Last checked at 25 Sep 2009 07:00
System C Healthcare plc
Preliminary Results for Year Ended 31 May 2009
System C Healthcare plc ("System C"), a leading supplier of health and social care products and services, announces its results for the year ended 31 May 2009.
Financial Highlights of the Year
Revenues increased by 21% to £21.9m (2008: £18.1m)
Profit before taxation up 24% to £4.1m (2008: £3.3m)
EPS up 45% at 3.72 pence (2008: 2.56p)
Strong cash generation with a net cash position as at 31 May 2009 of £14.7m (2008: £12.4m)
Acquisition of Bluestar for an initial consideration of £0.4m, plus up to an additional £2.6m based on demanding performance criteria
Acquisition of Liquidlogic in July 2009, for an initial consideration of £10.2m (based on a Net Asset Value of £2.4m) with a deferred consideration of up to £4m. System C's entry into the social care IT market
Total dividend increased by 22% to 0.66p for the full year
Dr Ian Denley, Chief Executive commented:
"We have turned in a strong performance across the Group over the period. We achieved good organic growth in a difficult economic environment, improved profitability, made two strategic acquisitions and have recently completed a successful equity placing to raise £12.0m. We are currently delivering a number of important programmes on behalf of Connecting for Health, as well as implementing our Medway Sigma range of products at an increasing number of NHS Trusts. Our reputation for delivery remains strong and we will continue to focus on providing products and solutions to meet the increasingly varied and complex needs of our customers.
"Our revenues are increasingly diversified across the public, private, healthcare and socialcare sectors. We have had an encouraging start to trading and we are on target to achieve another good performance in 2009/10"
Operational Highlights of the Year
2008/09 was another good year across the System C Group.
Strong demand from existing and new clients meant that services revenues increased by 25% over the year to £15.4m. The delivery team continued to perform well within the government's healthcare IT programme, working with NHS Connecting for Health and Local Service Provider clients. At the same time, the Group saw substantially increased demand for deployment and post go-live services provided directly to NHS trusts. The services team has continued to widen the range of third party products which it can support. System C has now deployed over 30 different departmental and trust-wide third party solutions across the primary, secondary and social care sectors. Service team members also have direct deployment experience of a further 25 systems. This wealth of expertise and experience has cemented the company's position as a flexible one-stop shop for all healthcare IT services.
2008/09 saw a considerable expansion in the Group's product range. The major investment in developing next generation products bore fruit with the successful launch of the new Medway Sigma product suite. We have had over a dozen successful deployments of Medway Sigma this year including patient management, maternity, and business intelligence systems, and the sales pipeline continues to grow. Successful implementations of Medway Sigma included Nottingham NHS Treatment Centre, Heatherwood and Wexham Park Hospitals NHS Foundation Trust and NHS Ayrshire and Arran.
The acquisition of Bluestar in May 2009 brought new and complementary products into the Medway suite including IGFlow, a new product allowing trusts to control flows of sensitive information. This is already being implemented in NHS trusts across Kent. Bluestar has also brought RFID (Radio Frequency Identification) to System C, a key technological addition to the System C product suite.
System C also announced a major contract with NHS Connecting for Health to design and implement pilot Clinical Intelligence Systems in over a dozen NHS trusts across all ten English Strategic Health Authorities.
Since the year end, System C has taken the key step in creating the UK's first major health and social services supplier with the £14.2m acquisition of Liquidlogic, a provider of software and related services to the social care sector. System C is now uniquely placed to meet the national drive for high quality integrated care against a backdrop of reduced public spending, an ageing population and improving but costly treatments.
For further information please contact:
| System C Healthcare plc | |
| Ian Denley, Chief Executive | |
| Andrew Coll, Group Finance Director | Tel: 01622 691 616 |
| Maitland | |
| Emma Burdett | |
| Richard Farnsworth | Tel: 0207 379 5151 |
| Charles Stanley Securities | |
| Russell Cook | |
| Mark Taylor | |
| Jen Boorer | Tel: 0207 149 6000 |
Chairman's Report
Introduction
This has been another good year for System C. We have achieved strong financial growth in a difficult economic environment. Revenues increased by 21% to £21.9m, an operating profit margin of 16% was achieved, and the Group closed the year with £14.7m cash, an increase of £2.3m on 2007/8.
We have continued investing in our product range both through internal development and through strategic acquisition of complementary products and technologies. The acquisitions of Care Records and IQ Systems in the previous financial year, have been fully integrated and their products are now incorporated into the Medway suite. During the last year we successfully deployed over a dozen Medway systems smoothly, on time and within budget.
