SSY.L Regulatory News (SSY)

SCISYS PLC

(SSY: AIM)

Preliminary results for the year ended 31 December 2011

SCISYS PLC ("SCISYS", "the Group" or "the Company"), the supplier of bespoke software systems, IT based solutions and support services to the Media & Broadcast, Space, Government and Defence, Environment and Application Support sectors, is pleased to announce its Preliminary Results for the 12 months ended 31 December 2011.

Financial Highlights:

·; Professional fees revenue up 11% to £36.9m (2010:£33.3m);

·; Adjusted operating profit (*) up by 14% to £2.4m (2010: £2.1m);

·; Operating profit up by 29% to £2.2m (2010: £1.7m);

·; Adjusted operating margin (**) up to 6% (2010: 5%);

·; Basic earnings per share 6.1p (2010: 3.4p);

·; Neutral cash/debt position as at 31 December 2011 (2010: £4.9m net cash);

·; Annual dividend increased to 1.21p (2010: 1.10p).

Operational Highlights:

·; Key contracts won in 2011 with Lockheed Martin, the Environment Agency, the Met Office, Astrium, Thales, BBC, Schlumberger, Sharjah Media Corporation and the European Space Agency;

·; Became a full member of the new Microsoft Partner Network;

·; Delivered 1,000th Digital TV transmitter outstation sub rack to Arqiva as part of UK TV digital switch over;

·; Became a Google Geo Partner capable of offering customers the full suite of Google Geo offerings;

·; One of 3 finalists in the international 2011 IBM Beacon Awards;

·; Purchased the freehold of the Chippenham head office building for £5m.

Commenting on the results, Mike Love, Chairman of SCISYS PLC said:

"Despite all the challenges faced during 2011, both economic and political, I am very pleased that the Group was able to produce such good results. Our opening order book, some of which stretches out to 2013 and beyond, is strong, and by balancing both workload and opportunities for new business across five diverse but well established markets, we are successfully managing the risks and challenges of any further downturns in any particular market sub-sectors.  We remain confident that the Group will make good progress during the year in line with our stated strategies, although a slower start to 2012 compared with 2011 leads us to remain cautious about what may lie ahead for the remainder of the year."

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(*) Adjusted operating profit is statutory operating profit before share based payments and exceptional charges

(**) Adjusted operating margin is Adjusted operating profit as a percentage of revenue

About SCISYS PLC

Employing nearly 440 staff, SCISYS is a leading developer of Information and Communications Technology (ICT) services, e-Business and advanced technology solutions. The Company operates in a broad spectrum of market sectors including the Media & Broadcast, Space, Government and Defence, Environment and Applications Support sectors. SCISYS clients are predominantly blue chip and public sector organizations. Customers include the Environment Agency, the Ministry of Defence, Astrium, Arqiva, Cable & Wireless Worldwide, the European Space Agency, Eumetsat, the BBC, the Coal Authority and Transport for London. The company has UK offices in Chippenham, Bristol and Reading and two offices located in Germany. More information is available at www.scisys.co.uk.

EXTRACT FROM CHAIRMAN'S STATEMENT

In 2011 we built up considerable momentum and I believe we have delivered a very creditable performance for the year in the face of very challenging market conditions and economic uncertainty. SCISYS has delivered an adjusted operating profit before tax of £2.4m, a 14% improvement on 2010. Significantly, cash inflows have remained healthy and the Company's balance sheet has further strengthened such that borrowings secured to fund the acquisition of the Company's head office freehold premises in May 2011 for £5m were balanced by cash deposits at the year end. At 6%, our adjusted operating margin showed further improvement on the margin achieved in 2010 (5%). The Finance Director's report provides more detail on the key financial results achieved during 2011.

Dividend

The Directors have proposed a final dividend of 0.85p per share subject to approval by shareholders at the Annual General Meeting. When added to the interim dividend of 0.36p per share paid in November 2011 this gives a full year dividend of 1.21p per share. The proposed final dividend will be paid on 5 July 2012 to shareholders on the register at 8 June 2012. The shares will go ex dividend on 6 June 2012. This represents an increase of 10% over the 1.1p per share dividend paid in 2010 and SCISYS is pleased to continue demonstrating its commitment to a progressive dividend policy.

