Annual Report and Financial Statements Crimsonwing plc

Transcription

1 Annual Report and Financial Statements 2012 Lignum House, Aldo Moro Road, Marsa MRS 9065, Malta Tel: (+356) Fax: (+356) /8 Website: Crimsonwing plc accounts 2012

2 Table of Contents Business Review...3 Chairman s Statement...5 Chief Executive Report...6 Introduction...6 Progression on the Crimsonwing Strategy...6 Finances and Performance...7 Crimsonwing Solutions...7 Business Highlights...8 Corporate Social Responsibility...12 Annual Report and Financial Statements...14 Directors, Officer and Statutory Reports...15 Directors, Officer and Other Information...15 Board of Directors...15 Crimsonwing plc Directors Report...16 Directors Responsibility for the Financial Statements...21 Statement of the Directors Pursuant to Listing Rules...22 Corporate Governance - Statement of Compliance...23 Independent Auditor s Report on Corporate Governance...30 Statements of Comprehensive Income...31 Statements of Financial Position...32 Statements of Changes in Equity...33 Statements of Cash Flows...36 Notes to the Financial Statements...37 Independent Auditor s Report Share Register Information...66 Crimsonwing UK 31 Union Street, London, SE1 1SD, UK T: (+44) F: (+44) E: infouk@crimsonwing.com Crimsonwing Netherlands Seinstraat 32, PO Box 2294, 1200 CG Hilversum, NL T: (+31) F: (+31) E: infonl@crimsonwing.com Crimsonwing Malta Limited Lignum House, Aldo Moro Road, Marsa, MRS 9065, Malta Tel: (+356) Fax: (+356) E: infomt@crimsonwing.com W: Annual Report and Financial Statements 1

3 Our growing global reach Business Review Chairman s Statement...5 Chief Executive Report...6 Introduction...6 Progression on the Crimsonwing Strategy...6 Finances and Performances...7 Crimsonwing Solutions...7 Business Highlights...8 Corporate Social Responsibility Business Review Business Review 3

4 1996 Established as Magus International 1998 Opened Malta Solution Centre 2000 Renamed Crimsonwing 2004 Achieved ISO Certification Sole distributor of Intershop products in the UK and Ireland Became Microsoft Business Solution Partner Established Crimsonwing BV to serve Dutch market 2007 Microsoft Gold Partner status Peracto acquisition Promentum acquisition Foundation of Crimsonwing plc Chairman s Statement 2008 New Central London Office 2008 The financial year 2011/2012 was a difficult one for Crimsonwing plc. It was a year where we were still facing the most difficult of economic times on a global scale and a year where it was clear that we needed to take steps to equip the company to take advantage of the upturn when it inevitably comes, but also to take cost out of the company to ensure profitability regardless of the current economic climate. Public listing on MT stock exchange VDA acquisition in Holland 2009 Magento Gold Partner 2011 Attaining highest level competencies in new Microsoft Partner Network Difficult decisions were made and we consolidated our activities in Holland, enabling us to take a considerable amount of cost out of the BV operation. We have focused the business into more of a line of business approach rather than just geography and this has benefited the company in enabling us to win some significant pieces of business by consolidating resources. I feel very strongly that Crimsonwing plc is now positioned appropriately going forward into 2012/2013 to take advantage of the expertise we have built in particular in ecommerce, as well as in Malta itself and the re-structured Holland. We are not in the slightest complacent, however so we will continue to strive to become more efficient and more effective in these tough times Once again, I would like to thank our shareholders, our very loyal employees and our customers for your continued support of Crimsonwing and I look forward to a successful year to come. David Walsh Receives M.O.M 2012 Produces the World s First Maltese Speech Synthesiser Business Review 2012 Creates Partnership with Pyott Brand Agency Philip Crawford Chairman, Crimsonwing plc 2012 Business Review 5

5 Chief Executive Report Introduction This year saw another record set by Crimsonwing at sales level with a 6% year-on-year increase to 15,150,158 (2011: 14,303,568). Unfortunately, 2011 was also another year impacted at the net level, mainly due to overhead problems in The Netherlands. This succinct summary of a frustrating year does not do justice, however, to the progress made in addressing the structural issues in The Netherlands, which have now been achieved, and there are many reasons to be optimistic about future years given the progress made on solution sales with international clients / / / / /12 Crimsonwing once again recorded revenue growth Revenue Euro (m) The well-reported economic sluggishness in our main markets across Europe has barely impacted our sales activity at all. We have been very active with some very strong opportunities, and we feel this has vindicated our choices of solution offerings, particularly in our Microsoft Dynamics ERP and Magento Open Source and Intershop ecommerce offerings. Encouragingly, the opportunities are also of a larger scale. So the demand is certainly there, and we have won new business against strong competition. What we have observed, however, is that the sales cycles are longer and more expensive to service. There is much more due diligence undertaken by the clients on the available options, and we have to go deeper into a project before we can achieve acceptance and final billing. The Netherlands (VDA business) has been a unique and difficult case, and after achieving the green light from the Dutch Government Labour Body UWV (Uitvoeringsinstituut Werknemersverzekeringen) in October 2011, we were finally able to match the headcount we needed against the available client contracts. It is clear that we underestimated just how long it would take to work through to the benefits of this structural change. The effect on the EBITDA was severe: UK Malta NL-Pro VDA EBITDA was badly affected by under-deployed staff and overheads However, Crimsonwing fulfilled full obligations to the affected staff, such that the financial benefits accruing only started to materialise in the closing moments of the financial year. Now we have finally reached a position where staff and other savings will result in over 750,000 savings per year going forward, and the VDA business is now a profitable contributor to the. Progression on the Crimsonwing Strategy NL-VDA This year we