On the services side, the delivery team continued to perform well within the government's healthcare IT programme for both NHS Connecting for Health and Local Service Provider clients. At the same time, the Group saw substantially increased demand for deployment and post go-live services provided directly to NHS trusts.
During the course of the year, System C also continued its strategic expansion beyond NHS trusts. We successfully completed the implementation of our Medway Sigma Electronic Patient Record and Management system at the Nottingham NHS Treatment Centre, the largest independent sector treatment centre in Europe, for example. We signed a five-year EPR/PAS contract with a Wiltshire-based consortium of GPs which is pioneering government plans to provide selected acute services in a community setting. We launched our flagship Medway product suite into the Middle East healthcare market.
Acquisitions
In May we acquired Bluestar UK Group Ltd, a specialist developer and supplier of innovative healthcare IT solutions, for a maximum consideration of £3 million. Bluestar's products include a Radio Frequency Identification (RFID) system for tracking patients and equipment, an infection control system, and the IGFlow information governance product which helps healthcare providers manage confidential patient data. The products are a good complement for Medway Sigma and have already been integrated with and sold alongside our existing product range.
Since the year-end System C has completed the acquisition of Liquidlogic, an established provider of IT solutions to the social care market in the UK, for a total consideration of up to £14.2m in cash and shares. Through this acquisition we have created the first health and social care IT company of significant scale in the UK.
In conjunction with the Liquidlogic acquisition, System C successfully raised £12.0m through a placing of ordinary shares in the company in order to fund further expansion. The placing was undertaken at a small discount to the mid market price and we are very pleased to have received continued and enthusiastic support for our strategy from both our existing shareholder base and from a number of new institutional investors.
Liquidlogic is the fourth acquisition System C has completed in the last three years. Each of these has brought to the Group complementary products and technology, clients with a need for the wider Group's products and services, and people who share our passion for health and social care and our drive for efficient delivery. We see scope for further acquisitions ahead provided they meet our investment criteria and offer the promise of good returns to our shareholders.
People and the board
We are primarily a people business. Our employees are dedicated, professional and passionate about health and social care. It is these qualities which have enabled us to build and maintain our reputation as a first-rate delivery organisation. The Board would like to take this opportunity to thank everyone for the commitment and hard work that made the year such a success.
We were pleased to have achieved "Best Company" status category under the Sunday Times "Best Companies" criteria again this year. We take our responsibilities to our staff extremely seriously and we are delighted to see our efforts recognised again this year.
System C is also committed to high standards of corporate governance. As an AIM-listed Group, we are not bound by the Combined Code on Corporate Governance, but have voluntarily adopted many of the provisions of the code.
Dividends
The Board is recommending a final dividend of 0.44p, giving a total dividend of 0.66p for the year. This represents an increase of 22% on 2008 and reflects the strong financial performance and cash generation of the business. If approved by the shareholders at the Annual General Meeting on 3 November 2009, the final dividend will be paid on 9 November 2009, to those shareholders on the register on 9 October 2009.
Current trading and outlook
This is a time of considerable political and economic upheaval and there is no doubt that leaner times are ahead for the NHS. However, the Government's drive towards the provision of high quality services within tightening budgets offers further opportunities to the Group across the board. System C's products and services have been designed in order to help manage change and introduce efficiency in healthcare provision. This includes our traditional patient management and clinical systems as well as the healthcare improvement business that we have been growing over the last year.
At the same time, the National Programme for IT is introducing secondary care systems of choice for the three southern Strategic Health Authorities, allowing trusts to choose from a wider range of centrally funded computer systems. This is an interesting development which is expected to speed up the deployment of acute, community and mental health systems in the South and is expected to generate substantial opportunities both for System C's products and for its deployment services.
Finally, at a time when the government is exhorting health and social care services to work much more closely together, System C has by acquisition become the UK's first major health and social services supplier. This reflects our strategy of acquiring businesses that provide strategic advantage in new markets, provide the System C Group with new products and services, and also provide a platform for continued organic growth. We continue to evaluate acquisition opportunities that we believe will add value to the Group.
In summary, we believe that System C is in a good strategic position to help the NHS with its changing priorities. We have had a good start to the new financial year and we are on target to achieve another good performance in 2009/10.
Chief executive officer's review
In 2006, we put in place a detailed strategy to broaden the capability of the System C Group through a long-term investment programme aimed at delivering sustained profitable growth. At its core is the need to drive organic growth through the development of new products and services, and to support that organic growth with an on-going programme of acquisitions.
