily in the period and, through the contacts it has developed in recent years assisting life companies setting up cross-border operations in Dublin, it has played a key role in developing interest in Lamda and life and pensions outsourcing in other European markets. Mortgages In 2002, Marlborough Stirling's mortgage business accounted for 12% of total turnover (2001: 17%). Activity in the UK mortgage software business remained at a satisfactory level with work on a number of implementations of Omiga for clients such as Northern Rock and Birmingham Midshires, part of HBOS plc. The scope of our ongoing support for Northern Rock was significantly extended in terms of both scope of services provided and contracted duration of work. We also completed implementation of the latest version of our Omiga mortgage new business processing solution for Birmingham Midshires. The group's Canadian operation made strong progress in the year, with work concluding successfully on the first Canadian implementation of Omiga for MCAP Mortgage Corporation. There was also ongoing work for a number of established clients of the Optimus mortgage administration software. Furthermore, a new server gateway application developed for Optimus, to enable straight through processing with Omiga, was well received in the market. Interest in Omiga has continued to strengthen in Canada reflecting the imperative for many mortgage lenders in this market to upgrade technology in both front and back office given the rapid rise in mortgage volumes that have occurred in recent years. Omiga's strong new business application processing functionality and scalability is well suited to many lenders' requirements in this environment. The success of the MCAP Mortgage Corporation implementation has provided additional credibility to both Omiga and our delivery capabilities in Canada. The group's mortgage outsourcing joint venture with Egg, Marlborough Stirling Mortgage Services (MSMS), continued to make steady progress following its establishment in 2001. Whilst new business activity was subdued during most of the year, the quality of services MSMS provides to its clients was endorsed by existing clients significantly extending the short term contracts initially entered into with MSMS when it commenced operations. Its contract with London Mortgage Company expanded from being worth around #1m in turnover over three years to being worth in excess of #5m over 5 years. Its contract with Standard Life Bank was extended from a 1 year duration to a 5 year maturity. MSMS is now in a strong position with a number of medium term contracts in place. Sales activity was at a good level as the period ended and progress in securing both new clients and additional services from existing clients is envisaged during 2003. The advent of mortgage regulation, the proliferation of new mortgage products (such as buy-to-let, equity release and sub-prime) and increasing competition and transparency provides an ideal environment for the group to capitalise on the increased scope of its solutions for the mortgage industry. Financial review The statutory accounts for the year disclose the turnover and operating results relating to the outsourcing contract with Sun Life Financial of Canada (SLFoC) as arising from an acquisition as the contract was effected through the acquisition of an existing services company previously owned by SLFoC. From a management perspective, this contract is viewed as organic growth and treated as such in the commentary below. Turnover Total turnover, including Marlborough Stirling's share of turnover from joint ventures, for the year ended 31st December 2002 increased by 65% to #121.0m (2001: #73.4m). Organic turnover growth (A) was 38% relative to 2001. In the period, Marlborough Stirling's revenue mix changed substantially as a result of the acquisition of Exchange FS and the SLFoC outsourcing contract. Total turnover in the period comprised 48% from software and consultancy, 39% from outsourcing and 13% from portal services. In 2001, software and consultancy accounted for 77% of total turnover. Software and consultancy turnover increased by 2% to #57.8m (2001: #56.6m) although, excluding turnover attributable to the acquisition of Exchange FS, it declined by 14%. This performance is due to a number of factors including the difficult environment for technology investment and current demand for life and pensions back office solutions being focused more towards outsourcing. However, there were some notable positive performances within the software and consultancy business from the mortgage software business and our operations