have continued to make significant progress in our business strategy: Focus on reducing administrative overheads Good progress was made in the year. The Netherlands (VDA) staff and NL office costs were significantly reduced. We also reduced management overheads in the UK by the year-end and improved our overall consultancy headcount by 17. Administration costs were reduced by 1%. Focus on the Malta Solution Centre A good year of progress with a record year in local sales for our Malta Centre at 1,788,398. During the year, Malta engaged with over 100 clients and hosted over 40 international client visits. Focus on our solutions portfolio and intellectual property We continued to add clients to our Membership Solution, based on Dynamics ERP, and are looking to upgrade the Property Lease Management Solution to the latest AX2012 platform. Additionally, we have created new software assets around the Magento open source platform. We undertook several innovative projects including the first Maltese Speech Synthesiser ever to be built. Focus on a balanced currency business We have broadly achieved this now, and we have a good balance of Euro and Sterling sales. We are also seeing the commencement of sales outside the Euro zone, and especially into Australasia and soon into China. Handling of the Foreign Exchange treasury will remain a focus for us. Investing in Crimsonwing staff Our key vendors continued to demand a high degree of alignment across business, functional and technical capabilities. Notably, Magento introduced an accreditation programme for the first time. This, together with our increased headcount, meant that staff investments continued at a high level. Focus and invest in key vendor relations Crimsonwing has worked hard to build strong relations with its vendors across all its markets. We are one of a few managed partners for Microsoft Dynamics. This year we attended the World Partner Conference for Microsoft (Toronto), Magento (Las Vegas) and Intershop (Jena). Increasing shareholder value We are attaining the scale required to be able to attract and address enterprise and multi-national opportunities. But we recognise we need to improve our bottomline performance and build value. In this year, we made significant efforts to reduce overheads and also maintained our investments. We are confident we have laid the foundations for building shareholder value. Finances and Performance A reasonable performance badly affected by VDA losses and exceptional items Crimsonwing again achieved revenue growth in the period, recording our highest ever revenues at 15,150,158, that is 6% higher than last year ( ,303,568). That is reasonable organic growth given the unstable market conditions. At the net level, however, we did not fare so well. Loss for the year before tax was ( 207,346) (2011 a profit before tax of 217,572). After tax losses are ( 459,801) (2011 a profit after tax of 7,310). There were some exceptional items that impacted our net performance. We made adjustments ( 266,000) to include a provision for bad debt in Crimsonwing Malta ( 71,865), an additional settlement allocation ( 55,250) at VDA relating to a legal claim running since 2007, and an additional VDA software write-off ( 62,319). We also fully expensed our sales costs on large international bids during the year that exceeded ( 100,000). We could not reduce overheads quickly enough in the VDA business, with too many staff costs attached to the projects and services. As a result of this and the adjustments, the overall direct costs increased to 63% of revenues ( %), and overall the gross margin reduced to 37% of revenues ( %). Administration expenses were improved at 35% of revenues ( %). But the overall gross margin impacted by VDA, and after adjustments, has been the major factor affecting net performance. As a result, the overall EBITDA fell to 347,093 ( ,596), which followed on to give a negative impact on the profit/(loss) position in the full year. Crimsonwing Solutions Working with clients to ensure a top-quality end-product Crimsonwing has focused on establishing and extending its partner relationships with a small number of leading technology vendors. These are Microsoft, Magento, Intershop and Oracle. Conversely, our vendors are also looking to work with fewer and larger businesses to address enterprise opportunities of scale and reach. This year we had to work hard to reinvest in our Microsoft accreditations. We have over 80 Dynamics consultants 6 Business Review Business Review 7

6 working at Crimsonwing, and we re-attained the highest partner level. As a consequence, we remain a managed partner with Microsoft and are one of just a few managed partners in The Netherlands. Our relationship is very close, and we have made joint bids with Microsoft both across Europe and globally during the year. Our open source ecommerce vendor, Magento, also introduced a formal partner accreditation programme during the year. We operate exclusively on the Enterprise level of Magento and we have to invest to ensure that we achieve the expected levels of accreditations and competencies required of us. But the benefits then flow from this Magento engage with high value client brands, and we are promoted by them to engage in enterprise sales opportunities. There has been exciting business success in this respect during the year. Our enterprise ecommerce vendor, Intershop, has also introduced new software releases this year, which have been well received, and we have had many good opportunities, particularly in The Netherlands, but also in the UK. Intershop deploys using Oracle technology, and this is another of our key vendor relationships. We extended our skills into Business Intelligence and have built some very good capabilities across this strategic Oracle toolset during the year. Our vertical focus areas have also been developing. These software asset investments tend to be more within our ERP (Dynamics) offerings, where we have our own Intellectual Property around industry sectors and our functional consultants are expected to lead our clients through business change. We have value-added solutions in the following sectors: Media and Entertainment Construction Multi-Channel Retail Offering both ERP and ecommerce solutions with client focus to deliver a winning combination Crimsonwing solutions broadly fit into two categories those that enable companies to build new sales channels and interact more effectively