It is a strategy which delivered for us again in 2008/9. We have been successful in anticipating the direction of travel of the healthcare IT sector, and in developing innovative products and services to meet the increasingly complex requirements of our customers.
Services - world-class delivery capability and capacity
Our investment programme for our services division has focused on the continued development of high calibre and adaptable delivery teams capable of working in a range of care settings, and with a wide range of products.
In 2008/9 we consolidated our position as the deployment partner of choice. The services team continued to widen the number of third party products which it can support and to establish System C as a flexible one-stop shop for all healthcare IT services. We have now successfully deployed over 30 different departmental and trust-wide third party solutions, and service team members have direct deployment experience of a further 25 systems. This breadth makes us unique in our market.
Services growth has come from new and existing clients, including private sector healthcare providers, individual NHS trusts, NHS Connecting for Health and Local Service Providers working under the government's healthcare IT programme. We witnessed particularly high demand for our specialist clinical delivery teams. Our clinical content team, for example, has worked with hundreds of clinicians in complex clinical settings. Strong demand helped the services team grow significantly over the year, and the workforce is continuing to grow further in 2009/10.
Our healthcare improvement team, previously operating as Perigon Consulting, also had a good year. It successfully completed a number of high-profile clinical and service change programmes covering areas such as patient access, commissioning and contracting. A typical project involved redesigning outpatient services for a major London acute trust. In addition to eliminating breaches of the 18-week waiting target, outcomes included a 20% reduction in staff sickness, a 90% drop in patient complaints and a 30% drop in patient 'did not attend' rates.
We have supported this organic growth in services with two recent acquisitions, both of which bring us new skills and new clients. The acquisition of Bluestar has taken us into the growing fields of pathology and diagnostic services modernisation and project support. Similarly, the very recent acquisition of Liquidlogic will support expansion of the services we offer across both the health and social care sectors.
Products - new technologies for changing markets
The investment programme for our products division has focused on the continued development of our next generation Medway Sigma product suite. This investment has involved both internal software development and the strategic acquisition of
complementary products and technologies.
Medway Sigma is a modular electronic patient records system which makes use of the most up-to-date technologies and software development tools. The system is based on the Microsoft platform. By using the latest technologies, System C is able to develop attractive and highly-usable new functionality quickly and cost effectively.
We launched Medway Sigma early in 2008, and since then have had over a dozen successful deployments of the system, including patient management, clinical, maternity, and business intelligence systems. The system is very well received by users, and our sales pipeline continues to grow. Revenues within the products division grew by 13% to £6.5m, driven through organic growth.
In 2007/8, we acquired IQ Systems Services Ltd and Care Records Ltd. IQ provided us with advanced scheduling and theatre management systems for the private sector, and Care Records provided us with complex clinical workflow tools. The integration of these technologies and their respective software teams has now been completed successfully.
The acquisition of Bluestar in May 2009 brought new and complementary products into the Medway suite including RFID (radio frequency identification) a key technological addition to many of our products, allowing clients to track patients, equipment and documentation in real time. Other Bluestar products include IGFlow, a new product allowing trusts to control flows of sensitive information. This product is already being implemented by a consortium of NHS Trusts across Kent.
In May 2008, System C was one of a handful of suppliers to secure a major Additional Services Capability and Capacity Contracts (ASCC) framework agreement with the government for a wide range of products including our flagship Patient Administration System. These four-year contracts will give NHS organisations and other NHS-funded establishments a faster and easier way of procuring IT systems and services from suppliers who have demonstrated experience in the health sector.
We regard this as a key strategic development for the Group. The Group has already won two ASCC contracts and we anticipate winning more as this new procurement process picks up speed. The National Programme for IT recently announced that three southern Strategic Health Authorities, comprising 52 NHS Trusts, could go ahead and procure PAS and clinical care systems of choice from holders of the framework agreement. This development will have the effect of accelerating deployments in the South, providing System C with significant product and services opportunities.
Acquisitions
Our strategy is to identify acquisition opportunities which meet our investment criteria and provide System C with new clients in related markets and/or strategic technologies for use within our Medway Sigma product range.
This was the rationale behind our acquisition of Bluestar in May 2009, and Liquidllogic in July 2009, both of which have developed strong, well-regarded products that meet the complex requirements of the health and social care sectors respectively.
Future strategy
Our strategy remains a clear and consistent focus on achieving profitable growth, while investing in the longer-term core assets of the business - our expertise, our employees, our clients and our Medway Sigma product range.
