SSY.L Regulatory News (SSY)

RNS Number : 1373J

SciSys PLC

25 March 2010

 

 

 

SCISYS PLC

(SSY: AIM)

 

 

Preliminary results for the year ended 31 December 2009

 

 

 

SciSys plc ("SciSys" or "the Company"), the supplier of bespoke software systems, IT based solutions and support services to the Media Broadcast, Space, Government & Defence, Environment and Applications Support sectors, today announces preliminary results for the year ended 31 December 2009.

 

Financial Highlights:

 

·; Revenue up by 9% to £41.7m (2008: £38.1m);

·; Adjusted operating profit up by 88% to £1.7m (2008: £0.9m) before amortisation of intangible assets, share based payments and exceptional charges;

·; Operating profit £0.6m (2008: £1.8m loss);

·; Adjusted basic earnings per share up by 28% to 5.0p (2007: 3.9p);

·; Basic earnings per share 1.2p (2008: loss 3.1p);

·; Net cash position as at 31 December 2009 of £2.4m (2008: £1.4m).

 

Operational Highlights:

 

·; Key contracts won in 2009 with the Environment Agency, BBC, RNLI, Coal Authority, European Space Agency, UK Government Buying Solutions Framework and German Military Geo-Information Service;

·; Appointment of David Jones to newly created COO role.

 

Commenting on the results, Mike Love, Executive Chairman of SciSys plc said:

"We entered financial year 2009 on a positive footing with reasonable expectations of building further on the progress achieved in 2008. These expectations have been met. Pleasingly, cash generation has been substantially stronger than predicted and the Company is showing net positive cash reserves as at the end of 2009. Our business is based on long term relationships with blue chip corporate customers and key clients in the public and quasi public sectors predominantly in the UK and Germany. We have built a good opening order book position for 2010 and are now working to build on this for the second half of the year".

For further information please contact:

SciSys plc
Mike Love	Executive Chairman	Tel : +44 (0) 1249 466 466
Winningtons	Tom Cooper	Tel : +44 (0) 797 1221972
Canaccord Adams	Simon Bridges Kit Stephenson	Tel : +44 (0) 20 7050 6500

 

 

About SciSys plc

 

Employing nearly 450 staff, SciSys is a leading developer of Information and Communications Technology services, e-Business and advanced technology solutions. The Company operates in a broad spectrum of market sectors including the Media Broadcast, Space, Government & Defence, Environment and Applications Support sectors. SciSys clients are predominantly blue chip and public sector organizations. Customers include the Environment Agency, the Ministry of Defence, Astrium, Arqiva, Cable & Wireless, the European Space Agency, Eumetsat, the BBC, the Coal Authority and Transport for London. The company has UK offices in Chippenham, Bristol and Reading and three offices located in Germany. More information is available at www.scisys.co.uk.

 

EXTRACT FROM CHAIRMAN'S STATEMENT

 

The Company has consolidated a period of sustainable profit and revenue growth further securing its position as a leading independent supplier of IT solutions.

 

2009 saw healthy growth in both revenues and profits and the reintroduction of dividend payments. We reaped the rewards of the practices put in place during 2008 in terms of improved commercial disciplines and best practice project management.

 

Market conditions during 2009 were inevitably tough and we remain mindful of the potential uncertainties during 2010. However as SciSys entered 2010 its cash position was robust, its relationship with its principal bankers was good and its order book was strong. Times will continue to be tough in 2010 but nevertheless the Company is well placed to continue to perform well.

 

The key elements of the Groups 2009 to 2013 strategy are to focus on:

 

1. continued revenue growth

2. margin improvement

3. the management and control of risk

4. team building

 

We are focused on shifting the balance of our revenues to the higher margin activities in the sectors in which we engage, while at the same time keeping a balanced portfolio of clients to avoid over reliance on any one key client in any one market sector.

 

SciSys will seek expansion by exploiting technologies developed within one market sector and applying them to client solutions in adjacent niche sectors. A prime example of this during 2009 was the development of the electronic architecture product called SEAFä, initially designed for the defence sector, which has now been applied to a non military specialist application and sold to a new UK customer, the RNLI (Royal National Lifeboat Institution).

