SSY.L Regulatory News (SSY)

1 Apr 2008 07:01

SciSys PLC01 April 2008 SCISYS PLC (SSY: AIM) Preliminary results for the year ended 31 December 2007 SciSys Plc ("SciSys" or "the Company"), the supplier of bespoke softwaresystems, IT based solutions and support services to the space, government andbroadcast markets, today announces preliminary results for the year ended 31December 2007. Key points: • Financial highlights for continuing operations: • Revenue up by 1% to £25.6m (2006: £25.4m); • Adjusted operating loss of £1.4m (2006: £1.4m profit) before restructuring costs, amortisation and IFRS 2 share based payment charges and non-recurring costs in respect of payments from the Employee Share Trust; • Operating loss £2.7m (2006: £0.4m profit); • Adjusted basic loss per share 7.4p (2006: earnings of 7.0p); • Basic loss per share 12.5p (2006: earnings of 2.7p); • Net cash as at 31 December 2007 £1.7m (2006: £5.9m). • Operational Highlights for continuing operations: • Acquisition of VCS AG for Euro 16.7m - immediately earnings enhancing; • Continued high levels of repeat business within existing client base including the Environment Agency, the Metropolitan Police, Transport for London, Westinghouse and the MOD; • New customers secured within existing core markets including the National Archives, the Planning Inspectorate and the Dutch Navy; • Successful delivery of major components of the integrated regulation programme for Environment Agency; • Securing Arqiva contract to support Digital Switchover programme through to 2012 - contract revenue in excess of £5m; • Good progress on other major programmes. Mike Love, Chairman, commented: "Our full year results are disappointing. The contracts which have caused theCompany difficulties are being addressed and are now progressing on a moresatisfactory basis. Although it is too early to say that our fortunes have beenfully reversed, the indicators at this early stage in 2008 are encouraging". For further information please contact: SciSys Plc Mike Love, Executive T: 01249 466466 Chairman Winningtons Tom Cooper T : 0117 920 0092 0797 122 1972 tom.cooper@winningtons.co.uk EXTRACTS FROM CHAIRMAN'S STATEMENT 2007 was a very difficult year for SciSys. Severe difficulties were encounteredon a number of programmes forcing the Company to take substantial provisionsagainst delays and overruns. The action taken by the Board to reverse thisdecline saw the departure of Mark Hampson as CEO, me stepping forward asExecutive Chairman, David Jones moving from non executive status to an executiveposition and a former Director, John Haynes, returning to SciSys. Going into 2007 we had indicated our intention of using the strength of ourbalance sheet to consider acquisitions, which met our long term strategy. InSeptember 2007 we concluded negotiations for the acquisition of VCS AG ("VCS"),a German company operating in the Space, Media and Broadcast sectors. Thetransaction was funded through a mix of cash, equity and debt. Further detail isto be found below in the Group Finance Director's review. With the benefit of six months hindsight the acquisition appears set to delivermany of the benefits that we anticipated. Apart from the VCS businesses helpinggroup results with a strong fourth quarter contribution to both profits andcash, the opportunities for cross selling and exploiting each company'scapabilities are proving at least as strong as expected. Overall VCS deliveredan encouraging performance in 2007. SciSys is now organised around three principal Divisions (Space, VCS Media &Broadcast and Government), each run by a senior executive team with fullresponsibility and accountability for the operation of the Division as a profitcentre. We have moved quickly to integrate the VCS and SciSys space activities into asingle Division, with fully merged sales and operations functions. The Germanbased space activities of SciSys have been moved under the local control of theVCS space management team. The administration functions for these activities isbeing progressively rationalised into the VCS business services function, thusreducing overheads. John Haynes is leading this Division with Horst Wulf incharge of all of our German based space activities. The VCS Media & Broadcast activities report directly to me. It has key customersin the UK and plans are well advanced for MBS to develop its presence andcapability for supporting the current and future business requirements of its UKbased clients through SciSys' Reading office. Activity is also being progressedto exploit the capability and propositions that SciSys has developed in thedigital broadcast sector through MBS into new markets and new territories. KlausHeidrich and Karl-Willi Pieper are in charge of this Division. The final division is the Government Division. Headed up by David Jones andSteve Brignall, it comprises the activities undertaken by SciSys in