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BUSINESS SYSTEMS GROUP HOLDING PLC

PRELIMINARY RESULTS FOR THE TWELVE MONTHS ENDED 31 MARCH 2008

Business Systems Group Holding plc ('BSG' or the 'Group'), the managed services group which designs, deploys and operates IT solutions for medium sized companies, today announces year end results for the twelve months ended 31 March 2008.

Highlights:

• Pre-tax profit of £925k from a loss of £252k in the prior year

• Cash balance up £1.1m to £9.3m at the year end from £8.2m a year before

• Contractual revenues up 18% to £8.4m at the year end from £7.1m a year before

• Final dividend of 0.4p per share

Contacts:

Business Systems Group                                Tel: 0207 880 8888

    Nick Gerard, CEO

    James Wheaton, FD

KBC Peel Hunt                                             Tel: 0207 418 8900

    Oliver Scott

    Richard Kauffer

CHAIRMAN'S STATEMENT

I am pleased to present the first set of results for the Group since becoming non-executive Chairman. The results for the Group for the year ended 31 March 2008 show a strong recovery into profit and growth in the Managed Services business. 

Summary of results

• Pre-tax profit of £925k (£252k loss prior year).

• Earnings before interest, tax, depreciation and amortisation (EBITDA) was a profit of £1,108k (£204k loss prior year).

• Cash balance increased by £1.1m to £9.3m and no debt (£8.2m prior year).

• The annualised value of contractual revenues at the year end increased 18% from £7.1m at 31 March 2007 to £8.4m at 31 March 2008.

• Gross margin grew to 20.8% from 17.4%.

• Final dividend of 0.4p per share (2007: nil).

Contractual revenues

In the course of the year, we have grown the annualised value of contracts at the year end by £1.3m, or 18%, from £7.1m to £8.4m. This remains the Group's most important key performance indicator ('KPI'), and is at the heart of the Group's strategy to create shareholder value.  

BSG's objective is to help dynamic organisations to align their IT services with their business requirements. This is achieved through the ability of the Group's highly skilled work force to apply technology to take on services from a customer and deliver better service for less cost. This enables the customer's IT department to concentrate on increasing competitive advantage rather than running utility computing services. 

Financial performance

The year showed a strong performance for the Group; it returned to operating profit in both halves, grew cash and widened margins. This was as a result of the continued strong growth of the contractual elements of the business, as well as strong demand for application development skills. The Hardware business now represents only 37% of gross profit, the lowest ever for the Group.  

Dividend

Following the return to profit, the Board is recommending a final dividend of 0.4p per share (2007: nil). This represents approximately 33% of the Group's profit after tax for the year and follows the distribution policy set out by the Board in previous years. The final dividend, if approved by shareholders, will be paid on 11 August 2008 to shareholders on the register as at 27 June 2008. 

Current trading and outlook

The key objective of the coming year is to build sustainable profitability for the Group. This requires optimisation of our Hardware Infrastructure business and increased focus on integrating our Solutions business into our Managed Services propositions. A further year of strong growth in managed services will continue to underpin the future of the Group. The Board remains optimistic for the continued growth of the Managed Services business; while harsher macro economic factors may negatively affect the market for projects and related hardware requirements, these conditions create opportunities for our outsourcing services.  

Vin Murria
Chairman

CONSOLIDATED INCOME STATEMENT				Year ended 31 March 2008 £'000		Year ended 31 March 2007 £'000
REVENUE				31,427		32,861
Cost of sales				(24,891)		(27,150)
GROSS PROFIT				6,536		5,711
Administrative expenses				(6,120)		(6,399)
OPERATING PROFIT/(LOSS)				416		(688)
Finance income				509		436
PROFIT/(LOSS) BEFORE TAXATION				925		(252)
Taxation				-		-
PROFIT/(LOSS) FOR THE YEAR				925		(252)
Basic earnings/(loss) per share				1.22p		(0.33)p
Diluted earnings/(loss) per share				1.18p		(0.33)p

All results are derived from continuing operations

  

