SSY.L Regulatory News (SSY)

The information communicated in this announcement includes inside information for the purposes of Article 7 of Regulation 596/2014

SCISYS Group PLC("SCISYS", the "Group" or the "Company")Unaudited Preliminary Results for the year ended 31 December 2018

SCISYS Group PLC ("SCISYS" - AIM: SSY; ESM: SCC), 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 2018.

Financial and Operational Highlights:

· Adjusted operating profit up 16% to £5.1m (2017: £4.4m restated).

· Revenues up 10% to £58.4m (2017: £53.2m restated), of which the component relating to professional fees increased by 16% to £55.7m (2017: £47.9m restated).

· Record order book of £98.6m (2017: £88.2m restated).

· Net debt reduced to £3.1m (2017: £5.9m) despite exceptional cash outflows.

· Final dividend up 10% at 1.73 pence per share (2017: 1.57p) subject to AGM approval.

· Exceptional charges and amortisation arising on the acquisition of Annova in 2016 contributed to statutory operating profit of £2.5m (2017: £4.5m restated) and basic EPS of 4.9p (2017: 10.8p).

· Adjusted basic earnings per share increased to 13.1p (2017: 9.3p).

· Reported results for 2017 restated to reflect retrospective implementation of 2018's new revenue recognition accounting standard, IFRS 15.

· Brexit contingency plans executed in November to protect ongoing business in EU-funded European satellite navigation programmes, Galileo and EGNOS.

· Subsequent Galileo contract wins by Space division approaching €20m in value, adding to earlier €3.9m EGNOS order, fully justified establishment of a new Irish Group holding company

· M&B division renewed a long-term BBC maintenance contract extension by at least 7 years and secured 6 new customers from the ARD group of German broadcasters.

· Early termination of Annova ring-fencing arrangements agreed with former owners to close out the earnout period and operate as a single Media Solutions division with M&B from 1 January 2019.

· BBC's flagship TV news programmes now running live on Annova's OpenMedia software.

· New customers added to OpenMedia client list, including German Hessischer Rundfunk and French L'Equipe 24.

· ESD division won a £2.4m defence-sector contract and extended its footprint in the transport and logistics domain with a c£2m subcontract win on Transport for London's Future Bus Systems.

· Company Secretary, Natasha Laird, appointed to the board as Legal Director.

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

 "I have little doubt that we would not be reporting such a positive picture in respect of revenue growth and future prospects had we not moved early and established a robust strategy to address the political uncertainties that were a serious threat to our space business. The re-domiciliation of the group to Dublin was a complex and expensive exercise but the benefits are already being reflected in our record opening order book and our optimism across all divisions for 2019 and beyond. All of this is underpinned by healthy operational cash flows that have resulted in a substantial reduction in net debt and an uplift in the recommended final dividend." 

Investor lunch programme

SCISYS will be holding investor lunches in London on 7 June and in Bristol on 18 June for Private Client Investment Managers and Private Investors. Those wishing to attend should contact Tom Cooper on tom.cooper@walbrookpr.com, 020 7933 8780 or 0797 122 1972 for further details.

For further information please contact:

About SCISYS Group:

Employing around 650 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, Thales Alenia Space, Arqiva, Vodafone, the European Space Agency, Eumetsat, the BBC, Radio France, RTL, RNLI, Pets at Home, Siemens and the National Trust. The Company's registered office is in Dublin, with UK offices in Chippenham, Bristol, Leicester and Reading and German offices in Bochum, Dortmund, 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

Continued optimism despite global challenges

We entered 2018 with an optimistic outlook based on a set of excellent results in 2017 and a healthy opening order book. I am delighted that this optimism was well justified and that the Group has delivered another record set of results for the year, comfortably in line with market guidance. Looking forward into 2019 we retain our favourable outlook despite the many challenges facing the world of business on the global scene: our opening order book is at a record level, cash generation is healthy, and all three divisions have ambitious business plans for the year.

The Group delivered a strong overall performance in 2018 and is reporting solid advances in results for both full-year revenues and adjusted profits. In prior years, we saw a pattern where earnings were skewed towards the second half: in 2018, earnings were more balanced across the year - though it is too early to determine if this pattern will become the norm going forward in future years.

