SSY.L Regulatory News (SSY)

30 March 2017

EMBARGOED 07.00

SCISYS PLC

(SSY: AIM)

Unaudited Preliminary Results for the year ended 31 December 2016

SCISYS PLC ("SCISYS"; AIM SSY), the supplier of bespoke software systems, IT-based solutions and support services to the Media & Broadcast, Space, Government, Defence and Commercial sectors, is pleased to announce its unaudited Preliminary Results for the 12 months to 31 December 2016.

RESULTS HIGHLIGHTS

· Adjusted operating profit[1] up to £3.2m (2015: £0.8m);

· Revenues up by 27% (17% on constant currency) to £45.7m (2015: £36.1m) including professional fees up 26% at £37.6m (2015: £29.8m);

· Adjusted basic earnings per share[2] up to 9.2p (2015: 1.3p);

· Recommended full-year dividend up 10% to 1.96p (2015: 1.78p) (subject to shareholder approval at the AGM);

· Completed the acquisition of ANNOVA Systems GmbH, a leading supplier of news editorial solutions for the media sector for up to €27.83m, as of 31 December 2016;

· Opening order book (excluding ANNOVA £30m) for 2017 of £34m (2016: £37m);

· All divisions secured major contract wins and contributed to the strong organic growth. New contracts won in 2016 with clients including: Ministry of Defence, BBC, South African Broadcasting Corporation, Vodafone, European Space Agency, EUMETSAT and OneWeb.

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

"I am delighted to report a very healthy performance by SCISYS. Our 2016 results are comfortably in line with the increased guidance given at the time of our interim results. Recently announced contract wins mean that the positive momentum seen in the second half of 2016 is continuing into 2017. Following the recent acquisition of ANNOVA Systems GmbH, we anticipate delivering further top-line and bottom-line growth during the course of this year."

[1] Adjusted operating profit is operating profit before share-based payments, exceptional items and amortisation arising on business combinations

[2] Adjusted basic earnings per share is basic earnings per share excluding the post-tax impact of the adjustments to operating profit that are included in adjusted operating profit

Investor lunch programme

SCISYS will be holding a series of Investor Lunches for Private Client Investment Managers and Private Investors. Those wishing to attend should contact Tom Cooper on tom.cooper@walbrookpr.com or 020 7933 8780 or 0797 122 1972 for further details.

For further information please contact:

About SCISYS:

Employing around 500 staff, SCISYS group is a leading developer of information and communications technology services, e-business, web and mobile applications, editorial newsroom solutions and advanced technology solutions. The Company operates in a broad spectrum of market sectors, including Media & Broadcast, Space, Government and Defence and Commercial sectors. SCISYS clients are predominantly blue-chip and public-sector organisations. Customers include the Environment Agency, the Ministry of Defence, Airbus Defence & Space, Arqiva, Vodafone, the European Space Agency, EUMETSAT, the BBC, RNLI, AON, Interflora and the National Trust. The Company has UK offices in Chippenham, Bristol, Leicester and Reading and German offices in Bochum, Darmstadt and Munich. More information is available at www.scisys.co.uk.

This announcement has been released by Natasha Laird, Company Secretary, on behalf of the Company.

CHAIRMAN'S STATEMENT

A STRONG BOUNCE BACK AND OPTIMISTIC OUTLOOK

2016 was a positive year across the board for SCISYS. Our interim report released in September announced strong results for the first half of the year, during which revenues were at a record level. Although we noted that first-half profits had been hit by hedging provisions, we were nevertheless able to confirm an earlier upgrade in market guidance for the full year. At that juncture our order book stood at £35m, which was 24% higher than for June 2015.

This positive outlook was in part due to the benefit that the Group derived from the weaker post-referendum pound and significantly due to the strength of trading within our divisions. All divisions continued to perform well throughout the remainder of the year, delivering contracts on time and within budget. Major new contracts were also won and these added to our already strong order book.

Results for the year as a whole show record revenues for the twelve-month period of £45.7m (2015: £36.1m) and adjusted operating profit of £3.2m (2015: £0.8m). At the year end, our like-for-like order book stood at £34m (2015: £37m) - meaning that we entered 2017 on a strong footing.

Along with the fact that we do not expect adverse operational consequences in the short to medium term as a result of the EU referendum decision, this outstanding trading performance gives the Board every confidence in the continued positive outlook for the Group.

