Director's Report

Chairman's Statement

I am pleased to report that excellent progress has been made in executing the strategy presented in Maxima's 2009 Annual Report by our CEO, Graham Kingsmill.  The company's plan is on track:  we have continued to invest in those areas where we have identified strong growth potential, and - in line with our strategy - have cut costs in other areas.

Adjusted revenues and profits reported for the first half-year are in line with expectations for the full year following updated guidance issued in October 2009 at the time of the announcement regarding the ending of Maxima's agreement with QAD.    The fall in revenues and profits principally reflects more challenging trading conditions in the IT sector as well as the cost of the investment we are making in growth opportunities.  An increased level of recurring revenues reflects the high priority we have given to broadening and deepening long-term relationships with our customers.  Net debt at 30 November 2009 was better than previous market expectations at £13.5m (30 November 2008: £17.5m; 31 May 2009: £15.5m), reflecting good cash conversion, and comfortably within our banking facilities and covenants.

Maxima continues its consistent policy of returning a proportion of operating profits to shareholders as a dividend, whilst continuing to pay down our debt and retain the headroom to finance investment and acquisitions.  On 31 March 2010 the company will pay an Interim Dividend of 1p per share (H1 2009: 2p) to shareholders on the register on 26 February 2010. 

Once again I should like to thank all of our staff for their continued loyalty and commitment during a time of significant change, particularly as the company works to align its cost base to meet new business priorities.

In summary, the new management team have settled in well, our new business propositions are already proving successful, and Maxima continues to benefit from a large and loyal client base.  I am confident that the changes we have made to the structure and focus of the business position us well for the future.

Kelvin Harrison
Chairman, 1 February 2010

Interim results for the six months ended 30 November 2009

Director's Report

Chief Executive's Review

Introduction:

For the six months ended 30 November 2009, Maxima has made good progress towards delivering on its strategic plan presented in August 2009, focusing particularly on areas of core competence where the company can respond best to the demands of key customers.  Our sales and marketing activity is now driven around three main engagement routes:

·      IT life extension and managed migration services

·      Industry-specific business solutions, and the up-selling of our infrastructure offering

·      Sales, support and enablement services with selected technology partners

We differentiate ourselves from competitors by concentrating on a limited number of industry sectors where Maxima has historic knowledge and experience, and through the provision of both Business Solutions and Infrastructure Enablement Services that allow us to offer customers real choice and solutions that support a variable investment scale.

We have also accelerated our plans to align Maxima with the largest and most influential technology partners, taking advantage of demand from customers for the supply of 'IT-as-a-Service', and offering an approved and complementary portfolio of products and services that will make Maxima the preferred partner.  As a result, we have now combined a number of core Maxima specialities and competences to create four clear value creation opportunities:

·      Virtualisation Services

·      Network Infrastructure and Communications Services

·      Business Intelligence professional services in the Financial Services industry

·      Microsoft Dynamics AX/CRM  "As a Service" for Construction, Manufacturing and Services Industries

We're already seeing this approach prove successful, with highlights including:

·      Growth in Virtualisation Services, with major Citrix orders in both Ireland and the UK

·      Securing two major multi-year communications service contracts valued at over £6.5 million

·      Winning a number of contracts from major banks for projects relating to our specialist Business Intelligence industry expertise

·      Successfully migrated an additional 7 clients onto Microsoft Dynamics AX, and signed 4 new legacy migration projects

Maxima has also focused on delivering a reliable performance, managing headcount, and taking significant steps to reduce costs.  Adopting a centralised shared services function has made a big contribution, as has renewed focus on credit control - allowing us to invest in key areas such as Marketing and Business Development staff and processes that will drive growth for the future.  We're also working to unlock additional business opportunities through new initiatives, including leveraging our skills to support Cloud Computing*, and setting up new Maxima Competency Centres to drive sales of our specialist capabilities in four key areas.

Over the last six months we have continued to align Maxima staffing levels with our stated business goals.  This process has seen the recruitment of 47 new employees into the business, bringing new skills and experience to strengthen our defined areas of competence, while overall staff levels have reduced by 44 over the period.  We have also started to make greater use of Maxima's facilities in India to provide more affordable 24x7 services, which is proving a critical part of delivering our 'IT-as-a-Service' proposition.  Maxima serves over 1,400 clients, primarily medium-sized UK-based organisations with a turnover of between £5m and £500m.  Increasingly larger organisations are also now contracting with Maxima, particularly in areas where we have unique skills and competencies.

