At Parseq we are focused on achieving a leading market position as a provider of solutions which simplify business for our clients through innovation and efficient processes. To advance this objective we combined two businesses, Documetric Limited, the innovative business process outsource business, and Intelligent Environments Group plc, the producer of online and mobile banking software. Parseq (formerly Intelligent Environments Group plc) is the re-branded AIM quoted group.
("Parseq" or "the Group")
· Transformational year establishing the platform for a significantly larger business
· Total Revenues of £16.45m (2009: £10.17m)
· Operating profit of £1.4m (2009: £2.3m)
· Normalised Profit from operations of £3.7m (2009: £2.9m)*
· Net debt of £4.2m (2009: £6.3m)
* Refers to Operating Profit adjusted for amortisation of acquired intangibles, share option costs and exceptional items.
· Launch of Mobinetic, the mobile banking application, with first two clients signed during the year
· Continued development of NetFinance v4 platform, including online debt collection module
· Development of hosted dialler and data analytics infrastructure
· Reverse takeover of Documetric Limited by Intelligent Environments Group plc
- mobile and online banking technology specialist
· Acquisition of certain trade and assets of Avance Group Ltd
- business process outsourcer providing solutions in customer relationship management
*Refers to Operating Profit adjusted for amortisation of acquired intangibles, share option costs and exceptional items.
I am pleased to present the first Annual Report and Accounts of Parseq plc following the reverse takeover of Documetric Limited by Intelligent Environments Group plc in July 2010. At the same time the enlarged group raised £4.5 million (£3.4m net of expenses) by way of an issue of 63,874,286 shares at 7 pence per share which were taken up by existing and new shareholders. In August 2010 Parseq acquired certain trade and assets of Avance Group Limited ("Avance"), a specialist business process outsourcer ("BPO") business providing solutions in customer relationship management, for a cash consideration of £0.6 million inclusive of certain customer contracts and employee liabilities taken on. The Group today is focused on the proertain cusused on the proertain customer contracts and employee liabilities taken on. The Group today is focused on the provision of BPO solutions through the Parseq Services division ("Services") and Internet and Mobile Banking solutions for the financial services sector through the Parseq Software division ("Software"). Whilst the Group operates as two separate business entities we are focused on identifying and developing cross-selling opportunities and areas where we can create synergies for our clients.
The Services business has experienced a degree of customer consolidation following its acquisition of Avance. As a result this business is now significantly stronger and has improved the quality of its delivery which is beginning to result in increased sales opportunities. Whilst new customer sales in the traditional payments processing business have been slower than originally anticipated we have continued to invest in improving the quality and efficiency of the systems and processes.
The Software business has made good progress in establishing its mobile banking application and is in discussions with a number of prospective customers as well as building on its existing NetFinance business which has approximately 500,000 users on its digital banking platform at the year-end, an increase of 100% on last year.
No final dividend is proposed to be paid for the year ended 31 December 2010. It is, however, the Board's intention to pay dividends to Shareholders as soon as is prudent and practicable after taking into account the need to ensure that the Group has sufficient funds to meet the working capital requirements of a growing business and to fund the product development programme in our software business.
As a consequence of the reverse takeover, noted above, the consolidated accounts of Parseq plc for the year to 31 December 2010 have been prepared as if they are a continuation of the Documetric Limited group and comprise;
· A full 12 months of trading for Parseq Services (trading as Documetric)
· The period 22 July 2010 to 31 December 2010 for the Parseq Software business (trading as Intelligent Environments)
· The results of the Avance business (now part of Parseq Services) for the period 27 August 2010 (the date of acquisition) to 31 December 2010.
The comparative figures reported are those of the consolidated Documetric Limited group.
Revenue for the year was £16.45 million (2009: £10.17 million) an increase of 62%. Of the increase, the Avance business, acquired on the 27 August 2010, accounted for £3.44 million and the Intelligent Environments business contributed £3.02 million. The original Documetric business had marginally lower turnover compared to 2009, this was largely due to delays in new business wins. Recurring revenues for the Group now account for approximately 50% of total Group revenues.
Normalised profit before taxation (being operating profit before exceptional items, finance costs, acquisition related amortisation of intangible assets and share based payment costs) amounted to £3.70 million (2009: £2.85 million) an increase of 30%. Exceptional items amount to £1.17 million, these related primarily to acquisition related costs including exceptional management bonuses which amounted to a total of £0.81 million and restructuring and redundancy costs of £0.36 million.
The Group had net cash (excluding property related loans) of £0.76 million. The £4.5 million (£3.4 million after expenses) of cash raised at the time of the reverse takeover has been applied to the full repayment of the Mezzanine Debt (£2.2m) and the costs of the acquisition of Avance (£0.6 million). The remainder has been absorbed into working capital. Property related loans at the year-end amounted to £4.7 million. These are of a long term nature and secured against freehold properties used in the business. In addition to the above the Group has further banking facilities of £1.65m of which £1.22m were unused at the year-end.