Changes to the SCISYS PLC and Executive Boards

While there were no changes to the SCISYS PLC or Executive Boards during 2011, the composition of the PLC Board has changed slightly from the beginning of 2012. In January I moved from being the Executive Chairman to become the Non-Executive Chairman and David Jones moved from Chief Operations Officer to become our new Chief Executive Officer. Klaus Heidrich has, in turn, become the Chief Operations Officer. These changes have also resulted in Karl-Willi Pieper joining the Executive Board as Divisional Director for the Media & Broadcast division. These moves reflect our succession planning and preference to promote from within.

Outlook

Despite all the challenges faced during 2011, both economic and political, I am very pleased that the Group was able to produce such good results. Our opening order book, some of which stretches out to 2013 and beyond, is strong, and by balancing opportunities for new business across five diverse markets we are in a reasonable position to counteract the risk of any further downturn in any particular market sub-sectors.

Going into 2012 we have a wider and more diversified client base. We derive circa 50% of our revenues from outside the UK and have foreign currency hedging arrangements in place to protect the Company from any unexpected rapid appreciation of the £ against the €. We remain confident that the Group will make good progress during the year in line with our stated strategies, although a slower start to 2012 compared with 2011 leads us to remain cautious about what may lie ahead for the remainder of the year.

As I have every confidence in the current Executive Directors abilities to continue building on the considerable improvements achieved over recent years I have stepped back out of the day-to-day operations of the Group reverting to the Non Executive Chairman role I last held in 2007.

Mike Love

Chairman

EXTRACT FROM CHIEF EXECUTIVE'S STATEMENT

2011 has been another successful year for SCISYS. Professional fees increased by 11% although total revenues dropped slightly as the lower margin revenue associated with project subcontracts and licences dropped. Particularly pleasing is the increase in operating margins to 6%, demonstrating real progress in achieving our strategic objective of achieving operating margins of 7% by the end of 2013.

We continue to build awareness of where and how SCISYS can bring premium value to customers and where we need to exert more internal control and cost discipline.

Core activities become the primary business focus during times of economic recession and SCISYS retains high value, long term relationships with customers and partners by providing value at the heart of our customers' businesses. These core activities are often unique and highly complex - requiring a strong customer-supplier relationship based on mutual respect in the ability to deliver. Examples from across the business of where we have worked with long established customers and partners during 2011 are numerous but included delivering:

·; The 1,000th digital terrestrial TV outstation for Arqiva in preparation for complete UK coverage in time for the Olympics;

·; Key elements for the ground segment of the European navigation satellite known as Galileo;

·; Significant extensions for new elements of the Environment Agency's integrated regulation system;

·; The 101 "single non-emergency number" telephone routing system throughout the UK in partnership with Cable & Wireless Worldwide; and

·; Significant milestones in the BBC roll out of the dira!™ radio playout and production system including use by BBC Radio 5 Live at MediaCity UK.

2011 also saw significant contract awards, extensions and renewals, underpinning forecast revenue into 2013 and beyond, including:

·; Key framework contract wins for Space division with The European Space Agency operations centre, renewal of long-term maintenance contracts for the Galileo and Columbus programmes and the French Space Agency CNES with ATOS as the prime contractor;

·; Renewal of key Application Support Division contracts and extensions to contracts with Capgemini for services to the Environment Agency;

·; Significant contracts won by Government & Defence from the MOD, both directly and in partnership with Lockheed Martin;

·; Contract award and subsequent delivery by Media & Broadcast for Sharjah Radio's implementation of the dira!™ radio playout software, plus further contract wins in both Europe and the Middle East; and

·; Consultancy services provided by the Environment division to assist the Met Office develop new service offerings for their markets.

The diversity of skills and experience in SCISYS means that we are able to take a challenging concept, which has been successfully proven in one domain, and migrate it into another domain with minimal risk to both ourselves and the customer. Low risk innovation is an effective method of opening up new markets and customers to obtain value from our intellectual property. We successfully followed this approach during 2011, utilising such technology transfers in the following examples:

·; by using automation software, developed originally by the Space division for spacecraft control, in the oil and gas offshore drilling operations;

·; using robotics software, originally designed by the Space division for planetary exploration, the Environment division was able to push forward the state of the art in live water main inspection; and

·; our Government and Defence division innovated in achieving the factory acceptance of the "glass cockpit" developed for the next class of RNLI lifeboat using proven approaches for defence applications.

