Interim results

Epic Group, leaders in online learning, announce interim results for the six months ended 30 November 2003.

• Strongly profitable and cash generative
• Public Sector still developing
• Range of new clients in the Private Sector
• Move towards blended learning
• Interim dividend doubled
• Overseas distributor appointed for PRIME
• Current sales activity encouraging

For further information:
Michael Inwards (Chairman) 01273 728686
Donald Clark (Chief Executive Officer) 01273 728686
Stephen Oliver (Chief Financial Officer) 01273 728686
Beattie Financial: Brian Coleman-Smith / James Chandler / Grace Marriner 020 7398 3300

Background note

Epic Group plc is the UK market leader in e-learning, blended learning and knowledge solutions.

As thought leaders, we stimulate debate in training and education. And we are quality leaders, setting the bar for scalable, sustainable blended solutions that transform organisations and individuals. Everything we do for clients is about change - usually a change in knowledge, skills or attitudes.

Using the best of new technologies alongside traditional means, we help people to know more, to learn faster, to perform better - bringing benefits to both organisation and individual.

Epic’s extensive client list includes:

Government
DWP, Inland Revenue, Customs & Excise, Environment Agency, Cabinet Office, I&DeA, ODPM

Education
HEFCE, BECTA, SEEDA, Cambridge University, NCSL NLN

Health
NHSU, NPSA, PCTs, Department of Health, BUPA, NHS Leadership Centre

Financial Services
The Royal Bank of Scotland, Lloyds TSB, Barclays, PwC, AIB, AMEX, Deloitte, FSA

Telcos, Media
SAP, ntl, Cable & Wireless, Orange, BT, BBC

Retail
B&Q, Whitbread, Diageo, British Airways, Virgin Atlantic, Kimberly-Clark, Kraft, Rank, TUI, Centrica

Epic Group plc ("Epic")

(The UK’s leading online learning company)

Epic is the leading online learning company in the UK. From a standing start a few years ago, online learning has become a mainstream form of education and training delivery. As our client list demonstrates, the corporate, government and education markets have all benefited from high quality interactive learning.

As advised at the time of the Annual General Meeting in October 2003, trading in the first half of this year is lower than budget and also the equivalent period last year. However, we remain a strongly profitable and cash generative company. We have continued to invest in our sales and marketing and as we enter 2004 see encouraging signs of increasing activity.

Turnover for the period was £3.7m (2002: £4.6m) a decrease of 20%. Included in these figures are £0.2m (2002: £0.4m) from sales of our Products. Gross margin for the period was 53% (2002: 49%) as we completed and delivered a number of successful projects. We have kept control over our cost base and this coupled with the improved gross margin has meant that profit before tax of £0.8m (2002: £1.0) shows a 20% decrease, in line with revenues.

Cash generation has again been good with total balances increasing by £0.3m (2002: £1.0m) and now stand at £12.0m (2002: £10.4m). Excluding the inflows from share issues and outflows of dividends paid to shareholders, the net cash generated during the period was £0.5m (2002: £1.0m).

Basic earnings per share were 2.3p (2002: 3.7p) a decrease of 38% which also reflects the move to paying corporation tax at the full rate, as all of our previous tax losses will be fully utilised this year. On a fully taxed basis, earnings per share were 2.2p (2002: 2.7p) a decrease of 19%.

As previously announced, the interim dividend is to be doubled from 0.4p to 0.8p per share. This will be paid on 25 April 2004 to shareholders on the register at 26 March 2004. The increase in the dividend is based upon the board’s confidence in the medium to long term prospects for both online learning and Epic. The company’s strong cash position enables the board to reflect this confidence to shareholders.

We are seeing a significant rise in consultancy that we believe indicates clients’ strategic intent on e-learning and the rise of ‘blended learning’, a more sophisticated broader form of delivery with both online and offline components. We have increased our consultancy capacity to deliver strategic and tactical consultancy in both the public and private sectors.

Product revenue has fallen as the first sales cycle comes to an end but we have appointed an overseas distributor for PRIME.

Education continues to be a strong source of revenue. The government consultation submissions on ‘Towards a Unified E-learning Strategy’ ended on 31 January 2004 and we look forward to core educational policies putting e-learning firmly into government spend in the UK. Charles Clarke, Minister for Education and Skills stated that 'E-learning has the power to transform the way we learn… e-learning needs to be at the heart of the way we all work.’ We believe that this will be particularly applicable in the education market and have created a separate education division to follow up on this opportunity.

Health has opened up as a sector with projects from the NHSU, and other health agencies. With above inflation spending increases granted to the NHS for the next five years, this will continue to be an important source of revenue.