 

Top line growth is important but the Group must continue to concentrate on improving its underlying margins. Our strategy is aimed at achieving higher margins closer to or above the sector norm of 7% by 2013. During 2009 SciSys achieved an adjusted operating profit margin of 4.0% (2008: 2.3%). As well as focussing on higher margin activities as mentioned above, we will continue to look to improve margins through process improvements, efficiency gains and by maintaining a close watch on overheads.

 

SciSys typically undertakes fixed price projects that address complex business needs by providing solutions to solve difficult problems in a number of vertical markets. It follows that best in class project management skills must be used to ensure that the solution is delivered to the required quality, on schedule and to the agreed price. During 2008 and 2009 the Group took major strides forward in improving its processes and procedures to continue to improve project governance. For 2010 and beyond the Group will continue this approach.

 

SciSys' aim for growth in revenue and profitability will not be at the expense of taking undue risks. We will not be looking in the short term to open new vertical markets in new geographies. Most of our business will continue to be transacted either in the UK or in Europe. Only our Media and Broadcast Division (MBS) will be working routinely to secure international sales outside of these geographies. The Company considers it can control this risk as MBS operates a product based solutions business; the product is mature and the international markets will be developed with care.

 

SciSys has re-organised to operate through an Executive Board which reports to the main Board. The Divisional Directors sit on the Executive Board. Each division operates with a number of senior managers. This structure is in turn used to mentor the next generation of senior managers. A critical review of HR strategy commenced in 2009, with a key aim of fostering and bringing in young skills to refresh the workforce and provide for appropriate succession planning.

 

There were no Board changes during 2009. While remaining an Executive Director, David Jones' role changed in becoming the Chief Operations Officer (COO).

 

The Company is its staff and without their continued skills and expertise we would not be able to confirm the progress SciSys has made during the year. We would therefore like to take this opportunity to thank each and every one of them.

 

 

EXTRACT FROM GROUP FINANCIAL DIRECTOR'S STATEMENT

 

SciSys is pleased to report that the encouraging performance announced in the interim accounts was further built on in the second half of the year to produce a much improved set of results for the full year. It is particularly pleasing to record that the Group is back into profit at the statutory operating, pre- and post-tax levels and that a positive earnings per share has been restored following two years of losses.

 

Total revenues increased by 9% to £41.7m (2008: £38.1m). Of this total, fees for professional services delivered directly by the Group grew by 7% to £32.6m (2008: £30.4m). The balance of revenues was predominantly derived from the relatively low margin resale of third party hardware, software products and sub-contracted services.

 

The underlying measure of trading performance, Adjusted Operating Profit, which excludes charges relating to amortisation of intangible assets, costs of the Group's long term share incentive schemes (both non-cash items) and exceptional costs, rose 88% to £1.7m (2008: £0.9m). Statutory operating profit was £0.6m (2008: £1.8m loss).

 

The growth in profitability was led by the Government Division, which trebled its contribution from the prior year. In 2008, its margins were depressed by costs incurred on external contractors who were engaged to ensure that the division met critical project deadlines. The improvement in margins was substantially driven by the replacement of these contractors with permanent staff, coupled with process improvements in project management and testing. New business wins for the RNLI, the Coal Authority and the CRC project for the Environment Agency have further strengthened the business. These projects will continue into 2010.

 

The Space Division experienced erosion in margins on flat revenues. However, the results reflect the impact of some costs for which the associated revenues will not be recognised until contractual negotiations with the customers are concluded. The Media & Broadcast division recorded an increase in contribution despite suffering some delays in anticipated order intake. Cost reductions were effective in protecting margins and the new work packages signed with the BBC in January 2010 leaves the division well positioned for 2010. Margins in the Support Division also came under pressure although the additional work which will flow from new business in the Government Division and the recently announced outsource deal with Capgemini provide grounds to be confident for the coming year.

 

Intangible assets recognised on the acquisition of VCS AG in 2007 have now been fully amortised. The cost for the year was £0.9m (2008: £1.8m). The absence of such charges in 2010 is expected to bring Adjusted Operating Profit more closely into line with the statutory reported operating profit.

