SSY.L Regulatory News (SSY)

18 Sep 2007 07:01

SciSys PLC18 September 2007 FOR IMMEDIATE RELEASE 18 September 2007 SciSys plc INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2007 SciSys plc ("SciSys" or "the Company") announces its unaudited results for thesix months ended 30 June 2007. This is the Company's first Interim Report since its demerger from CODASciSysplc on 26th September 2006. SciSys continues to be listed on AIM (stock codeSSY). Headquartered in Chippenham, Wiltshire, SciSys supplies bespoke IT services andsolutions to blue chip clients primarily in the Space, Defence and Publicsectors, SciSys is a leading developer of IT services, e-Business and advancedtechnology solutions, renowned for quality and efficacy. The Company operates ina broad spectrum of market sectors including space, defence, public sector,communications, business services and transport. Within these markets, SciSyshas been involved in significant developments of key technologies that havechanged the way people do their jobs. SciSys' clients are predominantly bluechip, government and quasi-government organisations. Customers include theEnvironment Agency, Ministry of Defence, Astrium, Arqiva, Cable & Wireless,European Space Agency, Eumetsat, the Metropolitan Police, the National Archivesand Transport for London. Highlights • Revenues of £10.3m (June 2006: £13.2m)• Net cash and cash equivalents at 30 June 2007 was £5.9m (31 December 2006: £5.9m; 30 June 2006: £15.5m including the demerged CODA business)• Loss from operations of £1.4m (June 2006: £0.2m loss on continuing operations)• Loss before tax of £1.3m (June 2006: £0.1m loss on continuing operations)• Proposed interim dividend of 0.55 pence per share (June 2006: 0.55p per share); to be paid to shareholders registered on 12 October 2007• Basic loss per share was 5.4p (June 2006: 0.2p loss on continuing operations)• Re-structuring of the business to re-align costs with revenues going forward• Acquisition of VCS AG of Germany for €16.7m (£11.4m) post the half year Mike Love, Chairman of SciSys, commenting on the results, said: "As a result of the difficulties experienced with two large contracts and delaysin securing contracts in the defence sector, our results have been disappointingso far this year. Action has been taken to resolve the issues on those contractsand costs have been re-aligned with the reduced level of business. Additionalsenior management effort and tighter management controls have been introduced togive better visibility of potential problems to the board and to ensure closersenior management involvement in the transaction of key contracts. Whilst thesedifficulties will lead to a substantial loss in 2007 the actions takenreposition the business to go forward into 2008 on a firm basis. On the acquisition of VCS AG of Germany: The acquisition of VCS AG has been part of our strategic thinking for severalyears. It brings exciting opportunities for growth in the Media and Broadcastsector as well as the opportunity to accelerate the delivery of SciSys'capability into the German and European markets. Importantly, it creates theenvironment to reposition our Space activities as a higher margin business. TheBoard believes that VCS is an excellent cultural fit for SciSys and that itsacquisition is very good for both businesses. It increases our critical mass andbroadens the markets within our reach. I look forward to working with both theSciSys and VCS teams to integrate the businesses quickly and concentrate on thefuture opportunities that the acquisition presents." FOR FURTHER INFORMATION PLEASE CONTACT: Mark Hampson, Chief Executive 01249 466 466SciSys Plc Chris Cheetham, Finance Director 01249 466 466SciSys Plc Simon Bridges / Ian Dighe 020 7426 9000Landsbanki Tom Cooper / Paul Vann 020 7256 9445Winningtons Financial PR CEO Review In its AGM trading update report in May 2007 the company reported thatmanagement was addressing issues on two major programmes, which would adverselyimpact first half results. This interim report reflects the disappointing consequences of the issuesarising from those programmes. However, the Directors have finalised agreementswith the two customers concerned to limit the ongoing risk to SciSys. Inconcluding negotiations, management quantified the full extent of the impact onthe first half year trading. This is as recorded in our half year results andhas a more pronounced impact than had been estimated