To achieve this, we need to remain flexible and adaptable, and continue delivering innovative and creative solutions to clients.
This is particularly important as we square up to the significant challenges facing the UK economy and the NHS. The healthcare sector is charged with delivering considerable efficiency savings, and the new watchwords are quality, prevention and innovation. At the same time, the shift away from a command economy and a culture of targets is being replaced by an emphasis on providing services which are sensitive to local needs. All this places a premium on sensitive, timely, secure and high quality information, and on systems and processes that save money and improve care.
The government has made it clear that another theme of the coming months will be the integration of health and social care. The emphasis will be on close collaboration to keep people out of hospital and help them lead happy and full lives. Our investment in Liquidlogic reflects our strong belief in this convergence.
Looking forward, we are confident of further growth. System C's products have been designed in order to help manage change and introduce efficiency in healthcare and social care provision. We believe that the drive towards high quality services within tightening budgets offers both product and consulting opportunities for the Group.
Financial Review
The System C Group has achieved a year of strong growth in both its products and services divisions with group revenue up by 21% to £21.9m (2008: £18.1m). Profit from operations rose by 43% to £3.4m (2008: £2.4m) and earnings per share grew by 1.16p to 3.72p per share (2008: 2.56p).
Revenue
The Group delivered total revenues of £21.9m an increase of £3.8m. This was driven by organic growth within both the services and product divisions as illustrated below:
| Year ended 31 May | 2009 | 2008 |
| £m | £m | |
| System C Products | £6.5m | £5.8m |
| System C Services | £15.4m | £12.3m |
| Total Group Revenue | £21.9m | £18.1m |
| Gross Profit | £12.2m | £10.1m |
| Profit from operations | £3.4m | £2.4m |
| Net financial income | £0.7m | £0.9m |
| Profit before Tax | £4.1m | £3.3m |
| Tax | (£0.9m) | (£1.1m) |
| Profit after Tax | £3.2m | £2.2m |
| Basic EPS | 3.72p | 2.56p |
We continued to focus on expansion of our client base within the public and private sectors. During the year we delivered further core phases of the Isle of Man contract, as well as the first phase of our Clinical Intelligence deployment. The services division has also been expanding the work it undertakes directly for NHS trusts as a complement to the Group's core local service providers (LSP) and central government contracts.
Gross margin
Gross margin remained at circa 56%, broadly in line with the prior year.
Profit from operations
Profit from operations was £3.4m, a 43% increase on 2008 (£2.4m). The increase in revenues and gross margins, combined with the continued control of operating costs, has led to an increase in the margin on profit from operations to 16% from 13% in 2008/9.
The growth in overall research and development expenses reflects the acceleration in investment in the Medway product range. The administrative expenses were largely contained, with only a 5% increase which principally reflected increased bidding costs across the Group.
The Group continues to focus on ensuring that the core cost base is maintained at an appropriate level.
Net financial income
Interest receivable on customer contracts relates mainly to our long term contracts where an element of the charge includes a recovery for finance costs. Interest receivable also includes interest generated on our cash balances.
The interest receivable on cash balances declined this year as the interest rates on deposits fell due to the economic situation.
Taxation
The taxation charge for 2008/09 was £0.9m, equating to 22% of PBT reflecting the benefit of research and development tax credits.
Earnings per share
Basic earnings per share increased to 3.72p (2008: 2.56p). The weighted average number of shares during the period used for the EPS calculation was 87,289,846 (2008: 87,243,442).
Dividends
An interim dividend of 0.22p (2008: 0.18p) was declared and paid during the year. The Board proposes a final dividend of 0.44p (2008: 0.36p) per share bringing the total for the year to 0.66p per share (2008: 0.54p).
Cash and treasury
| 2009 | 2008 | |
| £m | £m | |
| Cash generated from operations | 3.8 | 4.5 |
| Net financial income | 0.8 | 0.7 |
| Acquisition of subsidiaries | (0.5) | (1.8) |
| Capital expenditure | (1.3) | (0.6) |
| Net cash inflow before financing activities | 2.8 | 2.8 |
| Financing activities | (0.5) | (0.9) |
| Net cash inflow | 2.3 | 1.9 |
The Group continued to generate strong cashflow with net cash generated from operating activities of £3.8m (2008: £4.5m).
On 5 May 2009 the Group acquired Bluestar UK Group Ltd. The total cash outlay in the year for this acquisition was £0.4m. Further consideration of up to £2.6m may be payable over three years dependent on the achievement of demanding performance criteria.