We are pleased to have been appointed an approved supplier to the Ministry of Defence and have subsequently secured our first defence contracts. We see this as a sector that will develop strongly over the next three years, as the MOD adapts to the new role of the armed services.

We continue to work with major government departments like the Department for Work and Pensions and the Inland Revenue. In addition we have been selected as an approved supplier for a further two government departments, The Environment Agency and the Office of the Deputy Prime Minister.

As mentioned at the AGM revenues from financial services, traditionally a foundation for Epic, have been weaker than expected. However, The Royal Bank of Scotland, Barclays and Lloyds TSB will continue to use e-learning as a mainstream form of delivery.

We are pleased to have won a range of new clients in other sectors, expanding the sectors in which we operate. In travel; TUI and Britannia Airways, in the medical and pharmaceutical sector; Janssen-Cilag and the BMJ, and in consumer services; Centrica and The Football Association.

All of our work requires the skills and dedication of the people who work for us and, on behalf of the directors and shareholders, I would like to thank them for their contribution to these results.

We will maintain our position as the leading e-learning company in the UK, providing our clients with an increasing range of solutions and an ever improving level of service. Blended learning has emerged as a strong concept in this market and we have already developed models and tools to deliver optimised blends of online and offline activities to clients. Indeed, we have completed several major blended learning projects, with more in the pipeline.

This move into blended learning is significantly influencing our acquisition policy. We continue to evaluate acquisition opportunities and hope to widen our offer to clients by extending our ability to deliver blended learning.

Current sales activity levels are encouraging, particularly in the education, health, defence and finance markets. In October 2003 we referred to the poor order intake at that time which would impact on our performance in the second half of this financial year and this remains the case. However, the current conditions do give indications of an improved outlook for the next financial year.

Michael Inwards

Chairman

3 February 2004

Summary Consolidated Profit and Loss Account

There is no material difference between the historical cost profits and those shown above; therefore no separate note of historical cost profits and losses has been presented.

The Group has no recognized gains or losses during the current or previous periods other than the above results. All of the results derive from continuing operations.

Consolidated Balance Sheet

Consolidated Cash Flow Statement

Reconciliation of net cash flow to movement in net funds

Notes

This interim report has been prepared using the accounting policies as set out in the annual report and accounts for the year ended 31 May 2003. This report is unaudited, but has been reviewed by the auditors and their independent review report is set out below.

The comparative figures for the financial year ended 31 May 2003 have been extracted from the statutory accounts that have been delivered to the Registrar of Companies and carried an unqualified audit report. The interim report and accounts are not full accounts within the meaning of section 240 of the Companies Act 1985.

The tax charge for the period has been calculated at the estimated effective rate for the full year.

The interim dividend of 0.8p per share (2002 0.4p per share) will be paid on 25 April 2004 to shareholders on the register at 26 March 2004.

Earnings per share have been calculated on the profit after tax divided by the weighted average number of shares in issue during the period.

Fully taxed earnings per share is calculated on the basis of the full rate of corporation tax (30%) applying to the profit in the period. As the Group has tax losses that have not in the past been reflected in the balance sheet, the directors consider that this figure provides a useful additional indicator of performance.

Copies of this announcement will be posted to shareholders and are available from the registered office, 52 Old Steine, Brighton, Sussex, BN1 1NH.

Independent review report by Baker Tilly to

Epic Group Plc

We have been instructed by the company to review the financial information set out on pages 3 to 7 and we have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the financial information.

This report, including the conclusion, has been prepared for and only for the company for the purpose of their interim report and for no other purpose. We do not, therefore in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

The interim report, including the financial information contained therein, is the responsibility of, and has been approved by the directors. It is best practice that the accounting policies and presentation applied to the interim figures should be consistent with those applied in preparing the preceding annual accounts except where any changes, and the reasons for them, are disclosed.

We conducted our review in accordance with guidance contained in Bulletin 1999/4 issued by the Auditing Practices Board as if that Bulletin applied. A review consists principally of making enquiries of group management and applying analytical procedures to the financial information and underlying financial data and based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit performed in accordance with Auditing Standards and therefore provides a lower level of assurance than an audit. Accordingly we do not express an audit opinion on the financial information.

This is the first occasion on which an independent review report has been presented to the company and accordingly we have not reviewed the comparative financial information given for the six months ended 30 November 2002 or the year ended 31 May 2003, but have checked its extraction from the published financial information relating to those periods.

On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the six months ended 30 November 2003.

Baker Tilly

Chartered Accountants

Brighton

3 February 2004

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