Staff and Management
Our staff and management are key to our success and I should like to thank them all for their hard work and support in helping us to achieve our objectives. We have brought together two companies with differing cultures and have successfully integrated them within Parseq for the benefit of the Group.
Rod Edwards joined the Group in December 2010 as Managing Director of Services. His insight, business knowledge and enthusiasm are already making a positive contribution to the development of this business.
Board of Directors
Due to the reverse takeover which completed in July 2010, the restructuring of the Board saw the departure of a number of the former Intelligent Environments Group plc ("IE") directors. I should formally like to thank Ian Peters and Michael Jackson for their contribution to IE and for supporting the combination of the two businesses. At the same time Mike Warriner and Jerry Mulle stood down from the Board of IE but remain with us as directors of the Software division. Their continued support and contribution to the future success of the business is greatly appreciated. Lastly, whilst remaining on the Parseq plc Board, Clive Richards and Phillip Blundell took up the positions of Deputy Chairman and Managing Director of the Software division respectively. Their on-going contribution to the development of the Group is greatly welcome.
The Board believes that significant opportunities exist to support organic growth in both Parseq Software and Parseq Services. To position the businesses to take advantage of these opportunities, particularly in the Mobile Banking Market, we will need to continue to invest in software product development as well as additional sales and marketing resource. Our recent contract wins for our mobile banking product gives considerable optimism that we are well positioned to win further similar business in this area. Whilst we do recognise that such sales often have long sales cycles and it is therefore difficult to predict the precise timing of future sales, we are confident of growth in this area. Our NetFinance business has a more predictable revenue stream and we are encouraged by the level of sales opportunities in this area and the growth in the number of users.
The integration of our Services business with Avance, acquired on 27 August 2010 is almost complete and is progressing well. Overall we can see steady progress in the Services business in 2011 with an increasing number of sales opportunities. In addition we expect to launch our Data Centre proposition in the 3rd quarter of this year which we expect to make a positive and growing contribution to Group results in 2012 and beyond.
The Group is broadly in line with its internal financial expectations for quarter one and management remains positive as regards the full year outturn. This does, however, require a step change in the level of new sales, which is supported by the present level of prospects, but is dependent upon clients making timely buying and implementation decisions.
To complement the organic development of our Group we continue to consider earnings enhancing acquisition opportunities for both Parseq Software and Parseq Services.
Chief Executive Officer's Review
Parseq has had a milestone year in 2010. The Group, founded under a different brand in 2007, has evolved through a series of acquisitions and investments into a technology led solutions Group. The transformational deal of 2010 was undoubtedly the reverse acquisition by Intelligent Environments Group plc of Documetric Limited (the "Intelligent Environments Acquisition") and the subsequent re-admission to AIM. The strategy for the enlarged Group is to create and commercialise a solutions led sales model based on the integration of software products and business services - effectively creating a turnkey outsourced proposition. At the heart of the Group's competitive advantage is the ability to develop and deploy technology in a range of applications.
Review of 2010
Against the backdrop of difficult economic times, the pace of progress in terms of signing new deals (and associated product development) has been slower than we would like. It is nonetheless important to bear in mind that the typical lead times for signing new deals varies between six to nine months in a good economic climate and our observation is that those lead times have lengthened as a result of the downturn. Notwithstanding this caveat around timing, I am confident the Group is on a path to major, sustainable long term growth which will be underpinned by further strengthening of the management team, particularly in relation to greater investment in sales and marketing activities.
Parseq is organised today as two business units each run by a respective Managing Director with co-ordinated and joint sales efforts where appropriate. The business units are defined as Services (which has combined together the Documetric and Avance businesses) and Software (previously the Intelligent Environments' business). Rod Edwards joined Parseq as the Managing Director of Services on December 1, 2010 and Phill Blundell continues as Managing Director of the Software business unit.
The key highlights in terms of progress and developments in 2010 are:
Parseq's mobile banking application, Mobinetic, went live on iPhone handsets with its first two clients during the year. User experience and feedback has been very positive and we were pleased to be the platform behind Barclaycard's recent win at the Financial Services Technology (FST) 2011 awards for the category of "Payment Innovation of the Year". Further research and development is now under way to address a number of additional applications as well as expanding the platform to other handsets and revenue streams for both current and prospective new clients. Moreover, very strong progress in terms of new channel partners has been made and we expect this to flow through in our mobile revenues in 2011 and beyond. The Board remains focused on the development of our mobile banking strategy and will update shareholders as further milestones are reached.
