SSY.L Regulatory News (SSY)

SCISYS PLC

(SSY: AIM)

Unaudited Preliminary Results for the year ended 31 December 2013

SCISYS PLC ("SCISYS", "the Group" or "the Company"), the supplier of bespoke software systems, IT based solutions and support services to the Media & Broadcast, Space, Government and Defence sectors, is pleased to announce its unaudited Preliminary Results for the 12 months ended 31 December 2013.

FINANCIAL HIGHLIGHTS  

· Adjusted operating profit1 increased by 19% to £3.2m (2012: £2.7m);

· Adjusted operating margin2 up to 8% (2012: 7%);

· Adjusted earnings per share3 up 31% to 9.3p (2012: 7.1p);

· Total revenue up by 8% to £42.6m (2012: £39.5m);

· Professional fees revenue up 7% to £35.5m (2012: £33.2m);

· Net debt as at 31 December 2013 at £2.7m (2012: £1.2m net cash);

· Year-end order book position up 2% at £31.7m (2012: £31.1m);

· Annual dividend increased to 1.46p (2012: 1.32p) (subject to shareholder approval at the AGM).

OPERATIONAL HIGHLIGHTS

· Contract won with new customer, a major car manufacturer, to provide a customer relationship system to be rolled out to their dealerships globally;

· Major contract signed with Lockheed Martin to provide platform management software onto the UK MoD's Warrior armoured vehicles, as part of its upgrade programme;

· Groundbreaking year for the long-term involvement in the European satellite navigation programme Galileo. Major deliveries have been made to support the Full Operational Capability (FOC) phase;

· Contract signed to replace dira!®radio production and playout system used on all radio channels at BBC Scotland;

· Contract secured with Airbus Defence and Space (formerly Astrium) to develop the onboard software for the Gravity Recovery and Climate Experiment (GRACE) Follow-On mission.

· Egyptian Radio & Television Union (ERTU), Egypt's national broadcaster goes live with dira! ® 

___________________________

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

"During the last quarter of 2013 we saw an uplift in the number of opportunities being converted into contract wins and pleasingly this level of activity has continued during the first months of 2014. With the benefits of the recent restructure and the current high utilisation of staff, this is a good start to the year and an encouraging sign for the future."

Investor Lunch Programme

SCISYS will be holding a series of Investor Lunches in London, Bristol, Birmingham and Leeds for Private Client Investment Managers and Private Investors. Those wishing to attend should contact Tom Cooper on tom.cooper@winningtons.co.uk or 020 3176 4722 for further details.

About SCISYS:

Employing nearly 430 staff, SCISYS is a leading developer of Information and Communications Technology services, e-Business and advanced technology solutions. The Company operates in the Media & Broadcast, Space, Government and Defence sectors. SCISYS clients are predominantly blue chip and public sector organizations. Customers include the Environment Agency, the Ministry of Defence, Airbus Defence and Space, Arqiva, Vodafone, the European Space Agency, Eumetsat, the BBC, RNLI and the National Trust. 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

Overview

SCISYS has delivered a good performance over the year, achieving an improved adjusted operating profit before tax despite challenging trading conditions. The Group's three trading subsidiaries SCISYS UK Ltd, SCISYS Deutschland GmbH and MakaluMedia Internet & Engineering Services GmbH now operate across three market sector focussed divisions. This follows the amalgamation of SCISYS' environment and applications management divisions with the government and defence division to form a single Enterprise Solutions & Defence (ESD) division. The new division has started to show benefits in increased capacity and flexible resourcing across key market facing sectors. It performed well in the second half of the year after taking into consideration the decline of our environment business activities and the related restructuring.  Our Space division also turned in a good performance with the UK Space business unit showing particular improvements. However, disappointingly, our Media & Broadcast division fell short of expectations due to delays in receiving anticipated orders and some sales opportunities being deferred into future years.