with their partners and clients (ecommerce), and those that improve the operational efficiency and flexibility of the companies making them more competitive (ERP). These solutions can take quite a few months to analyse, configure and build, and then implement. How these solutions actually deliver these results depends enormously on our customer focus during the project life cycle. Also, once a solution is active, there is continued attention to ensure that the solution remains relevant and continues to deliver business benefits. Here are just a few examples of solutions that we have been able to deliver as a result of our client focus: - How to sell luxury goods online? This is extremely challenging, because the branding, look and feel of the experience has to match the aspirations of the brand. Crimsonwing successfully launched several luxury brands online last year, and in the process addressed many tough technical challenges to ensure that the online delivery and presentation was consistent across many differing platforms (mobile, ipad, PC). - How to make online fashion buying an enjoyable and productive experience, reducing the likelihood of returns? Crimsonwing developed an online fitting room solution for a client, where their customers can take their selections and try different combinations and accessories. - How can a huge shopping complex business manage its thousands of retail outlets best to improve rental income? Working with the client, Crimsonwing developed a unique workflow solution and ERP system for the clients, leasing executives to significantly improve rental returns. - How best to manage a sports federation with over 200,000 members and multiple competitions every weekend? Crimsonwing worked with the client to build all the required back office systems, but with a self-service front-end (portal) to make the overall administration efficient and cost-effective. The above are just some examples of great solutions delivered by investing in the right solution portfolio and applying customer focus. The main measure of our achievement has been our clients desire to stay with us and give us repeat business. We measure the outcome of this formally in a quality survey, and last year received a 95% confirmation of repeat business. Business Highlights UK ecommerce practice continues to thrive Our ecommerce practice continued to establish itself as a major player in the implementation of the ecommerce platform Magento. We were one of a small number of partners in the UK appointed to Gold Status for Magento. We also took a leading role at Meet Magento UK, presenting one of our international implementations, and delivered our first Magento ecommerce Forum in the UK in conjunction with Magento and PayPal. ecommerce solutions were delivered for a number of major brands in the retailing and franchising industry. We have also been commissioned to deliver the ecommerce platform for the international arm of a major UK retailer. This will see the rollout of over 30 websites globally over the next two years. We have been at the forefront of delivering these services through cloud computing, with ecommerce solutions deployed for a number of customers in the Amazon EC2 Cloud. This will also be the hosting platform for the international rollout mentioned above. The custom development practice continues to be the bedrock of our business with our long established relationship with a major UK supermarket chain continuing to flourish. Additionally, we have been asked to help one of our longest standing customers in the IT Distribution Industry to establish their new business platform, providing consulting services for this specification and then testing the chosen platform. This is a multi-million pound project in which Crimsonwing is playing a major role. Overall, the performance of the UK Dynamics business unit, in conjunction with the support received from the Malta Service Centre, has seen a very positive level of progress made. This has culminated in substantially increased turnover for the business unit, seeing annual revenues growing from just in excess of 1 million to in excess of 1.6 million. Notably, intercompany activity has improved exponentially, seeing a very impressive level of revenue contribution to the Malta Service Centre. Encouragingly, there has also been a level of engagement with our Dynamics Practice in the Netherlands, which has seen a good level of contribution to the NL practice. All in all, the overall collaboration of the group s Microsoft Dynamics Practices has been very positive. A number of new clients were secured in the UK, which has been encouraging. We have also seen the further development of a number of key opportunities in the final quarter of the financial year, which is also witnessing a solid platform developing for the upcoming financial year. The most notable client win in FY11/12 was with an international media and advertising business. This project started as an exploratory discussion with some very minor pieces of support activities, but has rapidly progressed to a large dedicated team of experts, combining services from all our regions to support European projects. Additionally, good work has continued with some of our existing key clients. We are engaged in the review of possibilities that could extend UK solutions across their other regions. While trading conditions in the UK are still difficult and sales cycles appear much extended (with a real concern among prospective clients to commit to costly and frequently lengthy projects), we are certainly seeing companies that want to improve the service levels that they are experiencing. With this in mind, Crimsonwing has been very well placed to provide a cost-effective alternative to some of our UK based competitors. The platform that has been established in the UK over the past 12 months has allowed us to envisage a very encouraging 12 months ahead. Now, the challenge going forward is to bring a number of the concrete opportunities that we have managed to develop into fruition, as well as to continue to work with our existing clients to ensure that we are providing an extended quality and value service. Holland A very challenging but promising year The process of integration of all business areas in the Dutch companies began to take shape during the year. Growth of 14% was achieved from a revenue perspective in the Promentum business, but profitability was impacted due to heavy investment in products. Major new projects benefitted from these new product releases, and the positive effect will demonstrate itself in the support and maintenance revenues. Early in the year, the focus was on the creation of a lean enterprise in the shortest possible timeframe. In hindsight, the conclusion can be that several unpopular measures were taken, decisions of integration were made to reduce business-fat, and an environment was created to be able 8 Business Review Business Review 9