the Defence,Environment, Transport, Broadcast and Government sectors. The above Divisions are complemented by our Applications Maintenance and Supportgroup under Roger Hughes. This group delivered a strong performance in 2007 andhas been instrumental in opening new opportunities for SciSys in both itsestablished and new accounts. Some early 2008 indicators are encouraging but there remains much to do. We arere-introducing and strengthening core disciplines. In particular we are placinga strong focus, particularly within our UK space activities, on getting thescope of work firmly established prior to agreeing fixed price work and onensuring that the realistic cost to complete on all projects is properlyrecognised. A similar programme is in hand to improve focus across the businesson margins and costs. Dividend The Directors consider it prudent to suspend the payment of a final dividend forthe year ended 31st December 2007 and to utilise the cash within the business.The Directors will review the position with respect to the level of and paymentof a dividend at the time of announcing the Company's interim results for 2008. The Board There have been a number of Board changes during 2007. Chris Cheetham joined the Board at the beginning of the year as FinanceDirector. He took over from Bryan Hucker, who formally resigned as a Director atthe AGM in May 2007. Bryan had been with the Company for many years and hiscontribution has been much appreciated. The Board accepted the resignation of Mark Hampson as a Director in November.He had been with the Company for many years and we would like to thank him forhis efforts and wish him well for the future. At present the Company does not have any non executive Directors. Arrangementshave been put in place to provide an independent review and reporting ofexecutive remuneration arrangements. The independence of the audit is providedthrough the auditors. These arrangements are detailed later in this report. Itis our intention to recruit a non-executive presence to the Board in 2008. Staff participation SciSys is nothing without the skills and expertise of its staff. Once again weare grateful for their continued resilience and fortitude in what was adifficult year. During the year we unfortunately had to make some redundanciesand the Board greatly appreciated the professionalism exhibited by all staffduring that difficult period. Our staff have continued to show exceptionalcommitment to SciSys, which has enabled the Company to maintain the delivery ofsolutions to our customers. Outlook 2008 will be a year of recovery. Our focus in the first half is on: • delivering the projects that we are contracted to complete to our customers to plan and to specification; • delivering success on the sales front to hold and maintain our position in the markets that we serve; and • taking the first steps to reclaim our reputation for delivering steady profitable growth. In the second half our focus will be to deliver further turnover and margingrowth. There remain good opportunities in the majority of the markets that we serve andwe have an encouraging pipeline of prospects. The margin in some of our currentmarket sectors is challenging and we are progressively exploiting ways of movingto higher margin work within those market sectors and of migrating into adjacentmore profitable market sectors. Business Review SciSys now operates as four businesses, three of which are market focuseddivisions: Space, Government and Broadcast. The fourth is the horizontalApplications Maintenance and Support group. Each is responsible for businessdevelopment within its respective markets and for the delivery of the work whichit secures. Each is also monitored as a stand alone profit centre. Stafftypically stay in one division but can re-deploy whenever circumstances oropportunities arise. Space SciSys and VCS have both been working in the Space sector since the early1980's, often in partnership. The bulk of their business derives from theEuropean Space Agency's (ESA) programmes, though both companies undertakeprojects for other agencies, including Eumetsat, Inmarsat, the German NationalSpace Agency, the British National Space Agency and prime contractors such asAstrium. Together SciSys and VCS have a broad capability covering: • Spacecraft Ground Systems;• Autonomous On Board (Spacecraft) Systems;• Spacecraft Modelling and Simulation;• Manned space flights; and• Mission Operations, Analysis and Flight Dynamics. The main areas of project activity during 2007 were on the Galileo IOV, LISAPathfinder, Aeolus, Cryosat and SWARM programmes. The initial work for these wassecured in earlier years and these programmes will all continue into 2008 andbeyond. Progress was made across all of the various projects during the year,despite in some cases the Division having difficulty in agreeing specificationsand scope of work. These projects are