Highlights:

• Turnover up 6% to £351.7m (2006: £332.7m)
• Underlying organic growth accelerated from 1.7% in H1 to 7.7% in H2
• Operating profit [1] up 9% to £60.1m (2006: £55.0m)
• Profit before tax up 4% to £31.9m (2006: £30.6m)
• Adjusted basic EPS [2] up 13.1% to 6.90p (2006: 6.10p)
• Operating cash flow [3] grew 21.5% to £75.6m (2006: £62.2m)
• Order book grew 6.5% to £389.8m (2006: £366.0m)
• Preferred bidder status achieved for the BSF contract in Leicester worth £27m over the contract term and a £15m extension to the Lot 6 contract in Northern Ireland
• Dividend per share increased 20% to 0.72p (2006: 0.60p)
• The acquisition of ARINSO, announced after the period end, will transform Northgate into a global provider of HR systems and services

Ron Mackintosh, Chairman:

“This has been a highly significant year in the development of the Group. We made a number of earnings enhancing acquisitions to develop our position and broaden our range of products and services in the Human Resources (HR) and Public Sector markets. The acquisition of ARINSO will represent a step change in Northgate’s development transforming our successful Human Resources division into a truly global business.”

Chris Stone, Chief Executive:

“This has been another good  year for Northgate. We achieved good growth in key parts of the business and capitalised on our strong positions in each of our markets. We saw acceleration in revenue growth in the second half of the year in all parts of the Group, driven by a strong performance in the Human Resources division, Public Services returning to growth, and an increase in workload in the Managed Services division driven by significant new education contracts. It is pleasing to see our continued investment in sales and marketing moving us towards our medium term growth expectations. The momentum in order intake that we saw in the second half of last year has continued into the beginning of this year, which has given us confidence in the full year outlook for our continuing Northgate Information Solutions business. In addition we have real excitement over the prospects for the enlarged group as we integrate ARINSO.”

For further enquiries, please contact:

Northgate Information Solutions plc

Chris Stone/John Stier                          01442 232 424

Maitland (Financial PR)

Neil Bennett/Amanda Martyr                020 7379 5151

Note to Editors:

About Northgate Information Solutions

Northgate Information Solutions is a market leader in providing software, outsourcing and IT services to the human resources, local government, education and public safety markets in the UK. Following its acquisition of a controlling stake in ARINSO, the international HR services group has become a world-leading global human resources servicing and outsourcing provider.

Headquartered in Hemel Hempstead and listed on the London Stock Exchange, Northgate currently employs nearly 6,000 staff and has approximately 2,700 large/ medium customers and approximately 7,000 small to medium enterprise ("SME") customers across the UK and Ireland. Northgate works closely with many corporate organisations, as well as approximately 90% of the UK\'s local authorities, and all of its police forces.

Northgate operates in 27 countries across 5 continents and is a member of the FTSE 250.

GROUP OVERVIEW

The Group has delivered a strong performance for the full year. Revenues for the year rose 6% to £351.7 million. Operating profit grew 9% to £60.1m, driven by revenue growth and continued progress with the Group’s revenue mix and operating efficiency. Over a number of years we have focused on the areas of our business where we can leverage our IPR and differentiate ourselves in the market place, leading to margin expansion. Profit before tax increased by 4% to £31.9 million leading to a rise in adjusted basic earnings per share of 13.1% to 6.90p. Following from our return to the dividend list last year the Board have recommended the payment of a final dividend of 0.48p making 0.72p for the year. Year on year dividends have grown 20%.

Organic revenue growth accelerated in all parts of the Group in the second half of the year as we continued our investment in sales and marketing. Underlying growth improved from 1.7% in the first half of the year to 7.7% in the second half giving organic growth of 4.8% for the year (2006: 4.1%). Public Services and Managed Services showed particular half on half progress.

In addition to driving our organic growth, we have made a number of important acquisitions to build our presence and skills within our Human Resources and Public Services markets. These have culminated, since the period-end, in the acquisition of a controlling stake in ARINSO, the international HR services group based in Belgium and making an offer for the remaining shares. This acquisition has transformed Northgate into a global provider of Human Resources systems and services and marks a step change in the development of the Group. We believe that in the past 12 months we have laid the foundations for the group to develop in the years to come.