at the time of the AGM. In addition, anticipated new business opportunities in the defence market havenot materialised as expected this year, including a number of follow-on projectsto those successfully delivered by SciSys in 2006. Nevertheless, we can report that SciSys has secured contracts in the first halfyear totaling over £9m with long-standing customers across all 4 operationalsectors. Work has also been won with new customers, including 5Non-Governmental Organisations and 2 major aerospace companies. Throughout the first half of the year the Group's balance sheet remained strong.In particular, the half year saw cash reserves remaining similar to the levelsreported in December 2006, when the Board committed to use these to enhanceshareholder value. In line with previous announcements, SciSys has continued to seek potentialacquisitions to enhance earnings per share and I am pleased to report theacquisition of VCS AG on 14 September. VCS is an excellent strategic fit andbrings with it a complementary business offering improved margins and revenuegrowth opportunities together with proven project management expertise. VCS is a company of which SciSys has been aware for a number of years and hasbeen actively working with for over twelve months, during which time theacquisition has been in development. Despite this year's trading setbacks theBoard nevertheless took the active decision that this was the opportune time tocomplete the transaction. To address the underlying issues which contributed to the above setbacks, theBoard has implemented a management re-structuring and cost reduction programme.Concluding in September, this will re-align business costs and improve controlprocesses. Whilst this is expected to have a further adverse impact on theprofits in 2007, these actions are necessary to return the UK business toprofitability next year. At the same time additional senior management efforthas been brought into the Company to provide the capacity needed to ensure thatthe acquisition is successful and to strengthen the sales and new businessdevelopment processes across the enlarged business. Group Strategy SciSys' strategy continues to be to broaden, both geographically and vertically,the markets accessed by the Company and to build the business base around expertknowledge and IPR. SciSys is seeking to increase the percentage of revenuecoming from product based maintenance streams and to increase margins byleveraging its IP and the reuse of software. Our overall strategy remains to deliver sustained growth and increasing valuefor shareholders. The recent acquisition of VCS is a key component inachieving these objectives. VCS widens our core markets while providing a securebase to work on within the media and communications markets. We will continue to use our core skills and competencies to serve our keycustomers in niche areas where we have been historically strong. The toppriorities over the next 6 months are for the UK activities to re-establishprofitable delivery in our existing core markets and to ensure that theacquisition is successfully integrated. Thereafter it is expected thatopportunities which arise from combining the two businesses will facilitate moreprofitable growth than would have been the case had the acquisition not beenundertaken. We are also now beginning to deliver on our strategy of seeking new businessopportunities in adjacent markets. Work being undertaken for the BBC, HighwaysAgency and the Environment Agency is proving the value of one element ofintellectual property which the business has developed. The Board looks forwardto securing increasingly large revenues from this initiative over 2008. Whilst acknowledging that this year to date has been disappointing, theDirectors believe that the future strategy is sound. Building on the excellentlong term relationships that it enjoys with major blue chip customers and theaddition of the VCS business, SciSys can look forward to sustained profitablegrowth. Operational Review Work in the Public Sector division has been dominated by the IntegratedRegulation programme with the Environment Agency. Under a 3 year frameworkagreement, SciSys continues to deliver a system to enable the Agency to handledifferent aspects of their regulatory activities more efficiently, includingprocessing permit and licence applications and scheduling inspections on a riskbasis. SciSys delivered the first infrastructure elements