Key financials

In the year ended 31 December 2013 SCISYS posted overall revenues of £42.6m, which were up 8% on last year (2012: £39.5m). Within this figure professional fees were up at £35.5m (2012: £33.2m). The Group delivered an increased adjusted operating profit of £3.2m, a 19% improvement on 2012. Operating Profit however is lower at £1.7m (2012: £2.2m) due to the high level of exceptional items charged in the year; with a lower cost base going forward we anticipate this improving in 2014. Adjusted basic earnings per share was up 31% to 9.3p (2012: 7.1p) while basic earnings per share was 4.6p (2012: 5.7p). Cash inflows remained comfortable but cash outflows were higher than in 2012. The Group's net debt position was £2.7m at the year end. This was caused in part by the significant restructuring costs incurred in the second half of 2013 and the anomalously high cash inflows, which occurred at the end of 2012, not being repeated in 2013. We have enjoyed a strong net cash inflow in the opening months of 2014. At 8% (2012: 7%) our adjusted operating margin showed further improvement on the margin achieved in 2012. The Finance Director's report provides more detail on the key financial results achieved during 2013.

Dividend

The Directors are proposing a final dividend of 1.06p per share subject to approval by shareholders at the Annual General Meeting to be held on 22 May 2014. When added to the interim dividend of 0.40p per share paid in November 2013 this gives a full year dividend of 1.46p per share representing an increase of 11% for the year as a whole. The proposed final dividend will be paid on 17 July 2014 to shareholders on the register at 13 June 2014. The shares will go ex-dividend on 11 June 2014. SCISYS is pleased to continue demonstrating its commitment to a progressive dividend policy.

Changes to the PLC Board

From 1 January 2014 Klaus Heidrich took over from David Jones as Chief Executive Officer. This succession plan was put in place in 2012 when Klaus was first appointed to the Board. David remains an Executive Director and has been appointed to the post of Deputy Chairman.

Outlook

During the last quarter of 2013 we saw an up-lift in the number of opportunities being converted into contract wins and pleasingly this level of activity has continued during the first months of 2014. Although the Media & Broadcast market remains challenging, we have established positions with prime contractors on a number of key UK MoD programmes in the ESD division and a good pipeline of new opportunities in the Space division. This position coupled with the current high utilisation of staff has given us an encouraging start to 2014. Recruitment is now restarting as the Group reshapes its capability to match opportunity.

Our year-end cash position is considered unusually low when compared to prior periods; healthy inflows at the start of 2014 have resulted in the Group moving back to a net positive cash position at the end of January. The negative position at year end was caused by a number of phasing and timing issues in anticipated cash receipts in December. The Group has a strong balance sheet and a robust and focussed operational organisation.

Management's emphasis is to continue to drive profit growth, both organically and by making prudent acquisitions. The goal going forward is to achieve double digit margins by end of 2018 underpinned by stronger top line growth. The Group's visible short term prospects provide a firm base for believing further progress will be achieved in 2014.

Dr Mike Love

Chairman

Extract from Chief Executive's overview

SCISYS 2013: Sustainable success in a challenging environment

Although the challenging environment persisted in some of our markets in 2013, SCISYS continued to deliver improvements in its performance.

This outcome demonstrated the robustness of our business, particularly given the various issues we faced during the period. Despite the reduced public sector IT budgets in the UK, deferred and more piecemeal procurement activities and dynamic changes in market demand, we delivered reasonable top line growth and a good improvement in adjusted operating profit.

In part these positive results reflect the restructuring measures implemented during 2013. The new Enterprise Solutions & Defence division was formed as an amalgamation of three former divisions - Government & Defence, Environment and Applications Management to address these different markets more flexibly and also to respond to the decline in the environment business. The scope of service of our head office and infrastructure departments has been re-aligned to the changing markets as well, resulting in an improved cost structure going forward.

Once again all of our divisions have positioned themselves successfully as market experts in the value niches in which they operate. Over the last 12 months divisional performance evolved differently as a consequence of the varying market conditions faced.

The Space division delivered a strong performance, particularly in the second half. Revenues increased significantly, primarily from 10% organic growth and the additional business generated through MakaluMedia, which was acquired in late 2012. The profit generated by the division grew strongly, partly representing the improved profitability of our UK based Space operations.

In a fundamental restructuring during 2013, we established the new combined ESD division as a unit able to deliver its rich spectrum of premium solutions and service to its diverse customer base more flexibly and with a more efficient cost base. This was in response to market changes due to reduced UK government budgets.