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

		Share Capital £'000		Own Shares Held £'000		Retained Earnings £'000		EBT Reserve £'000		Total £'000
Balance at 1 April 2006		4,209		(114)		4,751		(190)		8,656
Changes in equity for 2007:
Loss for the year		-		-		(252)		-		(252)
Total recognised income and expense for the year				-		(252)		-		(252)
Purchase of own shares		-		(758)		-		-		(758)
Dividends		-		-		(234)		-		(234)
Share-based payment		-		-		11		-		11
Movement in reserves from EBT redemptions		-		-		(21)		97		76
Balance at 31 March 2007		4,209		(872)		4,255		(93)		7,499
Changes in equity for 2008:
Profit for the year		-		-		925		-		925
Total recognised income and expense for the year		-		-		925		-		925
Share-based payment		-		-		13		-		13
Movement in reserves from EBT redemptions		-		-		(40)		46		6
Sale of own shares held		-		123		(39)		-		84
Balance at 31 March 2008		4,209		(749)		5,114		(47)		8,527

CONSOLIDATED BALANCE SHEET		2008 £'000		2007 £'000
NON-CURRENT ASSETS
Property, plant and equipment		1,534		1,235
		1,534		1,235
CURRENT ASSETS
Inventories		95		141
Trade and other receivables		5,784		6,218
Cash and cash equivalents		9,331		8,244
		15,210		14,603
CURRENT LIABILITIES
Trade and other payables		(8,217)		(8,189)
Provisions		-		(150)
NET CURRENT ASSETS		6,993		6,264
NET ASSETS		8,527		7,499
EQUITY
Share capital		4,209		4,209
Own shares held		(749)		(872)
Retained earnings		5,114		4,255
EBT reserve		(47)		(93)
TOTAL EQUITY		8,527		7,499

CONSOLIDATED CASH FLOW STATEMENT

	Year Ended  31 March 2008 £'000		Year ended  31 March 2007 £'000
Cash flows from operating activities Profit/(loss) after taxation	925		(252)
Adjustments for:
Depreciation	692		484
Share-based payment	13		11
Interest income	(509)		(436)
Loss on disposal of equipment	-		2
Decrease in provisions	(150)		(43)
Operating cash flows before movement in working capital	971		(234)
Decrease/(increase) in inventories	46		(54)
Decrease/(Increase) in trade and other receivables	434		(9)
Increase in trade payables	28		438
Cash generated from operations	1,479		141
Income taxes paid	-		-
Net cash inflow from operating activities	1,479		141
Cash flows from investing activities
Interest received	509		436
Proceeds on disposal of property, plant and equipment	-		3
Purchases of property, plant and equipment	(991)		(672)
Net cash used in investing activities	(482)		(233)
Cash flows from financing activities
Dividends paid	-		(234)
Purchase of own shares	-		(758)
Proceeds of sale of shares from EBT	6		76
Proceeds of sale of shares from treasury	84		-
Net cash generated/(used) in financing activities	90		(916)
Net increase/(decrease) in cash and cash equivalents	1,087		(1,008)
Cash and cash equivalents at beginning of period	8,244		9,252
Cash and cash equivalents at end of period	9,331		8,244

    General information

Business Systems Group Holdings plc is a company incorporated in the United Kingdom under the Companies Act 1985. The address of the registered office is given in note 7.  

2.      ACCOUNTING POLICIES AND Basis of preparation

The financial information set out above does not constitute the Company's statutory account for the year ended 31 March 2008 or 2007, but is derived from those accounts. Statutory accounts for 2007 have been delivered to the Registrars of Companies and those for 2008 will be delivered following the Company's annual general meeting. The auditors have reported on those accounts; their reports were unqualified and did not contain statements under s237(2) or (3) of Companies Act 1985.

This report has been prepared in accordance with IFRSs (International Financial Reporting Standards) adopted by the European Union and International Financial Reporting Interpretations Committer (IFRIC) interpretations as at 31 March 2008. The information is extracted from the first full financial statements prepared by the Group under IFRS and a full explanation of the transition is set out below.  The financial statements and statutory accounts for the year ended 31 March 2007 were prepared under UK GAAP (Generally Accepted Accounting Practice) and have been filed with the Registrar of Companies.  