based in the Isle of Man, Ireland and Canada. Outsourcing turnover increased to #47.4m (2001: #13.8m). This strong growth was due to the commencement of the major outsourcing contract with SLFoC. Organic turnover growth is based on (i) including turnover related to the SLFoC outsourcing contract that is disclosed under acquisitions in the accounts as a result of the contract having been effected through an acquisition and (ii) excluding turnover relating to the Exchange FS businesses acquired in November 2001 Our portal services business (excluding the portal services joint venture in Germany that was disposed of in the period) generated turnover of #15.7m (2001: #2.7m) reflecting a full year contribution from the Exchange portal (Exweb) acquired in November 2001. Turnover in the latter part of the year was impacted by a reduction in income from quotations, primarily relating to pension and other investment products, reflecting particularly difficult equity market conditions. In 2002, the group's distribution activities accounted for 26% of total turnover, up from 8% in 2001 primarily due to a full year contribution from the acquisition of Exchange FS Group plc. This sector is expected to become increasingly important in the next few years. The life, pensions and investment market remained the most important to the group, contributing #75.5m or 62% of total turnover. The mortgage sector contributed 12% to total turnover. The geographic breakdown of turnover in the period shows 93% of total turnover (2001: 87%) coming from the UK market. This reflects the greater UK revenue concentration of Exchange FS, the SLFoC outsourcing contract and reduced turnover from our activities in South Africa. Turnover from the remainder of our international operations increased by 34% in 2002 relative to 2001 reflecting encouraging progress for our activities in Canada and Ireland. Cost of sales Cost of sales increased by 93% to #57.9m (2001: #29.9m), resulting in a gross margin of 50.4% (2001: 57.1%) on turnover in the period (excluding joint ventures) of #116.7m (2001: #69.7m). The reduced gross margin relative to 2001 was due to a number of factors such as the increased contribution of outsourcing, which tends to have lower gross margins, reduced margins resulting from the extended migration period under our project for SLFoC, utilisation within the software business being affected by reduced turnover on a like-for-like basis relative to 2001 and low margins on a number of software contracts inherited from Crisp Computing, a subsidiary of Exchange FS Group plc. Operating costs Operating costs (excluding charges for depreciation, goodwill amortisation and impairment, employee share options and reorganisation costs) increased by 94% to #42.7m (2001: #22.0m). Such operating costs as a proportion of turnover (excluding joint ventures) were 36.6% (2001: 31.5%) reflecting particularly the operating costs within the SLFoC outsourcing contract and the costs of establishing our new operations in Italy and Spain. Research and development expenditure was around #5m, in line with last year, and the deliverables included the development of a new end-to-end solution for life and protection products (which is already attracting significant interest), the extension of Omiga to include further sales automation capability across multiple financial products and delivery channels, completion of Officeweb and message enabling our back office solutions. In 2003 we will incur research and development expenditure particularly in completing the full electronic trading capability of Exweb. Goodwill The group has undertaken a review of the value of goodwill being carried in relation to previous acquisitions. The review was undertaken in accordance with FRS 11 "Impairment of fixed assets and goodwill". It concluded that, given the current performance of the former Crisp Computing business (that formed part of the acquisition of Exchange FS Group plc) and changes in valuations of similar businesses since the acquisition of Exchange FS in November 2001, a non-cash goodwill impairment charge of #23.6m should be included in the 2002 results relating to this business. The review also confirmed the value of goodwill being carried in relation to the Exweb portal element of this acquisition which amounted to #46.4m at 31st December 2002. Exweb has brought significant strategic benefits and it is expected to play a key role in the transformation of financial services distribution in the UK. We expect to build further on the tangible successes achieved by Exweb since its acquisition and that it will have a significant influence on