26 Mar 2009 07:00
SCISYS PLC
(SSY: AIM)
Preliminary results for the year ended 31 December 2008
SciSys plc ("SciSys" or "the Company"), the supplier of bespoke software systems, IT based solutions and support services to the media broadcast, space, defence, public and transport sectors, today announces preliminary results for the year ended 31 December 2008.
Financial Highlights:
Revenue up by 49% to £38.1m (2007: £25.6m);
Adjusting for acquisitions revenues up by 23% on a like for like basis;
Adjusted operating profit of £0.9m (2007: £1.4m loss) before amortisation of intangible assets, share based payments and exceptional charges;
Operating loss £1.8m (2007: £2.7m loss);
Adjusted basic earnings per share 3.9p (2007: loss of 7.4p);
Basic loss per share 3.1p (2007: loss of 12.5p);
Net cash position as at 31 December 2008 of £1.4m (2007: £0.7m net debt).
Mike Love, Chairman, commented:
"In 2008 we achieved our primary objective of reversing the decline in the Group's financial performance and are pleased to report a positive set of trading results for the period. Perhaps of greater importance in the current context of a world wide recession, we have entered the new financial year on a positive footing with reasonable expectations of building further on the progress achieved in 2008".
For further information please contact:
| SciSys Plc | Mike Love, Executive Chairman | T: 01249 466466 |
| Canaccord Adams | Simon Bridges | T: 0207 050 6500 |
| Winningtons | Tom Cooper | T : 0117 920 0092 0797 122 1972 tom.cooper@winningtons.co.uk |
EXTRACT FROM CHAIRMAN'S STATEMENT
In 2008 we achieved our primary objective of reversing the decline in the Group's financial performance and are pleased to report a positive set of trading results for the period. Perhaps of greater importance in the current context of a world wide recession, we have entered the new financial year on a positive footing with reasonable expectations of building further on the progress achieved in 2008.
2007 was a difficult period for us; it culminated in the Group reporting an operating loss of £2.7m for the year. Faced with a rapid deterioration in the Company's fortunes, the Board took decisive action to address the problems, implementing senior management changes and by providing close support to the operating divisions. Underperforming projects were turned around by reinforcing commercial disciplines and best practice project management. These actions led to the Group moving back into adjusted operating profit by mid-2008.
I am pleased to report that this improvement was sustained through to the year end and the Group has delivered increased revenues and an adjusted operating profit for the full year.
The activities of VCS AG, which was acquired in September 2007, continue to perform well and their integration into the SciSys Group has gone smoothly; in particular we have combined our Space activities in a single division offering a complete package of solutions to clients across Europe.
SciSys is now organised around four principal divisions (Government, Media & Broadcast, Space and Support), each run by a senior executive team headed by a divisional director with full responsibility and accountability for the operation of the division as a profit centre. We have strengthened the next tier of senior management in the business and ensured that the divisional directors are closely involved in business strategy and in monitoring and controlling their individual divisions.
Some early 2009 indicators are encouraging but, being mindful of the difficulties in the wider economy, we are taking a prudent view of the likely performance of the Group during 2009 and into 2010. We believe IT service providers will find life decidedly tough in 2009. While we are fortunate that most of our key clients are government and public sector institutions rather than commercial organisations, there remains uncertainty over how their spending plans will be impacted as the recession bites. However, our view today is that, while no business can consider itself immune to recessionary influences, SciSys is relatively well positioned to withstand the pressures of the current uncertain economic climate.
We shall continue to focus on margins and costs across the business.
Dividend
The Directors have reviewed the improvements made during 2008 and, while good progress has been achieved, have decided not to recommend any dividend for the period and to exercise prudence by retaining the cash within the business.
The Board
There were no changes to the plc Board during 2008. However immediately below the Board Dr John Haynes, who returned from retirement to assist with the recovery plan for our Space division, has now stepped back out of the business. Dr Horst Wulf has taken over responsibility as Divisional Director for our Space Division. We thank John for his contribution to the turnaround.
In our last annual report I indicated our intention to appoint non executive directors to the Board and I am pleased to confirm that at the beginning of 2009 we announced the appointment of two new non executive directors; Prof. Dr.-Ing. Klaus-Günter Meng and Prof. Dr.-Ing. Ulrich Reimers. Both bring a wealth of experience to the Group.
Prof. Meng is the CEO and founder of VCS AG, which was acquired by SciSys in 2007. He has since been working closely with the SciSys Board to integrate VCS AG smoothly and successfully into the SciSys group. He is a significant shareholder in the Company. Prof. Meng will chair the audit committee.