These financial statements have been prepared under the historical cost convention.

The preparation of financial statements under IFRS requires the Board to make judgements, estimates and assumptions that affect the application of accounting policies, the reported amounts of balance sheet items at the period end and the reported amount of revenue and expense during the reporting period. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements that are not readily apparent from other sources. However, the actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an on-going basis.

The recognition of revenue and profit on projects which span the period end constitutes the main area of judgement exercised by the Board in respect of the Group's results. The Board has relied on its experience and that of the teams involved and project management methodologies used by the business to estimate the final outcome of each project, and to recognise the appropriate portion for the period.

Additionally the Board exercises judgement in assessing the extent to which a deferred tax asset is recognised at the year end, based on the probability that future profit will be available to utilise the asset.

An explanation of how the transition from UK GAAP to IFRS has affected the Group's financial position, financial performance and cash flows is set out below.  Business Systems Group Holdings plc (BSG) has historically prepared its consolidated (the Group) financial statements under UK GAAP. With effect from 1 April 2007 the Group is required to prepare its financial statements in accordance with IFRS.  As stated above, the Group's first annual financial statements under IFRS are for the year ended 31 March 2008, and the Group is required to publish one year of comparative information, which results in a date of transition to IFRS of 1 April 2006.

At the date of authorisation of these financial statements, the following standards and interpretations, which have not been applied in these financial statements, were in issue but not yet effective for the Group:

• IFRS8 'Operating Segments'

• IAS1 'Presentation of Financial Statements (revised)'

• IFRIC11 'IFRS2 - Group and Treasury Share transactions'

• IFRIC12 'Service concession agreements'

• IFRIC13 'Customer loyalty programmes'

• IFRIC 14 'The limit on a defined benefit asset, minimum funding requirements and their interaction'

The Directors anticipate that the adoption of these standards and interpretations in future periods will have no material impact on the Group's financial statements except for additional disclosures when the standards come into effect after 1 April 2008.

IFRS does not affect the underlying business performance of BSG and has no impact on the cash generated from operations. There is however a change in presentation and disclosure, along with a restatement of the results as explained in the table below.  In summary, for the year ended 31 March 2007, loss before tax is decreased by £10k.

Impact on comparative period:

		Twelve months to 31 March 2007 £'000
Holiday pay accrual		10
Impact on profit before and afater tax		10

IFRS1 (First-time adoption of IFRS) permits companies adopting IFRS for the first time to take certain exemptions from the full requirements of IFRS in the transition period. These financial statements have been prepared on the basis of taking the following exemptions:

• Business combinations: BSG has taken the exemptions from restating business combinations occurring before the transition date, 1 April 2006.

• Fair value or revaluation as cost: BSG has not taken the option to restate items of property, plant and equipment to their fair value at 1 April 2006, being the date of transition. For all items, BSG has elected to take their cost amount as shown previously under UK GAAP as their deemed cost at the date of transition.

Other than the application of the new required format, there has been no change to the reported cash flows of the Group.

Presented in the following two tables are the reconciliations of UK GAAP to IFRS for all adjustments:

 

  

 

 

Table 1: Reconciliation as at 1 April 2006

Balance Sheet	Adjustment
	GAAP £'000		Holiday pay £'000	Provision £'000	IFRS £'000
Non-current Assets
Property, plant and equipment	1,052				1,052
	1,052				1,052
Current Assets
Inventories	87				87
Trade and other receivables	6,209				6,209
Cash and cash equivalents	9,252				9,252
	15,548				15,548
Current Liabilities
Trade and other liabilities	(7,697)		(54)		(7,751)
Short-term provisions				(108)	(108)
Non-current Liabilities
Long-term provisions	(193)			(108)	(85)
Net Assets	8,710				8,656
Equity
Share capital	4,209				4,209
Own shares held	(114)				(114)
Retained earnings	4,805		54		4,751
EBT reserve	(190)				(190)
Total Equity	8,710		0	0	8,656

