At MSB we recognise that the market in which we operate is continuously changing. To stay ahead we must re-examine ourselves and our industry. In the IT sector the pace of change is so fast that, it is only those businesses which can plan and adapt speedily that will maximise the opportunities.

Over the past 18 months we have been redefining our business model to adapt to the fast changing IT recruitment market. I see this as building the foundations for the next phase of our growth for the future.
In the year to 31 January 2000, MSB experienced a downturn in demand, principally due to the year 2000 ≥microclimate≤ which resulted in turnover down by 3% to £185 million.

The year can be divided into two distinct halves. At our interim results we reported turnover for the first half at £100m, which was approximately the same as the second half of the previous year. The second half of this year however was down by 15%. The reasons for this are mainly due to the reduced demand approaching the Millennium and downward pressure on margins. The reduction in demand was felt right across the sector and was widely reported elsewhere. Gross margins have been under pressure throughout the industry in recent years and were further exacerbated by the Millennium downturn resulting in our margin dropping from 18.2% to 17%. The quiet market conditions have continued into the first quarter of this year which has found us poorly positioned with our current cost base. We are now addressing this to bring it into line with the anticipated volume of business. However, it has been widely forecast that the second half of the year will see a pick up in IT spend and we believe that, with our new business model, we are well positioned to take maximum advantage of this upturn. There have been several changes to the Board of Directors during the year. Mike Harrison resigned in December 1999 due to business pressures in his own Company and we thank Mike for all his hard work and input during his time as a Non-Executive Director of MSB.

Peter Browne, formerly Marketing Director is now our Sales and Marketing Director. The previous Sales Director, Alan Preston, left the Company in February 2000 for personal reasons. We wish him well in his future career.The year under review was a challenging one, but it was also a year in which we made progress on several fronts.

During the first half of 1999, we commissioned external research which highlighted the issues in need of our attention. We decided to set up two Divisions, Technology Solutions and Business Solutions. The former is largely the core business which has been so successful at delivering flexible IT expertise. This was previously organised in technical areas under ten senior managers. It has now been rationalised with four Division Directors managing the same technical areas reorganised into operating units. Business Solutions has been set up with responsibility for building and strengthening major client relationships. Through this division we are able to offer our larger clients various alternative solutions to their IT staffing needs. The Business Solutions team can already report some significant wins in signing up many clients with MSB as their preferred supplier.

The most exciting development has been the launch of our internet recruitment solution, to be known as The Virtual Resource Centre. We developed this e-recruitment model in conjunction with Cisco, who have become the largest company in the world by being the market leader in using the internet for business to business transactions. We were selected as their preferred Professional Service Partner to deliver an IT recruitment solution to their organisation and their partners. We have now started to introduce our Virtual Resource Centre to some of our other major clients.

In April 1999 we opened our first office outside our base in Bromley. The new Manchester office has proved to be a very successful venture, having built the business from a start-up situation to a running rate turnover of £7 million inside a year. Our forecast will see further growth this year.

Twelve months ago we started assembling a multi-lingual team to provide the interface between the large European IT users and what is now Technology Solutions. We have made great progress and the European Team is now firmly established with the value of our overseas business having trebled in the period.

The European model for sourcing IT expertise is a long way behind the UK and US because their traditional employment regulations have prevented them operating with the same flexibility that we have enjoyed. This has opened up a huge export market for UK expertise.

With the IT industry constantly growing and changing we have huge opportunities to expand our model further. We now have a client base established in several European countries and we intend to maximise this opportunity by setting up new offices in selected countries in the coming months. We believe that we can grow organically using local expertise in addition to those introduced from the UK.

Another success story was the establishment of our Permanent Recruitment Division in the second half of last year. We set this up to take advantage of a growing market and to complement our contract resourcing capabilities in order to provide a complete recruitment service for our clients. From a standing start in August we quickly assembled a team of six Recruitment Associates who were able to contribute to our profits in the period. There is a great demand for our services and we are on target to increase the size of this division to thirty Associates by the year end.

For our IT contractors we have developed and delivered a market leading benefits package, The Contractor Benefits Programme, which is tailored to meet their needs across the whole spectrum of their career. It covers new contractors who need help in setting up their company, dealing with their payroll and VAT, through to more experienced individuals who need assistance in maintaining and reviewing their skills. We offer our contractors a complete package of benefits, encompassing training, accountancy support and preferred rates on a whole host of services such as insurance, legal services and finance.

We have also invested heavily in replacing our in-house IT systems. Following an exercise to map existing processes and analyse the business needs, we carried out a comprehensive review of the available software. We have now purchased end-to-end workflow, sales and financial software packages and the programme of implementation is on schedule to go live in the third quarter of 2000.

MSB has many bright and highly motivated people who have helped make us an exciting and innovative recruitment company. They are an important part of our foundations for future development.

Peter P Flaherty
Chief Executive