all high profile and give SciSys a capability in leading edgetechnologies that can be transferred to and exploited in other market sectors. The Galileo IOV project is concerned with the provision of the first 4satellites for the European based global positioning system. SciSys and VCS areproviding 4 major subsystems for the Ground Segment as well as monitoring &control and algorithm subsystems for the Ground Mission Segment, which leavesthe Company well positioned for the full deployment phase of the 32 satelliteprogramme. SciSys is participating in each of ESA's Earth Explorer Missions for monitoringand understanding our environment: • the Cryosat mission to analyse the effects of global warming on the polar ice caps (On Board Software); • the SWARM mission to investigate the Earth's geomagnetic field (On Board Software); • the Aeolus mission to measure wind profiles on a global scale (On Board Software and Spacecraft Simulator); and • the GOCE mission to measure the Earth's gravitational field(Spacecraft Simulator) and SMOS to observe soil moisture over the Earth's landmasses and salinity over the oceans (Instrument Software). The LISA Pathfinder project tests technology proposed for the joint ESA/NASALISA mission. Additionally SciSys' support to the Interplanetary programmes for Rosetta, MarsExpress and Venus Express was extended to mid 2009 and the Company has won keytechnology roles in the early phases of a number of major future programmes suchas ESA's Aurora programme for the exploration of Mars and Eumetsat's MeteosatThird Generation meteorological satellites. In addition to its project work, the Space Division continued during 2007 tosupport key ESA operations activities on site at the European Space Operationscentre in Darmstadt, Germany, through a team of specialist consultants. Government SciSys has a long track record working with the public sector in the transport,defence, environment and broadcast sectors. In addition to general system integration and IT services, SciSys offers nicheexpertise in a range of areas including: • Regulation solutions and services;• Digital Broadcast and Transmission monitoring;• Military vehicle electronic software architectures;• Modelling (Battlefield Communications; NBC - Nuclear, Biological and Chemical);• Intelligent Autonomous vehicles; and• Mobile Communications. The delivery of such programmes has required SciSys to develop a wide range ofcapabilities including: • ICT Strategic consultancy;• Performance Management;• Business Process Re-engineering;• Knowledge Management and Collaboration;• Model Driven Development; and• Rules and Service Oriented Architectures. The Government Division team today employs a significant number of domainspecialists as well as IT developers. During the year business was won from a number of new clients, including theCountryside Council for Wales, the National Archives, The Planning Inspectorate,and the Dutch Navy. In addition, substantial new business was secured fromexisting customers including the Environment Agency, the Metropolitan Police,Transport for London, Westinghouse and the Ministry of Defence. A significant project win during the year was with Arqiva, where SciSys signed asubstantial contract to assist Arqiva in the UK's digital switch over project(DSO). Arqiva provides much of the infrastructure behind the broadcast oftelevision, radio and wireless communications in the UK. SciSys' role is todeliver a high availability, high resilience, network monitoring solution aspart of the DSO project. The system will provide live network management,real-time fault analysis and automated evaluation of the service level impact offaults in support of Arqiva's fault resolution decision process. Media & Broadcast ("MBS") This Division delivers solutions to radio and TV broadcast organizations forprogramme research and preparation, play out and digital archive. It offers aproprietary product set called dira!(R) around which customer solutions areconfigured. Its clients are primarily across Europe including the BBC in the UKand it has successfully started to develop a footprint outside Europe. The driveto broaden the international breadth of this business will be a key part of ourstrategy for the next few years. MBS is a leading and continuously growing supplier of highly reliable, scalableand powerful IT system solutions for media production & playout meeting thespecific requirements of professional broadcast & media enterprises. Based onits dira!(R) and media:fabric(R) product lines, it designs, implements andmaintains market oriented solutions, which provide high value to its customers'businesses. Driven by customer and market demand, the dira!