The strength of growth in revenues in 2018 has provided us with the confidence to invest in the business to accommodate further growth, which has resulted in a significant expansion of our team. We added significantly to our head count and opened a supplementary office in Bristol to house members of our expanding Space division. Such investment followed on from similar initiatives during 2017 which saw the opening of a new office in Dortmund to house our Media & Broadcast division (previously based in Bochum), and we are actively looking to open a new and larger office in Bochum during 2019 due to the growth in our Space activities in Germany.

Operational cash flows were very healthy across the year, resulting in further reductions in net debt and underpinning a healthy 10% uplift in the recommended final dividend payment. As expected, our income streams, which are predominantly in pounds sterling and euros, were well balanced, providing an internal hedge against exchange-rate movements.

Brexit contingency planning, which commenced in 2017 to protect the Group from any potential adverse operational consequences in respect of the UK's withdrawal from the EU, concluded in 2018 with the holding company for the Group completing its re-domiciliation to Dublin. This entailed setting up a new group holding company in Ireland and it acquiring all the shares in the old SCISYS group holding company. The process completed with the old SCISYS group holding company delisting from AIM and the new SCISYS group holding company "re-listing" on both AIM and the Irish Enterprise Securities Market of Euronext ("ESM"). All shareholders in "old" SCISYS received the same number of shares in "new" SCISYS. It was a complex and expensive exercise and has resulted in a one-off exceptional charge in our accounts of £0.7m for 2018. The new SCISYS group holding company has UK tax status.

Crucial to the process was the advisory resolution agreed by shareholders at the SCISYS 2018 AGM approving the contingency planning. Shareholder approval and subsequent re-domiciliation enabled SCISYS to participate in tender activities for a number of contracts within EU-funded space programmes from which it would otherwise have been excluded. Recent announcements by our Space division of contract wins valued in excess of €20m already justify the Board's contingency planning.

SCISYS is now well placed to expand its participation in EU-funded space programmes (EGNOS, Galileo & Copernicus) and bring its wealth of expertise in the design and build of ground segment and on-board systems to the projected UK national programme for a UK satellite navigation system alternative to Galileo.

Key financials reflect the success

In the year ended 31 December 2018, SCISYS posted overall revenues of £58.4m, which were up 10% on last year (2017: £53.2m restated under IFRS 15). Within this figure, professional fees were 16% higher at £55.7m (2017: £47.9m restated). The Group delivered an adjusted operating profit of £5.1m (2017: £4.4m restated), a 16% uplift on 2017. The statutory operating profit was £2.5m (2017: £4.5m restated). A reconciliation between the adjusted and statutory operating profit measures appears in the Finance Director's Report. Adjusted basic earnings per share were 13.1p (2017: 9.3p restated); basic earnings per share were 4.9p (2017: 10.8p restated). Cash generation remained healthy and this resulted in a net operating inflow of £5.4m (2017: £10.5m). The Group's year-end net debt position was £3.1m (2017: £5.9m). At 8.7% (2017: 8.3%), our adjusted operating margin has improved. The year-end order book was at a record level at £98.6m (2017: £88.2m restated).

Our people are the key to our success

Once again, our thanks rightly go to all 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 Group and who have made an important contribution to these results. In particular this year we must compliment the dedication and efforts of the team that led the re-domiciliation exercise, which involved a sustained and very substantial effort.

It gave me great pleasure announcing the appointment in December 2018 of Natasha Laird to the Board of Directors: Natasha has worked in the role of General Counsel and Company Secretary since 2016, during which period we have seen first-hand the many complementary strengths and values she will bring to the Board table. She has been involved in a wide range of commercial matters within both the UK and German arms of SCISYS and, most recently, successfully led the process of creating the new Irish holding company for the Group and listing it on AIM and the ESM.

Dividend

An interim dividend of 0.65p per share was paid on 8 November 2018. The Directors are now proposing a final dividend of 1.73p per share, subject to approval by shareholders at the Annual General Meeting on 6 June 2019. The proposed final dividend will be paid on 26 July 2019 to shareholders on the register at 28 June 2019. The shares will go ex-dividend on 27 June 2019. This would make the dividend for the full year to 31 December 2018 2.38p per share (2017: 2.16p) and maintains our stated strategy of progressive dividend growth.

