Sysgroup Regulatory News (SYS)

24 Jan 2007 07:01

System C Healthcare plc24 January 2007 System C Healthcare plc Interim results for the six months ended 30th November 2006 System C Healthcare plc ("the company"), a leading independent provider of ITimplementation solutions for the UK healthcare sector, announces its unauditedinterim results for the six months ended 30 November 2006. Financial Summary For the first time we are reporting our interim financial statements underInternational Financial Reporting Standards ("IFRS"), and comparative resultsfor the six month period ended 30 November 2005 have also been restated inaccordance with IFRS. The financial highlights for the six months ended 30November 2006 are: * Revenue £6.5m (2005: £8.6m) * Profit before tax ("PBT") £0.3m (2005: £0.4m) * Basic earnings per share 0.25p (2005: 0.77p per share) * Operating cash inflow £0.6m (2005: £0.4m outflow) * Net funds £8.6m (2005: £7.0m) * Interim dividend of 0.12p per share declared A reconciliation of the changes arising from the adoption of IFRS on the incomestatement and on equity are given in notes (r) and (s). Ian Denley, Chief Executive said: "Within System C we have expertise gained over twelve years' successfuldevelopment and delivery of IT solutions to the NHS. Despite the recent hiatusin deployments within the National Programme caused by the changes in LocalService Providers ("LSP's") responsibilities, we have continued to develop anddiversify our business and remain well placed, both organisationally andfinancially, to take advantage of the strong future we believe lies ahead forhealthcare informatics." For further information please contact System C Healthcare plcJim Horsburgh, ChairmanDr Ian Denley, Chief ExecutiveAndrew Coll, Finance Director Tel: 01622 691 616 MaitlandEmma BurdettBrian Hudspith Tel: 020 7379 5151 Notes to Editors System C Healthcare plc, established in 1983, specialises in the provision ofinformation systems and solutions to the healthcare sector. Its team ofprofessionals has an average of 14 years healthcare experience and can provideall aspects of systems design, development and deployment services. System C isfounded upon the belief that IT solutions, when effectively implemented, cansignificantly contribute towards improving patient care. System C has installed patient-focused IT systems at over 30 NHS Trusts. Thecompany also offers a wide range of services to Local Service Providers, the NHSand third-party suppliers. These include programme/project/change management,design, build and test, implementation, training, data migration, interfacingand helpdesk/support services. System C employs around 180 staff who are divided between the company's officesin Maidstone, Warrington and Bristol as well as being located throughout the UKat customer sites. System C was recently voted 60th in the Sunday Times 100 bestSMEs to work for in 2006. The company has ISO 9001 quality accreditation andencourages staff development through the National Standard, Investors in People,and has accreditation from the Institute of IT Training. System C is a member ofHealth Level Seven UK (HL7 UK), a group of leading suppliers promoting effectiveand consistent implementation of healthcare information standards in the UK. Website: www.systemc.com Chairman's Statement Introduction System C has been operating in challenging conditions in our core UK market, andas a result revenues fell by £2.1m. However, through implementation of atargeted cost control programme we have minimised the impact to our bottom line,resulting in only a small operating loss for the period of less than £0.1m. Thiscombined with interest income resulted in PBT of £0.3m, a marginal fall from thesame period in the prior year. In addition, we have generated operating cashinflows of £0.6m in the six month period thereby strengthening our cash andbalance sheet position. As well as managing our costs, the Company has been focusing on diversificationof our customer base within Healthcare IT. We have announced significant newcontract wins, and have broadened the scope of our business into the privatesector. In addition we are in advanced contract negotiations that, oncesuccessfully completed, will provide an order book that secures a significantproportion of revenue in the next financial year and beyond. Services Within the NHS National Programme for IT ("the National Programme"), Accenture'sannouncement in September 2006 of their withdrawal from the National Programme,and the final transfer of LSP responsibilities from Accenture to CSC in theNorth East and East clusters on January 8 2007, led to a hiatus in deploymentsduring this period. This resulted in a £2m decline in our Services revenues fromthe prior year. We believe that the restructuring of the LSP situation has been largelyresolved, and that deployment progress on the National Programme is beginning toimprove. Although it is now clear that the ramp-up will be more gradual than therapid acceleration we had previously expected, the total market potential in themedium to long term remains substantial. Products Products revenues fell marginally year-on-year, this was due to the knock-oneffect of the slow down within the National Programme. However a focus onachieving more profitable sale opportunities resulted in an increase in the PBTmargin to 25% (19% in the prior year). We are very pleased to announce that we have secured a major 7 year frameworkcontract win to supply our MedWay Patient Management system to an independenthealthcare community which I refer to in our Contract