of the system earlierthis year and, following rigorous testing, they were accepted by the Agency inJuly. A busy schedule of deliveries will see increasing levels of functionalitytransferred to the Agency for deployment over the next 6 months. In addition,SciSys has successfully won and undertaken work with new public sector customersincluding the National Audit Office, the Countryside Council for Wales and theScottish Environmental Protection Agency. The Space division's activities are balanced between the Galileo ground segmentdevelopment, several on board software projects and delivery of specialistservices to the space industry. Despite the reported issues on one of the largespace contracts - which has a consequential impact on related projects - othersare being developed to schedule and SciSys remains at the forefront of on boardsoftware development in Europe. Work on Galileo projects is progressing wellwith important milestones having been successfully achieved. The first of thesystems we are working on is being delivered shortly with the remainder due tocomplete in 2008. The Defence, Communications and Transport division has seen a shift in thebalance of work from Defence to Communications partly as a result of thechallenges faced by the Company in securing the anticipated Defence contracts.Nonetheless, we delivered a naval exercise planning system to Flag Officer SeaTraining which is now being enhanced and is being considered for other navaltraining requirements, including other NATO navies. Work also continues insupport of several defence prime contractors. In addition, SciSys is deliveringon its substantial project with Arqiva as part of the UK's digital switch-overprogramme. Running through to 2012, this switch-over programme will providepotential for follow-on support activities for another 20 years thereafter, aswell as possible extension and spin-off opportunities. The Support division continues to meet its service level commitments to a numberof organisations, providing help desk based support for a variety ofapplications. The contract to provide Lotus Notes support to Thames Water viaWipro was renewed for a further 2 years and SciSys has added new customersincluding The National Archive and the Office of Fair Trading. For the immediate future, the order book and pipeline of prospects remain strongacross the different business units. Financial Review For continuing operations, the total revenue for the Group was £10.3m (June2006: £13.2m). The loss from operations was £1.4m (June 2006: £0.2m) and theadjusted operating loss, before share based payment charges and non-recurringitems was also £1.4m (June 2006: £nil). The loss before tax for the period was£1.3m (June 2006: £0.1m) and the basic loss per share was 5.4p (June 2006:0.2p). The operating loss for the period reflects the difficulties encountered on twoprojects. Provision was made to recognise the future costs of additional workto complete the projects which materially impacted revenue and profit. Cash Despite the trading setbacks, the Group had net cash at the end of the period of£5.9m (31 December 2006: £5.9m; 30 June 2006: £15.5m including the demerged CODAbusiness). In addition, the Group has an outstanding loan of £3.0m to theSciSys employee share trust. The loan is not identifiable in the balance sheetas it is eliminated on consolidation and the majority of the shares held by thetrust deducted from equity. £0.3m in respect of shares held in CODA by SciSysbeneficiaries is reflected in investments. Acquisition (post half year end event) The Group acquired VCS AG on 14 September for a consideration of Euro 16.7million. The consideration was satisfied by the issue of 2,822,366 new ordinarySciSys shares and Euro 14.3 million in cash. The cash consideration was fundedfrom existing resources, supplemented by extended overdraft facilities of £2.0million and a bank loan of £3.7 million. In December 2007, CODA plc, a formersubsidiary demerged in September 2006, will pay £2.2m to the SciSys employeeshare trust in respect of shares held for CODA beneficiaries. This will enablethe trust to repay £2.2m owing to the Company which will be applied to reducethe bank loan. Taxation SciSys continues to benefit from the tax credit system for expenditure onResearch & Development. The effective tax rate for the group was a credit of2.7% for the half year (June 2006: credit 65.0%; 31 December 2006, full year:credit of 