Despite these issues total revenues in the ESD division reduced only slightly. This was predominantly attributable to the strong performance in the defence and security markets. As a result of the positive impact of the restructuring measures taken the division managed to maintain its underlying profitability for the year.

The Media & Broadcast division spent considerable effort recovering from a weak first half and consequently was able to maintain its revenues almost at 2012 levels. Business within its established long-term customer community was still positive but the division suffered from deferred procurements from potential and established customers.

In order to secure a future position in both the established client base and also in new territories, the division has increased its sales activities and further improved the dira! ® product line to align it better with customers' future needs.

Delivering to expectations

Long-term customer relationships are built on trust, and our customers trust us more, the more often we deliver to their expectations. Meeting major milestones as planned is therefore vital to our business. During the year SCISYS has achieved an impressive selection of on-time, notable deliveries, including:

· In summer 2013, the dira! ® radio automation and archive system went live at the Egyptian Radio & Television Union, Egypt's public owned radio and TV broadcaster;

· The Media & Broadcast division continued its impressive programme of major deliveries into the BBC. BBC World Service and Radio News switched to their new dira! ® installations. The BBC's operational radio centres in Manchester and London also now run on harmonised dira! ® technology;

· 2013 was a groundbreaking year for the long-term involvement of our Space division in the European satellite navigation programme, Galileo. Major deliveries were made to support the control centre that will control the operational capability of the Galileo system;

· SCISYS specialists, who develop software for deployment on board spacecraft, extended the life of the European Space Agency's (ESA) XMM-Newton, adding substantial value to a pioneering scientific space mission;

· Our now 55-strong SCISYS team in Darmstadt - including the MakaluMedia team who joined in late 2012 - are at the forefront of European space operations.

· The first tranche of the Future Deployable Geospatial Intelligence programme was successfully delivered to the UK Ministry of Defence in H2/2013.;

· The first Shannon class of RNLI lifeboats was put into service. SCISYS supplied the Systems & Information Management System and are working on the next boats for the fleet.

New contracts

SCISYS' new business development strategy creatingorganic growth is supported by three key principles:

1. Our ability to develop the existing clients and to capitalise on existing offerings; and

2. Our ability to identify and exploit opportunities with new customers and in adjacent sectors; and

3. Our ability to build innovation into client solutions and to develop proprietary products.

1. Existing client and product suite contracts:

On the back of our outstanding delivery performance, the Company won a number of important new contracts in 2013, demonstrating our ability to capitalise on existing offerings and leverage our positive track record in similar programmes:

· SCISYS Media & Broadcast division won an additional £1m order to re-equip all Radio Scotland's studios with the latest version of the dira! ® Next Generation radio production and playout software;

· RÙV, the Icelandic public broadcaster has upgraded its dira! ® audio archive to become a true bi-media Media Asset Management system for audio and video;

· The Space division secured a contract for over €1m with Airbus Defence and Space (formerly Astrium) to develop the onboard software for the Gravity Recovery and Climate Experiment (GRACE) Follow-On mission;

· In July 2013 SCISYS signed the Warrior Armoured Fighting Vehicle contract with Lockheed Martin. The expected contract value is around £6m, a proportion of which has already been recognised during 2012. SCISYS provides the Platform Management Software that integrates and controls the systems on the upgraded Warrior.

2. Contracts with new customers and in adjacent sectors include:

We win new customers in existing sectors and in new adjacent sectors by building on the expertise and reputation we have established with our long-term customer community. This again aligns with the sales strategy of each division. 2013 saw a number of successes:

· After SCISYS secured a place on the UK government's latest G-Cloud procurement framework, G-Cloud III, in May 2013, initial work was won for the Office of National Statistics and for the Government Shared Service Centre in York. Subsequently SCISYS secured places on G-Cloud4 in November 2013 and the Digital Services framework in December 2013;

· Following a rigorous competitive process for our ESD division to become a potential supplier under a major car manufacturer's IT procurement framework, they awarded a project to SCISYS in late 2013. SCISYS will deliver a customer relationship system which is intended to be rolled out to the manufacturer's dealerships globally;

· SCISYS' footprint in German national space programmes is continually increasing. For example, on the German satellite communication mission Heinrich Hertz, the German arm of our space division has been selected as a subcontractor by satellite prime OHB.