Wins/Prospects section. Weare also investing in a growing partnership with Microsoft to further developour Electronic Patient Record products. Cost Base We have reduced our cost base by in excess of £2.5m through the implementationof a cost control programme. However we continue to invest in research anddevelopment, as well as maintaining the capability and strength of our Servicesworkforce which will generate future revenue opportunities. Earnings per Share and Dividends Basic earnings per share for the six months ended 30 November 2006 of 0.25 penceper share (0.77 pence in the prior period) is explained in note (g) below. Reflecting the Board's confidence in the company's prospects, an interimdividend of 0.12 pence per ordinary share is declared. This will be paid on 13March 2007 to those shareholders on the register at the close of business on 16February 2007. Contract Wins/Prospects Our prospects within the National Programme remain strong. System C is currentlyconcluding contract details with a number of clients, and we are confident that,once these negotiations have been successfully completed, we will have an orderbook that secures a significant proportion of our Services revenue in futureyears. Our specialist expertise and excellent reputation in our marketplace putsus in a good position to secure additional work and expand upon the contractedminimum order book. In addition, we have continued to diversify into the private sector and havesecured a new contract to provide specialist IT healthcare support services to amajor player in diagnostic services. We recently announced that we have signed a framework agreement for a majormulti-million pound contract to supply our MedWay Patient Management andElectronic Patient Record system and various ancillary products and services toan independent healthcare community. This is the first large-scale systemprocurement of its type for some time, and it is very encouraging that we wereable to win it against competition from major global product suppliers. Thissuccess demonstrates the strength of our MedWay product suite and significantlystrengthens our Product order book. Outlook The Board continues to believe that healthcare informatics has a strong future,and despite these turbulent times, we continue to focus on securingopportunities, expanding the client base and controlling our cost base so as tomaintain and grow our strong cash position. We are ensuring that we retainflexibility in our business to support long term opportunities and will beplacing increasing focus on the creation of new products for both the UK andinternational healthcare markets. Jim HorsburghChairman 1.Income Statement Six months to Six months to Year Ended 30 Nov 2006 30 Nov 2005 31 May 2006 (unaudited) (unaudited) (unaudited) £ £ £ Revenue 6,481,903 8,580,971 16,080,264Cost of sales (3,388,789) (4,134,987) (8,086,450) ------------------------------------------Gross profit 3,093,114 4,445,984 7,993,814Selling and marketing costs (346,367) (331,014) (708,592)Research and development costs (631,166) (586,407) (1,059,860)Administration and general overheads (2,159,470) (3,390,778) (6,096,520) ------------------------------------------(Loss)/profit from operations (43,889) 137,785 128,842Interest receivable 384,111 345,067 713,348Interest payable (58,955) (95,011) (169,046) ------------------------------------------Profit before income tax 281,567 387,841 673,144Income tax (credit)/expense (58,247) 261,040 411,262 ------------------------------------------Profit for the period 223,320 648,881 1,084,406 ------------------------------------------ Earnings per ordinary share - basic 0.25p 0.77p 1.25p- diluted 0.25p 0.75p 1.23p The results above relate entirely to continuing operations and the figures forthe six month period ended 30 November 2005 and the year ended 31 May 2006 havebeen restated in accordance with IFRS. 2. Balance Sheet At 30 Nov At 30 Nov At 31 May 2006 2005 2006 (unaudited) (unaudited) (unaudited) £ £ £ASSETSNon-current assetsProperty, plant and equipment 822,277 1,471,991 1,021,429Intangible assets 198,262 167,414 161,332Deferred income tax assets 1,189,698 1,064,604 1,205,163 ------------------------------------------ 2,210,237 2,704,009 2,387,924 ------------------------------------------Current assetsTrade and other receivables 6,961,082 7,278,540 7,455,366Cash and cash equivalents 9,578,854 9,450,289 9,547,985 ------------------------------------------ 16,539,936 16,728,829 17,003,351LIABILITIESCurrent liabilitiesTrade and other payables 2,241,947 1,949,480 2,516,434Current income tax liabilities 42,784 189,086 0Borrowings 826,805 1,386,978 992,366 ------------------------------------------ 3,111,536 3,525,544 3,508,800 ------------------------------------------NET CURRENT ASSETS 13,428,400 13,203,285 13,494,551 ------------------------------------------ TOTAL ASSETS LESS CURRENTLIABILITIES 15,638,637 15,907,294 15,882,475 ------------------------------------------ Non-current liabilitiesBorrowings 197,704 1,024,511 528,122Provisions and other liabilities 86,472 97,683 81,407 ------------------------------------------ 284,176 1,122,194 609,529 ------------------------------------------NET ASSETS 15,354,461 14,785,100 15,272,946 ------------------------------------------ SHAREHOLDERS' EQUITYShare capital 894,380 884,594 892,765Share premium account 9,751,562 9,624,055 9,731,885Capital redemption reserve 3,127,023 3,127,023 3,127,023Own shares held in trust (1,235,381) (1,235,381) (1,235,381)Retained earnings 2,816,877 2,384,809 2,756,654 ------------------------------------------TOTAL EQUITY 15,354,461 14,785,100 15,272,946 ------------------------------------------ The figures as at 30 November 2005 and 31 May 2006 have been restated inaccordance with IFRS. 3. Statement of changes in Shareholders' Equity Attributable to equity holders of the company Share Capital Share premium redemption Own shares Retained Special Total capital account reserve held in trust earnings reserve Equity (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) £ £ £ £ £ £ £ As at 1 June 2005 414,684 0 134 0 511,624 1,308,496 2,234,938Loss for the period 0 0 0 0 648,881 0 648,881Share based paymentschange 0 0 0 0 37,334 0 37,334Deferred tax (note 7d) 0 0 0 0 (108,730) 0 (108,730)Issue of new shares 469,910 0 0 0 0 0 469,910Premium on 1p ordinaryshares issued 0 10,798,920 0 0 0 0 10,798,920Issue costs 0 (1,354,461) 0 0 0 0 (1,354,461)Credit on conversion of the Company's £1 convertible participating preference shares 0 0 3,126,889 0 0 0 3,126,889Premium on settlement of accrued dividend 0 179,596 0 0 0 0 179,596Employee benefits trust 0 0 0 (1,235,381) 0 0 (1,235,381)Release of special reserve 0 0 0 0 1,308,496 (1,308,496) 0Dividends 0 0 0 0 (12,796) 0 (12,796) ----------------------------------------------------------------------------------------------As at 30 November 2005 884,594 9,624,055 3,127,023 (1,235,381) 2,384,809 0 14,785,100Profit for the period 0 0 0 0 435,525 0 435,525Share based paymentschange 0 0 0 0 37,333 0 37,333Deferred tax (note 7d) 0 0 0 0 (6,224) 0 (6,224)Issue of new shares 8,171 0 0 0 0 0 8,171Premium on issue of new shares 0 107,830 0 0 0 0 107,830Dividends 0 0 0 0 (94,789) 0 (94,789) ----------------------------------------------------------------------------------------------As at 31 May 2006 892,765 9,731,885 3,127,023 (1,235,381) 2,756,654 0 15,272,946Profit for the period 0 0 0 0 223,324 0 223,324Share based paymentschange 0 0 0 0 28,629 0 28,629Issue of new shares 1,615 0 0 0 0 0 1,615Premium on issue of new shares 0 19,677 0 0 0 0 19,677Dividends 0 0 0 0 (191,727) 0 (191,727) ----------------------------------------------------------------------------------------------As at 30 November 2006 894,380 9,751,562 3,127,023 (1,235,381) 2,816,880 0 15,354,464 ---------------------------------------------------------------------------------------------- The figures for the six month period ended 30 November 2005 and the year ended31 May 2006 have been restated in accordance with IFRS. 4. Cash Flow Statement Six months to Six months to Year Ended 30 Nov 2006 30 Nov 2005 31 May 2006 (unaudited) (unaudited) (unaudited) £ £ £Cash flows from operating activitiesCash generated from/(used in)operations 637,605 (278,837) 461,853Interest paid (58,955) (95,011) (169,046)Income tax paid 0 0 (1,357) ------------------------------------------Net cash generated by/(used in)operating activities 578,650 (373,848) 291,450 ------------------------------------------ Cash flows from investing activitiesPurchases of property, plant andequipment (164,214) (42,252) (54,299)Capitalised development costs (98,251) (56,236) (102,011)Interest received 381,099 355,552 716,010 ----------------------------------------Net cash generated from investingactivities 118,634 257,064 559,700 ---------------------------------------- Cash flows from financing activitiesRepayment of borrowings (495,979) (457,049) (933,163)Issue of equity share capital 21,292 11,059,720 11,175,825Issue costs 0 (1,354,461) (1,354,461)Payments to acquire own shares heldin trust 0 (1,235,381) (1,235,381)Redemption of non-equity preferenceshares 0 (71,000) (71,000)Dividends paid (191,728) (123) (95,465) ------------------------------------------Net cash (used in)/generated fromfinancing activities (666,415) 7,941,706 7,486,355 ------------------------------------------ Increase in cash and cashequivalents 30,869 7,824,922 8,337,505 Net cash and cash equivalents atbeginning of period* 9,547,985 1,210,480 1,210,480 ------------------------------------------Net cash and cash equivalents at end of period* 9,578,854 9,035,402 9,547,985 ------------------------------------------ *Net cash and cash equivalents includes overdrafts, if any, which are disclosedas borrowings within current liabilites. 5. Notes to the cashflow statement Six months to Six months to Year Ended 30 Nov 2006 30 Nov 2005 31 May 2006 (unaudited) (unaudited) (unaudited) £ £ £ (Loss)/profit from operations (43,889) 137,785 128,842(Increase)/decrease in receivables 497,596 207,306 38,424Increase/(decrease) in payables (277,137) (1,047,234) (664,570)Depreciation 366,020 459,339 920,882Amortisation of intangible assets 61,321 62,845 115,242Charge for share based payments 28,629 37,334 74,667Movement in provisions 5,065 (136,212) (152,488)Loss on disposal of fixed assets 0 0 854 ------------------------------------------Net cash inflow/(outflow) fromoperating activities 637,605 (278,837) 461,853 ------------------------------------------ 6. Segmental Information The company's sole activity is the design, development and implementation ofcomputer hardware and software. The directors consider it appropriate to analysethe results and financial position of the company in three distinct segments asthis reflects how the business is managed: * The Products segment relates to business where the company contracts directly with local NHS trusts and other clinical organisations; * The Services segment relates to the business where the company 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 company's central research and development activities and support