7 to fast-forward to become one, integrated Dutch company. In all business areas it is clear that the decision to collaborate more with partners has started to pay off. This is particularly evident with regards to the relationship with Microsoft and Intershop, which was more intense and resulted in some interesting customer cases. In the Media and Entertainment sector, the collaboration with Arvato (the ICT company of Bertelsmann, Germany) resulted in a much better position for our existing customers in the broadcasting industry. A new, fresh start and a clear future vision were welcomed by the existing customer base in this industry. A great success was the contract won at a major on-line retailer for the implementation of Microsoft Dynamics AX This is a project Crimsonwing will execute together with Microsoft Consulting Services, and will take over after implementation in August Meanwhile, after a challenging year for ecommerce activities with Magento, actions were taken to make it a more stable and profitable business. Recruitment of additional professional employees and the taking of the decision to be more selective on the customer projects played key roles in achieving that. Our Intershop business grew again and interesting projects were won. The cooperation between the Dutch office and the Malta office also intensified and this paid off. ecommerce is one of the fastest growing areas in the ICT world. Management of customer expectations however, is one of its most critical areas. In general, many projects are hard to finish, due to the ongoing improvement of the user experience. By implementing stricter project management, better control over the initial project will be possible, opening up more opportunities for Crimsonwing to continuously support customers at a lower risk. The ongoing search for a better balance in activities, partner services and customer projects, does not come easy. This year, Crimsonwing managed to create a good pipeline of reasonably-sized customer projects. The collaboration with Microsoft was very helpful and, through growth and skills, Crimsonwing established a practice that is fully accredited. As a result, Crimsonwing remains one of only five managed Microsoft partners in The Netherlands. The focus on three value chain networks - Media and Entertainment, Construction and Multi-Channel Retail - with services, solutions and content to match, will give Crimsonwing more clout in a turbulent and fast-changing ERP world. The creation of new portal functionality for our products was a real challenge with many difficulties, but in the end the new product releases were completed. Based on the experience of creating our own products, which can be very rewarding, the decision was made to lower risks by integrating more with products already available on the market. Finally, the number of people employed by the company was increased, however it is becoming harder to find the right professionals. A class of fresh graduates was therefore trained through our own investment. In conclusion, 2011 was healthy, difficult and promising at the same time. Looking ahead, it is fair to say that all actions taken have put Crimsonwing into a much more competitive position with plenty of long term perspectives to excite and challenge us. Malta Growing from strength to strength During the 2011/2012 financial year, Crimsonwing (Malta) delivered around 20,000 man days of professional IT services to our sister companies in the UK and Holland, as well as to our ever-increasing Malta client base. Our work revolves around providing software development, implementation, integration, and support of complex and mission-critical systems, as well as business consultancy. This effort translated into circa 6.4m of total revenues across, and a record of 1.5m worth of direct sales. Crimsonwing (Malta) serviced over 100 clients out of the Malta Solution Centre, of which over 50% are local and the rest are split (primarily across the UK and Holland markets - 34% and 10% respectively). As regards to overseas customers, we hosted nearly 40 client visits to our Malta offices. Meanwhile, the Crimsonwing (Malta) employee headcount was consistent with that of the previous year and only marginally increased with attrition backfilled by external recruitment, where we were successful in attracting both junior and senior IT talent. Crimsonwing (Malta) is seen as a well-respected business and reputable brand in Malta and is considered to be an employer of choice. Our attrition level has always been good, although it is fair to say that some particular areas have been targeted, particularly by the igaming sector. Attrition is a key measure of our Quality Management System and it is reviewed at board level on a regular basis. Crimsonwing (Malta) continues to invest heavily in training, as we firmly believe that the core strength of the company is derived from its employees. We continue to invest in them and nurture them so as to give them all the support they need to develop successfully, both within the company and personally. In line with this, we completed around 1,500 training days in % in the ERP area and 40% in the ecommerce area. On the quality front, Crimsonwing (Malta) underwent its eighth annual external ISO audit, which validates the effectiveness and efficiency of our Quality Management System and once again achieved a pass with zero non-conformities. 10 Business Review Business Review 11