  Table 2:  Reconciliations for the twelve months ended 31 March 2007 

Balance Sheet	Adjustment
As at 31 March 2007	GAAP £'000		Holiday pay £'000	Provision £'000	IFRS £'000
Non-current Assets
Property, plant and equipment	1,235				1,235
	1,235				1,235
Current Assets
Inventories	141				141
Trade and other receivables	6,218				6,218
Cash and cash equivalents	8,244				8,244
	14,603				14,603
Current Liabilities
Trade and other liabilities	(8,145)		(44)		(8,189)
Short-term provisions				(150)	(150)
Non-current Liabilities
Long-term provisions	(150)			150	0
Net Assets	7,543				7,499
Equity
Share capital	4,209				4,209
Own shares held	(872)				(872)
Retained earnings	4,299		44		4,255
EBT reserve	(93)				(93)
Total Equity	7,543		0	0	7,499
INCOME STATEMENT
For the year ended 31 March 207
Revenue	32,861				32,861
Cost of sales	(27,148)		(2)		(27,150)
Gross Profit	5,713				5,711
Administrative expenses	(6,411)		12		(6,399)
Operating Profit/(loss)	(698)				(688)
Finance Income	436				436
Profit/(loss) before taxation	(262)				(252)
Taxes	0				0
Profit for the period	(262)		10	0	(252)
Earnings per share - Basic - Diluted	(0.35)p (0.35)p				(0.33)p (0.33)p

Set out below are the accounting policies which the Group has adopted under IFRS, and they have been applied consistently to all periods presented.

Basis of Consolidation

Subsidiaries are entities over which the Group has the power to govern the financial and operating policies so as to obtain financial benefits from its activities.

The Group accounts incorporate the results of the Company and its subsidiaries, Business Systems Group Limited and Webgenerics Limited.  The principal activities of the Group are the provision of managed IT services to customers, and the design and deployment of IT infrastructure solutions.

The share capital of all subsidiaries is wholly owned by Business Systems Group Holdings plc and are incorporated in Great Britain and registered in England and Wales.

Subsidiaries are consolidated from the effective date of acquisition, using the purchase method of accounting. The purchase consideration is allocated to each class of asset on the basis of fair value at the date of acquisition. Any excess purchase consideration over the fair values of the identifiable assets acquired is recognised as goodwill. Any deficiency of the purchase consideration below the fair values of the identifiable net assets acquired is credited to the income statement in the period of acquisition.

All transactions, balances, income and expenses between Group companies are eliminated in the consolidated financial statements.

Goodwill

Goodwill arising on consolidation represents the excess of the purchase consideration over the Group's interest in the fair value of the identifiable assets and liabilities of the subsidiary entity at the date of acquisition. Goodwill is recognised as an asset and reviewed for impairment at least annually.  Any impairment is recognised immediately in the income statement and is not subsequently reversed.

Goodwill arising before the date of transition to IFRS has been retained at the previous UK GAAP amounts. Goodwill written off to reserves under UK GAAP has not been reinstated.

Revenue recognition

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured.  Revenue is measured by reference to the fair value of consideration received or receivable by the Group for goods supplied and services provided, excluding VAT and trade discounts.  

Revenue is recognised upon the performance of services or transfer of risk to the customer. Revenue from the sale of products is recognised when the Group has transferred to the buyer the significant risks and rewards of ownership of the goods, which is generally when the goods have been delivered. 

Revenues from support agreements are recognised by reference to the stage of completion of the transaction at the balance sheet date. The stage of completion of each transaction is measured by reference to the documented contract between the Group and the buyer. 

Project based revenue reflects the value of work performed during the period. Profit is recognised on project based contracts, if the final outcome can be assessed with reasonable certainty, by including in the income statement revenue and related costs as contract activity progresses. Revenue is calculated as that proportion of total contract value which costs to the balance sheet date bear to total expected costs for that contract.

Income not recognised in the income statement is included in the balance sheet as deferred income within accruals.

Property, Plant and Equipment

Property, plant and equipment are stated at cost less accumulated depreciation and any recognised impairment loss.

The cost of property, plant and equipment net of estimated residual value and impairment, is depreciated in equal annual instalments over the estimated useful lives of the assets. The residual values of assets or group of like assets are reviewed annually.