Prof. Reimers is a member of the Supervisory Board of VCS AG and is Managing Director of the Institut für Nachrichtentechnik (Institute for Communications Technology) at Braunschweig Technical University. Furthermore, he is chairman of the Technical Module of the DVB Project, an international consortium developing solutions for digital television worldwide. He is also a member of the board of the Deutsche TV-Plattform (German TV platform) the national body coordinating all aspects of TV technology and its introduction in Germany since 1992 and has many years experience in the broadcasting industry. As an independent non executive director Prof. Reimers will chair the remuneration committee.
During 2008, in view of having no non executive directors on the Board, we put in place arrangements to provide an independent review and reporting of executive remuneration arrangements. These arrangements will continue throughout 2009.
Staff participation
You will forgive me for repeating this every year but SciSys is nothing without the skills and expertise of its staff. Once again we are grateful for their continued resilience and fortitude in what was another challenging year. Our staff have continued to show exceptional commitment which is the cornerstone of our ability to meet and often exceed our customers' expectations.
Outlook
We enter 2009 on a positive footing and have every expectation of building on the good progress achieved in 2008.
For the immediate future we will remain focused on the core disciplines associated with the design, build and delivery of systems and value-added services to our clients, which are predominantly government and public sector organisations.
This mix of clients provides some insulation from the severity of current market conditions, particularly as many of our current and forthcoming projects are funded through long term, committed budgets. Nevertheless we do not have total visibility of earnings beyond the first half and must remain alert to the potential risks in all of the sectors in which we operate.
Our order book at 1 January 2009 stood at £25.9m, with £18.3m of this order book deliverable in the first half of 2009. Since the start of the year this position has been boosted by key contract wins across all parts of the business.
Additionally we have a healthy balance sheet with no net borrowings as at 31 December 2008. The business continues to generate cash and our cash reserves have further strengthened since the start of 2009.
Dr Mike Love
Executive Chairman
EXTRACT FROM GROUP FINANCIAL DIRECTOR'S REVIEW
Introduction
I am pleased to record that the financial progress, as reported at the interim stage, was sustained in the second half of the year to produce an encouraging set of full year results. All key performance indicators show a marked improvement over those of 2007, with revenues up strongly, a return to profitability at the adjusted operating level and a net cash positive position at year end.
The income statement includes charges for the amortisation of intangible assets, recognised under IFRS on the acquisition of VCS, and the cost of the Group's long term share incentive schemes. To aid understanding of the underlying Group trading performance, adjusted operating profit is presented on the face of the income statement before deducting these non-cash items and other exceptional charges.
Revenues
Total revenues increased by 49% to £38.1m, which partly reflects the first full year's impact of the VCS business acquired in September 2007. Like for like revenues were up 23% year on year.
Operating profit
The operating profit before amortisation, share based payments and restructuring costs was £0.9m (2007: £1.4m loss). This welcome return to profitability was largely driven by a turnaround in the Group's Space Division.
The amortisation charge was £1.8m (2007: £0.6m). It relates to the recognition of intangible assets on the acquisition of VCS which reflected the then present value of its order book and recurring maintenance income stream. These assets are amortised through the income statement over their estimated useful economic lives. The remaining assets will be fully written down in 2009 with an amortisation charge of £0.9m.
The charge for share-based payments arising under the Executive Share Ownership Plan and Enterprise Management Incentive share option scheme was £0.2m (2007: £0.1m).
Exceptional charges comprised restructuring costs and foreign exchange losses on forward contracts. Restructuring costs totalling £0.3m (2007: £0.5m) were the residual costs of the programme which commenced in the last quarter of 2007. They relate to severance payments to employees who left the Group on grounds of redundancy and interim management costs for the short term strengthening of the Space Division management team. Foreign exchange losses were incurred on settlement of forward commitments taken out in January 2008 to sell Euros at an exchange rate of €1.36/£. The collapse of sterling in December crystallised a £0.4m book loss.
The statutory operating loss was £1.8m (2007: £2.7m loss).
Earnings per share
Adjusted basic earnings per share, calculated on the profit for the year before amortisation, share-based payments, exceptional charges and the gain realised on sale of investments by the employees' share trust was 3.9p (2007: 7.4p loss). Basic loss per share was 3.1p (2007: 12.5p loss).