In these accounts we have taken an exceptional reorganisation provision of £6.3 million partly offset by net one-off property gains of £3.0 million. This provision is intended to fund the full integration of acquisitions completed in the 2007 financial year into the main group and ensure that our delivery and support functions are the right scale for the market conditions they currently address.

DIVISIONAL REVIEW

Human Resources

Northgate HR has seen continued growth throughout the year with organic revenue growth increasing by 6.2% for the full year (2006: 4.0%). We signed a record number of new client contracts and extended our relationship with many others. Significantly there has been a sharp rise in the size of contracts we have secured worth more than £1 million, as our clients increasingly sign up for large outsourcing contracts over longer periods of time instead of smaller systems or services contracts. We signed 6 contracts worth more than £1 million in the period.

Some of the new contracts signed in the period included:

·        A five-year pensions administration contract with Alliance Boots plc, expanding the existing HR and payroll services provided by Northgate; ·        Providing an outsourced shared service for Payroll & HR to Thistle Hotels for its 5,000 employees throughout the UK;  ·        A five-year contract with the University of Southampton to provide a payroll and pensions solution to more than 5,000 staff; and ·        Deacons, one of Hong Kong\'s leading law firms, has signed a contract for the use of Resourcelink for HR and Payroll. This deployment will include the translation of the system into Chinese utilising Unicode for use in Deacons\'  mainland China offices, which are located in Beijing, Shanghai and Guangzhou. 

During the year we also extended our range of products and services in HR with a number of key acquisitions. These included:

• Link Group Consultants for £11.3 million [4], the UK leading reward systems specialist which develops solutions to evaluate equal pay and conditions;

• Edis for £10.3 million⁴, a pension’s administration outsourcing provider; and

• Engage, which develops scheduling, time and attendance recording software.

All these smaller acquisitions are earnings enhancing and build the group’s portfolio of products and services.

Human Resources (continued)

Moorepay, Northgate HR’s business aimed at Small and Medium Enterprises (SME), saw its total number of clients grow by  4.9% during the year. Customer retention rates remain high at 94%.  Moorepay remains a leader in providing vital HR services and support to SMEs and the group’s offering to SME’s was further enhanced after the year end by the acquisition of First Business Support with a turnover of £8.5 million.

Public Services

Northgate Public Services returned to growth in the second half of the year, driven by strong demand for software and services from Local Government clients (H1 -2.2%: H2 4.5%). This allowed the division to show overall growth of 1.3% for the full year (2006: 2.6%).

Local Government, which accounts for approximately 60% of the division, enjoyed a busy and active second half year, with a number of notable contract wins including a 5 year partnership with the London Borough of Croydon to deliver a multi-application managed service solution; the delivery of a customer relationship management system for Warrington Borough Council in support of its customer contact strategy; and Brent Council becoming the first local authority to benefit from a new identity management system offered by Northgate. The Initiate Identity Hub™ enables local authorities and other public sector bodies to combine customer and business data held across disparate corporate and departmental IT systems into centralised master records. In addition, Northgate has been responsible for 82 new postal vote identification systems for local authority clients committed to eliminating fraud in Postal Voting and to modernising their electoral systems.

Northgate’s housing sector has performed well, and Northgate has been particularly focused on helping our clients to save money in the administration of housing portfolios in front, middle and back office. Northgate completed the roll out of a single financial and housing management system for Midland Heart, one of the top ten housing and regeneration businesses in the UK.

In the second half of the year our Local Government business also completed the acquisition of Kendric Ash, a leading transformation partner to the public sector, which has since its creation delivered more than £100 million in financial benefits to public sector clients.  The acquisition will help Northgate widen its service proposition in this fast growing part of the market.

T he Criminal Justice market has however remained challenging with a number of projects being deferred and cancelled due to the changing structure of the Home Office and the recent creation of the Ministry of Justice. Northgate has built a strong and trusted brand in this market and we remain dedicated to continuing our sales effort. We are confident that the market will recover when the new structure of the justice system becomes established.� In spite of this difficult market background, the team did well with wins including a management information solution for the Office for Criminal Justice Reform in partnership with LogicaCMG; 42 police forces signing up for a two-year extension to the national enforcement solution for Penalty Notices for Disorder; and working with Safety Camera Partnerships, including Hertfordshire, Wiltshire and Northumbria, to provide drivers with direct access to evidence from safety cameras through Northgate’s “Public Access” service.