services provided to the Products and Services segments. As the business only operates in the UK the company does not have a secondaryreporting format. Six months Six months Year ended to 30 Nov to 30 Nov 31 May 2006 2006 2006 (unaudited) (unaudited) (unaudited)BY BUSINESS SEGMENT £ £ £ REVENUEServices 4,719,253 6,684,542 12,609,841Products 1,762,650 1,896,429 3,470,423Development and Shared Services 0 0 0 ------------------------------------------Company 6,481,903 8,580,971 16,080,264 ------------------------------------------ PROFIT BEFORE TAXServices 1,780,852 2,602,434 4,742,420Products 449,543 363,523 634,678Development and Shared Services (1,948,828) (2,578,116) (4,703,954) ------------------------------------------Company 281,567 387,841 673,144 ------------------------------------------ 7. Notes to the Interim Financial Statements Summary of significant accounting policies a) Basis of preparation The interim financial statements of System C Healthcare plc are for the sixmonths ended 30 November 2006. They have been prepared in accordance with IAS 34- Interim Financial Reporting, and are covered by IFRS 1 - First-time Adoptionof IFRS, as they are part of the period covered by the company's first IFRSfinancial statements for the year ending 31 May 2007. These interim financial statements have been prepared in accordance with thoseIFRS standards and IFRIC Interpretations issued and effective as at the time ofissuing these interim financial statements. The IFRS standards and IFRICInterpretations that will be applicable at 31 May 2007, including those thatwill be applicable on an optional basis, are not known with certainty at thetime of preparing these interim financial statements. The policies set out below have been consistently applied to all the periodspresented. System C's financial statements were prepared in accordance with UKGenerally Accepted Accounting Principles (UK GAAP) until 31 May 2006. UK GAAPdiffers in some areas from IFRS. In preparing System C's 2007 interim financial statements, management hasamended certain accounting and valuation methods applied in the UK GAAPfinancial statements to comply with IFRS. The comparative figures in respect of2006 were restated to reflect these adjustments. b) Non Statutory Accounts These unaudited interim statements do not constitute statutory financialstatements within the meaning of Section 240 of the Companies Act 1985. Thefinancial statements for the year ended 31 May 2006 were prepared in accordancewith UK GAAP and have been delivered to the Registrar of Companies and on whichthe auditors issued an unqualified report. The comparative figures for the yearended 31 May 2006 have been restated as highlighted in the "Basis ofPreparation" note above and are an abridged version of the full financialstatements (as restated for IFRS) for that period. No financial statements willbe filed for the six months ended 30 November 2006. c) Transition to IFRS Application of IFRS 1 The company's financial statements for the year ended 31 May 2007 will be thefirst annual financial statements that are reported under IFRS. These interim financial statements have been prepared in accordance withInternational Accounting Standards ("IAS") and International Financial ReportingStandards ("IFRS") as adopted by the European Union and the company has appliedIFRS 1 in preparing these interim financial statements. System C Healthcare plc's transition date for the adoption of IFRS is 1 June2005 and the company has prepared its opening IFRS balance sheet at that date. In preparing these interim financial statements in accordance with IFRS 1, thecompany has applied the mandatory exemptions and elected to take advantage ofthe exemption in IFRS 1 regarding IFRS 2 "Share based payments" for such itemsgranted on or before 7 November 2002. d) Main impacts of International Financial Reporting Standards Outlined below are those International Financial Reporting Standards which willhave an impact upon the financial statements of System C Healthcare plc. Thenumerical impact of the adoption of IFRS on the income statement andshareholders' equity is given in notes (r) and (s) and a brief summary of thechanges is given below: IAS 38 - 'Intangible Assets'Under UK GAAP, development costs were expensed to the profit and loss account asincurred. IAS 38 requires software to be disclosed as intangible assets rather than asfixed assets as required by UK GAAP. This has resulted in the reclassificationof the net book value of capitalised software previously included withintangible fixed assets to intangible assets of £67,848, £91,706 and £123,606 asat 31 May 2006, 30 November 2005 and 1 June 2005 respectively. The effect ofthis change for the six months ended 30 November 2006 is a reclassification of£52,570. IAS 38 requires development costs to be capitalised once certain criteria havebeen met. The company has recognised development costs as intangible assets onceit is probable that the product will generate future economic benefits, it istechnically feasible and the costs can be measured reliably. All otherdevelopment costs are expensed to the income statement as incurred. This changehas resulted in the recognition of development costs in the balance sheet (afteramortisation) of £145,692, £93,484, £75,708 and £50,957 as at 30 November 2006,31 may 2006, 30 November 2005 and 1 June 2005. The results for the period havebeen increased by £52,206, £42,529 and £24,751 for the six months ended 30November 2006, the year ended 31 May 2006 and the six months ended 30 November2005 by the reversal of