This confidence is reinforced by our expectations for the now enlarged business, following the acquisition of ANNOVA Systems GmbH ("ANNOVA") by the Group in December 2016.

ANNOVA is a leading supplier of news editorial solutions for the media sector. It has a well-established customer base and a robust business model based on its mature OpenMedia software solution, which provides next-generation newsroom system functionality, enabling story-centric workflows for news to be created for organisation-wide distribution. Its solutions are aimed at editorial workflows and cover all media segments, including television, radio and online solutions.

As a growing, high-margin business with a strong market position, capable of winning new major customers worldwide on a regular basis, ANNOVA's operations are highly complementary to the Group's existing media and broadcast business. The two businesses share a number of common customers and have a long history of working together. We anticipate that together they will improve sales and provide further innovative and enhanced solutions to their existing customer base, as well as to prospective customers in new international markets. During the early months of 2017 we have already had a variety of joint customer events and meetings, and also have started a series of integration workshops to explore and implement future synergies.

Our thanks go to our bankers, who were very supportive in helping finance the acquisition and to our shareholders for their continued support. Both ANNOVA and SCISYS Deutschland GmbH are now structured so that they are owned by a new SCISYS German holding subsidiary, SCISYS Deutschland Holding GmbH, which serves purely as a financing vehicle.

Our results are a testament to the underlying resilience, strength and depth of both the SCISYS and ANNOVA executive teams. During the acquisition period, despite the many distractions from their normal business activities, both executive teams ensured that trading across their core customer base progressed in line with plans and, indeed for SCISYS, exceeded budget.

Key financials

In the year ended 31 December 2016, SCISYS posted overall revenues of £45.7m, which were up 27% on last year (2015: £36.1m). Within this figure, professional fees were 26% higher at £37.6m (2015: £29.8m). The Group delivered an adjusted operating profit of £3.2m (2015: £0.8m), a 300% uplift on 2015. Operating profit was £2.8m (2015: £0.8m). Adjusted basic earnings per share were 9.2p (2015: 1.3p); basic earnings per share were 7.6p (2015: 1.3p). Cash generation remained healthy and, prior to allowing for the acquisition of ANNOVA, would have resulted in an estimated net inflow of £1.6m. The Group's pre-acquisition net cash position was £0.6m at year's end. At 7% (2015: 2%), our adjusted operating margin (adjusted operating profit divided by revenue) returned to historic levels - reflecting the conclusion to the project challenges faced by SCISYS in 2015.

Management uses adjusted performance measures to facilitate comparison between trading periods by excluding the distortions arising from exceptional items such as acquisition costs.

Our people are the key to our success

As always, our thanks rightly go to all of our staff within the divisions who actively implement our corporate core values of trust, respect and openness, combined with prudence and balanced growth. Their hard work and ability to deliver the business solutions that our customers need, within tight budgets and timescales, is the key factor to the on-going relationships that SCISYS enjoys with its many and varied long-standing customers. Our thanks also go to all our staff within the Group's central functions, who provide essential services and valued support to the divisions and who have made an important contribution to these results. Above all, our thanks go to the team led by Klaus Meng, which put many long hours into negotiating and completing the acquisition of ANNOVA.

Additionally, we welcome as new colleagues to the SCISYS Group a team of approximately 70 staff from ANNOVA, who are based at its Munich headquarters and at offices in London and Paris.

Dividend

We reinstated the interim dividend in September 2016 and an interim dividend of 0.53p per share was paid on 10 November 2016. The Directors are now recommending a final dividend of 1.43p per share, subject to approval by shareholders at the Annual General Meeting on 8 June 2017. The proposed final dividend will be paid on 14 July 2017 to shareholders on the register at 16 June 2017. The shares will go ex-dividend on 15 June 2017. This makes the dividend for the full year to 31 December 2016 1.96p (2015: 1.78p) per share and maintains our stated strategy of progressive dividend growth.

Governance matching our needs

We are committed to high standards of corporate governance. We have established strong governance frameworks throughout the Group in balance with its growth. SCISYS is compliant with the UK Corporate Governance Code, where appropriate for a company of its size.