Governance matching our needs

We are committed to high standards of corporate governance. We have strong governance frameworks in place throughout the Group that are in balance with our growth. SCISYS adopted the QCA Corporate Governance Code during 2018 and now complies with Irish reporting and compliance requirements.

Looking to the future

Going into 2019, the outlook continues to be very encouraging. The key elements of the Group's strategy remain unchanged. We continue to focus on balanced revenue growth, margin improvement, management and control of risk, as well as succession planning.

We are pleased with the healthy organic growth in revenues achieved in 2018. On a like-for-like basis, and ignoring any IFRS 15 adjustments, we have met our medium-term revenue aspiration of £60m substantially ahead of plan.

Moreover, our strong trading performance combined with steadily reducing levels of net debt and a record year-end order book provide a solid platform for delivering further progress in 2019 and beyond. To take advantage of the increased top-line momentum that we are now experiencing, we have adjusted our strategy to accommodate the anticipated higher revenue growth and are planning appropriate investments in facilities, infrastructure and personnel. This is reflected in our adjusted medium-term aspirations outlined in the Chief Executive's Review.

Based on current project performance and our order pipeline across the entire Group, the Directors remain fully confident in the prospects of the Group's future organic growth. We will also continue to look for opportunities - where there is a good market, product and cultural fit - to grow through acquisition.

Dr. Mike LoveChairman

CHIEF EXECUTIVE'S REVIEW

2018: significant organic growth, delivering on medium-term revenue target

I am delighted to report that the SCISYS Group delivered revenues of £58.4m in 2018, which means that we are well on track to achieving our medium-term revenue target of £60m ahead of plan. On a like-for-like basis, i.e. without IFRS 15 adjustments, we actually achieved this medium-term target (set in 2016) two years early. With year-on-year growth of 10% for total revenues and 16% for our professional fees and licence-based revenue, we were again able to grow our business substantially, faster than our medium-term growth target.

Our aggregate contribution from the divisions was up to £13.9m in the year, a rise of 14% compared with 2017. SCISYS' adjusted EBITA in the year grew by 16% to £5.1m, resulting in a margin of 8.7%. Investment and expenses were needed to sustain faster-than-expected growth, for instance for new office space, Brexit contingency plans, additional investment into product development and integration costs for our media business. Some of these costs are exceptional but we also continue to align overhead costs to support our future growth plans.

All divisions have contributed to this strong performance, despite market conditions being increasingly tough due to political uncertainty. We have seen another year where our business mix was instrumental to the resilience of the Group's overall performance.

Enterprise Solutions & Defence (ESD)

In 2018 Enterprise Solutions & Defence has been the engine for generating the Group's growth: revenues were up 17% year-on-year to £19.9m. ESD's divisional contribution increased by a remarkable 34% to £5.8m. Much of the excellent full-year performance was based on an order intake rally during the last quarter in 2017 which led to the excellent results that we were able to report for the division during the first half year. Revenues from professional fees grew even faster, by 27% to £18.0m, which helped the divisional margin reach a very strong 29%.

During the period, ESD continued to move towards more on-site staff assignment contracts which now represent 65% of its total revenues. While this reduces the risk in the business inherent to fixed-price software deliverable projects, it also impacts the long-term order book as most of these staff assignment contracts, although expected to be long-term, are typically contracted in smaller blocks.

The division continues to operate through a number of business units, each of which target different vertical niches. The division now reports jointly with Xibis because of the close business relationship between these two parts of the business. Despite their strong ties we do not intend to integrate the Leicester-based Xibis team fully; instead we are maintaining the Xibis brand separately and preserving the small business culture.

The division's objectives for 2018 included raising awareness of SCISYS' expertise in the defence, security and maritime sectors.

In December, ESD won a £2.4m defence-sector contract in the Logistics Information Services domain that will run until December 2020.

Investment in support of our maritime defence activities have helped to enhance ESD's profile in this arena and are expected to pay off during 2019 and beyond; a separate divisional business unit has been established with effect from January 2019 to sharpen the focus on this sector.