On 15 July 2009 the Group acquired Liquidlogic Ltd for an initial cash consideration of £10.2m. The acquired net asset value of £2.4m including £2.3m of cash. Further consideration of up to £4m may be payable under the terms of a one year performance-related earn out arrangement.
In conjunction with the Liquidlogic acquisition, the Group undertook a placing in which £12m was raised through the issue of a further 25 million ordinary shares in System C Healthcare plc at 48p. This was approved by shareholders on Monday 3 August 2009, and the formal admission to the AIM market took place on August 5 2009.
Group Income Statement
| Year Ended | Year Ended | ||
| 31 May | 31 May | ||
| 2009 | 2008 | ||
| Note | £'000 | £'000 | |
| Revenue | 1,2 | 21,887 | 18,128 |
| Cost of sales | (9,657) | (8,075) | |
| Gross profit | 12,230 | 10,053 | |
| Research and development costs | (1,880) | (1,105) | |
| Amortisation of acquired intangible assets | (259) | (183) | |
| Share based payments | (105) | (72) | |
| Administration | (6,565) | (6,250) | |
| Profit from operations before the amortisation of acquired intangibles, impairment of goodwill and share based payments | 3,785 | 2,698 | |
| Profit from operations | 3,421 | 2,443 | |
| Finance income | 3 | 692 | 891 |
| Finance costs | 3 | (11) | (48) |
| Profit before taxation | 4 | 4,102 | 3,286 |
| Taxation | 5 | (857) | (1,052) |
| Profit for the year | 3,245 | 2,234 | |
| Earnings per ordinary share | |||
| - Basic | 6 | 3.72 | 2.56 |
| - Diluted | 6 | 3.66 | 2.54 |
Group Balance Sheet
| At 31 May | At 31 May | |
| 2009 | 2008 | |
| £'000 | £'000 | |
| Assets | ||
| Non-current assets | ||
| Goodwill | 2,306 | 1,884 |
| Other intangible assets | 3,020 | 2,250 |
| Property, plant and equipment | 380 | 415 |
| Deferred tax assets | 373 | 23 |
| Trade and other receivables | 213 | 428 |
| 6,292 | 5,000 | |
| Current assets | ||
| Trade and other receivables | 7,435 | 6,489 |
| Cash and cash equivalents | 14,703 | 12,427 |
| 22,138 | 18,916 | |
| Total Assets | 28,430 | 23,916 |
| Liabilities | ||
| Current liabilities | ||
| Trade and other payables | 4,872 | 4,010 |
| Deferred consideration | 326 | 680 |
| Current tax liability | 792 | 162 |
| 5,990 | 4,852 | |
| Non-current liabilities | ||
| Deferred consideration | 598 | 670 |
| Deferred tax liability | 818 | 414 |
| Provisions | 141 | 104 |
| 1,557 | 1,188 | |
| Total Liabilities | 7,547 | 6,040 |
| Net Assets | 20,883 | 17,876 |
| Shareholders' Equity | ||
| Share capital | 897 | 895 |
| Share premium account | 9,805 | 9,766 |
| Capital redemption reserve | 3,127 | 3,127 |
| Own shares held in trust | (1,235) | (1,235) |
| Retained earnings | 8,289 | 5,323 |
| Total Equity | 20,883 | 17,876 |
Group Statement of Changes in Shareholders' Equity
| Attributable to equity holders of the company | ||||||
| Own | ||||||
| Share | Capital | shares | ||||
| Share | premium | redemption | held in | Retained | Total | |
| capital | account | reserve | trust | earnings | equity | |
|
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
| As at 31 May 2007 | 895 | 9,757 | 3,127 | (1,235) | 3,371 | 15,915 |
| Profit for the year | - | - | - | - | 2,234 | 2,234 |
| Share based payments charge | - | - | - | - | 72 | 72 |
| Deferred tax | - | - | - | - | 12 | 12 |
| Premium on issue of new shares | - | 9 | - | - | - | 9 |
| Dividends | - | - | - | - | (366) | (366) |
| As at 31 May 2008 | 895 | 9,766 | 3,127 | (1,235) | 5,323 | 17,876 |
| Profit for the year | - | - | - | - | 3,245 | 3,245 |
| Share based payments charge | - | - | - | - | 105 | 105 |
| Deferred tax | - | - | - | - | 122 | 122 |
| Issue of new shares | 2 | - | - | - | - | 2 |
| Premium on issue of new shares | - | 39 | - | - | - | 39 |
| Dividends | - | - | - | - | (506) | (506) |
| As at 31 May 2009 | 897 | 9,805 | 3,127 | (1,235) | 8,289 | 20,883 |
Group Cash Flow Statement
| Year ended | Year ended | |
| 31 May | 31 May | |