the group's future development. As a result, total intangible assets carried on the balance sheet at 31st December 2002 were #51.3m and it is expected that annualised amortisation from 2003 to 2005 will be in excess of #7m. Reorganisation costs During 2002, substantial work was undertaken to complete the integration of the operations of Exchange FS Group with the remainder of the group. This integration programme included reduction in headcount particularly in central and administrative functions. The integration also involved rationalising investments previously made by Exchange FS, including the disposal of a 25.5% interest in Financial Express Prestel Limited and a 50% interest in the joint venture, eXtrahyp.de, in Germany. The disposal programme resulted in a modest net gain which led to an adjustment to the goodwill arising on the acquisition of Exchange FS. In the latter part of 2002, the group embarked on a reorganisation programme necessitated by the difficult trading conditions experienced by the UK software business. This resulted in significant reductions in headcount. The integration of Exchange FS, combined with the reorganisation programme, resulted in total reorganisation charges, principally relating to severance costs associated with headcount reductions and property rationalisation costs, of #4.1m in the period. The integration of Exchange FS and the reorganisation programme have realised ongoing annualised savings of around #4m and #6m respectively, consistent with previous announcements. It should be noted that these cost reductions will be partially offset by higher business taxes in the UK, modest increases in employee costs and other minor increases in non-people based costs. Since the end of 2002, we have announced the proposed relocation of employees based in our Halesowen office. In addition, as a final stage in our recent reorganisation programme, we have restructured the group into four business units, each with greater focus and accountability. These units are the three UK markets we serve - distribution, life, pension and investments and mortgages - and our international activities. We expect these developments will result in a total of up to 100 employees leaving the group during the first half of 2003. This is expected to result in a restructuring charge to be incurred in the first half of 2003 of around #2m and annualised savings of over #3m from the middle of 2003. Results The reported pre-tax loss for the year of #34.5m (2001: profit of #9.3m) reflects goodwill amortisation and impairment charges of #33.4m, amounts written off investments, taken against the carrying value of the company's shares held in employee related share trusts, of #9.1m and employee share option charges and reorganisation costs of #3.3m. Underlying profit, namely operating profit, including the results of joint ventures and before charges for goodwill amortisation and impairment, employee share options and reorganisation costs, amounted to #11.5m (2001: #14.8m). On this basis, in 2002 the operating margin was 9.5% (2001: 20.1%). The reasons for the reduced margin in 2002 relative to 2001 are set out above in the sections entitled "Cost of sales" and "Operating costs". Taxation The 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 38.0% (2001: 32.3%). The principal factors causing the rate of tax to exceed the UK statutory rate of 30% were overseas losses for which no benefit can currently be assumed and non-deductible expenses. Earnings per share The basic loss per share for the year ended 31st December 2002 was 20.0 pence (2001: earnings of 3.6 pence). Basic and diluted earnings per share (before charges for goodwill amortisation and impairment, employee share options, reorganisation costs and amounts written off investments) for the period were 3.8 pence and 3.5 pence respectively (2001: 7.3 pence and 5.9 pence respectively). Dividend The Board continues to support a progressive dividend policy, consistent with the cash generative nature of the business. However, the recent fall in the company's share price has led to a significant impairment in the carrying value of the company's shares held in employee related share trusts. Unfortunately, this has the effect of reducing distributable reserves to the extent that it would be imprudent for the Board to declare a dividend for 2002 despite the company's significant cash resources. Cash flow and borrowings Operating cash flow was #11.5m (2001 : #13.5m), representing 100% of group operating profit before charges for goodwill amortisation and impairment, employee share options and reorganisation costs. Operating cash