Many SCISYS projects involve the integration of third party software components and the development of interfaces to other systems. Partnerships and agreements with such third parties are very important as they open up new sales opportunities and allow access to technical knowledge and support. 2011 saw several partnerships created, among them:

·; SCISYS signed a partner agreement with Google to exploit their mapping software and services, which are becoming increasingly familiar credible tools for presenting spatial data. We are one of only a handful of companies in the UK which have achieved this status;

·; SCISYS became a Microsoft "silver" partner. This gives essential credibility when using Microsoft technology as the basis for a proposed IT solution when tendering as well as providing significant access to Microsoft products for proof of concept and internal use;

·; Through the successful work at The Coal Authority we reinforced our relationships with IBM and advanced geographic information systems supplier, ESRI, who supply advanced geographic information systems. Both of these relationships are bringing new business development opportunities, especially in the Environment and Government domains. SCISYS' credentials in this field were underlined when our Coal Authority project was shortlisted for an IBM "Beacon award" as one of the top 3 worldwide applications for government using IBM technology in 2011.

Changes in government IT procurement priorities and methods in 2011 required SCISYS to adapt accordingly and, through the flexibility of our staff and transferability of our skills, we seek to capitalise on the opportunities which change presents. A key facet of the government strategy for future procurement is the use of the "cloud". 2011 saw the establishment of the procurement framework for services to be delivered and enabled via the cloud, called the "G-Cloud". SCISYS is actively participating in the "G-Cloud" offering a range of services via the emerging service catalogue or "app store".

The reduced economic priority of environmental issues by the UK government has had a significant impact on the business of our Environment division. We remain committed to the longer term opportunity in this market and have responded by investing in sales effort both to maintain existing relationships and to broaden the customer base into regulated industry and other agencies. This policy began to bear fruit in 2011 with contract wins in the Met Office. Additionally we are retaining business domain knowledge within SCISYS by transferring staff to meet demand in other divisions.

During the year we achieved our strategic target for 75% of our UK chargeable staff to have appropriate IT industry accreditations. The importance of these accreditations was seen when they were key in securing the Company Microsoft partnership status.

The SCISYS strategy has been one of continuity of service combined with careful evolution: building our portfolio of premium services with our current customers and seeking other customers whose requirements are compatible with this portfolio without losing sight of risks in existing projects and contracts. We have successfully implemented meaningful changes to our internal procedures and processes and increased our ability to expand in growth areas while retaining key skills in areas where the market is more mature but where we can still extract value.

Each of the divisions is well placed to build upon the sales foundation put in place during 2011 to provide encouragement with regard to new orders for 2012 and beyond. In particular, I would highlight potential opportunities for the Government and Defence division in the secure IT market, for the Media & Broadcast division in developing the local radio potential and for Space division expanding its role within the German national programmes.

David Jones

Chief Executive

EXTRACT FROM GROUP FINANCE DIRECTOR'S REPORT

I am pleased to report that despite demanding market conditions SCISYS performed commendably in the second half of the year, increasing profitability and continuing the upward trend in operating margins and cash generation.

Although revenues fell by 3% to £42.3m (2010: £43.6m), within this total, fees for professional services delivered directly by the Group grew by a creditable 11% to £36.9m (2010: £33.3m). The balance of revenues was predominantly derived from the relatively low margin resale of third party hardware, software products and sub-contracted services.

The underlying measure of trading performance, Adjusted Operating Profit, which excludes costs of the Group's long term share incentive schemes and exceptional costs, rose 14% to £2.4m (2010: £2.1m). Statutory operating profit increased by 29% to £2.2m (2010: £1.7m).

The Adjusted Operating Profit margin improved to 6% (2010: 5%), maintaining steady progress towards the Board's declared objective of 7% by 2013.

The Space division led the Group's growth in profitability with an increase in contribution of 170% compared with 2010. The UK restructuring activities highlighted in 2010's report were successful in transforming the UK operation from being loss making back into profit. In addition, the division won a substantial volume of new business during the year which both significantly boosted results from operations based in Germany and built a strong order book to underpin trading in 2012.