Managed Services

Northgate Managed Services has also seen good progress this year. Our services revenue has seen strong growth in the second half of the year (H1 0.6%: H2 12.6%) as the effect of contracts won in our education business shows through. This allowed services revenue to grow by 6.7% for the full year (2006: 6.0%). Third party product sales continued to decline, from £22.2m to £18.0m as the business focuses on growing its service based income.

In the education sector, Northgate has enjoyed tremendous progress.� Work commenced in the second half on two significant contracts as one of the first providers of Information and Communication Technology (ICT) managed services and support to the education sector in Bristol and Northern Ireland. The Bristol contract worth £8.9m was the first of its kind to be signed in the Government’s Building Schools for the Future (BSF) programme and has firmly established Northgate as a major player in the BSF market.  We now provide managed ICT services to more than 1100 schools in the UK and have completed the development of Northgate’s Managed Learning Environment (MLE) which is a key component of Northgate’s offering to the BSF market. 

We have developed a healthy pipeline within the BSF programme and have recently announced a contract extension worth in excess of £15m for work under our Lot 6 contract in Northern Ireland.

We are currently shortlisted on a further 7 opportunities, including holding the preferred bidder status for the Leicester City Council BSF contract worth £27m. This is expected to go to contract in the first half of the current financial year.

The Lot 6 contract in Northern Ireland, worth more than £46m and the largest ever won by the Group, will ultimately provide ICT solutions and ongoing support to 300,000 teachers and schoolchildren throughout the Province.  In addition we are pleased to have established a partnership with Fronter as its preferred Virtual Learning Environment (VLE) supplier.

Other notable new contract wins in this division were a major email systems project for North Tyneside and Newcastle City Council, a five-year IT outsource with Sandwell Metropolitan Borough Council, the launch of an internet booking service and a further 2 year extension to the existing managed services contract with DVA in Northern Ireland, an IT support contract with Solihull Metropolitan Borough Council and new infrastructure support contracts with Waterways Ireland, Scottish Criminal Records, Strathclyde Police, and Seagate Technologies.  These major wins provide a firm base upon which to achieve the significant growth that is available in the sector. 

ARINSO

Since the period end we have also announced the acquisition of ARINSO, a leading independent global provider of SAP-based HR services and solutions. On 2 May 2007 Northgate announced that it had entered into an agreement with the majority shareholder to acquire, subject to shareholder approval, a 60.43% interest in ARINSO for €18.75 in cash and 5 new Northgate shares for each ARINSO share. At an EGM held on 15 June 2007 shareholders formally approved the acquisition, which enabled Northgate to take a controlling interest and then subsequently launch a mandatory public offer to acquire the remaining shares in ARINSO. This offer process is expected to close by September 2007.

ARINSO is a global HR servicing and outsourcing provider with over 2,600 employees operating in 27 countries across 5 continents. It has experienced compound growth over the last five years of 16% per annum and continues to operate in high growth markets. In the quarter to 31 March 2007 the business grew revenue by 20.0% to €56.7 million and operating profit by 25.4% to €5.2 million. ARINSO holds highly valuable intellectual property in the form of deep seated knowledge of human resource management, as well as an outstanding relationship with SAP and understanding of how SAP software can be used to support client services and systems. ARINSO provides services in the areas of HR Business Consulting, Technology Integration, and HR Outsourcing. It has provided services to 100 of the global Fortune 500 companies.

The combination of ARINSO with Northgate’s existing HR division will create a world-leading HR software and business process outsourcing operation, which will be well positioned to address the $15 billion worldwide HR business process outsourcing market.  This combination will provide a substantial global platform from which Northgate can grow the enlarged business by using ARINSO’s development, sales and support network to adapt and market ResourceLink to new international customers. 

Northgate will also continue to promote ARINSO’s euHReka global platform based on SAP, allowing Northgate to service clients wanting to adopt a global ERP software solution. Our recent experience of international sales has proved that there is an enormous potential market for clients wanting to adopt a best of breed HR software strategy, as well as those adopting an ERP strategy.

The Board expects the acquisition to be earnings enhancing (before amortisation of intangibles, options costs and one-off items) in the financial year 2008/9, which will be the first full financial year following its completion.