development costs previously expensed to the incomestatement under UK GAAP. IAS 12 - 'Income Taxes'This standard requires entities to provide for deferred taxation based ontemporary differences between the carrying amount of assets and liabilities andtheir tax base. Accordingly the company has made adjustments to the provisionfor deferred taxation in respect of share based payments and capitaliseddevelopment costs. This has resulted in a reduction in the deferred tax asset of£25,936 and £14,873 as at 31 May 2006 and 30 November 2005 and an increase inthe deferred tax asset as at 1 June 2005 of £100,289. The impact of adoptingIFRS has also meant a reduction in the deferred tax asset of £27,007 compared toUK GAAP as at 30 November 2006. An element of the deferred tax effect relatingto share based payments has been recognised in retained earnings as shown in thestatement of changes in shareholders' equity with the balance recognised in theincome statement. IAS 32 - 'Financial instruments: Disclosure and Presentation'IAS 32 requires preference shares to be classified as either equity instrumentsor non-equity instruments in accordance with the underlying nature of theinstrument and disclosed as part of shareholders' funds or as borrowings. UnderUK GAAP such preference shares were treated as non-equity instruments anddisclosed as part of shareholders' funds. This change has resulted in areclassification of the company's £1 redeemable preference shares and thecompany's £1 convertible participating preference shares as at 1 June 2005 fromshareholders' funds of £3,406,999 to non-current borrowings. Thisreclassification is not relevant to subsequent reporting periods as these shareswere redeemed/converted as part of the company's admission to AIM on 28 June2005. IFRS 2 - 'Share Based Payments'Under IFRS, share options has been measured at fair value at the grant date andcharged to the income statement over the vesting period of the option. Thecharge has been calculated with reference to the Black-Scholes option pricingmodel. The vesting period under IFRS includes any service period, together with theperformance period, if any. The total impact of this change has resulted inadditional charges for share based payments in the income statement of £74,667for the year ended 31 May 2006 and £37,334 for the six months ended 30 November2005. The effect for the six month period ended 30 November 2006 is a netincrease in the charge for share based payments of £28,629 compared to UK GAAP.The additional charges for share based payments has no impact on retainedearnings as the reduction in the result shown in the income statement for eachperiod is off-set by a corresponding entry to retained earnings in accordancewith IFRS 2. e) Revenue recognition Revenue is measured at the fair value of consideration received or receivableand represents amounts receivable for goods and services provided to thirdparties in the normal course of business during the period, net of value addedtax and discounts and results from the principal activity of the company. Eachelement of revenue (described below) is recognised only when: * Delivery of goods or provision of services has occurred; * There are no significant vendor obligations remaining; and * Collection of the amount due from the customer is reasonably assured. Revenue from the sale of software licences is recognised in the income statementas the system modules are installed. Typically the sale will match the projectimplementation timescale in accordance with specified contract milestones. Revenue from the related implementation is recognised in the income statementproportionally over the implementation period as those services are provided.Revenue from maintenance, support and other services is recognised over thecontracted term of supply. Hardware revenue is recognised in line with, and approximates to, thedepreciation charge on such assets, as capitalised within tangible fixed assetsand disclosed as contract assets. Revenue from healthcare services is recognised as the service is delivered andapproved by the client. Revenue which has been recognised by the company but has not been invoiced as atthe period end, is included within prepayments and accrued income. Invoices raised in advance of the provision of goods/services to customers arerecorded in the balance sheet as deferred income and included within tradedebtors. Such amounts are recognised in the income statement as those goods/services are provided to the customer. f) Interest receivable on contracts An element of the amounts invoiced to certain customers in respect of contractsto supply Electronic Patient Records (EPR) systems and other ancillary items isdisclosed within interest receivable. Such amounts are based on the company'snet investment in the contracts taking into account payments received from thecustomer to date. g) Earnings/(loss) per share The calculation of earnings/(loss) per ordinary share is based on the profitafter taxation for the period of £223,320 (six months ended 30 November 2005£648,881) and the weighted average number of ordinary shares in issue during theperiod of 89,416,685 (six months ended 30 November 2005 84,549,607). The calculation of diluted earnings per ordinary share is based on the weightedaverage number of ordinary shares in issue as adjusted to assume conversion ofall dilutive potential ordinary shares, 89,819,929 (six months ended 30 November2005, 86,639,209). h) Employee benefits (a) Pension obligations The company operates a stakeholder pension scheme and the assets of the scheme