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RNS
SCISYS PLC  -  SSY   

Interim Results

Released 07:00 20-Sep-2018

RNS Number : 3230B
SCISYS PLC
20 September 2018
 

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

 

 

SCISYS PLC

(AIM: SSY)
INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2018

 

SCISYS PLC ("SCISYS"), the supplier of bespoke software systems, IT-based solutions and support services to the space, media & broadcast, government, defence and commercial sectors is pleased to announce its interim results for the half year to 30 June 2018. The Directors anticipate that SCISYS will deliver further year-on-year growth in 2018, and that trading results will be more evenly spread over the two halves of the financial year than in previous years.

 

Financial and Operational Highlights:

·   Adjusted operating profit up to £2.5m (2017: £1.2m restated).

·   Revenues up 13% to £28.7m (2017: £25.3m restated).

·   Half-year order book approaching £100m (2017: £64m).

·   Net debt reduced to £3.3m (2017: net debt £9.0m).

·   Interim dividend up 10% at 0.65 pence per share (2017: 0.59p).

·   Adjusted basic earnings per share 6.1p (2017: 1.4p).

·   ESD division had a particularly strong first half year, with a number of key contract extensions.

·   M&B division renewed a long-term BBC maintenance contract extension by at least 7 years.

·   Early termination of Annova ring-fencing arrangements agreed with former owners to close out the earnout period and accelerate potential integration gains.

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

·   Space division had an excellent first half year and secured a €3.9m contract for the EGNOS programme.

 

Mike Love, Chairman of SCISYS, commenting on the results, said:

 

"We are delighted by our continued solid operational performance and key contract renewals. In particular, our Space division's contract win with Airbus for developing the global navigational EGNOS V3 ground segment is encouraging evidence of our ability to continue participation in EU-funded programmes. Cash flow is healthy and our balance sheet increasingly strong. We expect our financial results to be more evenly spread over the year. The board also expects, based on current performance, to deliver further year-on-year growth for 2018."

 



 

For further information please contact: 

SCISYS PLC


+44 (0)1249 466 466

Mike Love

Chairman


Klaus Heidrich

Chief Executive Officer


Chris Cheetham

Finance Director


finnCap (NOMAD & Broker)


+44 (0)20 7220 0500

Julian Blunt

Corporate Finance


Julian Blunt

Corporate Broking


WalbrookPR

Tom Cooper/Paul Vann


+44 (0) 20 7933 8780

+44 (0)797 122 1972

tom.cooper@walbrookpr.com

 

Notes to Editors:

 

About SCISYS:

Employing around 580 staff, SCISYS group is a leading developer of information and communications technology services, e-business, web and mobile applications, editorial newsroom solutions and advanced technology solutions. The Company operates in a broad spectrum of market sectors, including Media & Broadcast, Space, Government and Defence and Commercial sectors.  SCISYS clients are predominantly blue-chip and public-sector organisations. Customers include the Environment Agency, the Ministry of Defence, Airbus Defence & Space, Thales Alenia Space, Arqiva, Vodafone, the European Space Agency, Eumetsat, the BBC, Radio France, RTL, RNLI, Pets at Home, Siemens and the National Trust. The Company has UK offices in Chippenham, Bristol, Leicester and Reading and German offices in Bochum, Dortmund, Darmstadt and Munich. More information is available at www.scisys.co.uk.

 

Introduction

The Board of SCISYS is pleased with the Group's results for the first half of 2018. In particular - in contrast to the trend of previous years, where performance has weighed heavily towards the second half of the year - we expect 2018 revenues and profits to be more evenly spread throughout the year due to the anticipated phasing of order intake and the increasing proportion of time & materials contract work in the revenue mix.

 

Key financials

The Group's revenue totalled £28.7m (2017: £25.3m restated under IFRS 15). In the six months ended 30 June 2018, the Group's adjusted operating profit was £2.5m (2017: £1.2m restated).  Adjusted basic earnings per share were 6.1p (2017: 1.4p). A fuller explanation is available in the Finance Review section.

 

Operating Review

Introduction

All divisions performed ahead of, or in line with, management's expectation during the first half of 2018, delivering contracts on time and within budget and generating improved operating cash flows.  Across the Group we have secured important contract extensions for our support work with key customers, including the BBC, Vodafone, Siemens and several defence primes. We are seeing an increase in the number of contracts performed on a time-and-materials basis.