BOARD

This year has seen a number of changes to the Northgate board.  In September 2006, Ron Mackintosh joined as Non-Executive Director and Chairman designate, and replaced Nick Irens as Chairman in the New Year.  In addition, Andrew Robb joined as a Non-Executive Director and a member of our Audit Committee in February 2007.

Following the completion of the Share Purchase Agreement with ARINSO, their Chief Executive, Jos Sluys, has been invited to join the Board of Northgate and will take a leading role in the development of strategic client accounts.

OUTLOOK

The 2007/08 financial year has started well. The momentum we saw build up in the second half of last year has continued into the beginning of this year.  We have invested in growth businesses such as Link HR Systems and Kendric Ash.  Looking to the 2007/08 financial year, we are confident that this momentum will continue to grow.

Northgate is continuing on the journey we started 7 years ago that has involved 5 disposals/business closures, 20 acquisitions and organic growth which has transformed the Company’s weak position in January 2000 with negligible market shares in 8 different market sectors to a focused business with market leading positions in each of its three businesses.  The next stage for Northgate is to move from being a domestic UK company to a global force operating in much higher growth markets. 

The announcement of the acquisition of ARINSO, which completed in the first half of the 2007/08 financial year, signifies a new era for Northgate as it is a unique opportunity to secure a global position for Northgate’s HR business. For the next phase of growth Northgate will focus on completing the successful integration of ARINSO and continuing to pursue our stated strategy to become a leading player in providing software, outsourcing and IT services to the human resources, local government and public safety markets.

2007/08 promises to be a successful year for Northgate staff, the Board, our shareholders, and our customers. The Board remains confident about the outlook for the Group, which will be enhanced by the strong growth prospects of ARINSO.

FINANCIAL OVERVIEW

Overview

The year to 30 April 2007 demonstrated Northgate’s continuing progress, with adjusted basic earnings per share increasing by 13.1% to 6.90p per share (2006: 6.10p per share). In the first half of the year trading was impacted by changes to the buying patterns of clients in our Public Sector business, the timing of winning work in the growing IT education market and the completion of work caused by the loss of our head office due to the Buncefield explosion in December 2005. Driving organic growth remains the principal focus of management and it is pleasing to report that in the second half of the year all divisions have shown growth.

Cash flow has once again been strong, with the Group generating net cash from operating activities before pension deficit contributions of £75.6m. This has grown 21.5% in the last year (2006: £62.2m). This has demonstrated our continuing ability to generate substantial amounts of cash from the Group, which will help fund further growth and reduce debt over time. Net cash flow before acquisitions and after net interest was £20.1m [5] (2006: £24.2m). This declined year on year with the Group investing £7.6m in the year to support growth in our education business, driven by securing the Lot 6 and Bristol contracts in 2006 as well as continuing investment in fixed assets.

Work carried out under long-term contracts continues to underpin our business. The order book at 30 April 2007 showed a 6.5% increase to £389.8m (2006: £366.0m). Public sector and Northgate HR saw good growth in order book whilst Managed Services order book was relatively flat due to the timing of major contract wins. This is expected to rise substantially however in the first half of the year with Northgate becoming preferred bidder at a Building Schools for the Future (“BSF”) opportunity in Leicester and securing additional work in Northern Ireland through its education business. These two opportunities are expected to add over £40m to the order book.

53% (£206.9m) of the order book will be booked as revenue in the current financial year. Northgate’s client retention rate remains at over 98.5% leading to a substantial amount of contract renewal activity during the year. When added to the contracted order book, this contract renewal activity gives management visibility of over 85% of the following year’s revenue, helping to support Northgate’s earnings stability and allowing the Group to plan with confidence.

Operating Results

Group revenue of £351.7m was derived from continuing activities (2006: £332.7m). This was delivered through a combination of organic growth and a number of bolt-on acquisitions, which contributed revenue of £10.4m.

Revenue from core markets grew by 5.7% in the period to £351.7m (2006: 4.1%), with overall demand for the business’s software and services remaining strong.