are held separately from those of the company in an independently administered fund. In addition to this the company contributes to the personal pension plans of certain employees. The pension cost charge for the period is reflected in the income statement and represents contributions payable to the defined contribution pension scheme plus amounts payable by the company to the personal pension plans of certain employees. Any shortfall or excess in the contributions payable by the company in relation to the pension cost charge for the year are included in accruals or prepayments as appropriate. (b) Share options Where share options are granted to employees as part of their remuneration, the fair value as at date of grant is calculated using an appropriate option pricing model and the corresponding expense is recognised over the vesting period. Proceeds received on the exercise of share options are credited to share capital (nominal value) and share premium (if applicable) net of any directly attributable transaction costs. In accordance with IAS 37 'Provisions, contingent liabilities and contingent assets' the employer's National Insurance charge arising on future potential gains by employees on the exercise of unapproved share options is charged to the profit and loss account over the period from the date of grant to the date the options unconditionally vest with the employee. The charge is based on the difference between the option exercise price and the closing market value of the shares at the balance sheet date and is calculated using the latest enacted National Insurance contribution rates in the UK taking into account the number of share options outstanding at the balance sheet date which are expected to be exercised. i) Property, plant and equipment All property, plant and equipment (PPE) is shown at cost less accumulateddepreciation and any accumulated impairment losses. Cost includes expenditure that is directly attributable to the acquisition ofthe items.Depreciation on assets is calculated using the straight-line method to allocatethe cost of each asset less its residual value over its estimated useful life,as follows: * Leasehold improvements Over the term of Lease * Fixtures and fittings 15 per cent straight - line * Plant and equipment 25 per cent straight - line * Computer equipment 25 per cent straight - line * Contract assets 25 per cent straight - line (included in cost of sales) Assets utilised in arrangements similar to Private Finance Initiatives andsimilar contracts are included as fixed assets as the company primarily bearsthe risks and rewards of any variation in profit/losses arising from suchassets. j) Intangible assets (a) Computer software Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring into use the specific software. These costs are amortised over their estimated useful lives which typically do not exceed four years. Costs associated with maintaining computer software are recognised as an expense in the income statement as incurred. (b) Research and development Research expenditure is recognised as an expense as incurred. Costs incurred on development projects (relating to the design and testing of new or improved products) are recognised as intangible assets when it is probable that the project will be a success, considering its commercial and technological feasibility, and costs can be measured reliably. Other development expenditures are recognised as an expense as incurred. Where, development costs are initially recognised as an expense (as IAS 38criteria are not met), but subsequently the IAS 38 criteria are deemed to havebeen satisfied, are not recognised as an asset in a subsequent period. k) Deferred income tax Deferred income tax is provided in full, using the liability method, ontemporary differences arising between the tax bases of assets and liabilitiesand their carrying amounts in the financial statements. Deferred income tax isnot accounted for if it arises from initial recognition of an asset or liabilityin a transaction, other than a business combination, that at the time of thetransaction affects neither accounting nor taxable profit or loss. Deferredincome tax is determined using tax rates and laws that have been enacted orsubstantially enacted by the balance sheet date and are expected to apply whenthe related deferred income tax asset is realised or the deferred income taxliability is settled. Deferred income tax assets are recognised to the extentthat it is probable that future taxable profit will be available against whichthe temporary differences can be utilised. l) Cash and cash equivalents Cash and cash equivalents include cash in hand, deposits held at call withbanks, other short-term highly liquid investments with original maturities ofthree months or less, and bank overdrafts. Any bank overdrafts are shown within borrowings in current liabilities on thebalance sheet. m) Financial instruments The company's financial instruments comprise borrowings, cash and cashequivalents and other items, such as trade receivables, trade payables etc thatarise directly from its operations. The main purpose of these financialinstruments is to provide working capital and raise finance for the company'soperations. The company does not enter into derivative transactions (such as interest rateswaps and forward contracts) and it is, and has been throughout the period underreview, the company's policy that no trading in financial instruments shall beundertaken. n) Provisions Provisions for liabilities are recognised when the company has a present legalor