After all operating exceptional costs, loss before taxation was £5.3 million (2001:£1 million). Included in this loss are the initial costs of the Merlin project of £1.6 million, which aims to replace the company's existing RANsys and Risc back office products with a system built within a component-based architectural framework. Two major global customers have agreed to fund the development of the first of these modular redevelopments.

Also included in the loss before taxation was a revision to the carrying value of Contac Software Engineering of £4 million. Rolfe & Nolan completed the acquisition of Contac in February 2000. At the time it was seen as providing a bridgehead into Asia Pacific together with a modern PC-based product which would enable the company to compete more effectively at the smaller client end of the market. However the company has been hit by uncertainties in the local trading environment, and slower-than-expected licence sales.

In Europe, the company generated cost savings of £2.8 million as a result of tight control over costs and a reduction in staff. This was necessitated by the downturn in IT-related expenditure and industry consolidation in the region, says chief executive Bob Freeman.

The company's North American presence saw a creditable performance in light of market conditions following the 11 September terrorist attacks. Revenue was up 5 per cent, with an operating profit of £0.8 million in line with last year. In Australia the company signed two new licences.

In his chairman's statement, Tim Hearley says the company expects to make further progress during the coming year, anticipating strong cash flows from its operations and a reduction inthe group's net borrowings by the end of the financial year.