flow relative to underlying operating profit was strong in the year given that there were some specific adverse non-recurring movements relating to the acquisition of Exchange FS Group plc, the reorganisation programme undertaken by the group and the SLFoC outsourcing contract. This strong performance is attributable particularly to good cash inflows during the second half of the year when the level of trade and other debtors was reduced substantially. This positive influence was offset by cash outflows in the period of #4.2m related to reorganisation costs charged in both 2001 and 2002 as well as cash movements linked to fair value provisions established since the acquisition of Exchange FS Group plc. The reorganisation costs relate to the integration of Exchange FS as well as the reorganisation programme undertaken by the group in the second half of the year. The adverse operating cash flow movements relating to the SLFoC outsourcing contract were linked to redundancy costs. These costs were not charged in the period as provisions had been established at the time that we acquired Sun Life of Canada (U.K.) Group Services Limited (SLOCGSL) as part of the contract arrangements. However, this adverse movement was offset in large part by the receipt of a substantial receivable from the SLFoC group towards the end of the year, which contributed to the strong cash collection referred to above. During 2002, non-operating cash movements included payments of #4.9m of acquisition costs and related professional fees in connection with the acquisition of Exchange FS and the consideration for the acquisition of SLOCGSL (offset by #3.5m held on SLOCGSL's balance sheet) and #10.3m relating to capital expenditure, dividends and tax. These payments were offset by the receipt of #1.3m on the exercise of share options and #0.3m on disposal of the Group's shareholding in Financial Express Prestel Limited. Overall, reflecting principally the above factors, during 2002 Marlborough Stirling moved from an opening net cash position of #7.5m to a closing net cash position of #9.1m. The group also maintains significant available bank facilities amounting to #20m which were all undrawn at 31st December 2002. Consolidated profit and loss account For the year ended 31st December 2002 Notes 2002 2001 #000 #000 Turnover (including share of joint ventures) 2 121,008 73,369 Less share of turnover of joint ventures (4,353) (3,622) Group turnover - continuing 81,879 69,747 - acquisition 34,776 - Group turnover 116,655 69,747 Cost of sales 3 (57,862) (29,913) Gross profit 58,793 39,834 Operating expenses 3 (83,649) (30,551) Group operating (loss)/profit - continuing (26,514) 9,283 - acquisition 1,658 - Group operating (loss)/profit (24,856) 9,283 Share of operating (loss) of joint ventures and associates (352) (249) Total operating profit before charges for goodwill amortisation and impairment, employee share options and reorganisation costs - continuing 3 8,968 14,780 - acquisition 2,502 - 11,470 14,780 Goodwill amortisation - subsidiaries 3 (9,496) (2,851) - joint ventures 3 (250) (250) Goodwill impairment charge (23,622) - Employee share option credit/(charge) 3 778 (1,474) Reorganisation costs 3 (4,088) (1,171) Total operating (loss)/profit including share of joint ventures and associates (25,208) 9,034 Interest receivable - group 900 969 - joint venture 49 46 Amounts written off investments 4 (9,052) - Interest payable (1,167) (772) (Loss)/profit for financial year (34,478) 9,277 Tax on (loss)/profit on ordinary activities 5 (3,016) (3,999) (Loss)/profit after non-equity appropriation (37,494) 5,278 Non-equity dividends and preference share appropriation - (496) Total non-equity appropriation - (496) (Loss)/profit for financial year (37,494) 4,782 Equity dividends - (1,718) Retained (loss)/profit for the financial year 12 (37,494) 3,064 (Loss)/earnings per share 6 (20.0)p 3.6p Diluted (loss)/earnings per share 6 (20.0)p 2.9p Adjusted (loss)/earnings per share 6 3.8p 7.3p Adjusted diluted (loss)/earnings per share 6 3.5p 5.9p Adjusted earnings per share and adjusted diluted earnings per share are calculated before charges for goodwill amortisation and impairment, employee share options, reorganisation costs and amounts written off investments. There is no material difference between the (losses)/profits reported above and the historic cost (losses)/profits. Consolidated statement of total recognised gains and losses For the year ended 31st December 2002 Note 2002 2001 #000 #000 (Loss)/profit on ordinary activities after taxation (37,494) 5,278 Exchange adjustments offset in reserves 12 195 (97) Total gains