Customer examples include:  Orange UK, Mars, AG Barr plc, The Murphy Group and Caledonian MacBrayne

*Cloud Computing is an IT delivery approach that provides utility-style, on-demand IT applications and services, hosted on a virtualised infrastructure, and typically delivered across the internet or corporate network on a pay-as-you-go basis.

Market Conditions:

Maxima is addressing challenging market conditions by implementing new opportunity management and qualification processes.  Focusing on better quality opportunities has helped deliver an increase in our win rate, and improved our ability to deliver stronger margins.  More recently, there have been encouraging signs that volumes are increasing, complementing the improved win rate.

There has been some reduction in day rates for consulting services compared to the same period last year, but by concentrating on the higher value specialist services, Maxima has successfully controlled the impact on margins.  Customers are more risk averse, taking longer on technology selection and negotiation for new systems, however Maxima has benefited from having a large installed base with customers who are more comfortable investing with a supplier they already know - rather than taking a risk with new suppliers.

Maxima is also seeing an increasing interest in 'on-demand', cloud-based services - a technology area where the company is well positioned to succeed thanks to our deep expertise in cloud infrastructure such as communications, data centres, storage and hosting, applications skills, and our proven Managed Services capability.  We're particularly well placed to support customers looking to supplement their existing IT operations with cloud initiatives, however, although interest is growing, we will continue in the short term to provide a balance between conventional and 'IT-as-a-Service' delivery models.

As previously announced, on the 20^thOctober 2009 the company was informed by QAD that they intended to end a long standing distribution partnership with Maxima, indicating that they were going to sell direct to customers rather than through Maxima.  Although this was disappointing news, it is encouraging that many of the customer relationships will be maintained as Maxima has been successful in cross-selling many other products and services unrelated to QAD.  Maxima takes pride in the customer relationships derived through the QAD product, which in many cases have been active for 10 years or more.  As a result of our good service reputation, we believe that many customers will remain loyal to the Maxima brand and will continue to invest in other business solutions and services offered by the company.

Operating Review:

The financial year started with the appointment in June 2009 of a reorganised operational management team reporting into me.  The team is divided into two parts, covering customer-centric sales and delivery teams as well as a central shared services operation.  The delivery teams are in turn divided into two groups, Business Solutions and Support Enablement Services, each accounting for approximately 50% of the business in terms of revenue and staff distribution.  The new team has bedded in well, with momentum picking up in August and performing well through to the end of the first half.  The recipe of new management combined with the entrepreneurial experience of existing management has worked well, supporting an improved level of success in cross selling contracts.  There has also been a greater emphasis placed on growing existing customers, working closely with key partners and winning new business.  Highlights include:

·      Continuing to maintain the support of existing Managed Services customers who have renewed and extended services with Maxima - including two multi-year service contracts valued at over £6.5m which were part of a group of existing and new customer wins relating to our specialist Network Infrastructure and Communications capability

·      Growth in Maxima's virtualisation capability, including contracts with Dublin City Council and Towergate  - delivered by our Support Enablement Services team

·      Concentrated efforts to drive the partnering relationship with Microsoft has paid dividends with 7 customers migrating to Microsoft's Dynamics AX technology, and 4 new legacy migration contracts signed with organisations such as nPower

·      New contracts placed by major banks wanting to access Maxima's specialist domain expertise in Business Intelligence technology from SAP and Oracle

·      Centralised Maxima shared service functions making a big contribution helping to minimise costs, recruit new skills and generate new opportunities

·      Focused efforts in credit control resulting in a very pleasing level of cash collection, enabling net debt to be reduced ahead of expectation to £13.5m

·      New investment in partner management has supported greater partner collaboration, resulting in new pipeline opportunities being generated and - very encouragingly - new orders being placed including one contract worth approximately £0.5m from IBM

·      Investment in new marketing staff and management, enabling the roll-out of a re-branding programme, simplification of marketing messages and a refresh of all communications media

Maxima continues to have high visibility of future revenues with 60% recurring revenues from support and managed services in the period, high levels of repeat business and a good order book for project work.  We have a broad spread of clients across a number of industry sectors with a good mix of transaction values - all helping to ensure that our risk profile is manageable.  While the current economic climate has driven a small number of customers to either reduce or cancel services, we have had very few customers that have been forced out of business.  Maxima's business strategy is to provide exemplary levels of customer service around market-leading solutions - leading to high levels of customer retention.  We have also adopted a policy of working closely with any customers who are experiencing trading difficulties, and this has resulted in any potential customer and financial losses being minimised.