3. Contracts building innovation into client solutions and development of proprietary products:

We also benefit from our well-established customer relationships as it helps us drive innovation. In close cooperation with our long term customers we extend our offering and grow our own product base where we have protected intellectual property rights:

· The Media & Broadcast division has developed a novel Kiosk Ingest Terminal (KIT) for Germany's largest public broadcaster WDR. This innovative technology allows journalists and cameramen to upload their video footage rapidly which improves their video production process; 

· Robotics & Autonomous Systems are one of the key areas of expertise within our Space division. In 2013, SCISYS completed the SAFER project building on technology developed during a previous project. SAFER aimed to validate operations procedures for ESA's upcoming Martian rover mission, ExoMars;

· MACSYS®, SCISYS' proprietary marine command and control product, as used in the RNLI's Shannon class of lifeboats, is now being offered to a much wider market for integrating diverse electronic systems on a range of other marine vessels.

Acquisitions

Within our growth strategy, the ambition for organic growth is complemented by well-focused activities to grow the business through strategic acquisitions. One important activity during 2013 was the successful integration of MakaluMedia into our German Space business.

In parallel, we have proactively pursued new opportunities in accordance with our acquisition strategy to either expand within our existing business markets or to open up adjacent markets to SCISYS's current range of offerings. We always focus on a good cultural fit as a prerequisite in identifying attractive acquisition candidates.

Alert to the risks associated with acquisitions we have strict criteria governing the targets we will pursue and the valuations we will ascribe to them. That said, we operate in a fragmented market with specialist niches where we can add the value of our expertise and from returns to scale, so we believe that attractive candidates will continue to be available.

In summary: five years of solid progress in line with our strategic objectives

2013 was another successful year for SCISYS, and we thank all our customers, shareholders, business partners and staff for their contributions and continued support of our Company. We have reached the endpoint of our previous 5 year strategic plan having achieved our key financial objectives; a good illustration being our ability to increase our adjusted operating margin from 2% in 2008 to 8% in 2013.

We have started 2014 with high levels of activity which is an encouraging sign for the remainder of the year. We are also starting to recruit again so that our capabilities better match our opportunities in the markets we service. Given the market dynamics in the niches where we are operating, we still approach our expectations for 2014 cautiously but we do see encouraging signs for the year ahead.

Klaus Heidrich

Chief Executive

FINANCE DIRECTOR'S REPORT

I am pleased to report that, following a solid first half performance, trading in the second half of 2013 outstripped the previous year's and produced uplifted full year revenues, underlying profits and operating margins.

Total revenues increased by 8% to £42.6m (2012: £39.5m) whilst the more strategically important element relating to fees derived from provision of professional services grew by 7% to £35.5m (2012: £33.2m). Although these increases largely reflected the inclusion of the first full year's trading from the MakaluMedia business that SCISYS acquired in October 2012, the collective performance of the pre-existing Group business was creditable given the continued challenges of public sector market conditions that led the Board to undertake a major restructuring of the Group in the second half year.

The underlying measure of trading performance, Adjusted Operating Profit, which excludes costs of the Group's long term share incentive schemes, exceptional charges and the amortisation of intangible assets arising on business acquisition, rose 19% to £3.2m (2012: £2.7m). The Adjusted Operating Profit margin lifted to 8% (2012:7%), extending management's record of reporting annual improvements to six consecutive years.

Statutory operating profit was down on the prior year at £1.7m (2012: £2.2m) principally due to exceptional costs of £1.2m incurred in restructuring both divisional and central functions to meet the requirements of a changing market (2012: £0.2m plus £0.1m of acquisition expenses). In addition, amortisation charges relating to intangible assets arising on the acquisition of MakaluMedia amounted to £0.3m in 2013 (2012: immaterial) although there will be no further charge in 2014 as these assets have now been fully written down. Charges for share based payments arising from SCISYS' share incentive schemes were immaterial in both 2013 and 2012.

At the divisional level, results were mixed. The Space division was boosted not only by a full year's contribution from the acquired MakaluMedia business but also by the welcome renaissance of the UK arm that had underperformed in recent years. As a result of continued UK public sector budget pressures, the former Environment division's order intake drought persisted and its remaining team was consolidated into an enlarged Enterprise Systems & Defence (ESD) division along with the Applications Management operational staff. Encouragingly, ESD's particularly strong performance in the defence arena was instrumental in ensuring that the amalgamated division's overall contribution to Adjusted Operating Profit was not more adversely impacted. The Media & Broadcast division also found trading conditions tough, with many major broadcasters stretching budgets by deferring procurement activity and dividing orders into smaller elements.