8 Corporate Social Responsibility Crimsonwing s People Who Care Fund The People Who Care Fund (PWCF), which was first implemented in September 1999, is voluntarily funded by Crimsonwing (Malta) staff members, who opt to donate a portion of their salary to the fund each month. foundation offers invaluable cancer support to Maltese patients, both at Maltese hospitals and also by housing them in its apartments in Sutton, UK, while they attend the Royal Marsden for treatment. The main purpose the PWCF is to help charitable institutions in financial need, as well as individuals who need assistance, usually due to health problems that require specialised treatment. The beneficiaries are always selected by general consensus and are primarily based in Malta. We usually favour child or youth-oriented organisations, although this is not exclusive. In the past few years it has become the norm for the Fund to purchase or donate items required by the charities or individual concerned rather than to donate cash. Spot the difference Clue: Only one can help you with IT. In August, the PWCF responded to a call made by Assocjazzjoni Voluntarji Lourdes (Lourdes Voluntary Association). The main purpose of this organisation is the transportation of the sick to Lourdes, and it has accompanied hundreds of society s less fortunate on its annual pilgrimages. The Maltese have great faith in Our Lady so it means a great deal to a sick person who cannot afford the trip to be able to undertake it. On the occasion of their 10th anniversary, the AVL organised a special pilgrimage specifically targeted towards sick children, and we happily agreed to sponsor a child who wanted to join the pilgrimage. A donation was given in October to the St Jeanne Antide s LWIEN programme, which supports families of those suffering chronic mental health problems. Another donation went to the Ursuline Sisters who run Angela House, the children s residential home in Gwardamangia. The Sisters have been refurbishing all the bathrooms, so it was a pleasure to contribute towards this worthy cause. In November, the Fund paid the deposit on a solar water heating system for Dar Ghabex, an emergency shelter for women and children who are victims of domestic violence. Due to changes in the team running the shelter, the system was late in being installed, but we are expecting it to be carried out quite soon. Last March, a small group of volunteers spent a day helping the Capuchin Fathers of Paola, who run a number of shelters for the homeless. The team carried out plastering and painting work, and the cost of the materials used was paid for by the PWCF. Looking ahead, Crimsonwing is considering expanding the PWCF, so as to give it a more CSR (Corporate Social Responsibility) oriented role. We hope to offer the professional services of our employees for a few hours a year to those institutions and individuals who have, thus far, only benefited from our financial donations. We believe that the best way forward for a person who has fallen on hard times, or who has never had the opportunities which we take for granted, is education and the learning of new skills particularly essential IT proficiencies. We feel fortunate to be at the forefront of such an exciting industry and believe we should occasionally stop and offer our assistance to those who have been left behind by adverse circumstances. In April, we were happy to sponsor an employee who was taking part in a bodybuilding championship, by sending a small donation to the Puttinu Cares Foundation. This 12 Business Review Business Review 13

9 Directors and Other Statutory Reports 2012 Annual Report and Financial Statements Directors, Officer and Statutory Reports...15 Directors, Officer and Other Information...15 Board of Directors...15 Crimsonwing plc Directors Report...16 Directors Responsibility for the Financial Statements...21 Statement of the Directors Pursuant to Listing Rules...22 Corporate Governance - Statement of Compliance...23 Independent Auditor s Report on Corporate Governance Statements of Comprehensive Income...31 Statements of Financial Position...32 Statements of Changes in Equity...33 Statements of Cash Flows...36 Notes to the Financial Statements...37 Independent Auditor s Report Share Register Information...66 Directors, Officer and Other Information Directors: Secretary: Registered office: Country of incorporation: James Bonello Philip Crawford Albert Muscat David Walsh Joseph Grioli Louis de Gabriele Lignum House, Aldo Moro Road, Marsa, Malta. Malta Company registration number: C Auditor: Deloitte Audit Limited, Deloitte Place, Mriehel By-pass, Mriehel, Malta. PLC Board of Directors and Executive Board David Walsh Chief Executive Officer Crimsonwing PLC Philip Crawford Chairman Crimsonwing PLC James Bonello Managing Director Crimsonwing (Malta) Ltd Pierre Zammit Operation Director Crimsonwing (Malta) Ltd Kenneth Lacy Finance Director Crimsonwing Ltd Aad de Jonge Managing Director Crimsonwing NL Albert Muscat Non-Executive Director Crimsonwing PLC Jaap Schram de Jong Dynamics Solutions Director Crimsonwing Ltd Tom Meehan ebusiness and Custom Solutions Director Crimsonwing Ltd Joseph Grioli Non-Executive Director Crimsonwing PLC 14 Annual Report and Financial Statements Annual Report and Financial Statements 15

10 Crimsonwing plc Directors Report Year Ended 31 March 2012 The directors have pleasure in submitting their Crimsonwing plc report, together with the audited financial statements and auditor s report of Crimsonwing plc for the year ended 31 March Principal Activities Crimsonwing plc is the Holding Company of Crimsonwing Limited, Crimsonwing (Malta) Limited, Crimsonwing BV, VDA Informatiebeheersing BV (acquired in July 2008), and is majority shareholder (51%) in Crimsonwing Promentum Holdings BV. It is incorporated in Malta under the company registration number C The Crimsonwing BV and VDA businesses operate as Crimsonwing NL. The company organisation is as follows: CRIMSONWING PLC During the period April 2011 to March 2012 the market conditions have not improved over the previous year. The recovery has been weak in both the UK and The Netherlands, and competition for business has been intense. Nevertheless, Crimsonwing again achieved revenue growth in the period, recording its highest ever revenues at 15,150,158, that is 6% higher than last year ( ,303,568). That is reasonable organic growth given the tough market conditions. Crimsonwing solutions are targeted towards enterprise-level clients, many of whom have international dimensions and require resilient and around the clock support. Additionally, our partner vendors are streamlining their partner networks and looking to consolidate their marketing efforts with larger partners. As a result, the scale and reach of our operations and commensurate revenue achievements are a fundamental measure of our positioning with both our clients and our vendor partners. We remain committed to breaking into the 