Financial Results in Summary:

·      Revenues for the 6 month period were £26.2m (H1 2009: £28.3 m)

·      Adjusted operating profit of  £2.9m* (H1 2009: £4.3m*)

·      Adjusted profit before tax £2.6m* (H1 2009: £3.7m*)

·      Loss before tax of £0.6m (H1 2009: profit £1.3m) after £1.3m of exceptional items

·      Adjusted basic earnings per share to 7.0p* (H1 2009: 11.0p*)

·      Net cash flow from operating activities was £3.4m (H1 2009: £1.7m)

·      The Group had net debt of £13.5m at the end of the period  (H1 2009: £17.5m; 31 May 2009: £15.5m)

·      Net interest costs in the period totalled £0.3m, covered 9.7 times by adjusted operating profit*

·      Interim Dividend of 1p per share (H1 2009: 2p)

·      60% recurring revenue (H1 2009: 54%)

(*before amortisation of intangibles, share-based payments and exceptional items)

Trading results:

Revenues for the half year to 30 November 2009 decreased from £28.2m to £26.2m, notwithstanding the £0.8m impact of 1 extra month of trading from DXI which was acquired on 1 July 2008.  The largest contributor to this is a decline in product revenues, whilst a smaller decline in consulting revenues was partly offset by an increase in recurring revenues.  Consulting and product sales have been lower in most areas, reflecting the general market conditions, though we have seen some improvement in consulting sales relating to Microsoft AX implementations.  Recurring revenues have also been strong, particularly in the Support Enablement Services Division and now account for 60% (H1 2009: 54%) of total revenue.  Gross margins have also declined from 69% to 68%, largely in the product sales, but also as we see some pressure on day rates for consulting compared to a year ago.

Administration expenses reduced by £0.3m to £14.9m.  The underlying reduction after allowing for the DXI acquisition was £0.7m with savings principally in people and property costs.  The reduced gross profit described above, less the effect of the reduction in administration expenses gives rise to a reduced earnings before interest, tax, amortisation, share based payments and redundancy and re-organisation costs of £2.9m compared to £4.3m for the first six months of last year.  Amortisation of intangibles was £1.8m (H1 2009: £2.0m), a reduction that reflects the fact that intangible assets valued on the acquisitions of 3Net and Centric have now been fully amortised.

(Loss)/Earnings per share and dividends

Basic loss per share was 2.2p (H1 2009: earnings 3.9p).  Adjusted earnings per share, before amortisation, share based payments and exceptional redundancy and reorganisation costs, fell to 7.0p (H1 2009: 11.0p). An interim dividend of 1.0p per share will be paid on 31 March 2010, to shareholders on the register at close of business on 26 February 2010.

Cashflow and net debt

In the 6 months, the Group generated £3.4m of cash from operations, against £1.7m last year. This reflects stronger cash collection and net debt consequently reduced to £13.5m, down from £15.5m at 31 May 2009.

The Group finances its operations through a mixture of cash generation and related retained profit, and a mix of medium and long term bank facilities with Barclays Bank plc, to ensure that sufficient liquidity is available to meet its foreseeable funding requirements.  The Group's facilities are floating rate and it uses interest rate instruments to hedge its interest rate risk on borrowing where appropriate.  The Group had committed borrowing facilities of £18.25m at 30 November 2009, comprising a £3.5m term loan facility, repayable in seven instalments until 31 May 2013, a £13.75m revolving credit facility repayable by 31 May 2013 and a £1.0m overdraft facility.  £15.3m was drawn under these facilities at the year end.  Cash balances at the year end were £1.9m, which allows £4.8m of headroom.  At 31 May 2009, £4.0m of the group's interest rate risk was hedged for the period to 30 June 2010 and a further £4.0m was hedged for the period to 30 November 2011.

Outlook:

The last period has been one of considerable change for Maxima, as the business adjusts and adapts its operating activities to an evolving business climate.  At the core of Maxima is a loyal and committed customer base, which we're pleased to say has continued to invest its trust and money in the combined skill, knowledge and experience of Maxima staff, and our vision for the future.

I believe that the work we have done in focussing on our core competences means we have an excellent platform from which we can take advantage of future opportunities and there are encouraging signs of recovery across many parts of the business.  Enquiries, pipeline and order intake are steadily improving, and contribution from new sales hires is starting to have a positive impact.  Overall, progress has been made across Maxima and we are excited by the prospects for the Company. 

Graham Kingsmill

Chief Executive Officer, 1 February 2010