As a result of our actions, and given the up-turn in market conditions for the Group’s businesses, we can now look towards 2001 with some optimism.

Group Turnover for the year ended 31 October 2000 was GBP23.3 million (1999: GBP30.4 million), after exceptional items and before goodwill amortisation there was a pre-tax loss of GBP3.6 million (1999: GBP0.4 million). The resultant loss per ordinary share was 9.38 pence (1999: 2.29 pence). The second half of the year has seen considerable restructuring of the business resulting in exceptional items of GBP815,000.

Your board and management team have taken significant steps throughout the year to improve the performance of the group and also to develop an effective strategy for the business. I am pleased to be able to report that we have made considerable progress towards these objectives in the past six months. The pre-tax loss before exceptional items and goodwill amortisation for the six months ended 31 October 2000 was significantly reduced from GBP1,698,000 in the first half of the year to GBP383,000 (1999 H2: loss GBP1,342,000). In the second half of the year we recorded an increase in group revenue of eight percent reversing the decline in revenue reported in the previous two half years. Also during the second half of the year gross margin increased from 40% to 42%.

During the year we have placed considerable emphasis on cash management and despite the level of operating loss we generated GBP695,000 of cash from operations and recorded a small increase in overall indebtedness of GBP307,000.

Operations

As I mentioned in my Interim Statement last July and as a result of the strategic review of the business undertaken last year, the current operations of the group have been organised into five business streams. As the management team makes progress in the implementation of our agreed strategy these streams will evolve further to reflect the most effective and efficient organisation of our business units.

Enterprise Software Solutions

Turnover increased during the year by 23% to GBP8.3 million (1999: GBP6.7 million), primarily as a result of a 100% increase in revenue from storage management solutions. In order to maximise the return from the group’s IPR we are actively pursuing a strategy of expanding our routes to market through the utilisation of sales channels. In September, we entered into a worldwide distribution agreement with ACI Worldwide for our Tandem operational product (TOPS) and anticipate that further sales channels will be added during the next year for our products. Considerable interest is also being shown in Casablanca, our JAVA Enterprise Application Integration (EAI) product, through Casablanca Software Limited, a new subsidiary which has recently been established to fully exploit the potential of this product. Utility products continue to provide a strong maintenance revenue stream and in October we concluded a five year maintenance agreement with a significant UK outsourcing customer in excess of GBP1 million.

SIM Testing

SIM Testing recorded revenue for the full year of GBP4.5 million compared with GBP2.7 million in 1999 which represented the revenue for the first seven months after acquisition. Our strategy of providing automated and bespoke end to end testing through long term relationships with key accounts has proved to be a significant success. Turnover in the second half of 2000 grew by 48 % over that recorded in the first half and this trend has continued into 2001.

Specialist Contract Staff

The specialist contract staff business recorded reduced gross revenues of GBP4.8 million (1999: GBP6.6 million) largely as a result of the Y2K microclimate. However, this division remains profitable and continues to be an important provider of human resources to the group and our key accounts.

Financial Services

Financial Services recorded revenue of £5.8 million (1999: £12.3 million). As previously reported this division has suffered a significant decline over the past 18 months as a result of the effect of the Y2K close down and also over capacity in the market we previously focused on. During the second half of the year it became apparent that this division would take longer to turnaround than initially expected. As a result it has been restructured to focus on IPR-led solutions in what remains an important vertical market for us.

Integration Solutions

Integration solutions recorded services revenue of GBP1.3 million (1999: GBP3.2 million). This division has been restructured to focus on IPR-led opportunities and also to provide a range of EAI solutions and services.

The new structure for the group outlined above has been used as the basis of the segmental analysis shown in note 2.

Strategy

Gresham’s core business is the provision of enterprise solutions through niche technologies and specialist services. As noted above our Integration Solutions and Financial Services divisions are taking longer to turnaround than our other businesses. These two divisions are increasingly becoming IPR-led niche solution providers operating within our enterprise products and services framework. As we further develop this focus it is likely that we will dispose of non-core business units when we can maximise shareholder value from them.