Adjusted basic EPS, calculated on the profit for the year before post-tax exceptional charges, share based payments and amortisation of acquisition-related intangible assets was up 31% at 9.3p (2012: 7.1p). Basic EPS was 4.6p (2012: 5.7p).

Group net debt at the year-end was £2.7m, which compares unfavourably to the 2012 net cash position of £1.2m. The movement mainly reflects stark differences in phasing of comparable payments and receipts in the weeks either side of the two year ends as, by the end of January 2014, the Group had returned to being net cash positive, confirming the strong underlying nature of the business. Other contributory factors included the settlement of deferred consideration payments for the MakaluMedia acquisition and elevated working capital in the Group's German operations.

The Group closed the year with bank deposits (comprising cash and cash equivalents less overdrafts) of £2.3m (2012: £6.7m). Unutilised working capital facilities totalled £3.0m (2012: £2.6m). Group debt excluding bank overdrafts was £5.0m (2012: £5.5m). 

Sales to the Euro zone comprised 50% (2012: 46%) of SCISYS' revenues and the Euro-Sterling spot rate fluctuated between €1.15/£ and €1.20/£ during the year, averaging €1.18/£ (2012: €1.23/£). SCISYS benefits from a natural currency hedge as Sterling revenues received in Germany from the BBC offset Euro-denominated income from Space division customers of the UK. The Group continues to take out forward currency swap contracts to mitigate potential exposure to exchange losses for the balance of surplus Euro cash receipts.

The effective Group tax rate for the year was 10% (2012: 19%). Some fluctuation in the rate is to be expected as tax in Germany relates to profits computed under German accounting standards which differ from the IFRS profits reported. In addition, amortisation of intangible assets arising on the MakaluMedia acquisition generated a deferred tax credit that depressed the effective tax rate. The rate is maintained at a relatively low level because, whilst German profits are subject to corporation tax at over 30%, UK operations qualify for Research & Development tax credits which result in the Group receiving an offsetting cash rebate from HM Revenue & Customs.

Successful sales activity in the final quarter of 2013 was only partly reflected in the year end order book, which was up 2% at £31.7m (2012: £31.1m). Delays in obtaining formally authorised purchase documentation meant that some wins were not recorded until January 2014, uplifting the order book by around £2m over the year end position.

With encouragingly high levels of sales and operations activity seen in the final quarter of 2013 being maintained to date in 2014, and the benefits of a realigned cost base following last year's restructuring measures, the Group looks well positioned to deliver an improved financial performance in 2014.

Chris Cheetham

Finance Director 

Full Financial Statements

The unaudited Preliminary Report has been prepared under the historical cost convention and in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union and interpretations in issue at 31 December 2013. The Preliminary Report does not constitute statutory financial statements within the meaning of section 434 of the Companies Act 2006 and has not been audited. Comparative figures in the Preliminary Report for the year ended 31 December 2012 have been taken from the Group's audited statutory financial statements on which the Group's auditors, KPMG LLP, expressed an unqualified opinion.

The accounting policies adopted are consistent with those of the annual financial statements for the year ended 30 December 2012, as described in those financial statements. New standards or interpretations which came into effect for the current reporting period did not have a material impact on the net assets or results of the Group. The Preliminary Report will be announced to all shareholders on the London Stock Exchange and published on the Group's website on 26 March 2014.

Further copies of these results, and the full financial statements when published, will be available at the Company's registered office: SCISYS PLC, Methuen Park, Chippenham, Wiltshire, SN14 0GB or on the Company website at www.scisys.co.uk.

Consolidated Income Statement for the year ended 31 December 2013

Consolidated Statement of Comprehensive Income for the year ended 31 December 2013

Consolidated Statement of Changes in Equity

Consolidated Statement of Changes in Equity (continued)

Consolidated Statement of Financial Position as at 31 December 2013

Consolidated Statement of Cash Flows for the year ended 31 December 2013