20 million sales level as soon as we are able, and which we feel we can achieve through organic growth. Progress in the last few years is shown in the chart below: crimsonwing uk crimsonwing nl crimsonwing promentum crimsonwing mt 5 The principal company activities are the provision of computer software and professional services, mainly to clients based in Western Europe, notably the UK, The Netherlands and Malta, but also internationally outside Europe, including as far as Australia. The company has a number of solution software assets (products), which are relevant to markets beyond Europe. The Crimsonwing businesses are aligned to deliver projects and solutions in three principle solution areas: ecommerce, Enterprise Resource Planning (ERP), and Custom/Integration activities. Additionally, Crimsonwing Promentum is also a Certified Learning Centre for Microsoft Dynamics (ERP). The headcount of the Crimsonwing plc group of companies is just over 230 staff, of which around 150 are based in the Crimsonwing (Malta) Solution Centre, which supports the delivery and solutions of Crimsonwing projects in the target markets. Crimsonwing (Malta) also has a very active Research & Development capability and provides Crimsonwing clients with post implementation support services, and is supporting business systems for clients, 24 hours per day, and in some cases on a global basis. All Crimsonwing subsidiaries are 100% owned apart from Crimsonwing Promentum, which is majority owned. There is a post reporting period event (see Note 27 to the Accounts) detailing a conditional agreement to acquire the full 100% issued share capital of this subsidiary. Performance Review Overview These consolidated financial statements cover all Crimsonwing subsidiaries including Crimsonwing (Malta) Limited, Crimsonwing Limited, Crimsonwing BV, VDA Informatiebeheersing BV, and Crimsonwing Promentum Holdings BV / / /10 At the net level, however, Crimsonwing did not fare so well this year. Loss for the year before tax was ( 207,346) (2011 a profit before tax of 217,572) and losses after tax are ( 459,801) (2011 a profit after tax of 7,310). In terms of like for like comparisons, it is worth noting that there are some exceptional items that have impacted the performance in the year just ended. These items total around ( 266,000) of negative adjustments, and include a provision for bad debt in Crimsonwing Malta ( 71,865), an additional settlement allocation of ( 55,250) at VDA relating to a legal claim running since 2007, and an additional VDA software write-off of ( 62,319). These together with other adjustments total ( 266,480) and have impacted the net performance accordingly. Additionally, we could not reduce the overheads quickly enough in the VDA business (see Sector Report) with too many staff costs attached to the projects and services. As a result of this and the adjustments, the overall direct costs increased to 63% of revenues ( %), and overall the gross margin reduced to 37% of revenues ( %). Administration expenses were improved at 35% of revenues ( %). 2010/ /12 But the overall gross margin, after adjustments has been the major factor affecting net performance. As a result, the overall EBITDA fell to 347,093 ( ,596), which followed on to give a negative impact on the profit (loss) position in the full year. This was a disappointing outcome. However, the directors took the necessary action during the year to resize the VDA business and also continued to invest in maintaining skillsets, enhancing products, building new client relationships and contracting projects, which will deliver good outcomes in future years. 16 Annual Report and Financial Statements Annual Report and Financial Statements 17

11 Sector Reporting Overall, other than Crimsonwing NL (BV and VDA), there was solid performance in the remaining Crimsonwing businesses (see table of EBITDA comparisons below) EBITDA EBITDA Crimsonwing Ltd. (UK) 144, ,372 Crimsonwing Ltd. (Malta) * 510, ,834 Crimsonwing Promentum BV 339, ,048 Crimsonwing NL (BV and VDA) ( 647,051) ( 617,658) Overall 347, ,596 *EBITDA figures for Malta include Crimsonwing PLC overheads Crimsonwing Ltd (UK) This business runs as three main units in the UK and had a solid year. Revenues were flat at 7,337,022 (2011-7,385,099), which was a good performance relative to the UK market economy. EBITDA was similarly flat at 144,176 ( ,372). Investments continued to be made in both the ecommerce and the Dynamics practices with new consultants taken on board. During the year we won a major global roll-out ecommerce project with a FTSE 250 client and we fully expensed the sales and initial project work during the period. We also won a major international Dynamics project to support a European operation, as well as several significant UK clients. The UK overheads will drop in the new financial year. Derek Linney, our Solutions Director, announced his retirement at the end of the financial year, and there is no plan to have a direct replacement, as the solution sets are fully up and running in the countries, with solution leaders embedded in the business. We would like to take this opportunity to thank Derek for his enormous contribution to Crimsonwing over the last 12 years. Crimsonwing (Malta) Ltd This was a reasonable sales year for this business with revenues of 6,354,843 (2011 6,120,087). Actually, sales to support Crimsonwing Ltd (UK) were down somewhat on last year by around 540,000, but this was more than compensated by a healthy increase in direct sales (mainly in the Malta local market), which leapt to 1,497,940 ( ,296). However, the EBITDA achieved was below par when compared with the previous year at 510,590 ( ,834). The EBITDA was negatively impacted by a bad debt provision of ( 71,865), but also there were significant non-chargeable activities during the year, which also played a part. There were substantial efforts applied for international tendering, and as previously recorded, there were some fully expensed activities on a new global ecommerce project. It is also fair to say that attrition became a concern during the year, although it is now stabilised. We have been able to recruit the necessary replacements but of course the productivity is effected due to training and handover periods, which impact chargeable activities and hence ultimately the EBITDA that can be achieved. It should be noted that the main factor in attrition is the impact of the igaming