The estimated useful lives of the assets are as follows:

• Plant and machinery                        3 years

• Fixtures, fittings and equipment        4 years

• Motor vehicles                                4 years

The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in income.

Financial Instruments

Financial assets and liabilities are recognised on the Group's balance sheet when the Group becomes a party to the contractual provisions of the instrument. The Group's financial instruments comprise cash, trade receivables and trade payables. Derivative instruments are not used by the Group and the Group does not enter into speculative derivative contracts.

Trade Receivables

Trade and other receivables are stated at their fair value, then amortised using the effective interest method if applicable, less impairment losses.  Provision against trade receivables is made when there is objective evidence that the Group will not be able to collect all amounts due to it in accordance with the original term of those receivables. The amount of the write-down is determined as the difference between the asset's carrying amount and the present value of estimated future cash flows.

Cash and Cash Equivalents

The Group manages its short-term liquidity through holding of cash and highly liquid interest bearing deposits.  Only deposits which are readily convertible into cash, and with no penalty of lost interest, are shown as cash and cash equivalents.  

Trade payables

Trade and other payables are stated at fair value, then amortised using the effective interest method if applicable.

Financial liabilities and equity

Financial liabilities and equity instruments are classified according to the substance of the contractual arrangement entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities.

  

Foreign Exchange

Transactions denominated in foreign currencies are translated into the functional currency at the rates ruling at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are retranslated at the rates ruling at that date. These translation differences are dealt with in the income statement.

Taxation

The tax charge for the periods presented comprises current and deferred tax.

Current tax is tax currently payable based on taxable profit for the period.

Deferred income taxes are calculated using the liability method on temporary differences. Deferred tax is generally provided on the difference between the carrying amounts of assets and liabilities and their tax bases. However, deferred tax is not provided on the initial recognition of goodwill, nor on the initial recognition of an asset or liability unless the related transaction is a business combination or affects tax or accounting profit. In addition, tax losses available to be carried forward as well as other income tax credits to the Group are assessed for recognition as deferred tax assets.

Deferred tax liabilities are provided in full, with no discounting. Deferred tax assets are recognised to the extent that it is probable that the underlying deductible temporary differences will be able to be offset against future taxable income. Current and deferred tax assets and liabilities are calculated at tax rates that are expected to apply to their respective period of realisation, provided they are enacted or substantively enacted at the balance sheet date.

Changes in deferred tax assets and liabilities are recognised as a component of tax expense in the income statement, except where they relate to items that are charged or credited directly to equity, in which case the related deferred tax is also charged directly to equity.

Leases

Leases are classified as finance leases when the terms of the lease transfer substantially all the risks and rewards of ownership to the Group.  All other leases are classified as operating leases.

Operating leases and rentals paid under operating leases are charged to the income statement on a straight line basis over the shorter of the period of the lease and the estimated useful economic lives of the assets. Lease incentives received or paid are recognised in the income statement as an integral part of the total lease expense.

The Group has sub-let some office space in its London office. This income is credited to the income statement on a straight line basis over the period of the lease. The sub-leases are co-terminus with the Group's lease on the building.

Finance Income and Finance Costs

Interest income and interest payable are recognised in the income statement as it accrues, using the effective interest method.  

Dividends

Dividends are recorded in the financial statements in the period in which they are approved by the Company's shareholders.

Own Shares Held

The cost of own shares held in treasury is deducted from shareholders' equity until the shares are cancelled or sold.  The gain or loss on sale of any shares from treasury is taken directly to retained earnings.

Pension Costs

Payments made to defined contribution schemes are charged to the income statement as they accrue. Assets of the schemes are not included within the financial statements of the Group.

Share-Based Compensation

All share-based payment arrangements granted after 7 November 2002 that had not vested prior to 1 January 2005 are recognised in the financial statements.  The Group issues equity settled share-based payments to most employees under the Group's share options scheme.  The share option scheme allows Group employees to acquire shares of the ultimate parent company, Business Systems Group Holdings plc, and these awards are granted by this company.