(R) and media:fabric(R) productlines are permanently improved, in order to face the future challenges of themedia and broadcast industry. Based on a focused key account strategy, MBS worksclosely with leading players in this domain. Quality is the key cultural valuewhich forms the basis of its long-term relationships with its customers andpartner companies. Major new business was won in 2007 in the domains of new media technologies forthe BBC and on portal solutions for enterprise media asset management for largeGerman public broadcasters. Ongoing projects were successfully completed during2007, such as the initial radio production & playout infrastructure for RUV, theIcelandic public broadcaster, and the first radio newsroom project for VRT, theFlemish public broadcaster in Belgium. Both projects form the basis for fruitfulfuture relationships with these two customers. Also during the year the firstinstallations of a large cross media project with WDR, the largest German publicbroadcaster, were been completed, and a first project in Asia was delivered forfinal on-site integration. Application Maintenance and Support Application maintenance and support services have been a cornerstone of SciSys'business for over a decade. The Company provides such services for businesscritical systems operated by a number of long standing customers. The servicecovers a combination of systems developed by SciSys, packaged software and alsocustomers' bespoke systems, originally developed by themselves or other parties. During 2007, all of SciSys' major application support contracts were renewed andin most cases additional project and enhancement work was undertaken, increasingthe revenue stream. New business included the provision of support andenhancement services to the National Archives for a number of their keyapplications and additional support services for the Environment Agency, as newdevelopments by the Government Division transitioned into support. Indications for 2008 are positive. All annual renewals due early in the yearhave been confirmed, initiatives with our infrastructure partners to provide newapplication services are progressing, and our inclusion on a new frameworkagreement with Transport for London for the provision of application support anddevelopment services may open further opportunities. In addition, the prospectof liaison with MBS to provide a UK base for their support services gives anopportunity to offer other application support services into a new market. Dr Mike LoveChairman EXTRACT FROM GROUP FINANCIAL DIRECTOR'S REVIEW Introduction The highlight of this challenging year has been the acquisition of VCS AG. I ampleased to report that as planned the VCS business made an immediatecontribution to earnings and shareholder value and has been successfullyintegrated into the Group without problems. The financial statements have been prepared on the basis of accounting policieswhich are compliant with IFRS. The income statement includes non-cash charges for the amortisation ofintangible assets, recognised under IFRS on the acquisition of VCS, and thenotional cost of the Executive Share Ownership Plan and Enterprise ManagementIncentive share option schemes. To aid understanding of the underlying Grouptrading performance, adjusted operating profit is presented on the face of theincome statement before both these charges and the costs of the restructuringprogramme conducted in the fourth quarter of 2007. Adjusted earnings per sharefigures are also shown in the notes to the accounts. Acquisition of VCS As reported in SciSys' interim accounts, the Group acquired VCS on 14 Septemberfor an initial consideration of Euro 16.7m. The consideration was satisfied bythe issue of 2,822,366 new ordinary SciSys shares and Euro 14.3m in cash. Afurther Euro 0.4m in cash was paid in January 2008 following confirmation ofVCS' net assets at completion, which included cash reserves of Euro 3.1m.Acquisition costs totalling £0.2m have been capitalised. The cash element of the VCS acquisition consideration was funded from existingresources, supplemented by extended overdraft facilities of £2.0m and a bankterm loan of £3.7m. Revenues Total revenue increased by 1% to £25.6m. Revenues from existing operations fellby 17% to £21.1m. Operating profit The loss from operations before amortisation, share based payments andrestructuring costs was £1.4m (2006: profit £1.4m). The Operating loss was£2.7m (2006: £0.4m profit). The amortisation charge was £0.6m (2006: £nil) and relates to the recognition ofintangible assets on the acquisition of VCS under IFRS 3. Fair values werecalculated for VCS' outstanding order book and long term maintenance contractsbased on discounted future cash flows. These assets are amortised through theincome statement over their estimated useful economic lives. The charge for share based payments under IFRS 2 was £0.1m (2006: £0.1m). Restructuring costs of £0.5m (2006: £nil) comprise severance payments toemployees who left the Group on grounds of redundancy, directly attributableprofessional advisers fees and external consultancy costs for