| 2009 | 2008 | |
| £'000 | £'000 | |
| Cash flows from operating activities | ||
| Cash generated from operations | 3,816 | 4,712 |
| Finance costs | (1) | (21) |
| Income tax paid | (52) | (184) |
| Net cash generated by operating activities | 3,763 | 4,507 |
| Cash flows from investing activities | ||
| Acquisition of subsidiaries, net of cash acquired | (458) | (1,804) |
| Purchases of property, plant and equipment | (225) | (122) |
| Purchase of intangible software | (10) | - |
| Capitalised development costs | (1,174) | (591) |
| Finance income | 845 | 748 |
| Net cash used in investing activities | (1,022) | (1,769) |
| Cash flows from financing activities | ||
| Repayment of borrowings | - | (528) |
| Issue of share capital | 41 | 9 |
| Dividends paid | (506) | (366) |
| Net cash used in financing activities | (465) | (885) |
| Net increase in cash and cash equivalents | 2,276 | 1,853 |
| Cash and cash equivalents at beginning of year | 12,427 | 10,574 |
| Cash and cash equivalents at end of year | 14,703 | 12,427 |
Notes to the cash flow statement: Cash flows from operating activities
| Year ended | Year ended | |
| 31 May | 31 May | |
| 2009 | 2008 | |
| £'000 | £'000 | |
| Profit for the financial year | 3,245 | 2,234 |
| Taxation | 857 | 1,052 |
| Finance income | (692) | (891) |
| Finance costs | 11 | 48 |
| Profit from operations | 3,421 | 2,443 |
| (Increase)/decrease in trade and other receivables | (208) | 752 |
| (Decrease)/increase in trade and other payables | (537) | 702 |
| Net movement on provisions | 37 | 2 |
| Share based payments charge | 105 | 72 |
| Depreciation of property, plant and equipment | 282 | 387 |
| Amortisation of intangible assets | 716 | 352 |
| Loss on disposal of fixed assets | - | 2 |
| Net cash inflow from operating activities | 3,816 | 4,712 |
1. Basis of preparation
The board of Directors approved these preliminary audited results on 24 September 2009.
The financial information set out above is abridged and does not constitute the Company's statutory financial statements for the year ended 31 May 2009 or 31 May 2008. Statutory financial statements for the year ended 31 May 2008 have been reported on by the Company's auditors and delivered to the Registrar of Companies.
The statutory financial statements for the year ended 31 May 2009 will be posted no later than 9 October 2009 to shareholders and once approved will be delivered to the Registrar of Companies following the Annual General Meeting on 3 November 2009. The report for the year ended 31 May 2008 was unqualified.
Copies of the Annual Report and Financial Statements for the year ended 31 May 2009 will be available in due course from the Company Secretary, System C Healthcare plc, Brenchley House, Week Street, Maidstone, ME14 1RF.
2. Segmental information
The Group's primary format for segmental reporting is business segment. As the business only operates in the UK the Group does not have a secondary reporting format.
The Group's sole activity is the design, development and implementation of computer hardware and software. The directors consider it appropriate to analyse the results and financial position of the Group in three distinct segments as this reflects how the business is managed:
The Products segment relates to the business where the Group contracts directly with local NHS trusts and other clinical organisations;
The Services segment relates to the business where the Group is subcontracted to perform work on behalf of other organisations where the end customer is also either the NHS or other clinical organisations;
Development and Shared Services relates to the Group's central research and development activities and support services provided to the Products and Services segments.
The profit/(loss) before taxation of each segment includes any revenue and expenses directly attributable to or able to be allocated to each such segment on a reasonable basis.