Squeezed government budgets severely affected trading in the Environment division, where management did well to register a positive contribution despite depressed order intake and investment in additional sales resources. Having been in a similar position itself in recent years, the Government and Defence division's own efforts to diversify its customer base bore fruit, resulting in contribution uplifted by 24% and a healthy order book for 2012. Both the Media & Broadcast and Application Support divisions also reported increased contributions of 19% and 24% respectively, further demonstrating the resilience of the Group to withstand a downturn in the environment sector whilst still delivering overall bottom line growth.

Charges for share based payments arising from the Group's share incentive schemes totalled £0.1m (2010: £0.1m).

Exceptional costs of £0.1m represent restructuring expenses incurred in aligning future operating costs with anticipated income. In 2010, a similar exercise principally affecting the Space division cost £0.3m.

Basic EPS rose 79% to 6.1p (2010: 3.4p). Adjusted basic EPS, calculated on the profit for the year before share based payments and exceptional charges, was 36% up at 6.8p (2010: 5.0p).

In May 2011, SCISYS acquired the freehold in the Group's corporate headquarters premises in Chippenham for £5.0m. The purchase was financed by a combination of a 5 year £2.5m bank loan, a shareholder loan of up to £1.0m repayable over up to 3 years, and surplus cash resources. An additional short term bridging loan of £1.0m to cover a reversing VAT liability on the purchase was repaid as planned in August. As well as securing a net annual operating costs saving of £0.5m, owning the freehold allows SCISYS greater flexibility to rent out surplus office space until expansion room is needed. The first new tenant commenced a 10 year lease of part of the building in February 2012.

At the year end, the Group had bank deposits (comprising cash and cash equivalents less overdrafts) of £3.7m (2010: £5.8m). Unutilised working capital facilities totalled £1.7m (2010: £3.2m). Group debt excluding bank overdrafts was £3.7m (2010: £0.9m). The resulting liquidity status was a neutral cash/debt position (2010: net cash £4.9m), much improved on the half year position of £1.4m effective net debt - a reflection of the strong second half cash generation performance.

Sovereign debt problems in the Eurozone and economic pressures across Europe caused Sterling to fluctuate in value against the Euro during the year, although it closed the year stronger than it opened. As the Euro weakened, the Sterling value of cash deposits held in Germany dropped, although the Group mitigated potential foreign exchange losses on Euro denominated income through the use of foreign currency hedging financial instruments. These derivatives complemented the Company's natural hedge where surplus UK Space income in Euros was swapped for Sterling received in Germany from the BBC.

The tax charge for the year was £0.2m (2010: £0.6m). Favourable changes in the UK Research & Development tax credit scheme in 2011 shifted the UK Group companies into a tax receivable position and reduced the effective Group tax rate to 12% (2010: 38%) of pre-tax profit. The effective Group tax rate is expected to remain low for the forthcoming few years due to the availability of accumulated historic UK tax losses for offset against UK taxable profits. In Germany, the corporation tax charge is based on profits calculated in accordance with German accounting principles, which can result in the IFRS profits and the tax charge being out of step.

Chris Cheetham

Finance Director Consolidated Income Statement for the year ended 31 December 2011

Consolidated Statement of Comprehensive Income for the year ended 31 December 2011

Consolidated Statement of Changes in Equity

Consolidated Statement of Changes in Equity (continued)

Consolidated Statement of Financial Position as at 31 December 2011

Consolidated Statement of Cash Flows for the year ended 31 December 2011

Annual report

The financial information set out in this preliminary announcement does not constitute SCISYS' statutory accounts for the years ended 31 December 2011 and 31 December 2010. Statutory accounts for the year ended 31 December 2011 will be delivered to the Registrar of Companies following the Company's Annual General Meeting. Statutory accounts for the year ended 31 December 2010 have been delivered to the Registrar of Companies. The report of the auditors was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498(2) of the Companies Act 2006. This preliminary announcement has been prepared and approved by the Directors in accordance with International Financial Reporting Standards (IFRS) and its interpretations as adopted by the International Accounting Standards Board (IASB) and by the EU (Adopted IFRS).