 

Charges for share based payments arising from the Group's share incentive schemes totalled £0.1m (2008: £0.2m).

 

Exceptional costs of £0.2m (2008: £0.7m) related to restructuring costs incurred in the Media & Broadcast Division. The figure for 2008 included an exceptional foreign exchange loss of £0.4m.

 

Adjusted basic EPS, calculated on the profit for the year before amortisation, share based payments and exceptional charges, increased by 28% to 5.0p (2008: 3.9p). Basic EPS was 1.2p (2008: loss per share 3.1p) which reflected the return to after-tax profitability.

 

The Group closed the year with net cash funds of £2.4m (2008: £1.4m) after strong cash generation in the second half of the year. Management maintained a firm control of working capital without taking extended credit from suppliers and, although the Euro weakened against sterling over the year, the Group minimised foreign exchange losses on Euro denominated income by taking out quarterly currency option contracts.

 

To reward, incentivise and aid retention of staff, the Group took advantage of the tax benefits offered under HMRC's approved share schemes to award 578,000 free shares to employees in October 2009. Whilst having a minimal impact on operating profits in 2009, a share based payments charge of £0.3m will be incurred over the next three years.

 

The tax charge for the year was £0.2m (2008: credit £0.3m), all of which relates to the Group's operations in Germany and is based on accounts drawn up under German accounting principles. In the UK, management expects to maintain a low effective tax rate for at least the forthcoming few years by utilisation of brought forward tax losses and by continuing to qualify for tax credits under the HMRC's Research and Development scheme.

 

DIVIDEND

 

The Directors reviewed the progress made during 2009 and decided that a further interim dividend of 0.7 pence per share would be paid in March 2010. Together with the interim dividend of 0.3 pence per share paid in November 2009, this gives a full year dividend of 1.0 pence per share. Going forward SciSys intends to maintain a progressive dividend policy targeting a yield of 2% or more.

 

OUTLOOK

 

The Company has worked hard over many years to develop long term relationships with its key customers. This has helped SciSys to make progress through the recession. We will continue to do this but at the same time look for new business opportunities within our existing markets. We continue to develop our people to ensure they have the relevant and up to date skills to deliver the highly innovative solutions that our customers look to us to provide and which will drive long term sustainable shareholder value.

 

We are conscious, that with the forthcoming general election in the UK, there is some potential uncertainty with respect to Government and public sector spending. While part of our business is focused on these markets the Board believes that there is sufficient balance and diversification across the business to offset any overall concerns.

 

We entered 2009 on a positive footing and can confirm that we do so again in 2010. Our order book on 1st January 2010 stood at £34.7m with £17.6m of this due to be delivered during the first half of the year. The balance sheet remains healthy, the business continues to generate cash and cash reserves remain strong. With this strength of order book and with some good prospects for the first half of the year we expect to be able to build further on the successes of 2009.

 

 

 Consolidated Income Statement for the year ended 31 December 2009

 

		2009 £000	2008 £000
Revenue		41,720	38,056
Operating costs		(41,141)	(39,859)
Operating profit/(loss)		579	(1,803)
"Adjusted operating profit" being operating profit before amortisation of intangible assets, share based payments and exceptional charges		1,676	857
Amortisation of intangible assets		(857)	(1,800)
Share based payments		(67)	(161)
Exceptional charges		(173)	(699)
Operating profit/(loss)		579	(1,803)
Finance costs		(114)	(296)
Finance income		45	935
Profit/(loss) before tax		510	(1,164)
Tax (charge)/credit		(171)	282
Profit/(loss) for the period attributable to equity holders of the parent		339	(882)

 

Earnings/(loss) per share
Basic		1.2p	(3.1)p
Diluted		1.1p	(3.1)p

 

 

 

Consolidated Statement of Comprehensive Income for the year ended 31 December 2009

 

 

		2009 £000	2008 £000
Profit/(loss) for the period		339	(882)
Other comprehensive income
Currency translation differences on foreign currency investments		(527)	1,758
Net change in fair value of financial asset		-	73
Net change in fair value of financial asset transferred to Income Statement		-	(671)
Other comprehensive (expense)/income		(527)	1,160
Total comprehensive (expense)/income for the period attributable to equity holders of the parent		(188)	278