and losses recognised in the (37,299) 5,181 year Consolidated balance sheet At 31st December 2002 31st 31st December December 2002 2001 Notes #000 #000 #000 #000 Fixed assets Goodwill 50,746 84,094 Intangible assets 537 - Tangible assets 16,566 13,011 Investments - interests in own 4 10,477 20,877 shares Investment s in joint ventures: share of gross assets 2,430 3,820 share of gross liabilities (1,467) (2,133) goodwill arising on acquisition 500 750 1,463 2,437 Total fixed assets 79,789 120,419 Current assets Debtors 7 32,831 25,201 Current asset investments 529 - Cash at bank 21,486 23,022 54,846 48,223 Creditors Amounts falling due within one year 8 (38,329) (36,620) Net current assets 16,517 11,603 Total assets less current liabilities 96,306 132,022 Creditors Amounts falling due after more than one year 9 (7,007) (7,938) Provisions for liabilities and 10 (7,535) (3,897) charges Net assets 81,764 120,187 Capital and reserves Called up share capital 11 2,257 2,254 Share premium account 12 43,879 43,965 Capital redemption reserve 12 6 6 Merger reserve 12 44,646 68,268 Shares to be issued 11 21 1,161 Profit and loss account 12 (9,045) 4,533 Equity shareholders' funds 81,764 120,187 Consolidated cash flow statement For the year ended 31st December 2002 Notes 31st December 2002 31st December 2001 #000 #000 Net cash inflow from operating activities 13 11,549 13,453 Return on investments and servicing of finance Interest paid (929) (519) Interest received 900 972 Non-equity dividends paid to shareholders - (1,394) Interest element of finance lease rentals (212) (278) Net cash (outflow) from returns on investments and servicing of finance (241) (1,219) Taxation paid (3,242) (1,909) Capital expenditure and financial investment Purchase of tangible fixed assets (5,844) (5,054) Purchase of own shares - (17,356) Proceeds from exercise of share options 1,348 161 Sale of tangible fixed assets 102 39 Net cash (outflow) for capital expenditure and financial investment (4,394) (22,210) Acquisitions and disposals Purchase of subsidiary undertakings (4,866) (26,286) Investment in joint ventures (72) - Sale of associate undertakings 334 - Cash acquired with subsidiary undertakings 3,486 16,054 Net cash (outflow) for acquisitions and disposals (1,118) (10,232) Equity dividends (1,244) (474) Net cash inflow / (outflow) before management of liquid resources and financing 1,310 (22,591) Management of liquid resources Increase in short-term deposits with banks (529) - Net cash inflow from management of liquid (529) - resources Financing Capital element of finance lease rentals and increase/(decrease) in advances from finance 400 128 houses Issue of ordinary share capital 227 42,995 Repurchase of preference shares - (3,000) (Decrease) in borrowings (158) (6,249) Repayment of loan and promissory note (3,206) - Net cash (outflow)/inflow from financing (2,737) 33,874 (Decrease)/increase in net cash in the year 14 (1,956) 11,283 Notes to the financial statements 1. Basis of preparation The financial information for the years ended 31st December 2002 and 31st December 2001 does not constitute full financial statements within the meaning of Section 240 of the Companies Act 1985. The statutory accounts for the year ended 31st December 2001 have been delivered to the Registrar of Companies, whereas those for the year ended 31st December 2002 will be delivered following the annual general meeting. The auditors have given unqualified reports on both sets of accounts which did not contain a statement under Sections 237(2) or (3) of the Companies Act 1985. The financial information has been prepared in accordance with the accounting policies adopted for the year ended 31st December 2002, which are consistent with those adopted for the year ended 31st December 2001. The preliminary statement was approved by the directors on 3rd March 2003. 2. Segmental information In the following analyses, those by business are based on the Group's management structure. Geographical analysis By origin (Loss)/profit Net assets Turnover by Turnover before taxation destination #000 #000 #000 #000 Year ended/at 31st December 2002 United Kingdom - group 109,261 (23,271) 57,294 108,568 - joint venture 4,226 (157) 1,463 4,226 Rest of the world - group 7,394 (1,585) 5,144 8,087 - joint venture 127 (195) - 127 121,008 (25,208) 63,901 121,008 Other - (9,270) 17,863 - 121,008 (34,478) 81,764 121,008 Current year turnover attributable to Exchange FS, acquired in November 2001, was #26,214,000 (2001: #4,539,000). Year ended/at 31st December 2001 United Kingdom - group 64,656 9,895 86,809 60,515 - joint venture 3,407 (189) 1,873 3,407 Rest