LOOKING TO THE FUTURE

Strategy focused on revenue growth and margin improvement

The key elements of the Group's strategy remain unchanged and we have reinstated the medium-term strategic objectives of £60m revenues and double-digit operating margin that we published a few years ago. We continue to focus on balanced revenue growth, margin improvement, management and control of risk and succession planning.

Outlook

We are pleased with the strong bounce-back reported above and the healthy organic growth in revenues achieved during 2016.

Given the strength of our current order book and short-term pipeline, we expect the top-line momentum achieved in 2016 to continue into 2017, albeit our usual bias to the second half of the year will become more pronounced following the acquisition of ANNOVA. All divisions are performing well and we anticipate continued organic growth within the core SCISYS businesses, in line with our medium-term objectives. We also expect to see further positive impacts on profitability from the weaker pound, if this trend continues in 2017.

Guidance going forward has been restated to reflect the positive contribution to both sales and profits that we anticipate from the acquisition of ANNOVA. Although our primary focus in 2017 will be on the successful integration of ANNOVA into the Group, we will nevertheless continue to look for opportunities, where there is a good market, product and cultural fit, to grow through acquisition. We believe there are other good acquisition opportunities in the UK and Europe that would prosper under SCISYS' ownership.

Based on current performance on projects and order pipeline across the entire Group, including ANNOVA, the Directors remain fully confident in the future prospects of the Group.

Dr. Mike Love

Chairman

Chief Executive's REview

RECORD REVENUES SHOW SCISYS STRONGLY BACK ON TRACK

I am extremely pleased to report the very healthy performance of SCISYS in 2016. Each of our operating divisions made a positive contribution to what was a very successful year on all fronts. We benefited from favourable currency effects, but more importantly each division made significant progress and delivered on the positive outlook picture painted in last year's annual report. In particular, revenues were at a record high which, with the acquisition of German newsroom computer specialist ANNOVA Systems at the year end, puts us well on course for further growth in 2017.

Our interim results, announced in September 2016, reinforced the view that H1 2015 was both an isolated event and put behind us. At that point, we were still maintaining a fairly cautious outlook. However, as a direct result of the continued excellent performance of all divisions, strong recurring business and various major new contract wins, we were subsequently able to announce in early November 2016 that our trading performance for the full year was likely to be ahead of market expectations.

With revenues of £45.7m and an adjusted operating profit of £3.2m, we can now confirm that the business has delivered strongly, sending the unambiguous message that SCISYS is firmly back on track.

In line with our medium-term growth objectives, we not only drove organic growth across the business but also pursued a number of M&A activities throughout the year. This resulted in the completion on 31 December 2016 of the acquisition of the German company ANNOVA Systems. ANNOVA complements our Media & Broadcast division ideally and we expect it to play a strong role in helping us to grow our market for media & broadcast technology.

Enterprise Solutions & Defence (ESD)

With revenues of £16.7m and a divisional contribution of £4.5m, our Enterprise Solutions & Defence (ESD) division impressively underpinned the recovery. The division's revenues and contribution for the full year are at a record level and demonstrate its ability to be an engine for organic growth.

ESD has had notable success targeting the defence, security and marine segments where electronic architectures remain a key technology for use in armoured fighting vehicles and vessels. These allow SCISYS to position itself as a well-recognised specialist in this area and further raise its profile in the maritime defence segment. Key successes to note include:

• Following the award of a multi-million research contract in support of the Maritime Air Defence Command in late 2015, the UK Ministry of Defence (MoD) and its Defence Science and Technology Laboratory (Dstl) have contracted research and software development services from SCISYS to create and demonstrate a new decision support system for use by the Royal Navy. The initial phase is valued at £1.2m, with the potential for this to grow to £3m as subsequent phases are commenced over the next two years.

• Another important step was made late last year when ESD won a contract to design and deliver the Customs Compliance Management Information System (CCMIS) application for the MoD at a value of £4m. The initial key delivery milestone was met successfully ahead of schedule and to the full satisfaction of the customer, demonstrating an excellent track record for the division as part of the MoD's supply chain and in delivering complex business systems.

• The ongoing and large long-term framework in the security sector, which we were able to first report on in the last annual report, has contributed a substantial amount of time & material-based revenues and continues to establish SCISYS in this domain.

Recurring revenues and long-term customer relationships are key to ESD's position in the UK public SITS (Software and IT Services) sector and 2016 saw encouraging extensions, particularly in the area of OpenGIS solutions with new and existing customers.