| Year ended 31 May 2009 | ||||
| Development | ||||
| and Shared | ||||
| Products | Services | Services | Total | |
| £'000 | £'000 | £'000 | £'000 | |
| Revenue | 6,531 | 15,356 | - | 21,887 |
| Profit/(loss) from operations | 3,135 | 7,002 | (6,716) | 3,421 |
| Financial income | 264 | - | 428 | 692 |
| Financial expense | - | - | (11) | (11) |
| Profit/(loss) before taxation | 3,399 | 7,002 | (6,299) | 4,102 |
| Total assets | 3,267 | 4,222 | 20,568 | 28,057 |
| Total liabilities | (1,328) | (833) | (3,776) | (5,937) |
| Net assets | 1,939 | 3,389 | 16,792 | 22,120 |
| Capital expenditure - PPE | 85 | - | 140 | 225 |
| Capital expenditure - Intangible | - | - | 1,182 | 1,182 |
| Depreciation of tangible assets | 173 | - | 109 | 282 |
| Amortisation of intangible assets | 462 | - | 271 | 733 |
| Share based payment charge | - | - | 105 | 105 |
Segment assets and liabilities are those assets and liabilities directly attributable or which can be allocated to each of the aforementioned segments
| Year Ended 31 May 2008 | ||||
| Development | ||||
| and Shared | ||||
| Products | Services | Services | Total | |
| £'000 | £'000 | £'000 | £'000 | |
| Revenue | 5,790 | 12,338 | 0 | 18,128 |
| Profit/ (loss) from operations | 2,316 | 4,992 | (4,865) | 2,443 |
| Financial income | 294 | 0 | 597 | 891 |
| Financial expense | (20) | 0 | (28) | (48) |
| Profit/ (loss) before taxation | 2,590 | 4,992 | (4,296) | 3,286 |
| Total assets | 3,261 | 3,267 | 17,365 | 23,893 |
| Total liabilities | (1,148) | (755) | (3,561) | (5,464) |
| Net assets | 2,113 | 2,512 | 13,804 | 18,429 |
| Other segmental disclosures | ||||
| Capital expenditure - property, plant and equipment | 47 | - | 75 | 122 |
| Capital expenditure - Intangible assets | 27 | - | 564 | 591 |
| Depreciation of tangible assets | 213 | - | 174 | 387 |
| Amortisation of intangible assets | 142 | - | 210 | 352 |
| Share-based payment credit | - | - | 72 | 72 |
Reportable segments are reconciled to total assets as follows:
| 2009 | 2008 | |
|
| £'000 | £'000 |
| Segmental assets for reportable segments | 28,057 | 23,893 |
| Unallocated | ||
| Deferred tax assets | 373 | 23 |
| Total assets per balance sheet | 28,430 | 23,916 |
Reportable liabilities are reconciled to total liabilities as follows:
| 2009 | 2008 | |
| £'000 | £'000 | |
| Segmental liabilities for reportable segments | 5,937 | 5,464 |
| Unallocated | ||
| Current tax liabilities | 792 | 162 |
| Deferred tax liabilities | 818 | 414 |
| Total liabilities per balance sheet | 7,547 | 6,040 |
3. Finance income and costs
| Group | ||
| Year ended | Year ended | |
| 31 May | 31 May | |
| 2009 | 2008 | |
| £'000 | £'000 | |
| Interest receivable on bank and short term deposits | 428 | 597 |
| Other interest | 264 | 294 |
| Finance income | 692 | 891 |
| Interest payable on bank loans and overdrafts | (1) | (2) |
| Unwinding of discount on deferred consideration | (10) | (27) |
| Interest payable on financing loans (note 14) | - | (19) |
| Finance costs | (11) | (48) |
|
|
| |
| Net Finance Income | 681 | 843 |
4. Profit before taxation
The following items have been included in arriving at profit before taxation:
| Group | ||
| Year ended | Year ended | |
| 31 May | 31 May | |
| 2009 | 2008 | |
| £'000 | £'000 | |
| Staff costs excluding share-based payments | 12,112 | 9,472 |
| Share-based payments charge | 105 | 72 |
| Research and development expenditure | 1,880 | 1,105 |
| Depreciation of property, plant and equipment: | ||
| - Contract assets | 173 | 212 |
| - Other assets | 109 | 175 |
| Amortisation of intangible assets: | 716 | 352 |
| Operating lease rentals: | ||
| - Land and buildings | 221 | 217 |
| - Motor vehicles and other leases | 50 | 55 |
| Loss on disposal of property, plant and equipment | - | 2 |
Services provided by the Company's auditor
During the year the Group obtained the following services from its auditor at cost as detailed below:
| Group | ||
| Year ended | Year ended | |
| 31 May | 31 May | |
| 2009 | 2008 | |
| £'000 | £'000 | |
| Audit services | ||
| Fees payable to the Group's auditor for the audit of the Group and Parent Company and consolidated financial statements | 69 | 50 |
| Fees payable to the Group's auditor for the audit of the financial statements of the subsidiaries | 25 | 20 |