Cash and financing
Cash generation was strong across the Group, culminating in a net cash position at the year end of £1.4m (2007: £0.7m net debt). Stronger working capital management and favourable exchange rate movements contributed to the improvement. The Group's bankers continued to be supportive throughout the year and SciSys maintained a policy of paying its suppliers in line with contractual terms. Since the year end the Group has successfully renegotiated its banking arrangements for 2009. These include an extended facility to enter into currency hedging contracts which substantially cover the Group's exposure to foreign exchange movements during the year.
In February 2008, the employee's share trust repaid a loan of £0.7m to the Group following the sale of the trust's holding of CODA plc shares. This is reflected under the Finance Income heading in the Income Statement. The Group's remaining loan to the trust amounts to less than £0.1m and repayment is not anticipated until 2010 at the earliest.
Tax
The effective tax rate for the year was a credit of 24.2% (2007: charge of 14.7%). The tax payable status of the Group's German operations was counterbalanced in 2008 by a material credit to Group deferred tax arising in respect of the amortisation of intangible assets. The UK operations continue to be non-tax paying due to the benefits conveyed by the UK Research & Development tax credit system.
Group reorganisation
To facilitate improved management control and reduce administration costs, ownership of SciSys GmbH was transferred to VCS from a UK subsidiary. SciSys GmbH was then merged with VCS under German law with effect from 1 January 2008.
Chris Cheetham
Finance Director
| Consolidated Income Statement for the year ended 31 December 2008 | |||
| 2008 £000 | 2007 £000 | ||
| Revenue | 38,056 | 25,601 | |
| Operating costs | (39,859) | (28,256) | |
| Operating loss | (1,803) | (2,655) | |
| "Adjusted operating profit/(loss)" being operating loss before amortisation of intangible assets, share based payments and exceptional charges | 857 | (1,440) | |
| Amortisation of intangible assets | (1,800) | (600) | |
| Share based payments | (161) | (119) | |
| Exceptional charges | (699) | (496) | |
| Operating loss | (1,803) | (2,655) | |
| Finance costs | (296) | (127) | |
| Finance income | 935 | 185 | |
| Loss before tax | (1,164) | (2,597) | |
| Tax credit/(charge) | 282 | (383) | |
| Loss for the period attributable to equity holders of the parent | (882) | (2,980) | |
| Loss per share | |||
| Basic | (3.1)p | (12.5)p | |
| Diluted | (3.1)p | (12.5)p |
| Consolidated Statement of Recognised Income and Expense for the year ended 31 December 2008 | ||
| 2008 £000 | 2007 £000 | |
| Currency translation differences on foreign currency investments | 1,758 | 417 |
| Net change in fair value of financial asset | 73 | 50 |
| Net change in fair value of financial asset transferred to income statement | (671) | - |
| Net income recognised directly in equity | 1,160 | 467 |
| Loss for the period | (882) | (2,980) |
| Total recognised income and expense for the period attributable to equity holders of the parent | 278 | (2,513) |
| Consolidated Balance Sheet as at 31 December 2008 | |||
| 2008 £000 | 2007 £000 | ||
| Non-current assets | |||
| Property, plant and equipment | 4,285 | 3,800 | |
| Goodwill | 5,603 | 5,603 | |
| Other intangible assets | 1,004 | 2,747 | |
| Investments in financial assets | - | 877 | |
| Deferred tax assets | 70 | 46 | |
| 10,962 | 13,073 | ||
| Current assets | |||
| Inventories | 316 | 523 | |
| Trade and other receivables | 12,341 | 11,900 | |
| Income tax receivable | 9 | 17 | |
| Cash and cash equivalents | 4,144 | 2,345 | |
| 16,810 | 14,785 | ||
| Total assets | 27,772 | 27,858 | |
| Equity | |||
| Issued share capital | 7,120 | 7,120 | |
| Merger reserve | 943 | 943 | |
| Retained earnings | 4,636 | 5,334 | |
| Translation reserve | 2,173 | 415 | |
| Available for sale reserve | - | 598 | |
| Other reserves | 83 | 83 | |
| Equity attributable to equity holders of the parent | 14,955 | 14,493 | |
| Current liabilities | |||
| Trade and other payables | 9,207 | 8,888 | |
| Bank overdrafts and loans | 1,696 | 2,188 | |
| Income tax payable | - | 278 | |
| Deferred income | 109 | 163 | |
| 11,012 | 11,517 | ||
| Non-current liabilities | |||
| Bank loans | 1,086 | 869 | |