The fair value of options granted is recognised as an employee expense with a corresponding increase in equity. The fair value is measured at grant date and spread over the period during which the employees become unconditionally entitled the options. The fair value of the options granted is measured using a Black-Scholes model, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted each year to reflect the actual number of share options that are expected to vest.

Employee Benefit Trust

The assets and liabilities of the Group's Employee Benefit Trust (EBT) are recognised in the financial statements where there is de facto control of those assets and liabilities.  

The cost of purchasing own shares held by the EBT are shown as a deduction against equity. The proceeds from the sale of own shares held increase equity. Neither the purchase nor sale of own shares leads to a gain or loss being recognised in the income statement.

Provisions

Provision is made where the Group has a present legal or contractual obligation, which can be reliably estimated, as a result of past events and it is probable that an outflow of economic benefit will be required to settle the obligation.  

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost comprises the purchase cost of materials, and is calculated using the specific identification method.  Net realisable value is based on estimated selling prices less all relevant marketing, selling and distribution costs.

  

3.    business segmentation 

    The Group's revenue and profit/(loss) for they year are derived entirely from its principal activity. For management purposes the Group had three operating units during the period; Hardware, Managed Services and Solutions (application development). These units are the primary segments of the Group.

	Year ended		Year ended
	31 March 2008		31 March 2007
	£'000		£'000
Revenue
Hardware	18,223		23,120
Managed Services	10,163		8,151
Solutions	3,041		1,590
Total	31,427		32,861
Gross Profit
Hardware	2,410		2,982
Managed Services	2,892		2,109
Solutions	1,234		620
Total	6,536		5,711
Operating Profit/(loss)
Hardware	1,151		1,461
Managed Services	1,297		685
Solutions	981		386
Central Costs	(3,013)		(3,220)
Operating profit/(loss)	416		(688)
Finance Income	509		436
Profit/(loss) for the year	925		(252)

The Group's operations are located in the United Kingdom.  All Group sales originated in the United Kingdom.

The operations are integrated to such an extent that is not practical to disaggregate the assets and liabilities of the Group into segments.

4.    TAXATION

The Group has not incurred any taxation in the period due to the losses available for relief.

  

5.    DIVIDENDS

Amounts recognised as distributions to equity holders in the period:

			Year ended 31 March 2008 £'000		Year ended 31 March 2007 £'000
Ordinary Shares
Dividend paid: nil per share (2007: 0.31p)			-		234

The Board proposes a dividend in respect of the year ended 31 March 2008 of 0.4p per share.

6.    EARNINGS/(LOSS) per ordinary share

Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares in issue and ranking in full for dividend during the year. Shares held by the trustees of the employee share scheme and which have not been allotted to staff rank for dividend only to the extent of 0.01p per share and have, therefore, been excluded from the calculation of the weighted average number of shares, as have treasury shares.

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares in issue on the assumption of conversion of all dilutive potential ordinary shares. The Group has only one category of dilutive potential ordinary shares, those share options granted under the Enterprise Management Incentive Plan.  When a loss is incurred, since the conversion of potential Ordinary shares to Ordinary shares would decrease net loss per share, options are not dilutive and therefore diluted and basic losses per share are the same.

		Year ended 31 March 2008		Year ended 31 March 2007
Profit/(loss) for the financial period and basic and diluted earnings attributable to ordinary shareholders (£'000)		925		(252)
Weighted average number of ordinary shares ('000)		76,079		75,693
Effect of dilutive share options ('000)		1,985		2,167
Adjusted weighted average number of shares ('000)		78,064		77,860
Earnings/(loss) per share		1.22p		(0.33)p
Diluted earnings/(loss) per share		1.18p		(0.33)p

7. Copies of report

The annual report will be mailed to shareholders and copies will be available at the Company's registered office at 226-236 City Road, London, EC1V 2TT and at the Company's website at www.bsg.co.uk .

8. annual general meeting

The Annual General Meeting of the Company will be held at 10.00am at BSG House, 226 - 236 City Road, London EC1V 2TT on 8 August 2008.

ENDFR EAXKAFASPEFE