 

We still do not expect any adverse operational consequences as a result of Brexit. However, we continue to progress our contingency planning, including any re-domiciliation, in order to protect shareholder value and cement the Group's position when carrying out and bidding for both UK and EU-funded work after Brexit. We currently expect these contingency plans to be put into effect during the course of 2018.

 

Enterprise Solutions & Defence (ESD) division

ESD delivered an excellent first half year performance. The division continues to work on ongoing defence projects for the Ministry of Defence (MoD), as well as in the maritime sphere, securing key long-term support contract extensions with major primes. Current projects are running to plan and resulted in a contribution margin of 29%.

 

ESD secured a key systems-integration framework with UK Power Networks, a long-standing customer, for whom SCISYS also carries out support services for its billing systems.

 

The division won a new contract to develop a dashboard and reporting tool for Vodafone, for the 111 non-emergency number. It also signed a separate contract extension with Vodafone for continued non-emergency telecommunications work. 

 

The division's other projects span a wide range of commercial and public-sector customers and varied software projects, including ongoing work for the RNLI, Coal Authority, Public Health England and Edmundson Electrical. Our work with Siemens continues to expand in the arena of software engineering for automatic train controls and signalling systems. This has built a pipeline of opportunities in the transport and logistics sector, part of which crystallised with the recent Future Bus Systems win secured with Trapeze for Transport for London. ESD has successfully maintained its roster of existing, long-term customers.

 

The division continues to support the MoD with its Waterguard Project, enabling the MoD to be tax efficient and comply with HMRC regulations for military equipment export/import. Xibis, our web and mobile-app specialist subsidiary, now reports into the ESD division. Its revenues and margin targets remain on track. Xibis and EDS continue to collaborate on ongoing mobile-application development work for Pets at Home and Angel Trains.

 


Six months ended 30 June 2018

£'000

Six months ended 30 June 2017

£'000

Restated

Year ended

31 December
2017

£'000
Restated

Revenue

9,556

8,113

16,978

Contribution value

2,790

1,853

4,307

Contribution margin

29%

23%

25%

 

 

 

Space division

Our Space division made an excellent start to 2018. It secured a key €3.9m win with Airbus Defence and Space (Airbus) for developing the global navigation EGNOS V3 ground segment infrastructure.  Airbus is the prime contractor to the European Space Agency (ESA) and the European GNSS Agency.  This regional satellite-based augmentation system is used to improve the performance of global navigational satellite systems. The division also secured contract extensions for its existing work for the EU-funded Galileo programme, and continued its ongoing work for ESA at the European Space Operations Centre in Darmstadt. The division's programme of work on Germany's flagship Heinrich Hertz satellite mission continues to perform to schedule.

 

The Space division also secured contract wins with the UK Space Agency for autonomous robotics software development and Earth Observation projects. Our robotics team has won a contract with a UK commercial customer for a remote tunnel inspection project, extending its robotics software platform.

 

It has made further inroads into the commercial space sector, for example by delivering simulation software to Astroscale Limited. The division is also developing fuel consumption optimisation algorithms and simulation software for Sky and Space Global and its Pearls nano-satellite project.

 

The Space division's projects ran well during the first six months of the year, including the Galileo programmes, where we are well positioned to secure new contracts in the second half of the year.

 


Six months ended 30 June 2018

£'000

Six months ended 30 June 2017

£'000

Restated

Year ended

31 December 2017

£'000

Restated

Revenue

11,184

9,845

20,023

Contribution value

3,349

2,420

4,845

Contribution margin

30%

25%

24%

 

 

Media & Broadcast (M&B) division

M&B renewed its long-standing maintenance contract with the BBC in February, cementing its strong relationship with the BBC. M&B continues to support the BBC by providing radio audio editing, production and archiving systems, and is also working towards closer integration of dira! with the OpenMedia solution provided by Annova to the BBC. The roll out of its ViLoR solution is progressing well, through which local radio is hosted virtually using central datacentres.

 

The delivery of dira! radio production and playout systems to the South African Broadcasting Corporation (SABC) is on schedule and two channels went live at RTL, the French commercial network. M&B won a key contract with the British Library, under which SCISYS will deliver a national Digital Radio Archive Management solution that will capture and preserve a representative part of the UK's radio output. This demonstrates the adaptability of dira! beyond the broadcasting arena, as this project will use dira! modules.

 

As anticipated, the first half year's contribution was behind 2017 on higher revenues but M&B's performance is expected to improve in the second half year despite slow progress with the recently won weConnect project.