Acquisitions & Integration
Intelligent Environments Acquisition: The approach to integrating the Intelligent Environments business has been very "light touch" as the deal synergies are much more aimed at the level of client propositions and sales than operational consolidation. Having said this, there are a number of operating cost savings mainly associated with hosting which we expect to filter through in 2012 as we unwind our contractual obligations with third-party hosting providers.
Three client propositions leveraging both the technology and services of Parseq have been defined: a) Debt collection, b) Electronic BACS payments handling and c) Applications processing.
Avance Acquisition: The acquisition of certain trade and assets of the Avance Group took place and was quickly integrated within the Services business unit. We implemented a number of consolidation actions including the closure of two (out of four) Avance sites, the restructuring of the management team and a number of operational efficiency improvements including a 15% reduction in Avance headcount. The cost synergies integration was effectively identified within 90 days of the acquisition with completion finalised by early 2011. In terms of enhancing our sales proposition, this has brought a very strong voice and front-office capability to Parseq and helped to diversify the Group revenue away from Financial Services; for example British Gas is now one of Parseq's largest clients.
Investments in technology will continue with focus in the following areas:
· Mobile banking
· Online debt collection: A portal to be used either by debt collection agencies or companies in order to enable their customers to settle outstanding debts. This development is currently being deployed in partnership with a leading provider of debt management data.
· Optical Character Recognition ("OCR"): This applies predominantly to our Services business unit in order to optimise Straight-Through-Processing (STP) and to gain operational efficiencies. It is also aiming to reduce delivery risk in complex, payments related transactions. This technology has already supported the securing of a major new contract which has expanded the Group's relationship with the Lloyds Banking Group.
· Hosted Dialler and Data Analytics: Development of an outbound dialler hosted on Parseq infrastructure which enables the real time data consolidation of numerous data sources in order to more effectively manage client outputs.
· Hosting and Managed Services: Parseq owns a data centre and currently provides hosting services to many of its clients. As part of the further commercialisation of that proposition, additional investment is underway and nearing completion on the Data Centre in Hellaby in order to both accommodate all existing clients and increase our capability to take on new contracts.
Operations and Strategy
With over 600 staff across three sites in the UK as well as offshore capabilities, Parseq has developed size and critical mass quickly, having grown from a modest £1.8m in annual revenues in 2007 following an MBO. The rationale of the operating structure is to drive organic growth through a focused organisation whilst encouraging close co-operation in order to maximise deal size and recurring revenues.
The focus on recurring revenues is particularly strong with an in excess of 50% of total revenues being defined as recurring today. The growth strategy of the business has the following components:
· Strong focus on organic growth with investment in growing sales and marketing set to continue.
· Continued acquisitive growth in order to both leverage existing infrastructure as well as expand our offerings in the areas of customer acquisition, servicing and management.
· Investments in technology (as previously outlined) in order to maximise recurring revenues and strengthen our competitive advantage.
· Capitalise on our new partner channels to expand our overseas revenues whilst seeking to diversify individual client and sector exposure.
Trading subsequent to the year-end is progressing broadly in line with expectations and we remain confident of fulfilling our growth aspirations.
Chief Executive Officer
Chief Financial Officer's Review
The Group has undergone significant change during 2010. Parseq Plc and its subsidiaries (the "Group") now spans two core segments ("Software" and "Services") with a considerably enhanced service offering compared to just twelve months ago and a significantly expanded client base.
The accounting treatment presented in these results is the continuation of the consolidated results of the Documetric Limited group as required under reverse acquisition accounting under IFRS 3 "Business Combinations". Comparatives shown are those of the consolidated Documetric Limited Group (reported under IFRS) unless otherwise stated.
The key events of 2010 were:
22 July 2010 - Parseq plc (formerly Intelligent Environments Group plc) acquired Documetric Limited as a reverse acquisition (the "Intelligent Environments Acquisition")
22 July 2010 - Placing of £4.5m of share capital
22 July 2010 - Readmission to trading on AIM
27 August 2010 - Acquisition of certain trade and assets of Avance Group ("Avance Acquisition")
The Group's key financial performance indicators include Revenue, Normalised Profit and Normalised Diluted Earnings Per Share.
· Revenues for the Group are £16.4m compared to £10.2m in 2009, an increase of 62%.
· Operating profit for the Group is £1.4m (200: £2.3m)
· Normalised Profit from Operations for the Group is £3.7m. This compares favourably with the 2009 figure of £2.9m, an increase of 28%.
· Normalised Diluted Earnings Per Share is 0.814 pence compared to 0.969 pence for 2009 (or 0.53p for legacy Parseq plc (formerly Intelligent Environments Group plc) shareholders)
· Cash flows from operating activities have fallen to £1.7m from £2.3m, with cash flow required for working capital increasing by £1.3m.
· Net debt at the end of the year of £4.2m, a decrease from £6.3m at the end of 2009.