Revenue in the Pontis Consulting business was 31.5% lower than 1999 on a like-for-like basis with some of this reduction due to an inability to preserve the pre-Y2K revenues of the former QA Consulting operation integrated at the end of 1999. While tight control was maintained on operations, additional work will be needed to re-establish the growth in this business following the retrenchment of the earlier part of the year.

The overall results for Skillsgroup were impacted by costs of £6.6 million on initiatives designed to achieve a significant acceleration in the progress its businesses were making in e-commerce and web-related areas. These we have termed as internet projects. Before the impact of these costs, QA Training’s operating margin adjusted to exclude exceptionals and goodwill amortisation (adjusted) was up from 18.2% to 21.6%. After internet project costs the adjusted operating margin was 12.8%. In Pontis Consulting, the adjusted operating margin was 22.5% before internet project costs and 15.8% after them, compared with a 1999 adjusted operating margin of 24.1%.

Adjusted operating profits for the continuing operations were up 13.9% to £12.3 million before internet project costs and central costs. The overall operating margin for QA Training and Pontis Consulting together on this basis grew from 19.6% to 21.8%. Against the backdrop of the early restructuring described and a weak market, particularly in the first half, this represents a satisfactory if unexciting result.

In addition to the internet project investment programme, our total net trading performance was affected by the significant loss in the Acuma business – £5.3 million before internet project costs, goodwill and exceptionals compared with a £3.2 million profit in 1999.

There is also a significant exceptional charge totalling £13.0 million comprising both operating and non-operating elements. The non-operating charges included a loss of £18.9 million (including £0.7 million provision for expected December trading losses) resulting from the Acuma disposal. This was offset in part by a £10.8 million profit on the disposal of QA Myriad and by a £0.6 million gain from the disposal of a small trade investment acquired in 1998 as part of the closure of QA Training’s US operation. Furthermore, separate property-related charges totalling £3.4 million were required. These comprised a £2.9 million non-operating write-down of carrying values and a £0.5 million operating provision for onerous lease commitments arising from surplus properties retained following current year and prior year business disposals. The balance of the operating charges total £2.1 million and relate to restructuring actions taken in Acuma, to the Board changes near the year end and to exceptional write-downs of debtors and accrued income in Pontis. As a result, all legacy issues have been dealt with and we enter 2001 on a clean and focused basis.

As a result of these factors, the previous year’s profit before tax of £11.4 million was turned into a £17.4 million loss with basic EPS of 10.8 pence converted into a loss per share of 18.4 pence. Adjusted EPS for the operations, which are now classified as continuing, were down from 8.6 pence to 3.7 pence with the internet project costs charged to continuing operations responsible for 4.7 pence of this reduction. A change from interest receivable to interest payable accounted for most of the balance.

Over the year the business generated £11.7 million of operating cashflow from the continuing businesses after all central costs and finished the year with a small positive net cash position.

Dividend. The Board proposes to retain the final dividend at 4.0 pence (1999: 4.0 pence) making a total of 5.8 pence for the year (1999: 5.7 pence).

Internet Projects. Turning now to the internet projects, the bulk of the spending was within QA Training where £2.5 million was spent on developing and implementing eDynamix, a market-leading e-commerce booking system, together with related back-office system changes. This system has now been implemented in 70 corporate customers and includes a dynamic discounting model which encourages forward booking and customer loyalty. A further £1.4 million was spent within the training business mainly to progress the development of certain web-based training (i.e. e-learning) products and integrated learning offerings which blend web-based elements with traditional methods. Sales of these offerings will commence in the first half of this year.

Having identified significant opportunities in the market for managing the skills development processes in major corporates using web-based learning management technologies, we have invested £1.3 million under the Avansar initiative developing business plans and some initial consulting capability in this area.

The balance of our internet project costs relates to the enhancement and development of our technical consulting capabilities in web-based technologies, and to the development of the IDS product within the now-sold Acuma business. In addition, the acquisition in June of Direct Media Technology for a capital cost of £5.3 million gave us access to our own learning management system and experience of selling e-learning products.

Strategy for Growth. As we enter the 2001 fiscal year, Skillsgroup comprises two businesses, the QA training business and the Pontis technology consulting business, which are operating soundly and have considerable untapped potential. Additionally, we see a number of opportunities in the areas of human capital development and in the implementation of learning management systems, but whether these opportunities will materialise and can be seized by us is at this point, unproven.

Positioning. The first step is to clearly position and focus the business. Our aim is to be recognised as a specialist IT services business that improves the IT effectiveness of large organisations. Our focus is on enhancing the skills of people, optimising human capital investment and providing IT expertise that complements in-house skills. In doing so, we will help clients to be more efficient, effective and innovative, adding value to their organisation overall.

One Business Organisation. Until now, we have adopted a fragmented approach by operating through separate relatively autonomous businesses for each area of specialisation. We are changing this approach to operate as one integrated business with four divisions:

Training

Technology Consulting

Human Capital Development

Learning Products