Another objective was to extend ESD's footprint in the transport and logistics domain. Progress followed in September when the division announced a ca. £2m contract win with Trapeze Group (UK) Limited to provide software design, development and support services to Transport for London (TfL) for its timetabling and scheduling as part of its Future Bus Systems programme. It is anticipated that the development phase of the contract will be followed by a long-term support and maintenance contract. 

During the fourth quarter of 2018 the division secured more than £7m of new orders, which positions it very well for future growth in 2019 and beyond. As in previous years, ESD will continue to invest in its sales team, its value proposition and its divisional structure.

SCISYS Media Solutions

From 1 January 2019 the former Media & Broadcast division and Annova Systems (Annova) have operated as a single division, SCISYS Media Solutions (Media Solutions). The integration process commenced earlier than anticipated following acquisition, by mutual agreement with Annova's previous owners during 2018. The process will continue into 2019 and will result in a division with main offices in both Dortmund and Munich, led by Michael Schüller, who was previously the CEO at Annova.

For 2018 the combined Media Solutions business delivered results marginally ahead of 2017. Revenues were 6% higher at £16.8m, with contribution up 3% on the previous year at £3.1m. Given the wider context of the Media Solutions business these figures are reasonably solid and well in line with management's expectations. From 2019 Media Solutions' results will be reported as one SCISYS division.

Revenues of the former Media & Broadcast business, based on its proprietary dira! product suite, fell short of 2017 revenues and contribution by £0.6m and £0.7m respectively as some new business opportunities were either converted into orders late in the year or slipped into 2019. At the same time, business with established clients remained strong:

· Eleven of 13 German public broadcasters - including six new clients - placed orders for the new weConnect product, which serves as a content-distribution platform between members of the ARD group of broadcasters. Product development progressed during 2018 while delivery is due in 2019.

· The BBC renewed our service contract to supply support and maintenance services for its enterprise audio broadcast technology for a term of up to 10 years, cementing a business relationship that began in 2001. SCISYS' dira! product is the cornerstone of the BBC's audio broadcast technology.

Investment continued in product development of the next software generation of the dira! product suite for radio production, playout and media asset management - dira! Dimension. A contract win with the British Library to deliver a national Digital Radio Archive Management solution already uses elements of this new generation software.

The newsroom computer systems arm of the business - based on Annova's proprietary product, OpenMedia - delivered revenues of £8.7m, an increase of 22% on 2017. Its EBITA trebled to £1.1m:

· In August the BBC went live with its newsroom project for its flagship TV news programmes that - once finally rolled out - will be the biggest OpenMedia installation, already now serving several thousand users. Significant effort went into improving and further stabilising the OpenMedia core system to meet the BBC's highly complex needs and requirements.

· In parallel, the development of NEWSBOARD, the new web-based editorial cross-media planning solution, made significant progress. The first phase of the NEWSBOARD project with ARD-Aktuell, the national news programme of the influential German public broadcaster ARD, was successfully completed.

· New customers were added to the OpenMedia client list, including German Hessischer Rundfunk and French L'Equipe 24.

In line with our initial plans at acquisition, we expect further investment in product innovation and integration in 2019 and beyond to reinforce the foundation for future growth and margin improvement.

Space

Following its exceptional performance in 2017 our Space division delivered another set of very strong results. Revenues increased further to £21.3m, while contribution grew to £5.1m. This is particularly remarkable as the division was affected by the persistent uncertainty around Brexit. The re-domiciliation of the Group's ultimate parent company was undertaken to address this uncertainty, principally in relation to the European satellite navigation programmes. Significant contract wins in this area, the majority of which were secured after the re-domiciliation became effective on 27 November, fully justified execution of the Board's Brexit contingency plans and underline SCISYS' increasingly strong foothold in this domain. Successes are outlined below.

In April, SCISYS secured a €3.9m order from Airbus Defence and Space to develop the global navigation EGNOS V3 ground segment. EGNOS is Europe's regional satellite-based augmentation system that is used to improve the performance of global navigation satellite systems, such as GPS and Galileo. Development work will continue until the third quarter of 2020, with a subsequent maintenance phase of up to five years.