18.5%). No deferred tax asset has been recognised in relation to theloss for the period. Interim dividend payment An interim dividend for the year ending 31 December 2007 of 0.55p per share heldin SciSys will be paid to shareholders on 25 October to those shareholders onthe register on 12 October. This is in line with the 2006 interim dividend.The shares are expected to go ex-div on 10 October. Board As pre-announced in the Annual Report & Accounts for 2006, Bryan Hucker resignedas a Director of SciSys plc on 1 June 2007. Outlook In the 2006 Annual Report we stated that our primary business objective was toincrease shareholder value in a controlled and sustainable manner. While the first six months of 2007 have been less successful than we hadexpected we firmly believe that the steps we are taking will deliver on thisobjective over the coming years. We will continue to focus on our core markets,expanding where appropriate into new markets where we can realise value forshareholders. The acquisition has strengthened our position in the Space market, which is oneof our principal markets, and has widened our horizons in other markets whereSciSys has not traditionally had a strong foothold. A key objective is toexploit this opportunity now through the transfer of skills and knowledge acrossthe wider Group. The incubator initiative continues to look at opportunities to use SciSys'existing skills and knowledge in innovative ways. Our initial investment isbeginning to result in revenue benefits and we will continue to invest in thisapproach as part of the future organic growth of the Group. We have taken action, and will continue to ensure, that the running costs of thebusiness are appropriate for present level of revenues and that appropriate, butaffordable, resources are available to promote mid to longer term growth. Consolidated Income Statement Unaudited Unaudited Unaudited Six months to Six months to Year ended 30 June 2007 30 June 2006 31 December 2006 £000 £000 £000 Continuing OperationsRevenue (note 2) 10,257 13,207 25,402Operating costs (11,686) (13,394) (25,000)Operating (loss)/profit (1,429) (187) 402 "Adjusted operating (loss)/profit" being operating(loss)/profit before share based payments and non recurring items (1,377) (49) 1,435Share based payments (52) (138) (80)Non recurring items (note 3) - - (953)Operating (loss)/profit (1,429) (187) 402 Finance costs (4) - (1)Finance income 100 44 131 (Loss)/profit before tax (1,333) (143) 532Income tax credit (note 4) 36 93 95 (Loss)/profit for the period from continuing (1,297) (50) 627operations Discontinued operations Profit for the period from discontinued operations - 4,038 3,538 (Loss)/profit for the period attributable to (1,297) 3,988 4,165equity holders of the parent (Loss)/earnings per share (note 5) From continuing operations Basic (5.4)p (0.2)p 2.6p Diluted (5.4)p (0.2)p 2.4p Total Basic (5.4)p 16.9p 17.5p Diluted (5.4)p 15.6p 16.3p Consolidated Statement of Recognised Income and Expense Unaudited Unaudited Unaudited Six months to Six months to Year ended 30 June 2007 30 June 2006 31 December 2006 £000 £000 £000 Currency translation differences on foreign - (28) 2currency investments Net (expense)/income recognised directly in equity - (28) 2(Loss)/profit for the period (1,297) 3,988 4,165 Total recognised income and expense for the period (1,297) 3,960 4,167attributable to equity holders of the parent Consolidated Balance Sheet Unaudited Unaudited Unaudited 30 June 2007 30 June 2006 31 December 2006 £000 £000 £000Non-current assetsProperty, plant and equipment 1,416 13,364 1,435Goodwill - 39,868 -Investments in financial assets 279 - 279Deferred tax assets 227 454 171 1,922 53,686 1,885Current assetsTrade and other receivables 7,924 17,527 8,231Prepayments 724 4,002 879Income tax receivable - - 375Cash and short-term deposits 5,907 15,522 5,934 14,555 37,051 15,419 Total assets 16,477 90,737 17,304EquityIssued share capital 6,414 6,355 6,414Share premium - 43,035 -Retained earnings 5,086 9,791 6,569Translation reserve (2) - (2)Other reserves 83 83 83Equity attributable to equity holders of the 11,581 59,264 13,064parentCurrent liabilitiesTrade and other payables 4,167 10,786 3,936Income tax payable 276 1,283 -Deferred income 453 18,714 304 4,896 30,783 4,240Non-current liabilitiesDeferred consideration - 690 - - 690 - Total liabilities 4,896 31,473 4,240 Total equity and liabilities 16,477 90,737 17,304 Consolidated