Activities in the commercial sector benefited from strong relationships with key customers such as Vodafone, CapGemini, RNLI, Siemens, TfL and UKPN, as well as a number of UK local authorities in central government. This also included securing new customers, some won in joint bids with Xibis.

Media & Broadcast (M&B)

2016 was an impressive year for our Media & Broadcast (M&B) division, with impressive growth in both revenue and contribution. Major opportunities that the team had worked on in 2015 bore fruit early in the year and - in combination with the strong element of over 40% recurring maintenance revenues and additional contracts from the established client base - formed the basis of this excellent success.

Going forward the acquisition of ANNOVA significantly strengthens SCISYS' position in the media & broadcast technology sector in general and in the growing automation & control sub-sector in particular. By joining forces we anticipate that M&B and ANNOVA will be able to find synergies on various fronts. While concentrating on their respective complementary dira! and OpenMedia products and customer relationships they will jointly explore cross-selling and co-selling opportunities, they will have better access to untapped markets, and they will also look to extend their product and services portfolio in the medium term. Both businesses have known each other for many years, and the joint initiatives are already very encouraging.

M&B secured its first win in South Africa in April. A €2m contract with South Africa Broadcasting Corporation (SABC) further demonstrated the international reputation of the dira! product suite, which has been won over many years with state broadcasters in Europe. The scope of this new contract is to roll out the dira! radio production and playout suite to all of SABC's commercial, non-commercial and local radio networks. In just over two years, SCISYS will replace existing incumbent systems with dira! in Johannesburg and across fifteen regional sites of SABC. The division also commenced on two leading-edge joint projects with Norddeutscher Rundfunk (NDR), to create a system for intelligent recording of live music events, and with Westdeutscher Rundfunk (WDR), to take recordings of programmes in the day to repurpose them automatically for broadcast in the evening.

A second major win in 2016, adding to a £2m contract with a major UK radio broadcaster, was won in February under an ongoing framework agreement. The scope of this contract is to change the way that radio is operated today, such that local radio is hosted in a central datacentre. This concept - also referred to as ViLoR (Virtual Local Radio) - means that regional studios can use a bare minimum of equipment installed locally to produce and broadcast, with the rest of the support services accessed over a wide-area network.

Full-year results totalling revenues of £8.0m and a divisional contribution of £2.5m confirm the positive outlook we reported at half year. Year-on-year revenues are up by 26% and contribution up by 25% - a combination of double-digit growth on a constant currency basis and a favourable exchange rate. With a divisional margin of 31%, M&B substantiates again the strength of its product-centric business model.

Innovation continuously plays an important role for M&B's business, which is centred round its proprietary dira! product. An initial project was delivered to the BBC which provides a cloud hosted service for the music industry and producers to upload music for review and consumption by BBC editors. The product range for collaborative use of media has been extended by the dira! Scotty solution for web and mobile computing. Projects with German customers such as NDR and WDR were also extended, which established innovative, more efficient workflows between production & playout and newsroom computer systems.

Space

Our SPACE division maintained the momentum reported for the first half of the year. It delivered a record performance for the year as a whole in terms of revenues of £19.9m and a divisional contribution of £4.2m, with growth rates of 21% and 27% respectively. While the division gained an advantage from the stronger euro - almost all of its business is euro denominated - the results on a constant-currency basis also show significant increases in both revenues (6%) and divisional contribution (11%).

The division progressed with its new re-usable proprietary PLENITER software suite, which it hopes will help to position SCISYS Space in the arena of commercial space flight and further improve the company's competitive edge in the well-established public space sector. This is one element of its strategic objectives to further grow its business sustainably with increasing margins.

As a first major reference for this new solution, SCISYS has signed a contract with WorldVu Satellites LLP, a global satellite communications service provider trading as OneWeb, that is building the world's largest satellite constellation. SCISYS will deliver satellite mission-planning software based on its PLENITER product suite for the OneWeb constellation, comprising several hundred satellites, which will provide connectivity to billions of people around the world.

The PLENITER product is just one element of the divisions' growth strategy. Additional momentum has built during 2016 from SCISYS' valuable contribution to other premium long-term programmes.

The European Galileo programme, which for SCISYS had its initial roots back in 1999, has again delivered a share of €6m of revenues. The programme is now moving into its next stage of operation and SCISYS Space, as a well-reputed specialist partner on the programme, can expect to see continued substantial involvement in 2017 and beyond.