Operating Results (continued)

Revenue grew organically over the year by 3.3% (2006: 0.4%). Excludingthe sale of third party hardware, core revenue grew organically by 4.8% (2006: 4.1%). Growth in Northgate HR has remained robust throughout the year at over 6%, accelerating from 4.0% in 2006. In Public Services revenue contracted in the first half by (2.2 )%  as spending patterns in Local Government adjusted to being driven by the Government’s efficiency agenda and structural changes in the Emergency Services market impacted on investment in software and related services. In the second half of the year the Emergency Service market has remained challenging, however the Local Government market has returned to growth allowing the Public Services division to grow by 4.5%. This has allowed the overall division to grow for the full year by 1.3% (2006: 2.6%). In Managed Services growth accelerated from 0.6% in the first half of the year to 12.6% in the second half of the year as work secured by our Education business was delivered. Over the year Managed Services revenue excluding 3PP grew by 6.7%, up from 6.0% in 2006.

Group operating profit before one-off items, amortisation of capitalised customer relationships and option costs of £60.1m grew by 9% (2006: £55.0m). This was driven by organic revenue growth, Northgate continuing to improve its operating efficiency and the contribution of a number of small bolt on acquisitions. This allowed operating margin to grow from 16.5% to 17.1%.  After one-off restructuring costs and the impact of our Buncefield insurance claim being recorded (£3.3m) (2006: £nil), amortisation of capitalised customer relationships of £8.1m (2006: £7.3m), and option costs of £2.9m (2006: £3.0m), the Group recorded an operating profit of £45.8m (2006: £44.7m). Net financing costs showed a slight reduction to £13.9m (2006: £14.5m). Profit on ordinary activities before tax was £31.9m (2006: £30.6m).

Acquisitions

During the year the Group acquired six companies for a  net cash outflow of £31.8m. These businesses are all profitable and will widen the Group’s product offering to help drive future growth. Since the year end, Northgate has acquired two further companies for £11.8m, and taken control of ARINSO, a HR software and services company listed on Euronext.

The ARINSO acquisition will cost approximately £250m. On 2 May 2007, Northgate announced that it had entered into an agreement to acquire the shareholding of the Chief Executive of ARINSO, representing 60.43% of the total share capital. The total consideration for this purchase was €223.2m (£150.9m), comprising of €170.1m (£115.0m) in cash with the remainder in Northgate shares. On 15 June 2007, shareholder approval for this transaction was granted. Coupled with further off-market share purchases, this gave Northgate a total of 81.35% of ARINSO shares. An all-cash mandatory offer has been made to all remaining ARINSO shareholders which is expected to close by September 2007. Integration costs of around £4m will be written off as a one off charge in the 2007/8 financial year together with the amortisation of the bank facility arrangement fees.

One-off items

During the year the Group recorded a one off cost of £3.3m (2006: £nil). A charge of £6.3m was recorded as the cost of restructuring Northgate’s Emergency Services business to right size this for current market conditions and to integrate a number of bolt on acquisitions in to the Group. This was offset by a credit of £3.0m, being the net position recorded for the Group’s ongoing insurance claim following the loss of its head office in December 2005.

Cash and Financing

During the year the Group experienced strong cash flow from operations, generating £75.6m (2006: £62.2m) of net cash from operating activities before pension deficit payments. After interest, tax, capital expenditure and provision movements, net cash flow before acquisitions and after net interest was £20.1m (2006: £24.2m). Net cash flow declined modestly due to £7.6m being invested in the business’ education operations to support new contracts won in the period and an ongoing investment in fixed assets. £39.0m was spent on acquisition activities (2006: £7.4m), as the Group strengthened its product offering in a number of areas to support further growth. This left the Group with £184.0m of net debt at 30 April 2007 (2006: £158.9m), and headroom of £67.7m under its transitional working capital facilities at 30 April 2007.

Following the successful completion of the acquisition of an 81.35% holding in ARINSO in June 2007, a new £500m bank facility was secured, providing the Group with approximately £100m of head room going forwards. As part of drawing down this facility the Group has put in place interest hedging instruments to manage exposure to movements in interest rates over the next three years. Over the next year this covers over 80% of the available facility.

Investment in the business

Northgate continues to invest in its infrastructure and product offering. Over the year £18.2m was invested in product development (2006: £16.9m) as the Group continues to develop its product set. Following the Buncefield explosion, we continue to explore plans to build a new head office. This will be finalised once we have concluded matters with our insurers to fund this work, which we are hopeful of