Cash Flow Statement Unaudited Unaudited Unaudited Six months to Six months to Year ended 30 June 2007 30 June 2006 31 December 2006 £000 £000 £000 Cash flow from operating activities(Loss)/profit before tax (1,333) (143) 532Net finance income (96) (44) (130) Operating profit (1,429) (187) 402 (Increase)/decrease in debtors 462 2,693 2,097Increase/(decrease) in creditors 380 (1,270) 1,603Depreciation and amortisation 189 136 294Exchange Gains - 67 -Profit on sale of fixed assets - - (23)Share based payments 52 138 80Tax refunded/(paid) 631 (31) 109Net cash flow from operating activities 285 1,546 4,562(continuing operations) Cash flow from investing activitiesCapital expenditure (171) (223) (1,303)Interest received 101 40 120Net cash flow from investing activities (70) (183) (1,183)(continuing operations) Cash flows from financing activitiesDividends paid (238) (472) (8,180)Disposal of own shares - - 4,720Cash disposed of with demerged business - - (1,320)Cash paid to Coda employees by Share Trust after - - (551)demergerProceeds on issue of new shares - 30 691Net cash flow from financing activities (238) (442) (4,640)(continuing operations) Net cash flow from continuing operations (23) 921 (1,261) Net cash flow from discontinued operations - 4,572 (2,915) Net (decrease)/increase in cash and cash (23) 5,493 (4,176)equivalentsCash and cash equivalents at the start of the 5,934 10,097 10,097periodExchange and other movements (4) (68) 13Cash and cash equivalents at the end of the period 5,907 15,522 5,934 Notes to the Unaudited Interim Report 1. Basis of preparation of Interim Financial Information With effect from 1 January 2007, SciSys has been required by AIM listing rulesto report its financial results in accordance with International FinancialReporting Standards ("IFRS") as adopted for use in the European Union. This interim results announcement is prepared in accordance with the IFRSaccounting policies expected to apply at 31 December 2007. These policies areunchanged from those set out in the restatement of the Group's results for IFRSpublished on 14 September 2007 and available on the Company's website atwww.scisys.co.uk. There has been no change between the accounting basispublished in that document and the interim results announcement. 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 interim report was approved by the directors on 17 September 2007. 2. Segmental analysis The Group operates in one segment, that of providing IT services to largecorporations and public sector organisations, within the following territoriesand market sectors: Unaudited Unaudited Unaudited Six months to Six months to Year ended 30 June 2007 30 June 2006 31 December 2006 £000 £000 £000 Revenue by destinationUK 6,703 8,542 16,765Rest of Europe 3,554 4,665 8,637Total from continuing operations 10,257 13,207 25,402 From discontinued operations - 26,014 37,564 Total revenue 10,257 39,221 62,966 Revenue by market sectorSpace 3,702 4,970 9,577Public Sector 3,369 4,262 8,180Defence, Communications & Transport 1,641 2,329 4,107Support 1,545 1,646 3,538Total from continuing operations 10,257 13,207 25,402 From discontinued operations - 26,014 37,564 Total revenue 10,257 39,221 62,966 (Loss)/profit from operations by marketsectorSpace (76) 770 1,497Public Sector 774 1,267 2,583Defence, Communications & Transport 268 910 1,565Support 825 805 1,701Central costs (3,220) (3,939) (6,944)Total from continuing operations (1,429) (187) 402 From discontinued operations - 4,517 4,311Total (loss)/profit from operations (1,429) 4,330 4,713 3. Non-recurring items Unaudited Unaudited Unaudited Six months to Six months to Year ended 30 June 2007 30 June 2006 31 December 2006 £000 £000 £000 Payments from Employee Share Trust and - - 468related social security chargesDemerger costs including professional - - 485feesTotal non-recurring items - - 953 4. Taxation Unaudited Unaudited Unaudited Six months to Six months to Year ended 30 June 2007 30 June 2006 31 December 2006 £000 £000 £000 Current tax charge/(credit) 20 - (24)Deferred tax credit (56) (93) (71)Total (36) (93) (95) The charge for taxation for the six months ended 30 June 2007 reflects theanticipated effective rate for the period. The current tax charge for discontinued operations in the six months ended 30June 2006 was, £733,000 (Year ended 31 December 2006: £718,000). The deferredtax credit for discontinued operations in the six months ended 30 June 2006 was,£94,000 (Year ended 31 December 2006: £43,000). 