of the world - group 5,091 (612) 168 9,232 - joint venture 215 (60) 564 215 73,369 9,034 89,414 73,369 Other - 243 30,773 - 73,369 9,277 120,187 73,369 Other unallocated net assets comprise assets and liabilities which cannot be attributed to a geographical or business segment and principally comprise cash and bank borrowings, interest in own shares, dividends payable and certain other corporate assets and liabilities. Business analysis Turnover Acquisitions in Profit Continuing the year Total before Net assets taxation #000 #000 #000 #000 #000 Year ended/at 31st December 2002 Software and consultancy - group 57,837 - 57,837 (27,833) 14,473 Services Outsourcing - group 8,371 34,776 43,147 3,735 3,104 - joint 4,226 - 4,226 (157) 1,963 venture Portal services - group 15,671 - 15,671 (758) 44,361 - joint 127 - 127 (195) - venture 86,232 34,776 121,008 (25,208) 63,901 Other - - - (9,270) 17,863 86,232 34,776 121,008 (34,478) 81,764 Year ended/at 31st December 2001 Software and consultancy - group 56,648 - 56,648 9,240 33,402 Services Outsourcing - group 10,384 - 10,384 1,482 2,435 - joint 3,407 - 3,407 (189) 1,873 venture Portal services - group 2,715 - 2,715 (1,439) 51,140 - joint 215 - 215 (60) 564 venture 73,369 - 73,369 9,034 89,414 Other - - - 243 30,773 73,369 - 73,369 9,277 120,187 Software and consultancy The group's software and consultancy activities comprise the sale and delivery of software licences together with related specialist services such as implementation, customisation, consultancy and support and maintenance Software and consultancy turnover includes licence fees of #5,712,000 (2001: #7,747,000). Outsourcing services The group's outsourcing activities relate to the delivery of a range of services on behalf of financial services companies to transform their administration operations. These services include business process re-engineering, change management, new business processing, customer service, finance and actuarial. Portal services The group portal services activities are involved in the maintenance of connectivity between product providers and intermediaries in the financial services industry to enable key processes in the sale and distribution of financial services products together with a range of related services. In addition to the above analysis of the Group's results, turnover can be analysed according to the market served as follows: Continuing Acquisitions in the Total year #000 #000 #000 Year ended 31st December 2002 Life, pensions and investment Software and consultancy - group 32,316 - 32,316 Outsourcing - group 8,371 34,776 43,147 40,687 34,776 75,463 Mortgage Software and consultancy - group 9,971 - 9,971 Outsourcing - joint venture 4,226 - 4,226 14,197 - 14,197 Distribution Software and consultancy - group 15,550 - 15,550 Portal services - group 15,671 - 15,671 - joint venture 127 - 127 31,348 - 31,348 86,232 34,776 121,008 Year ended 31st December 2001 Life, pensions and investment Software and consultancy - group 44,916 - 44,916 Outsourcing - group 10,353 - 10,353 55,269 - 55,269 Mortgage Software and consultancy - group 8,890 - 8,890 Outsourcing - group 31 - 31 - joint venture 3,407 - 3,407 12,328 - 12,328 Distribution Software and consultancy - group 2,842 - 2,842 Portal services - group 2,715 - 2,715 - joint venture 215 - 215 5,772 - 5,772 73,369 - 73,369 3. Cost of sales, gross profit and operating profit 2002 Acquisitions 2001 Total Continuing in the year Total #000 #000 #000 #000 Year ended 31st December 2002 Total Group turnover (excluding joint ventures) 81,879 34,776 116,655 69,747 Cost of sales (40,878) (16,984) (57,862) (29,913) Gross profit 41,001 17,792 58,793 39,834 Operating expenses Goodwill amortisation 9,472 24 9,496 2,851 Intangible amortisation - 72 72 - Goodwill impairment charge 23,622 - 23,622 - Depreciation 4,105 399 4,504 3,074 Research and development costs 5,133 - 5,133 4,938 Reorganisation costs (a) 3,268 820 4,088 1,171 Employee share option (credit)/charge (b) (778) - (778) 1,474 Other administrative costs 22,693 14,819 37,512 17,043 Total administrative costs 67,515 16,134 83,649 30,551 Group operating (loss)/profit (26,514) 1,658 (24,856) 9,283 Share of operating loss of joint ventures and associates (352) - (352) (249) Total operating profit/(loss) including share of joint (26,866) 1,658 (25,208) 9,034 ventures and associates Total operating profit before charges for goodwill 8,968 2,502 11,470 14,780 amortisation and impairment, employee share options and reorganisation costs (including joint ventures and associates) Goodwill amortisation (9,722) (24) (9,746) (3,101) Impairment charge (23,622) - (23,622) - Reorganisation