| Deferred tax | 719 | 979 | |
| 1,805 | 1,848 | ||
| Total liabilities | 12,817 | 13,365 | |
| Total equity and liabilities | 27,772 | 27,858 | |
| Consolidated Cash Flow Statement for the year ended 31 December 2008 | |||
| 2008 £000 | 2007 £000 | ||
| Cash flow from operating activities | |||
| Loss before tax | (1,164) | (2,597) | |
| Net finance income | (639) | (58) | |
| Operating loss | (1,803) | (2,655) | |
| Increase in trade receivables | (473) | (123) | |
| Increase in trade payables | 1,046 | 1,496 | |
| Depreciation and amortisation | 2,482 | 1,097 | |
| Share based payments | 161 | 119 | |
| Tax (payments)/refunds | (431) | 490 | |
| Net cash flow from operating activities | 982 | 424 | |
| Cash flow from investing activities | |||
| Acquisition of subsidiary | (301) | (9,894) | |
| Cash acquired with subsidiary | - | 2,079 | |
| Disposal of CODA plc shares | 638 | - | |
| Proceeds from disposal of property, plant and equipment | 144 | 51 | |
| Purchase of plant, property and equipment | (654) | (604) | |
| Interest received | 264 | 185 | |
| Net cash flow from investing activities | 91 | (8,183) | |
| Cash flows from financing activities | |||
| Dividends paid | - | (385) | |
| Interest paid | (296) | (127) | |
| Disposal of own shares | 100 | 2,244 | |
| New bank loan | - | 3,700 | |
| Debt repayments | (1,557) | (2,214) | |
| Net cash flow from financing activities | (1,753) | 3,218 | |
| Net decrease in cash and cash equivalents | (680) | (4,541) | |
| Cash and cash equivalents at the start of the period | 1,700 | 5,934 | |
| Exchange and other movements | 1,488 | 307 | |
| Cash and cash equivalents at the end of the period | 2,508 | 1,700 | |
| Cash and cash equivalent deposits held in non-UK based banks | 4,144 | 2,345 |
| Net bank (overdraft)/deposits with UK based banks | (1,636) | (645) |
| 2,508 | 1,700 | |
| 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 | 2008 | 2007 | |||||||||||
| 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 | 28,480 | (356) | 28,124 | 26,501 | (1,807) | 24,694 | |||||||
| Diluted earnings per share | 29,816 | (356) | 29,460 | 28,584 | (1,807) | 26,777 | |||||||
| Earnings | 2008 | 2007 | |||||||||||
| £000 | £000 | ||||||||||||
| Loss on ordinary activities after taxation | (882) | (2,980) | |||||||||||
| Basic loss per ordinary share | (3.1)p | (12.5)p | |||||||||||
| Diluted loss per share | (3.1)p | (12.5)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. | |||||||||||||
| 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, EMI 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 | ||||||||||||||||||||||||
| The calculation of the Group basic adjusted earnings and diluted adjusted earnings per ordinary share is based on the following data: | ||||||||||||||||||||||||
| Number of shares | 2008 | 2007 | ||||||||||||||||||||||
| 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 | 28,480 | (356) | 28,124 | 26,501 | (1,807) | 24,694 | ||||||||||||||||||
| Diluted earnings per share | 29,816 | (356) | 29,460 | 28,584 | (1,807) | 26,777 | ||||||||||||||||||
| Adjusted earnings | 2008 | 2007 | ||||||||||||||||||||||
| £000 | £000 | |||||||||||||||||||||||
| Loss on ordinary activities after taxation | (882) | (2,980) | ||||||||||||||||||||||
| Adjusted for: | ||||||||||||||||||||||||
| Amortisation of intangible assets | 1,800 | 600 | ||||||||||||||||||||||
| Share based payments | 161 | 119 | ||||||||||||||||||||||
| Exceptional charges | 699 | 496 | ||||||||||||||||||||||
| Realisation of available for sale reserve | (671) | - | ||||||||||||||||||||||
| Adjusted profit/(loss) after taxation | 1,107 | (1,765) | ||||||||||||||||||||||
| Basic adjusted earnings/(loss) per share | 3.9p | (7.4)p | ||||||||||||||||||||||
| Diluted adjusted earnings /(loss) per share | 3.8p | (7.4)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. | ||||||||||||||||||||||||
| 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, EMI 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 2008 and 31 December 2007. Statutory accounts for the year ended 31 December 2008 will be delivered to the Registrar of Companies following the Company's Annual General Meeting. Statutory accounts for the year ended 31 December 2007 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 237(2) or (3) of the Companies Act 1985. 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).