5. Earnings per share The calculation of the Group basic and diluted earnings per ordinary share isbased on the following data: Unaudited Unaudited Unaudited Six months to Six months to Year ended 30 June 2007 30 June 2006 31 December 2006 £000 £000 £000 (Loss)/earnings attributable toshareholdersFrom continuing operations (1,297) (50) 627From continuing and discontinued (1,297) 3,988 4,165operations Number of shares '000 '000 '000Basic weighted average number of shares 23,851 23,635 23,751Diluted weighted average number of 25,841 25,610 25,623shares The weighted average number of shares for the calculation of basic earnings pershare excludes own shares held in the SciSys No1 Employees' Share Trust whichhave been awarded under the Executive Share Ownership Plan. The weighted average number of shares for the calculation of diluted earningsper share includes own shares held in the SciSys No1 Employees' Share Trustwhich have been awarded under the Executive Share Ownership Plan and EMI optionsoutstanding during the period. To the extent to which these result in a lowerloss per share, they are excluded from the calculation of diluted earnings pershare. 6. Reconciliation of changes in equity Issued Share premium Retained Translation Other Total share earnings reserve reserve equity capital £000 £000 £000 £000 £000 £000 Equity at 1 January 6,414 - 6,569 (2) 83 13,0642007Profit for the period - - (1,297) - - (1,297)Dividends paid - - (238) - - (238)Share based payment - - 52 - - 52Equity at 30 June 2007 6,414 - 5,086 (2) 83 11,581 Issued Share premium Retained Translation Other Total share earnings reserve reserve equity capital £000 £000 £000 £000 £000 £000 Equity at 1 January 6,352 43,008 7,086 - 83 56,5292006Issue of shares 3 27 - - - 30Profit for the period - - 3,988 - - 3,988Dividends paid - - (1,653) - - (1,653)Share based payment - - 225 - - 225Net movement in shares - - 238 - - 238owned by ESTTax on share based - - (65) - - (65)paymentForeign currency - - (28) - - (28)translationEquity at 30 June 2006 6,355 43,035 9,791 - 83 59,264 Issued Share premium Retained Translation Other Total share earnings reserve reserve equity capital £000 £000 £000 £000 £000 £000 Equity at 1 January 6,352 43,008 7,086 - 83 56,5292006Issue of shares 62 629 - - - 691Court order on demerger - (43,637) 43,637 - - -Profit for the period - - 4,165 - - 4,165Dividends paid - - (8,180) - - (8,180)Dividend in specie - - (44,813) - - (44,813)Share based payment - - 299 - - 299Disposal of own shares - - 4,720 - - 4,720in yearAmount charged to - - 1,150 - - 1,150profit paid by ESTDistribution of surplus - - (1,701) - - (1,701)within ESTReclassification of - - 279 - - 279CODA shares held by ESTTax on share based - - (75) - - (75)paymentForeign currency - - 2 (2) - -translationEquity at 31 December 6,414 - 6,569 (2) 83 13,0642006 7. Dividends The final dividend for the year ended 31 December 2006, of 1.00p per share, waspaid on 21st June 2007. An interim dividend of 0.55p per share amounting to a dividend of £157,000 wasdeclared by the Directors at their meeting on 17 September 2007 and will be paidon 25 October 2007 to shareholders on the register on 12 October. The sharesare expected to go ex dividend on 10 October. During 2006 SciSys paid • a special one off dividend in August of 25p per share; and • An interim dividend of 2.8p per share paid in October (comprising0.75p per share held in the new CODA plc and 0.55p per share held in SciSys. 8. Post balance sheet events The Group acquired VCS AG on 14 September for a consideration of Euro 16.7million. The consideration was satisfied by the issue of 2,822,366 new ordinarySciSys shares and Euro 14.3 million in cash. The cash consideration was fundedfrom existing resources, supplemented by extended overdraft facilities of £2.0million and a bank loan of £3.7 million. In December 2007, CODA plc, a formersubsidiary demerged in September 2006, will pay £2.2m to the SciSys employeeshare trust in respect of shares held for CODA beneficiaries. This will enablethe trust to repay £2.2m owing to the Company which will be applied to reducethe bank loan. Interim Report The Interim Report will be posted to shareholders shortly and copies will beavailable from SciSys plc's Registered Office, Methuen Park, Chippenham,Wiltshire, SN14 0GB. This information is provided by RNS The company news service from the London Stock Exchange