costs (a) (3,268) (820) (4,088) (1,171) Employee share option credit/(charges) (b) 778 - 778 (1,474) Total operating profit including share of joint ventures (26,866) 1,658 (25,208) 9,034 a) In the early part of 2002, the group completed the integration programme relating to the acquisition of Exchange FS Group plc which resulted in reorganisation costs being incurred. Following the acquisition of Marlborough Stirling Life and Pensions Services Limited (MSLPS) on 1st March 2002, the Group incurred reorganisation costs in connection with bringing MSLPS under the Group's management which are disclosed separately above. In addition, during the second half of 2002 the group initiated a cost reduction programme across the group. As a result of these activities, the group incurred during the year a total of #4.1 million of reorganisation costs which comprise principally redundancy and other personnel costs together with charges in respect of vacant property. b) The employee share option credit reflects an adjustment in respect of a provision for National Insurance payable on the grant of employee share options. 4. Interests in own shares and investments Total #000 At 1st January 2002 20,877 Amounts written off investments (9,052) Shares transferred on exercise of employee (1,348) options At 31st December 2002 10,477 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 #0.355 at 31st December 2002 and the 36,827,246 shares held by these trusts at that date, an amount of #9,052,000 has been provided against the carrying value of the interest in own shares. Based on the latest available share price of #0.28 on 3rd March 2003, a further provision of #1,646,000 would be required. 5. Tax charge on profit on ordinary activities 31st December 2002 31st December 2001 #000 #000 (a) Analysis of charge in the period Current tax UK corporation tax at 30% (2001: 30%) on profits for the year (197) 4,017 Share of joint ventures - 11 Adjustment in respect of previous periods (191) (16) (388) 4,012 Overseas tax 246 119 Total current tax (142) 4,131 Deferred tax origination and reversal of timing differences - current year charge/(credit) 2,813 (189) - prior year charge 276 57 3,089 (132) Share of joint venture 69 - Tax charge on (loss)/profit on ordinary activities 3,016 3,999 (b) Factors affecting the current tax charge for the period The tax assessed in each year varies from the standard rate of corporation tax in the UK in the relevant years. The differences are explained below: (Loss)/profit on ordinary activities before taxation (34,478) 9,277 (Loss)/profit on ordinary activities before taxation multiplied by (10,343) standard rate of UK corporation tax of 30% (2001: 30%) 2,783 Goodwill amortisation 2,923 930 Goodwill impairment charge 7,087 - Amount written off investments 2,715 - Overseas losses not recognised 321 369 Fair value adjustments (1,141) - Rate differences on overseas entities (115) (140) Losses brought forward (999) - Adjustments to tax in previous periods (191) (16) Depreciation charges in excess of capital allowances and other timing differences 189 (631) Permanent differences and other 232 16 Current tax (credit)/charge for period (142) 4,131 6. 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, excluding those held by the Employee Share Ownership Trusts which 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. Year ended Year ended 31st December 2002 31st December 2001 #000 #000 Earnings (Loss)/profit attributable to ordinary shareholders (37,494) 4,782 Goodwill amortisation 9,746 3,101 Employees share option (credit)/charges (563) 1,086 Reorganisation costs 2,862 820 Goodwill impairment charge 23,622 - Amounts written off investments 9,052 - Profit before goodwill amortisation and impairment, employee 7,225 9,789 share option charges, reorganisation costs and amounts written off investments Weighted average number of shares Basic 187,707,473 134,007,265 Dilution 21,257,102 30,860,668 Diluted number of shares 208,964,575 164,867,933 (Loss)/earnings per share (pence) Basic (20.0)p 3.6p Adjusted basic (i) 3.8p 7.3p Diluted (ii) (20.0)p 2.9p Adjusted diluted (i) 3.5p 5.9p (i) Adjusted earnings per share and adjusted diluted earnings per share 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 year ended 31st December 2002, the Group made a loss, consequently the effect of share options is 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 basic earnings per share is shown. 