short termstrengthening of the management team. Earnings per share Adjusted basic loss per share, calculated on the profit for the period forcontinuing operations before amortisation, share based payments, restructurecosts and non-recurring items was 7.4p (2006: earnings of 7.0p). Basic loss per share was 12.5p (2006: earnings of 2.6p). Cash and financing Cash generation from operating activities was ahead of expectations, despite thetrading setbacks, largely due to improved working capital management. Net cash at the year end was £1.7m (2006: £5.9m) and the Group had unutilisedworking capital facilities totalling £2.4m (2006: £nil). Group debt at the year end was £2.4m (2006: nil). SciSys' bank term loan wasreduced by £2.2m to £1.5m by the year end using funds repaid by the SciSysemployee share trust. The remainder of the borrowings were acquired with VCSand are secured on VCS' property. The employee share trust's outstanding loan from SciSys at the year end was£0.8m. Of this balance, £0.7m together with accrued interest was repaid inMarch 2008. The loan is not identifiable in the balance sheet as it iseliminated on consolidation and the majority of the shares held by the trustdeducted from equity. The remaining shares represent holdings in CODA plc bySciSys beneficiaries and are reflected in investments at £0.3m. Currency Fluctuations in the Euro-sterling exchange rate during the year resulted in netexchange gains of less than £0.1m (2006: £0.2m loss). The Group will continueto mitigate its foreign exchange risk by taking out forward currency optioncontracts. Tax The effective tax rate for continuing business was a charge of 14.7% (2006:credit of 18.5%). This reflects the tax paying position of the subsidiariesbased in Germany whilst the UK operation continues to benefit from tax creditson research & development expenditure which offset any taxable profits. Chris CheethamFinance Director Consolidated Income Statement for the year ended 31 December 2007 unaudited unaudited 2007 2006 £000 £000Continuing OperationsRevenueExisting operations 21,081 25,402Acquisitions 4,520 - 25,601 25,402Operating costs (28,256) (25,000)Operating (loss)/profit (2,655) 402"Adjusted operating (loss)/profit" being operating (1,440) 1,435(loss)/profit before restructuring costs, amortisation of intangible assets, share basedpayments and non recurring itemsRestructuring costs (496) -Amortisation of intangible assets (600) -Share based payments (119) (80)Non recurring items - (953)Operating (loss)/profit (2,655) 402Finance costs (127) (1)Finance income 185 131(Loss)/profit before tax (2,597) 532Tax (charge)/credit (383) 95(Loss)/profit for the period from continuing (2,980) 627operations Discontinued OperationsProfit for the period from discontinued operations - 3,538 (Loss)/profit for the period attributable to (2,980) 4,165equity holders of the parent (Loss)/earnings per share From continuing operations Basic (12.5)p 2.6p Diluted (12.5)p 2.4p Total Basic (12.5)p 17.5p Diluted (12.5)p 16.3p Consolidated Statement of Recognised Income and Expense for the year ended31 December 2007 unaudited unaudited 2007 2006 £000 £000 Currency translation differences on foreign currency 307 2investmentsNet (expense)/income recognised directly in equity 307 2(Loss)/profit for the period (2,980) 4,165Total recognised income and expense for the period 2,673 4,167attributable to equity holders of the parent Consolidated Balance Sheet as at 31 December 2007 unaudited unaudited 2007 2006 £000 £000Non-current assetsProperty, plant and equipment 3,800 1,435Goodwill 5,603 -Other intangible assets 2,747 -Investments in financial assets 279 279Deferred tax assets 46 171 12,475 1,885Current assetsInventories 523 -Trade and other receivables 11,900 9,110Income tax receivable 17 375Cash and short-term deposits 1,700 5,934 14,140 15,419 Total assets 26,615 17,304EquityIssued share capital 8,063 6,414Retained earnings 5,573 6,569Translation reserve 415 (2)Other reserves 83 83Equity attributable to equity holders of the 14,134 13,064parentCurrent liabilitiesTrade and other payables 8,099 3,936Bank overdrafts and loans 1,543 -Income tax payable 278 -Deferred income 713 304 10,633 4,240Non-current liabilitiesBank loans 869 -Deferred tax 979 - 1,848 Total liabilities 12,481 4,240 Total equity and liabilities 26,615 17,304 Consolidated Cash Flow Statement for the year ended 31 December 2007 unaudited unaudited 2007 2006 £000 £000Cash flow from operating activities(Loss)/profit before tax (2,597) 532Net finance income (58) (130) Operating (loss)/profit (2,655) 402 (Increase)/decrease in trade receivables (123) 2,097Increase/(decrease) in trade payables 1,798 1,603Depreciation and amortisation 1,096 294Profit on sale of property, plant and equipment - (23)Share based payments 119 80Tax refunded 490 109Net cash flow from operating activities 725 4,562(continuing operations) Cash flow from