| Non-audit services | ||
| Fees payable for services relating to taxation | 24 | 24 |
| Fees payable for other regulatory reporting | 58 | - |
5. Taxation
(a) Analysis of tax charge in the year
| Group | ||
| Year ended | Year ended | |
| 31 May | 31 May | |
| 2009 | 2008 | |
| £'000 | £'000 | |
| Current Tax | ||
| UK corporation tax on profits for the year at 28% | 790 | 164 |
| Adjustments in respect of prior years | (25) | 24 |
| 765 | 188 | |
| Deferred tax | ||
| Origination and reversal of temporary differences | 245 | 822 |
| Adjustment in respect of prior years | (153) | 42 |
| 92 | 864 | |
| Total tax charge in the income statement | 857 | 1,052 |
| Tax on items credited/(charged) to equity: | ||
| Deferred tax on share-based payment | (122) | (12) |
(b) Factors affecting the tax charge for the year
The total tax charge for the year differs from the standard rate of UK Corporation Tax of 28% (2008: 29.7%) as explained below:
| Group | ||
| Year ended | Year ended | |
| 31 May | 31 May | |
| 2009 | 2008 | |
| £'000 | £'000 | |
| Profit before taxation | 4,102 | 3,286 |
|
|
| |
| Profit before taxation multiplied by the standard rate of | 1,149 | 920 |
| corporation tax in the UK of 28% (2008: 29.7%) | ||
| Permanent Differences | 64 | 117 |
| Amortisation of intangibles not deductible | - | (51) |
| Additional deduction for research and development expenditure | (154) | - |
| Tax relief for share option exercises | (22) | - |
| Adjustments in respect of prior years - deferred tax | (153) | 42 |
| Adjustments in respect of prior years - current tax | (25) | 24 |
| Rate differences on current tax | (2) | - |
| Total tax charge/(credit) per accounts | 857 | 1,052 |
(c) Current tax liability
| Group | ||
| Year ended | Year ended | |
| 31 May | 31 May | |
| 2009 | 2008 | |
| £'000 | £'000 | |
| UK corporation tax liability | ||
| At 1 June | 162 | 92 |
| Arising on acquisitions | 8 | 66 |
| Charged to income statement during the year | 765 | 188 |
| Paid during the year | (143) | (184) |
| At 31 May | 792 | 162 |
(d) Deferred tax reconciliation
| Group | ||
| Year ended | Year ended | |
| 31 May | 31 May | |
| 2009 | 2008 | |
| £'000 | £'000 | |
| (Liability) /asset at 1 June (net) | (391) | 927 |
| Arising on acquisitions | (84) | (466) |
| Charged to income statement during the year | (92) | (864) |
| Credited to shareholders' equity | 122 | 12 |
| At 31 May | (445) | (391) |
(e) Analyses of deferred tax balances in the balance sheet
| Group | ||
| Year ended | Year ended | |
| 31 May | 31 May | |
| 2009 | 2008 | |
| Deferred tax asset: | £'000 | £'000 |
| Accelerated capital allowances | 136 | 98 |
| Unutilised losses | 36 | 74 |
| Share options | 201 | - |
| Short term timing differences | - | (149) |
| 373 | 23 | |
| Deferred tax liability: | ||
| Short term timing differences | (436) | - |
| Intangible assets | (382) | (414) |
| (818) | (414) | |
|
|
| |
| Net deferred tax (liability) | (445) | (391) |
Deferred tax assets have been recognised in respect of all tax losses and other temporary differences giving rise to deferred tax assets because it is probable that those assets will be recovered.
Deferred tax assets and liabilities are only offset where there is a legally enforceable right of offset and there is an intention to settle the balances net.
6. Earnings per share
Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year, excluding those that are held in the employee share trust, which are treated as cancelled.
For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares that have satisfied the appropriate criteria as at 31 May 2009.
A reconciliation between the weighted average number of shares used in the calculations of basic and diluted earnings per share is set out below:
| Year ended 31 May 2009 | Year ended 31 May 2008 | |||||
| Weighted | Weighted | |||||
| average | Per | average | Per | |||
| number | share | number | share | |||
| Earnings | of shares | amount | Earnings | of shares | amount | |
| £'000 | Number | Pence | £'000 | Number | Pence | |
| Basic EPS | ||||||
| Earnings attributable to ordinary shareholders | 3,245 | 87,289,846 | 3.72 | 2,234 | 87,243,442 | 2.56 |
| Effect of dilutive shares | 1,395,956 | (0.06) | 526,856 | (0.02) | ||
| Diluted EPS | 3,245 | 88,685,802 | 3.66 | 2,234 | 87,770,298 | 2.54 |