Back in 2014, SCISYS established itself as one of the partners for the European ExoMars mission to Mars when it took on a €2m contract with the prime contractor Airbus Defence & Space to deliver the rover vehicle visual localisation flight software (VISLOC). This contract has been supplemented in 2017 by the ExoMars Mission Management System (MMS) software worth €3.4m that controls the numerous instruments on board the rover and manages the rover's operations on the ground.

Earth observation is another domain where SCISYS Space has been a key player for many years. As an innovative partner, the division always manages to be involved in the latest programmes thus expanding its expertise and reputation. In December 2016, it signed a €3.3m contract with Airbus to deliver central software and hardware for the MERLIN Payload Operations Centre. MERLIN (Methane Remote Sensing LIDAR Mission) is a French-German climate mission, which SCISYS has been involved in from the initial study phases in 2013.

The second generation of EUMETSAT's Polar System (EPS-SG) is another major earth-observation programme. SCISYS secured its initial involvement when the contract was signed back in March 2014 and now enjoys ongoing involvement in the next phases of this project.

Charting course for further growth

The success achieved in 2016 is testimony to SCISYS' overarching commitment to run a resilient, well-balanced business, which promotes sustained commercial success. In line with our strategic objectives, we have been able to grow the Company by strengthening the position in our well-established niches and by moving into new ones on the back of our expert know-how, versatile skills and our commitment to innovation.

Much of our success is attributable to our staff, and we keep emphasising our core corporate values of mutual trust, respect and openness. In total, our teams have grown by 7% during 2016 across the UK, and by 6% in Germany, and during the year we have welcomed on board a significant number of young highly talented graduates. As the Company keeps growing it will be even more important to foster and to evolve our corporate culture in line with our values and strategic objectives so that SCISYS remains a motivating and rewarding company to work for.

2016 was a good year for SCISYS and one that allowed the business to chart a course for future growth. In line with the momentum building in the Company as well as in some of our target markets, we continue to anticipate further organic growth. This confidence is underscored by our like-for-like year-end order book of £34m, our long-term customer relationships and the healthy amount of recurring revenues.

Furthermore, we anticipate that the acquisition of Munich-based ANNOVA Systems will significantly support our medium-term growth. With its leading OpenMedia newsroom software, ANNOVA introduces an exciting new dimension to our existing activities in the media & broadcast technology sector. ANNOVA brings a very healthy business and its proven track record suggests that it will continue to deliver decent double-digit revenue growth at high margins.

ANNOVA and SCISYS' Media & Broadcast division have already established joint innovative concepts for newsroom integration working alongside some of their key customers. Going forward, we are confident that more synergies can be identified and explored and that SCISYS, with this combined offering, will be further able to raise its profile in the growing segment of system automation & control solutions for the media & broadcast industry.

Importantly, we also see an excellent cultural fit between the two companies, with management and teams sharing the same corporate values of commitment, trust and openness. We welcome the ANNOVA team into the SCISYS Group and look forward to a positive joint future that benefits our customers, shareholders and joint teams alike.

My sincere thanks go out to our shareholders, our customers, our management, staff and all other stakeholders who have demonstrated strong support for SCISYS in 2016. The Group has made excellent progress during the year, and we are confident that we will be able to continue in the SCISYS way in 2017: expanding the business in a sustainable, resilient, balanced way; for the benefit of our shareholders, customers and staff.

Klaus Heidrich

Chief Executive

FINANCE DIRECTOR'S REPORT

I am pleased to report that the confidence that we expressed in our Interim Report proved well founded as that positive momentum was maintained in the second half of the year. Foreign exchange fluctuations driven by the Brexit vote introduced some distortions into our results although all divisions delivered an improved year-on-year performance on a constant currency basis. An already successful year was capped off by the announcement and subsequent completion of our acquisition of ANNOVA Systems GmbH (ANNOVA) in November and December respectively.

Revenues

Total revenues for the year were 27% higher at £45.7m (2015: £36.1m), of which the component relating to professional fees was £37.6m (2015: £29.8m). 49% of total revenues were from euro-zone customers (2015: 49%). In contrast to the previous two years where the euro depreciated in value against the pound, the euro strengthened in 2016, which boosted the revenue figures. On a constant currency basis (assuming that 2015 exchange rates applied in 2016) total revenues rose 17% to £42.4m and professional fees increased 17% to £34.7m.