Several contract wins with prime contractors for the EU-funded Galileo programme highlighted SCISYS Space's position as an expert software supplier, including:

· an €11.2m order in December from Thales Alenia Space France for the continuation and further enhancement of four elements of the Galileo Ground Mission Segment;

· a €5m order from GMV in Spain signed on 2 January 2019 for the continuation and further enhancement of three elements in the Galileo Ground Control Segment; and

· two further orders worth €3m with Thales Alenia Space France in December for the development and implementation of security-relevant elements within the Galileo Ground Segment, including the distribution of configurations to the Point of Contact Platforms in member states.

These contracts all run into 2020 and beyond, further extending SCISYS' footprint in the Galileo ground segment infrastructure. It is likely that - in view of Brexit - those Galileo activities that SCISYS has delivered from the UK will migrate to our German Space operations in order to comply with the EU's participating conditions.

SCISYS Space made good progress with the German Heinrich Hertz satellite (H2SAT) programme in which the Company has the role of ground-segment prime contractor for the first time. Reporting to the programme prime contractor, OHB, SCISYS successfully passed a major contract milestone on schedule in October 2018.

Other activities during the year included further investment in the Group's proprietary PLENITER product suite for satellite ground-segment solutions. H2SAT will use PLENITER, and marketing and sales activities during 2018 have significantly raised awareness of SCISYS' capabilities in this area and have already generated encouraging sales leads.

UK-based earth observation and autonomous systems activities for the European Space Agency (ESA) progressed well, with ESA commissioning SCISYS to undertake more initial studies for the transfer of technology skills to adjacent sectors. Also, in the UK, SCISYS Space won new contracts in the commercial "New Space" sub-segment. These activities complement endeavours to become more involved in UK national space programmes following Brexit through a closer relationship with the UK Space Agency, for which a number of forward-looking research, analysis and technical prototype projects are underway to help bolster UK competitiveness in the international space market.

Based on its impressive order book of ca. £40m at the end of 2018, the Space division anticipates another strong year ahead. Expansion is expected to be focused on German operations centred in Bochum where the capacity of the existing premises is projected to be exceeded by around mid-2020. Measures will be taken to accommodate the expected growth and to mitigate any risks which might affect its sustainability.

On track for further growth

At SCISYS we believe that innovative software systems can provide real benefit to our customers' operations. 2018 has proved us right in this respect and validates our strategy for long-term sustainable growth.

We have strengthened our position as niche experts, dedicated to achieving our customers' goals by creating and delivering quality software solutions and are committed to running a resilient, well balanced business that promotes sustained commercial success.

We continue to grow in our established territories and keep extending our expertise. We have successfully opened up new sectors. We maintain investment in our proprietary products and re-usable software platforms and we continuously observe the market for attractive M&A opportunities that complement our organic growth.

SCISYS is a people business. Much of our success is attributable to our exceptional team. I am glad to report that on the back of our robust growth our group headcount increased by 87 during the year, with new employees comprising both talented young and more experienced senior staff. My sincere thanks go to our entire team - staff and management, who drive our success in line with our core corporate values of mutual trust, respect and openness. These remain the foundation of our corporate culture and our strategic objectives, as the business continues to grow.

Solid foundation and accelerated top line growth

We have broken last year's record with a year-end order book just short of £100m. Our recurring revenues remain strong and we have delivered our medium-term revenue target of £60m, on a like-for-like basis, ahead of schedule. This trajectory underpins the robustness and realism of our business model.

We have delivered organic growth of 10% in 2018 and we believe we are well positioned for this accelerated top-line growth to continue into 2019 and beyond. To take advantage of this momentum, we will shift our strategic focus slightly more towards revenue growth - including investments in sales, infrastructure, product improvement and innovation.

On this basis we are updating our medium-term revenue aspiration to £75m by the end of 2022, with an adjusted operating profit of approximately £7m. We will carefully monitor progress on this strategy, while constantly assessing options for further margin improvement.

While investing in this accelerated top-line growth we will strive to ensure the high level of sustainability and stability of performance that our shareholders, customers and staff expect.