constructive obligation as a result of past events, and it is considered morelikely than not that an outflow of resources will be required to settle thatobligation, and the amount can be reliably estimated. Provisions are measured atthe present value of the directors' best estimate of the expenditure required tosettle the obligation at the balance sheet date and discounted where the effectis material. o) Leases Leases of property, plant and equipment where the company has substantially allthe risks and rewards of ownership are classified as finance leases. Financeleases are capitalised at the lease's inception at the lower of the fair valueof the leased property and the present value of the minimum lease payments. Eachlease payment is allocated between the liability and finance charges so as toachieve a constant rate on the finance balance outstanding. The correspondingrental obligations, net of finance charges, are included in other long-termpayables. The interest element of the finance cost is charged to the incomestatement over the lease period so as to produce a constant periodic rate ofinterest on the remaining balance of the liability for each period. Property,plant and equipment acquired under finance leases is depreciated over theshorter of the asset's useful life and the lease term. Leases where the lessor retains substantially all the risks and rewards ofownership are classified as operating leases. Payments made under operatingleases (net of any incentives received from the lessor) are charged to theincome statement on a straight-line basis over the period of the lease. p) Dividend distributions Interim dividends are recognised in the financial statements in the period inwhich they are paid. Final dividends to the company's shareholders are recognised as a liability inthe financial statements in the period that the dividends are formally approvedby the company's members. q) Own shares held in trust System C Healthcare plc's own shares owned by the employee share trust arepresented as a reduction of equity. r) Reconciliation of Income Statement - UK GAAP to IFRS Six months Six months Year ended to 30 Nov to 30 Nov 31 May 2006 2006 2006 (unaudited) (unaudited) (unaudited) £ £ £ PROFIT FOR THE PERIOD PER UK GAAP 200,814 667,896 1,127,815 Share based payments (28,629) (37,334) (74,667)Net capitalisation of development costs 52,206 24,751 42,529Deferred taxation (1,071) (6,432) (11,271) ------------------------------------------PROFIT FOR THE PERIOD UNDER IFRS 223,320 648,881 1,084,406 ------------------------------------------ s) Reconciliation of Balance Sheet - UK GAAP to IFRS At 30 November 2006 At 30 November 2005 Effect of Effect of GAAP IFRS IFRS GAAP IFRS IFRS (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) £ £ £ £ £ £ASSETSNon-current assetsProperty, plant and equipment 874,847 (52,570) 822,277 1,563,697 (91,706) 1,471,991Intangible assets 0 198,262 198,262 0 167,414 167,414Deferred income tax assets 1,216,705 (27,007) 1,189,698 1,079,477 (14,873) 1,064,604 -------------------------------------------------------------------------------- 2,091,552 118,685 2,210,237 2,643,174 60,835 2,704,009Current assets Trade and other receivables 6,961,082 0 6,961,082 7,278,540 0 7,278,540Cash and cash equivalents 9,578,854 0 9,578,854 9,450,289 0 9,450,289 -------------------------------------------------------------------------------- 16,539,936 0 16,539,936 16,728,829 0 16,728,829LIABILITIESCurrent liabilitiesTrade and other payables 2,241,947 0 2,241,947 1,949,480 0 1,949,480Current income tax liabilities 42,784 0 42,784 189,086 0 189,086Borrowings 826,805 0 826,805 1,386,978 0 1,386,978 -------------------------------------------------------------------------------- 3,111,536 0 3,111,536 3,525,544 0 3,525,544 --------------------------------------------------------------------------------TOTAL ASSETS LESS CURRENT LIABILITES 15,519,952 118,685 15,638,637 15,846,459 60,835 15,907,294 -------------------------------------------------------------------------------- Non-current liabilitiesBorrowings 197,704 0 197,704 1,024,511 0 1,024,511Provisions 86,472 0 86,472 97,683 0 97,683 -------------------------------------------------------------------------------- 284,176 0 284,176 1,122,194 0 1,122,194 --------------------------------------------------------------------------------NET ASSETS 15,235,776 118,685 15,354,461 14,724,265 60,835 14,785,100 -------------------------------------------------------------------------------- SHAREHOLDERS' EQUITYShare capital 894,380 0 894,380 884,594 0 884,594Share premium account 9,751,562 0 9,751,562 9,624,055 0 9,624,055Capital redemption reserve 3,127,023 0 3,127,023 3,127,023 0 3,127,023Own shares held in trust (1,235,381) 0 (1,235,381) (1,235,381) 0 (1,235,381)Special reserve 0 0 0 0 0 0Retained earnings 2,698,192 118,685 2,816,877 2,323,974 60,835 2,384,809 --------------------------------------------------------------------------------TOTAL EQUITY 15,235,776 118,685 15,354,461 14,724,265 60,835 14,785,100 -------------------------------------------------------------------------------- s) Reconciliation of Balance Sheet - UK GAAP to IFRS - continued At 31 May 2006 At 1 June 2005 Effect of Effect of GAAP IFRS IFRS GAAP IFRS IFRS (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) £ £ £ £ £ £ASSETSNon-current assetsProperty, plant and equipment 1,089,277 (67,848) 1,021,429 2,017,883 (123,606) 1,894,277Intangible assets 0 161,332 161,332 0 174,563 174,563Deferred income tax assets 1,231,099 (25,936) 1,205,163 812,005 100,289 912,294 -------------------------------------------------------------------------------- 2,320,376 67,548 2,387,924 2,829,888 151,246 2,981,134Current assetsTrade and other receivables 7,455,366 0 7,455,366 7,506,816 0 7,506,816Cash and cash equivalents 9,547,985 0 9,547,985 1,223,242 0 1,223,242 -------------------------------------------------------------------------------- 17,003,351 0 17,003,351 8,730,058 0 8,730,058LIABILITIESCurrent liabilitiesTrade and other payables 2,516,434 0 2,516,434 3,376,913 0 3,376,913Current income taxliabilites 0 0 0 4,796 0 4,796Borrowings 992,366 0 992,366 933,163 0 933,163 -------------------------------------------------------------------------------- 3,508,800 0 3,508,800 4,314,872 0 4,314,872 --------------------------------------------------------------------------------TOTAL ASSETS LESS CURRENT LIABILITES 15,814,927 67,548 15,882,475 7,245,074 151,246 7,396,320 -------------------------------------------------------------------------------- Non-current liabilitiesBorrowings 528,122 0 528,122 1,520,488 3,406,999 4,927,487Provisions 81,407 0 81,407 233,895 0 233,895 -------------------------------------------------------------------------------- 609,529 0 609,529 1,754,383 3,406,999 5,161,382 --------------------------------------------------------------------------------NET ASSETS 15,205,398 67,548 15,272,946 5,490,691 (3,255,753) 2,234,938 -------------------------------------------------------------------------------- SHAREHOLDERS' EQUITYShare capital 892,765 0 892,765 3,821,683 (3,406,999) 414,684Share premium account 9,731,885 0 9,731,885 0 0 0Capital redemption reserve 3,127,023 0 3,127,023 134 0 134Own shares held in trust (1,235,381) 0 (1,235,381) 0 0 0Special reserve 0 0 0 1,308,496 0 1,308,496Retained earnings 2,689,106 67,548 2,756,654 360,378 151,246 511,624 --------------------------------------------------------------------------------TOTAL EQUITY 15,205,398 67,548 15,272,946 5,490,691 (3,255,753) 2,234,938 -------------------------------------------------------------------------------- Independent review report to System C Healthcare plc Introduction We have been instructed by the company to review the financial information forthe six months ended 30 November 2006 which comprises the income statement, thebalance sheet at 30 November 2006, the statement of changes in shareholders'equity and the cash flow statement for the six months then ended and relatednotes. We have read the other information contained in the interim report andconsidered whether it contains any apparent misstatements or materialinconsistencies with the financial information. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by the directors. The directors areresponsible for preparing the interim report in accordance with the AIM Rulesfor Companies. Additionally the interim report must be presented and prepared ina form consistent with that which will be adopted in the AIM company's annualaccounts having regard to the accounting standards applicable to such annualaccounts. As disclosed in Note 7, the next annual financial statements of the company willbe prepared in accordance with the accounting standards adopted for use in theEuropean Union. This interim report has been prepared in accordance with theInternational Accounting Standard 34, 'Interim financial reporting'. The accounting policies are consistent with those that the directors intend touse in the preparation of the next annual financial statements. As explained inNote 7, there is, however a possibility that the directors may determine thatsome changes are necessary when preparing the full annual financial statementsfor the first time in accordance with accounting standards adopted for use inthe European Union. The IFRS standards and IFRIC Interpretations that will beapplicable and adopted for use in the European Union at 31 May 2007 are notknown with certainty at the time of preparing this interim financialinformation. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4issued by the Auditing Practices Board for use in the United Kingdom. A reviewconsists principally of making enquiries of management and applying analyticalprocedures to the financial information and underlying financial data and, basedthereon, assessing whether the disclosed accounting policies have been applied.A review excludes audit procedures such as tests of controls and verification ofassets, liabilities and transactions. It is substantially less in scope than anaudit and therefore provides a lower level of assurance. Accordingly we do notexpress an audit opinion on the financial information. This report, includingthe conclusion, has been prepared for and only for the company for the purposeof the AIM Rules for Companies and for no other purpose. We do not, in producingthis report, accept or assume responsibility for any other purpose or to anyother person to whom this report is shown or into whose hands it may come savewhere expressly agreed by our prior consent in writing. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 November 2006. PricewaterhouseCoopers LLPChartered AccountantsGatwick24 January 2007 Notes: (a) The maintenance and integrity of the System C Healthcare plc web site is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the interim report since it was initially presented on the web site. (b) Legislation in the United Kingdom governing the preparation and dissemination of financial information may differ from legislation in other jurisdictions. This information is provided by RNS The company news service from the London Stock Exchange