Profits

The underlying measure of trading performance, adjusted operating profit, which excludes the costs of the Group's long-term share incentive schemes, exceptional items and any amortisation of intangible assets arising on business acquisition, was up fourfold on 2015 at £3.2m (2015: £0.8m). Statutory operating profit was £2.8m (2015: £0.8m) after bearing transaction costs incurred in the acquisition of ANNOVA that could not be capitalised under IFRS 3.

Exceptional charges for acquisition costs amounted to £0.5m (2015: £nil) and represent fees for external legal, accounting and tax advice during the due diligence and deal completion phases. Share-based payment charges were immaterial for the second successive year because the three-year performance criteria for vesting of option awards granted in 2014 were not achieved as a consequence of the disappointing 2015 trading results.

As outlined in the Chief Executive Officer's report, each operating division exceeded its budgeted contribution target for the year, which was a welcome return to form all round.

The Group generates surplus euro income from its German operations and UK-based space market activities. We seek to protect the sterling value of these funds by entering into forward contracts to sell expected euro receipts at rates fixed in advance. In recent years, gains on such hedging contracts have offset revenues devalued on translation into sterling. However, in 2016 the Brexit vote had a considerable impact on the euro-pound exchange rate and the ensuing revenue gains were offset by hedging contract losses. During the year, the realised loss on currency trading contracts was £0.6m (2015: gain £0.3m) and at the end of the year the unrealised loss on commitments for 2017 was £0.3m (2015: £0.1m).

While revenues benefitted from a stronger euro the same foreign exchange rate movement increased the sterling value of our euro-denominated costs in Germany. On a constant currency basis and excluding exceptional acquisition transaction costs, Group overheads, representing the costs for provision of shared business services to the divisions, were 10% higher than 2015 at £6.9m (2015: £6.3m).

EPS

Adjusted basic EPS, calculated on the profit for the year before post-tax exceptional items, share based payments and amortisation of acquisition-related intangible assets were seven times higher at 9.2p (2015: 1.3p). Basic EPS were 7.6p (2015: 1.3p).

Acquisition of ANNOVA Systems GmbH

The acquisition was completed on 31 December 2016. Consequently ANNOVA did not contribute to the Group income statement for 2016 although its balance sheet and the transaction-financing cash flows do feature in the financial statements. The acquisition vehicle was a newly formed intermediate holding company in Germany, SCISYS Deutschland Holding GmbH.

The purchase consideration is payable in euros and comprises an initial element paid in cash at completion and incremental earn-out payments contingent on achievement of key commercial milestones and ANNOVA's trading performance over the three-year period ending 31 December 2018. The earn-out consideration is payable in a combination of cash and SCISYS PLC shares. Funding for the initial consideration of €11.4m (£9.7m) was principally financed through an unsecured loan of €10.0m (£8.5m) from Deutsche Bank, repayable in instalments over a five-year term and bearing interest at a fixed annual rate of 2.9%.

The balance of the initial consideration, together with the transaction fees, were financed from the Group's internal resources together with a first-tranche placing of second-ranking, non-convertible loan notes of £1.5m under a new loan-note programme of up to £5.0m established by Lesmoir-Gordon, Boyle & Co Ltd (LGB). The first tranche of loan notes was issued for a three-year term at a coupon of 7%. To the extent that earn-out payments are satisfied in cash rather than new shares they will be funded from further loan-note placings in combination with internal resources. The contingent liability for earn-out payments included in the consolidated financial statements is £3.3m compared with a contractual cap of €16.5m (£14.1m).

In accordance with the terms of the ANNOVA share purchase agreement, SCISYS will receive a rebate from the vendors of £0.3m following approval of ANNOVA's German GAAP accounts for 2016.

The total cost of investment was £12.7m or £10.5m net of acquired cash.

IFRS 3 requires SCISYS to make consolidation adjustments to the ANNOVA balance sheet to reflect fair values on acquisition. Intangible assets for fair-value recognition comprise the order book at 31 December 2016 and the internally developed intellectual property rights in ANNOVA's Open Media product. Recognition of these assets in the consolidated Group balance sheet in 2016 will lead to non-cash amortisation charges to the income statement over the remaining estimated economic life of the assets.