7. Debtors 31st December 2002 31st December 2001 #000 #000 Trade debtors 18,958 17,897 Corporation tax recoverable 555 153 Deferred taxation 2,798 732 Accrued income 6,270 3,991 Prepayments and other debtors 4,250 2,428 32,831 25,201 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 31st December 2002 31st December 2001 #000 #000 Bank and other borrowings 7,515 7,745 Trade creditors 3,268 2,365 Corporation tax 309 2,400 Overseas tax 328 141 Other tax and social security 3,684 3,646 Other creditors 636 - Accruals 9,052 10,491 Payments on account and deferred income 12,865 8,430 Deferred consideration on acquisitions 672 158 Dividend proposed - 1,244 38,329 36,620 9. Creditors: amounts falling due after more than one year 31st December 2002 31st December 2001 #000 #000 Bank and other borrowings 5,389 7,766 Deferred consideration on acquisitions 1,048 - Other 570 172 7,007 7,938 10. Provisions for liabilities and charges The movement in provisions for the year ended 31st December 2002 is detailed below. Provision at Established/ Provision at 1st January Established to released 31st December 2002 Acquired fair value Utilised 2002 #000 #000 #000 #000 #000 #000 Employee related reorganisation provisions (i) 1,083 6,473 - 3,012 (7,024) 3,544 Property related reorganisation provisions (ii) 1,730 - 2,533 847 (1,287) 3,823 Other provisions (iii) 1,084 - (93) (802) (21) 168 3,897 6,473 2,440 3,057 (8,332) 7,535 (i) Employee related reorganisation provisions relate principally to redundancy provisions, which are expected to be utilised within the next 12 months. (ii) Property provisions relate to onerous leasehold properties and are expected to be utilised within the next three years, representing the Directors'estimate of the net unrecovered costs of the remaining period of the leases. (iii) Other provisions will be utilised over the next six months. 11. Called up share capital 31st December 2002 31st December 2001 #000 #000 Allotted, called up and fully paid 225,716,013 ordinary shares of 1p each (2001: 225,472,528) 2,257 2,254 Shares to be issued 21 1,161 During the year 243,485 new shares were issued for a consideration of #227,000 as a result of employees exercising their options 12. Reserves Capital Share Profit and redemption premium Merger loss reserve account reserve account #000 #000 #000 #000 At 1st January 2002 6 43,965 68,268 4,533 Premium on issue of ordinary shares - 373 - - Costs of share issues - (459) - - Impairment charge transferred to merger reserve - - (23,622) 23,622 Share option adjustment - - - 99 Retained loss for the year - - - (37,494) Exchange adjustments - - - 195 At 31st December 2002 6 43,879 44,646 (9,045) Cumulative goodwill relating to acquisitions made prior to 1999 which has been eliminated against the merger reserve, amounts to #2,861,000 (2001: #2,861,000). The current year impairment charge of #23.6 million has been eliminated against the merger reserve established on the issue of shares i n connection with the acquisition of the issued share capital of Exchange FS Group plc in November 2001. 13. Reconciliation of operating profit to operating cash flow 31st December 2002 31st December 2001 #000 #000 Group operating (loss)/profit (24,856) 9,283 Depreciation charge 4,504 3,074 Goodwill amortisation and intangible impairment 33,190 2,851 (Profit)/loss on sale of tangible fixed assets (32) 9 Adjustment for unrealised profit on sales to joint venture 169 - Decrease/(increase) in debtors 2,641 (1,014) Increase/(decrease) in creditors 1,033 (4,345) (Decrease)/increase in provisions (5,100) 3,595 Net cash inflow from operating activities 11,549 13,453 14. Reconciliation of net cash flow to movement in net debt 31st December 2002 31st December 2001 #000 #000 (Decrease)/increase in cash (1,956) 11,283 Borrowings net of short-term deposits acquired with - (1,080) subsidiaries New short term deposits 529 - Movement in borrowings 2,964 4,049 Inception of new finance leases (196) (158) Currency translation differences 259 (90) Movement in net debt 1,600 14,004 Net debt at 1st January 7,511 (6,493) Net debt at 31st December 9,111 7,511 15. Analysis of movement in net cash At 1st Exchange Finance At 31st January 2002 Cash flow Acquisitions differences leases December 2002 #000 #000 #000 #000 #000 #000 Cash at bank and in hand 23,022 (5,251) 3,486 229 - 21,486 Overdrafts (4,860) (191) - 3 - (5,048) 18,162 (5,442) 3,486 232 - 16,438 Current asset investments - 529 - - - 529 Bank and term loans (3,483) 158 - - - (3,325) Other loans (3,382) 3,206 - 28 - (148) Finance leases and advances from finance houses (3,786) (400) - (1) (196) (4,383) 7,511 (1,949) 3,486 259 (196) 9,111 This information is provided by RNS The company news service from the London Stock Exchange END FR SSESWLSDSESD
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