 

Consolidated Statement of Changes in Equity

 

2009
	Share Capital	Share Premium	Merger Reserve	Capital Redemption Reserve		Translation Reserve		Retained Earnings		TOTAL
	£000	£000	£000	£000		£000		£000		£000
Balance as at 1 January 2009	7,120		943	83		2,173		4,636		14,955
Total comprehensive income for the period
Profit	-	-	-	-		-		339		339
Other comprehensive income
Foreign currency translation	-		-	-		(527)		-		(527)
Total comprehensive income for the period	-		-	-		(527)		339		(188)
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Dividends paid	-	-	-	-		-		(87)		(87)
Charge for share based payments	-		-	-		-		67		67
Issue of shares	145	130	-	-		-				275
Free share award	-	-	-	-		-		(275)		(275)
Investment in own shares	-		-	-		-		(21)		(21)
Total contributions by and distributions to owners	145	130	-	-		-		(316)		(41)
Balance as at 31 December 2009	7,265	130	943	83		1,646		4,659		14,726

 

Consolidated Statement of Changes in Equity (continued)

 

2008
	Share Capital	Merger Reserve	Capital Redemption Reserve	Available for Resale Reserve	Translation Reserve	Retained Earnings	TOTAL
	£000	£000	£000	£000	£000	£000	£000
Balance as at 1 January 2008	7,120	943	83	598	415	5,334	14,493
Total comprehensive income for the period
Loss	-	-	-	-	-	(882)	(882)
Other comprehensive income
Foreign currency translation	-	-	-	-	1,758	-	1,758
Remeasurement of available for resale asset	-	-	-	73	-	-	73
Sale of investments	-	-	-	(671)	-	-	(671)
Total other comprehensive income	-	-	-	(598)	1,758	-	1,160
Total comprehensive income for the period	-	-	-	(598)	1,758	(882)	278
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Charge for share based payments	-	-	-	-	-	88	88
Share trust loans	-	-	-	-	-	100	100
Other	-	-	-	-	-	(4)	(4)
Total contributions by and distributions to owners	-	-	-	-	-	184	184
Balance as at 31 December 2008	7,120	943	83	-	2,173	4,636	14,955

Consolidated Statement of Financial Position as at 31 December 2009

 

 

		2009 £000	2008 £000
Non-current assets
Property, plant and equipment		4,102	4,285
Goodwill		5,603	5,603
Other intangible assets		98	1,004
Deferred tax assets		-	70
		9,803	10,962
Current assets
Inventories		375	316
Trade and other receivables		11,596	12,341
Income tax receivable		-	9
Cash and cash equivalents		3,888	4,144
		15,859	16,810
Total assets		25,662	27,772
Equity
Issued share capital		7,265	7,120
Share premium account		130	-
Merger reserve		943	943
Retained earnings		4,659	4,636
Translation reserve		1,646	2,173
Other reserves		83	83
Equity attributable to equity holders of the parent		14,726	14,955
Current liabilities
Trade and other payables		8,931	9,207
Bank overdrafts and loans		486	1,696
Income tax payable		118	-
Deferred income		145	109
		9,680	11,012
Non-current liabilities
Bank loans		957	1,086
Deferred tax		299	719
		1,256	1,805
Total liabilities		10,936	12,817
Total equity and liabilities		25,662	27,772

 

Consolidated Statement of Cash Flows for the year ended 31 December 2009

 

		2009 £000	2008 £000
Cash flow from operating activities
Profit/(loss) before tax		510	(1,164)
Net finance income/(costs)		69	(639)
Operating profit/(loss)		579	(1,803)
Decrease/(increase) in trade receivables		687	(473)
(Decrease)/Increase in trade payables		(241)	1,046
Profit on disposal of property, plant and equipment		3	-
Depreciation and amortisation		1,519	2,482
Share based payments		67	161
Tax payments		(355)	(431)
Net cash flow from operating activities		2,259	982
Cash flow from investing activities
Acquisition of subsidiary		-	(301)
Disposal of CODA plc shares		-	638
Proceeds from disposal of property, plant and equipment		9	144
Purchase of plant, property and equipment		(690)	(654)
Investment in own shares		(21)	-
Interest received		45	264
Net cash flow from investing activities		(657)	91
Cash flows from financing activities
Dividends paid		(87)	-
Interest paid		(114)	(296)
Disposal of own shares		-	100
Bank loan received		500	-
Debt repayments		(555)	(1,557)
Net cash flow from financing activities		256	(1,753)
Net increase/(decrease) in cash and cash equivalents		1,346	(680)
Cash and cash equivalents at the start of the period		2,508	1,700
Exchange and other movements		(405)	1,488
Cash and cash equivalents at the end of the period		3,449	2,508

