The year to 31 January 2000 has been one of many challenges and varied achievements. Strict financial control has generated a significant reduction in borrowings and debtors whilst building a firmer financial and operational platform. These achievements were made while the Company underwent major internal restructuring together with a thorough review and appraisal of business processes.

Other challenges faced during the year have included the implementation of the Companyπs strategy to meet new market requirements through the development and, where appropriate, introduction of new delivery techniques, which has been achieved against a background of a maturing, more competitive and changing marketplace.

Turnover for the year of £184.9 million represented a reduction of 3.3% on last year (1999: £191.3 million) with underlying profits, before tax and exceptional items, falling by 43% to £6.5 million (1999: £11.6 million). An exceptional charge of £1.6 million was incurred, resulting in profit after tax and exceptional item of £3.4 million (1999: £5.4 million).

The Company achieved a gross profit of £31.5 million, a decrease of 9.7% compared to last yearπs £34.9 million. During the year, gross margins slipped to an average of 17.0% from 1999 levels of 18.2%. The decline was largely due to continued pressure on margins from the large, high volume contractor user clients who, by introducing centralised purchasing functions, have been able to impose discounted rates. Exceptional charges before taxation amount to £1.6 million (1999: £3.5 million) and include £1.2 million which relates primarily to the costs associated with the sales organisation and the design and development of new sales and back office systems.

Costs totalling £2.0 million relating directly to the reorganisation of the Sales function were charged against a specific provision of £2.2 million, which was established at 31 January 1999.

During the year additional personnel costs relating to the Sales reorganisation totalling £0.8 million were identified as exceptional. The charge was partially offset by a £0.4 million write back of the exceptional provision remaining for Wells House, the Companyπs previous Head Office, which was vacant for the first half of 1999 but which was subsequently sublet.
Earnings per share before exceptional items were 24.2p, compared to 39.9p in the previous year. Basic and diluted earnings per share after exceptional items were 17.4p and 17.3p, respectively (1999: basic 27.4p; diluted 27.0p).

The total number of shares in issue was 20,410,466 at 31 January 2000, with the yearly weighted average of 20,399,381. The earnings per share excludes 634,548 shares; the average number of shares held by an employee trust during the year.
The taxation charge of £1.5 million on profit after exceptional items represented an effective rate of 30.7% compared to 33.1% in the previous year. The increase to the charge from adjustments relating to deferred taxation and the tax treatment of a prior year provision totalled £0.5 million. This was offset by a repayment during the year of £0.5 million by the Inland Revenue, relating to property costs incurred during the year ended 31 January 1998, which had on a prudent basis previously been treated in the accounts as disallowable. Close attention has been paid to maximising cash generation. This has resulted in a positive cash inflow of £10.2 million arising from operating activities and an overall increase in cash flow of £2.9 million. Capital expenditure for the year was £0.8 million (1999: £1.1 million) and the total dividends paid during the year totalled £2.5 million (1999: £2.1 million).

A pleasing performance was achieved during the year in managing working capital, primarily in debt collection. Total trade debt decreased by 30.5%, a reduction of £12.8 million from £42.1 million at 31 January 1999 to £29.3 million at 31 January 2000 which resulted in debtor days falling from 67 at 31 January 1999 to 63 days.
Total net borrowings were reduced to £9.4 million from £12.8 million at 31 January 1999, as a direct result of the sound management of the Companyπs working capital. Consequently, gearing improved to 68% at 31 January 2000 from 99% at 31 January 1999.

Total net borrowings of £9.4 million comprise a £5 million term loan (which expires in September 2002 and is at a fixed rate until September 2000), £3.6 million available through a variable facility which has a limit of £20 million, £0.4 million relating to finance leases and a £0.4 million bank overdraft.
The Company finances its operations through shareholdersπ equity, bank borrowings, retained profits and working capital management. No other financial instruments are used. In the current interest rate environment, and given the Companyπs positive cash flow and reduced gearing, the Directors consider that the level of interest rate risk is acceptable.

The Company trades principally in sterling with less than 2.5% income received in other European currencies. The effect of currency risk to the Company is therefore not deemed material although this is closely reviewed.

For the year ended 31 January 2000 the Company has adopted the following Financial Reporting Standards (FRS); FRS13 - Derivatives and other Financial Instruments: Disclosures.

FRS 12 - Provisions and contingencies, became mandatory for all accounting periods ending after 23 March 1999 and was adopted by the Company in presenting the 1999 Annual Report & Accounts.
I am pleased to confirm that no material impact of either a financial or operational nature was incurred during the year as a result of our Y2K upgrade implementation, the costs of which were not material. We are continuing to monitor all our IT systems.

A detailed review of front and back office systems has continued throughout the year. This has resulted in improvements to both manual and business processes, as well as the identification of appropriate new alternative software applications and procedures, which will allow us to create a more efficient and cost-effective platform from which to operate in the future. Costs associated with this re-organisation of the business are of a non-recurring nature and have been treated as exceptional, as noted above.


Andrew M Zielinski
Finance Director