industry, which is offering remuneration packages well above the industry norm for the Malta market. Crimsonwing NL (Crimsonwing BV and VDA BV) This was again a very difficult year for this business unit, which resulted in a negative EBITDA of ( 647,051) ( ( 617,658)). Note that the EBITDA for the year do include some additional negative adjustments previously mentioned of ( 117,569). Hence, a slightly less worse result than the previous year on a like for like basis. The basic problem with the business was not sales: These held at revenues of 1,799,363 (2011 1,944,189). The problem was the office overheads, carrying too many staff and high administration costs. We had been unable to cross train the surplus staff, and achieve a productive outcome, and reluctantly it was concluded early in the financial year that the business would require a downsizing of project and administration staff. The process started in May 2011 and we obtained the necessary approvals from the Dutch Government Labour Body UWV (Uitvoeringsinstituut Werknemersverzekeringen) in October We were finally able to match the headcount we needed against the available client contracts. It is clear that we underestimated just how long it would take to work through to the benefits of this structural change. But Crimsonwing fulfilled fully its obligations to the affected staff, such that the financial benefits accruing only started to materialise in the closing moments of the financial period, partly in February and then fully in March Combined with the above action, we have also been able to re-negotiate the office lease costs, and together with the staff savings this will result in annualised savings of over 750,000 per year. These savings will apply for the full year in the new financial period. An interesting point to note is that VDA support and service contracts were all renewed during the year and our clients felt that we have done what we needed to do and had been careful not to impact the service to them. There are some excellent and loyal clients in this business and the media ERP and ecommerce units are actually very active. The unit is now in very good shape to move forward in the new financial year, and there is full integration with Crimsonwing Promentum planned in this new period. Crimsonwing Promentum BV This was a rather mixed year for Promentum. A very good underlying sales performance but, combined with some heavy investments in installing new product solutions, resulting in a brake on the net gains during the year. Revenues were up nearly 14% to 4,511,629 (2011-3,965,381), but EBITDA remained around level at 339,378 ( ,048). As well as challenges implementing the first client releases of new products, the business also heavily invested in developing these assets, although the costs of these were largely capitalised and did not affect the overall net performance. In all business areas it is clear that the decision to collaborate more with partners started to pay off. Especially the relationship with Microsoft and Intershop was more intense and resulted in some interesting customer cases. In the area of Media and Entertainment, the collaboration with Arvato (the ICT company of Bertelsmann, Germany) resulted in a much better position with our existing customers in the Broadcasting industry. A new, fresh start and our clear future vision were welcomed by our existing customer base in this industry. Note that the plan for the new financial year is to combine all Dutch subsidiaries reporting into one entity Crimsonwing NL under one Managing Director, Aad de Jonge. The segment reporting will in future be by country: UK, The Netherlands and Malta. Key Risks and Risk Mitigation We are growing in a demanding market, and we are winning projects which are international, complex and large in nature. Our key risks are: 1. Retaining our Key Staff. Competition for good staff is strong and our technical skillsets are in demand. Crimsonwing has always built net new consultants into the marketplace, but we are potentially vulnerable to aggressive entrants. On the whole, we have lived with this for a number of years, but we will be looking to strengthen our staff loyalty programs and provide exciting career opportunities. 2. Demanding Vendors. Our vendors are also keen to see their partners grow in capability and commitment. Our main vendors, Microsoft, Oracle, Magento and Intershop are all demanding we keep abreast of the latest product releases and judge our competencies and accreditations very accurately. We will continue to work with these vendors, and have appointed a partner manager to help co-ordinate the myriad of demands. We intend to maintain the highest partner levels with our vendors. 3. Providing a True Global Service. Our strategic wins will mean that we will have a fully manned 7 by 24 hour operation to support our clients in Europe, Australasia and China. This is an investment, and we have acted to strengthen both our service management and toolsets to assist. 4. New Technologies. These are abounding fast, and the uptake of mobile applications and Cloud services means we have to adopt new development and deployment skills and service offerings. The good news is that we have delivered and are engaging in real client projects with these new technologies and are seeing many new opportunities to exploit our capabilities. 18 Annual Report and Financial Statements Annual Report and Financial Statements 19

12 Outlook The directors believe that the following key initiatives in the year ahead to March 2013 will help grow and sustain shareholder value: 1. Profit Growth We have all our business units in very good shape, and with an excellent business pipeline. Although we are anticipating further revenue growth, we will ensure we keep our investments in line and drive up our profitability. 