Once again, my sincere thanks go to our shareholders, customers, management, staff and all other stakeholders who have strongly supported SCISYS in 2018. It has been another year of excellent progress and we are confident in our ability to deliver further progress in 2019; expanding the business in a sustainable, resilient, balanced way for the benefit of our shareholders, customers and staff.

Klaus M. Heidrich

Chief Executive

FINANCE DIRECTOR'S REPORT

I am pleased to report that SCISYS successfully navigated the turbulent political landscape in the second half of 2018 to deliver excellent trading results for the full year, marginally ahead of our expectations in September, when we published our half-year Interim Report.

Both revenues and underlying operating profits reached historic highs and strong operational cash flows have significantly reduced year-end net debt, despite substantial exceptional cash costs being incurred in the latter half of the year to implement our Brexit contingency plans and close out earnout payments relating to 2016's acquisition of ANNOVA Systems GmbH (Annova).

Revenues

Total revenues for the year were 10% higher at £58.4m (2017: £53.2m as restated in accordance with IFRS 15 - see below), of which the component relating to professional fees was £55.7m (2017: £47.9m restated). 40% of total revenue was from eurozone customers (2017: 45% restated).

IFRS 15: Revenue from contracts with customers has been implemented with effect from 1 January 2018 and comparative figures for 2017 have been restated to reflect retrospective application of this new standard. Under IFRS 15, only the mark-up on pass-through costs of third-party products and services -- where SCISYS acts as an "Agent" rather than a "Principal" - is reported as revenue, whereas previously the revenues and the related third-party cost of sales were reported gross. A further impact of the new standard was to defer recognition of revenue on specific contracts until the projects complete. The reduction in previously reported total revenues for 2017 was £4.0m while reported professional fees and profits were reduced by £0.2m. The impact of these changes at a divisional level is detailed in the segmental analysis note.

Profits

Since 2007 the Board has gauged the underlying performance of the business using an adjusted operating profit measure that excludes the costs of the Group's long-term share incentive schemes, exceptional items and any amortisation of intangible assets arising on business acquisition. Internal reporting is exclusively based on adjusted performance measures to facilitate comparison between financial years. Adjusted operating profit was up 16% at £5.1m (2017: £4.4m restated), while statutory operating profit was £2.5m (2017: £4.5m restated) after bearing amortisation costs relating to the Annova acquisition of £1.3m (2017: £2.0m) and net exceptional charges of £1.3m (2017: £2.1m credit).

The adjusted and statutory operating profit measures reconcile as follows:

Share-based payment charges in both years were immaterial.

On the acquisition of Annova on 31 December 2016, IFRS 3 required SCISYS to make fair-value consolidation adjustments to the Annova balance sheet. Intangible assets for fair-value recognition comprised the 2016 year-end order book and the internally developed intellectual property rights in Annova's OpenMedia product. Recognition of these assets in the 2016 consolidated Group balance sheet resulted in non-cash amortisation charges to the 2018 income statement of £1.3m (2017: £2.0m).

The 2018 net exceptional charge comprised four components. The first element reflected a fixed and final earnout payment in December of £0.6m to Annova's former owners. This sum represented consideration for early termination of the acquisition ring-fence agreement, enabling accelerated achievement of potential medium-term benefits in our combined media-sector operations by the removal of constraints on collective management. Second, there was a £0.7m exceptional charge for external professional advice and costs in relation to the development and implementation of the Group's contingency plans to mitigate any potential adverse impact of Brexit on cross-border operations, particularly in the space sector. Costs principally related to the establishment of a new holding company, incorporated in Ireland, at the top of the Group structure by means of a Scheme of Arrangement approved by the members and the High Court. Third, non-trading costs of £0.3m were incurred in the re-organisation of the German arm of the Group to facilitate the merger of the Annova and Media & Broadcast divisions under common management. Fourth, an exceptional credit was recognised because 2017's R&D tax credit provision proved overly conservative by £0.3m.

Exceptional items in the comparative 2017 period comprised an R&D tax credit provision of £0.5m and a £1.6m credit to reflect a reduction in anticipated contingent consideration payable to Annova's former owners.