 

 

Cash and cash equivalent deposits held in non-UK based banks	3,886	4,144
Cash and cash equivalent deposits held by employee share trusts	2	-
Net bank overdraft with UK based banks	(439)	(1,636)
	3,449	2,508

 

 

	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		2009					2008
			Weighted average number of shares	Excluding own shares held			Net number of shares	Weighted average number of shares		Excluding own shares held			Net number of shares
			'000	'000			'000	'000		'000			'000
	Basic earnings per ordinary share		28,591	(101)			28,490	28,480		(356)			28,124
	Diluted earnings per share		29,941	(101)			29,840	29,816		(356)			29,460
	Earnings					2009						2008
						£000						£000
	Profit/(loss) on ordinary activities after taxation					339						(882)
	Basic profit/(loss) per ordinary share					1.2p						(3.1)p
	Diluted profit/(loss) per share					1.1p						(3.1)p
	Own shares held "Own shares held" represent the number of shares in the SciSys No.2 Employees' Share Trust held specifically for SciSys employees and treasury shares.
	Diluted earnings per share The weighted average number of shares for the calculation of diluted earnings per share includes own shares held in the SciSys No.2 Employees' Share Trust which have been awarded under the Executive Share Ownership Plan, together with EMI, CSOP and unapproved share options outstanding during the period. 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
	In order to present a measure of earnings per share which is more representative of the Group's underlying operating performance, earnings are adjusted to be net of the costs shown in the highlighted box on the face of the Income Statement and of the finance income deriving from realisation of the available for sale reserve in 2008. The calculation of the Group basic adjusted earnings and diluted adjusted earnings per ordinary share is based on the following data:
	Number of shares	2009											2008
		Weighted average number of shares			Excluding own shares held					Net number of shares			Weighted average number of shares					Excluding own shares held				Net number of shares
		'000			'000					'000			'000					'000				'000
	Basic earnings per ordinary share	28,591			(101)					28,490			28,480					(356)				28,124
	Diluted earnings per share	29,941			(101)					29,840			29,816					(356)				29,460
	Adjusted earnings								2009											2008
									£000											£000
	Profit/(loss) on ordinary activities after taxation								339											(882)
	Adjusted for:
	Amortisation of intangible assets								857											1,800
	Share based payments								67											161
	Exceptional charges								173											699
	Realisation of available for sale reserve								-											(671)
	Adjusted profit after taxation								1,436											1,107
	Basic adjusted earnings per share								5.0p											3.9p
	Diluted adjusted earnings per share								4.8p											3.8p
	Own shares held "Own shares held" represent the number of shares in the SciSys No.2 Employees' Share Trust held specifically for SciSys employees and treasury shares.
	Diluted earnings per share The weighted average number of shares for the calculation of diluted earnings per share includes own shares held in the SciSys No.2 Employees' Share Trust which have been awarded under the Executive Share Ownership Plan, together with EMI, CSOP and unapproved share options outstanding during the period. 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 in this preliminary announcement does not constitute SciSys' statutory accounts for the years ended 31 December 2009 and 31 December 2008. Statutory accounts for the year ended 31 December 2009 will be delivered to the Registrar of Companies following the Company's Annual General Meeting. Statutory accounts for the year ended 31 December 2008 have been delivered to the Registrar of Companies. The report of the auditors was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498(2) of the Companies Act 2006. This preliminary announcement has been prepared and approved by the Directors in accordance with International Financial Reporting Standards (IFRS) and its interpretations as adopted by the International Accounting Standards Board (IASB) and by the EU (Adopted IFRS).

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