2. ISV We have Intellectual Property in Crimsonwing software assets, and we can build channels to market outside our current presence to bring our solutions to a wider market. The assets are planned to move into an ISV structure (independent software vendor). That is to say that we will consolidate our product development into one ISV setup and location (probably in Malta) and with dedicated resources to help free the existing teams to service the project engagements. Dividends The Board of Directors are not recommending the payment of a final dividend. Directors The Directors who served during the period were: Directors Responsibility for the Financial Statements The directors of Crimsonwing plc are required by the Companies Act (Chap. 386) to prepare financial statements in accordance with International Financial Reporting Standards as adopted by the EU, which give a true and fair view of the state of affairs of the company and its group at the end of each financial year and of the profit or loss of the company and its group for the year then ended. In preparing the financial statements, the directors should: select suitable accounting policies and apply them consistently; make judgements and estimates that are reasonable; and prepare the financial statements on a going concern basis, unless it is inappropriate to presume that the company and the group will continue in business as a going concern. The directors are responsible for ensuring that proper accounting records are kept, which disclose with reasonable accuracy at any time the financial position of the company and the group and which enable the directors to ensure that the financial statements comply with the Companies Act (Chap. 386). This responsibility includes designing, implementing and maintaining internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. The directors are also responsible for safeguarding the assets of the company and the group, and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. James Bonello Philip Crawford Joseph Grioli Albert Muscat David Walsh In accordance with the company s articles of association all the directors are to remain in office. Auditors A resolution to reappoint Deloitte Audit Limited as auditor of the company will be proposed at the forthcoming Annual General Meeting. Approved by the Board of Directors and signed on its behalf on 24 July 2012 by: David Walsh Director James Bonello Director 20 Annual Report and Financial Statements Annual Report and Financial Statements 21

13 Statement of the Directors Pursuant to the Listing Rules Issued by the Listing Authority Corporate Governance Statement of Compliance We confirm that to the best of our knowledge: 1. the financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the EU and in accordance with the requirements of the Companies Act (Chap. 386), give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and 2. the Directors Report includes a fair review of the performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face. Approved by the Board of Directors on 24 July 2012 and signed on its behalf by: 1. Introduction Pursuant to the Malta Financial Services Authority Listing Rules issued by the Listing Authority, Crimsonwing plc ( the company ), as a company whose equity securities are listed on a regulated market, should endeavour to adopt the Code of Principles of Good Corporate Governance contained in Appendix 5.1 of the Listing Rules (the code ). In terms of Listing Rule 5.94, the Company hereby reports on the extent of its adoption of the principles of the Code for the financial year being reported upon. The Company acknowledges that the code does not dictate or prescribe mandatory rules, but recommends principles of good practice. However, the directors strongly believe that such practices are generally in the best interests of the Company and its shareholders and that compliance with the principles of good corporate governance is not only expected by investors but also evidences the directors and the Company s commitment to a high standard of governance. The board of directors of the Company ( the board ) has carried out a review of the Company s compliance with the code for the financial year being reported upon. David Walsh Director James Bonello Director 2. General The Company is a holding company and does not itself carry on any trading activities. It owns a number of subsidiaries, which together form the Crimsonwing (hereinafter the group ) and it is those subsidiaries that carry on trading activities. The Company s governance principally lies in its Board of Directors, responsible for the overall setting of the s policies and business strategies. On the other hand, the subsidiaries governance structures are composed of two principal organs: the body composed of the persons responsible for each division of the group, as well as the Chief Executive Officer of the, the executive board. Furthermore, each subsidiary is run by its Board of Directors. The Company has adopted a corporate decision-making and supervisory structure that is tailored to suit the s requirements and designed to ensure the existence of adequate checks and balances within the, whilst retaining an element of flexibility essential to allow the to react promptly and efficiently to the dictates of its business and the economic conditions in which it operates. The directors are of the view that there can be no blue print for good corporate governance in that corporate governance is a generic term that describes the measures taken by the Company to ensure its proper direction and management of its business. Accordingly, the structures that may be required within the context of large multi-nationals are not necessarily and objectively the best structures for companies whose size and/or business dictate otherwise. It is in this context that the directors have adopted corporate governance structures within the Company that are dictated by its particular demands and which are designed to suit the Company, its business and its size, whilst still ensuring proper checks and balances. In general, the directors believe that the Company has adopted appropriate structures to achieve an adequate level of good corporate governance, together with an adequate system of checks and balances in line with the Company s requirements. This corporate governance statement (the statement ) will now set out the structures and processes in place within the and how these effectively achieve the goals set out by the Code. For this purpose, this Statement will make reference to the pertinent principles and then set out the manners in which the directors believe that these have been adhered to. Where the Company has not complied with any of the principles of the Code, this Statement will give an explanation for non-compliance. For the avoidance of doubt, reference in this Statement to compliance with the principles of the Code means compliance with the Code s main principles and the Code Provisions. 22 Annual Report and Financial Statements Annual Report and Financial Statements 23