The Group's results were less adversely impacted by variations in the euro-pound exchange rate than in previous years for two reasons. Firstly, the funding structure for the Annova acquisition and the sterling-based cash flows of its contract with the BBC served to bring the Group's overall currency requirements more into balance, whereas in previous years the Group generated substantial surplus euro income from its German operations and UK-based space market activities. Secondly, the average exchange rate for 2018 of €1.13/£ was only marginally lower than the 2017 rate of €1.14/£.

The Group has not entered into any external currency-hedging contracts since 2017. Intra-Group hedging contracts will be used to balance the Group's currency exposures across its subsidiary companies.

Excluding exceptional items, Group overheads - representing the costs for provision of shared business services to the divisions - were £1.0m higher than in 2017 at £8.8m (2017: £7.8m). However, the prior year figure incorporated the unwinding of a currency hedging contract that depressed the reported overhead figure by £0.3m. On a like for like basis 2018 Group overheads were less than 9% higher than in 2017 which compares favourably with the 16% rise in professional fees revenue.

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 41% higher at 13.1p (2017: 9.3p restated). Basic EPS were 4.9p (2017: 10.8p restated).

Cash and debt

The Group closed the year with bank deposits of £8.1m (2017: £8.0m), while Group borrowings amounted to £11.2m (2017: £13.9m). This resulted in net debt of £3.1m (2017: £5.9m).

Unutilised working capital facilities at the year-end totalled £4.3m (2017: £4.3m).

Tax

The effective Group tax rate for the year was 28% (2017: 16% restated).

The elevated tax rate for 2018 primarily reflects the high level of exceptional costs in the year that depressed statutory pre-tax profits without being deductible for tax purposes.

Although SCISYS continued to benefit in 2018 from the tax-credit system for UK expenditure on R&D, the Company was governed by the rules for large enterprises for the first time, where credits are significantly less generous than had previously been the case for SCISYS as an SME. For 2018, an estimated receivable amount of £0.1m has been credited against operating expenses. In the prior year, a conservative estimate of £0.5m for receipt of 2017 R&D tax credits was included in the 2017 accounts as an exceptional item, whereas the amount actually received was £0.8m. The supplementary receipt is disclosed as an exceptional credit in 2018 for consistency.

Accounting standards

Apart from the implementation of IFRS 15: Revenue from contracts with customers as outlined above, no other changes in accounting standards have materially impacted the Group accounts for 2018. The next significant change affecting SCISYS will be in 2019, when IFRS 16: Leases will be adopted, bringing operating leases with more than one year to run onto the balance sheet in the form of fixed assets and lease liabilities. The Group has commenced an initial analysis of the anticipated impact of adopting IFRS 16 on future financial statements and expects both fixed assets and lease liabilities to be in the region of £1.5m higher, with a minimal effect on operating profit.

Share options

During the year a total of 299k (2017: 442k) share options were exercised and 356k (2017: 340k) new share options were granted. At the year-end there were 1,517k (2017: 1,462k) share options outstanding of which the performance criteria for vesting had been achieved in respect of 491k (2017: 789k) options awarded from 2009 to 2012. Option awards granted from 2013 to 2015 failed to meet the vesting performance criteria and therefore lapsed, while those in 2016 and 2017 remain on track to vest in full.

Order book

The re-domiciliation of the ultimate Group parent company on 27 November 2018 enabled SCISYS to satisfy the participation conditions for EU-funded programmes in the space sector, including Galileo and EGNOS. During December SCISYS secured Galileo orders to the value of £12.8m and a UK MoD order for £2.4m. These lifted the year-end order book to a record level, 12% ahead of the prior-year at £98.6m (2017: £88.2m restated). Of this total, £41.0m (2017: £32.6m) is deliverable within one year. The longer-term balance principally reflects Annova's contract with the BBC, which runs to at least 2027.

Consolidated Income Statement for the year ended 31 December 2018

Consolidated Statement of Comprehensive Income for the year ended 31 December 2018

Consolidated Statement of Financial Position as at 31 December 2018

Consolidated Statement of Changes in Equity

Consolidated Statement of Cash Flows for the year ended 31 December 2018

Information about reportable segments

Basic & diluted earnings per share

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

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 CSOP and unapproved share options to purchase ordinary shares at an exercise price below the average market price for the year.