Cash and debt

The aggregate year-end net debt position was not directly comparable with the prior year because of distortions introduced by the ANNOVA acquisition funding. Including the ANNOVA acquisition finance, net debt was £10.2m (2015: £1.0m). The Group closed the year with bank deposits (net of overdrafts) of £6.7m (2015: £3.6m), while Group borrowings amounted to £16.9m (2015: £4.6m), On a like-for-like basis the opening 2016 net debt of £1.0m was converted to net cash of £0.6m although this represents a £0.8m cash outflow for the second half of the year. The figures reconcile as follows:

The Group's cash flow is notoriously lumpy and the timing of two particular events contributed to the year-end net cash being almost £2m below the anticipated level. Firstly, an anticipated December tax credit receipt of £0.7m from HMRC did not materialise until early January. Secondly, SCISYS was caught in the fallout from the Ministry of Defence's troubled implementation of a new contractor payment system. This left invoices to the value of £1.2m overdue for settlement at the year end and this problem has only begun to be resolved in March 2017.

Unutilised working capital facilities at the year end totalled £4.4m (2015: £3.6m).

In May the Barclays property-backed term loan fell due for repayment and was renewed with no change of terms until May 2021. The unsecured loan made by SCISYS' Chairman, Mike Love, remains in place until May 2020.

Tax

The effective Group tax rate for the year reduced to 15% (2015: 39%) from the anomalously high level in 2015 when losses in UK-based operations depressed Group pre-tax profits while profits generated in Germany were subject to a tax rate of over 30%. The availability to SCISYS of R&D tax credits continued to produce a negative effective tax rate on UK profits although this benefit will become less generous if and when the average Group headcount exceeds five hundred.

Accounting standards

No material changes in accounting standards have impacted the Group accounts for 2016. The next significant change affecting SCISYS is expected to be in 2018 when IFRS 15 Revenue from contracts with customers will be adopted. The SCISYS board established a project team to confirm how the new standard will affect revenue recognition across the Group, to introduce workflows to capture new data requirements and to provide training to staff in IFRS 15's application.

Order book

Excluding ANNOVA, the year-end order book was 8% lower than the record prior-year level at £34.1m (2015: £37.2m) although the value invoiceable within one year was practically unchanged at £25.7m (2015: £25.8m). Of the total order book, 55% (2015: 51%) was denominated in euros. ANNOVA's order book at acquisition was £30.4m, of which £5.5m is invoiceable in 2017.

After a relatively sluggish first half-year, 2016 has gone from strength to strength with repeated upgrades in expectations and, if unrealised hedging losses are excluded, it ranks as our most profitable year on record. With a substantial proportion of budgeted revenues for 2017 underpinned by a strong opening order book and with the addition of ANNOVA to the Group's ranks, the outlook for the coming year is even more encouraging.

Chris Cheetham

Finance Director

Consolidated Income Statement for the year ended 31 December 2016

Consolidated Statement of Comprehensive Income for the year ended 31 December 2016

Consolidated Statement of Changes in Equity

Consolidated Statement of Financial Position as at 31 December 2016

Consolidated Statement of Cash Flows for the year ended 31 December 2016

Information about reportable segments

Information about reportable segments continued

Basic & diluted earnings per share

The calculation of the Group basic and diluted earnings per ordinary share is based on the following data:

Own shares held

"Own shares held" represent the number of shares held in treasury.

Diluted earnings per share

The weighted average number of shares for the calculation of diluted earnings per share is computed using the treasury share method. This takes into account the entitlement of holders of EMI, CSOP and unapproved share options to purchase ordinary shares at an exercise price below the average market price for the year.

Adjusted earnings per share

In order to present a measure of earnings per share that is more representative of the Group's underlying operating performance, earnings are adjusted to be net of the pre-tax costs shown in the highlighted box on the face of the Income Statement. The calculation of the Group basic adjusted earnings and diluted adjusted earnings per ordinary share is based on the following data:

Own shares held

"Own shares held" represent the number of shares held in treasury.

Diluted earnings per share

The weighted average number of shares for the calculation of diluted earnings per share is computed using the treasury share method. This takes into account the entitlement of holders of EMI, CSOP and unapproved share options to purchase ordinary shares at an exercise price below the average market price for the year.