investing activitiesAcquisition of subsidiary (11,844) -Cash acquired with subsidiary 2,079 -Proceeds from disposal of property, plant and 51 -equipmentCapital expenditure (604) (1,303)Interest received 185 120Net cash flow from investing activities (10,133) (1,183)(continuing operations) Cash flows from financing activitiesDividends paid (385) (8,180)Interest paid (127) -Disposal of own shares - 4,720Cash disposed of with demerged business - (1,320)Cash paid to Coda employees by Share Trust after - (551)demergerRepayment of loan by Share Trust 2,244 -New bank loan 3,700 -Debt repayments (2,214) -Proceeds on issue of new shares 1,649 691Net cash flow from financing activities 4,867 (4,640)(continuing operations) Net cash flow from continuing operations (4,541) (1,261) Net cash flow from discontinued operations - (2,915) Net (decrease)/increase in cash and cash (4,541) (4,176)equivalentsCash and cash equivalents at the start of the 5,934 10,097periodExchange and other movements 307 13Cash and cash equivalents at the end of the period 1,700 5,934 Basic & diluted earnings per share The calculation of the Group basic and diluted earnings per ordinary share is based on the following data: Number of shares 2007 2006 Weighted Excluding own Net number of Weighted Excluding own Net number of average number shares held shares average shares held shares of shares number of shares '000 '000 '000 '000 '000 '000 Basic earnings per ordinaryshare 26,501 (1,807) 24,694 25,546 (1,795) 23,751 Diluted earnings per share 28,584 (1,807) 26,777 27,418 (1,795) 25,623 Earnings 2007 2006 Continuing operations £000 £000 (Loss)/Profit on ordinaryactivities after taxation (2,980) 627 Basic (loss)/earnings perordinary share (12.5)p 2.6p Diluted (loss)/earnings pershare (12.5)p 2.4p Own shares held "Own shares held" represent the number of shares in the SciSys No.2 Employees' Share Trust held specifically forSciSys employees. Diluted earnings per share The weighted average number of shares for the calculation of diluted earnings per share includes own shares held inthe SciSys No.2 Employees' Share Trust which have been awarded under the Executive Share Ownership Plan and EMIoptions outstanding during the period (2006: nil). To the extent to which these result in a lower loss per share,they are excluded from the calculation of diluted earnings per share. Adjusted earnings per share The calculation of the Group basic adjusted earnings and diluted adjusted earnings per ordinary share is based on thefollowing data: Number of shares 2007 2006 Weighted Excluding Net number of Weighted Excluding own Net number of average number own shares shares average shares held shares of shares held number of shares '000 '000 '000 '000 '000 '000 Basic earnings perordinary share 26,501 (1,807) 24,694 25,546 (1,795) 23,751 Diluted earnings pershare 28,584 (1,807) 26,777 27,418 (1,795) 25,623 Adjusted earnings 2007 2006 Continuing operations £000 £000(Loss)/profit on ordinaryactivities after taxation (2,980) 627 Adjusted for:Restructuring costs 496 -Amortisation ofintangible assets 600 -Share based payments 119 80Non-recurring costs - 953 Adjusted (loss)/profitafter taxation (1,765) 1,660 Basic adjusted (loss)/earnings per share (7.4)p 7.0p Diluted adjusted (loss)/earnings per share (7.4)p 6.5p Own shares held "Own shares held" represent the number of shares in the SciSys No.2 Employees' Share Trust held specifically forSciSys employees. Diluted earnings per share The weighted average number of shares for the calculation of diluted earnings per share includes own shares held inthe SciSys No.2 Employees' Share Trust which have been awarded under the Executive Share Ownership Plan and EMIoptions outstanding during the period (2006: nil). To the extent to which these result in a lower loss per share,they are excluded from the calculation of diluted earnings per share. Annual report The financial information set out above does not constitute the Company'sstatutory accounts for the year ended 31 December 2007. The comparative figures for the financial year ended 31 December 2006 are notthe Company's statutory accounts for that financial year. Those accounts, whichwere prepared under UK GAAP, have been reported on by the Company's auditors anddelivered to the registrar of companies. The report of the auditors was (i)unqualified, (ii) did not include a reference to any matters to which theauditors drew attention by way of emphasis without qualifying their report, and(iii) did not contain a statement under section 237(2) or (3) of the CompaniesAct 1985." The statutory accounts for 2007 will be finalised on the basis of the financialinformation presented by the Directors in the preliminary announcement and willbe delivered to the Registrar of Companies following the Company's AnnualGeneral Meeting. This information is provided by RNS The company news service from the London Stock Exchange