 


Six months ended 30 June 2018

£'000

Six months ended 30 June 2017

£'000

Year ended

31 December 2017

£'000

 

Revenue

3,848

3,539

8,715

Contribution value

604

728

2,635

Contribution margin

16%

21%

30%

 

 

ANNOVA Systems

 

Annova has performed solidly during the first half of 2018 and the deployment of its OpenMedia software to the BBC's operation continued over the summer. Installation into the BBC's London W1 newsroom was successful, marking a key milestone in this flagship project. 

 

The division continues to make advances on current projects, including those with the ARD group of German broadcasters, of which the recently won customer Radio Bremen is a member. It has maintained solid operational progress for its growing roster of clients, such as the German broadcasters MDR and NDR, Czech Radio, Radio France and Corus in Canada.

 

In common with M&B, Annova anticipated that it would report a weaker first six months than in 2017, although the division expects a significant improvement in performance in the second half of the year.

 


Six months ended 30 June 2018

£'000

Six months ended 30 June 2017

£'000

Year ended

31 December 2017

£'000

Revenue

3,957

3,610

7,291

EBITA*

206

283

510

EBITA margin*

5%

8%

7%

* other divisions are measured on their contribution to shared Group overheads whereas Annova currently remains largely independent, allowing the computation of a representative EBITA

 

While both M&B and Annova's first-half revenues are somewhat behind the board's expectations, the overall outlook for both divisions remains in line with Group expectations.

 

 



 

Finance Review

 

Results for the half year to 30 June 2018 show a significant step up from the comparative period for 2017. This was foreseen in the June AGM trading update, when the Directors signalled that financial results for the full year 2018 would be more balanced between the two halves than in recent years.

 

Total revenues were up 13% to £28.7m (2017: £25.3m as restated in accordance with IFRS 15 - see below) and the professional-fees component increased by 24% to £27.6m (2017: £22.3m). The underlying measure of trading performance, adjusted operating profit - which excludes the costs of the Group's long-term share-incentive schemes, exceptional items and amortisation of intangible assets arising on business acquisition - more than doubled to £2.5m (2017: £1.2m restated). Adjusted basic EPS, calculated on the profit for the period before post-tax exceptional items, share-based payments and amortisation of acquisition-related intangible assets, were 6.1 p (2017: 1.4p). 

 

IFRS 15: Revenue from contracts with customers has been implemented with effect from 1 January 2018 and comparative figures for 2017 have been restated to reflect retrospective application of this new standard. Under IFRS 15, only the mark-up on pass-through costs of third-party products and services -- where SCISYS acts as an "Agent" rather than a "Principal" - is reported as revenue, whereas previously the revenues and the related third-party cost of sales were reported gross. The reduction in previously reported revenues for the first half of 2017 was £1.9m (2017 full year: £3.8m) while the impacts on reported professional fees and profits were negligible.

 

The statutory operating profit was £1.2m (2017: £1.3m loss) after bearing amortisation costs relating to the December 2016 ANNOVA Systems GmbH ("Annova") acquisition of £0.6m (2017: £1.0m) and an exceptional charge of £0.7m (2017: £1.6m net).

 

The exceptional charge comprised two components. The first element recognised the contractual liability for a fixed and final earnout payment of £0.6m to Annova's former owners. This sum is consideration for early termination of the acquisition ring-fence agreement, enabling accelerated achievement of potential medium-term benefits in our combined media-sector operations by the removal of constraints on collective management. Second, there was a £0.1m exceptional charge for external professional advice in relation to the development and implementation of the Group's contingency plans to mitigate any adverse impact of Brexit on cross-border operations, particularly in the space sector.

 

Exceptional charges in the comparative 2017 period comprised a one-off R&D tax credit of £0.2m and a £1.8m charge to reflect increased contingent consideration payable to Annova's former owners.

 

Basic earnings per share were 2.6p (2017: Loss per share 4.9p).

 

Net cash flow from operations increased to £3.1m (2017: £2.7m). At the end of the reporting period, the Group had bank deposits of £9.4m (2017: £7.2m). Unutilised working capital facilities totalled £4.2m (30 June 2017: £4.7m). Group debt at the period end was £12.7m (2017: £16.2m). The resulting net debt was £3.3m, a reduction of £2.6m from the 2017 year-end position of £5.9m net debt (30 June 2017: £9.0m).

 

Following a buoyant sales performance in the final quarter of 2017, order intake for the first six months of 2018 has remained strong. The M&B division's renewal of its BBC maintenance contract announced in February lifted the order book value over £100m for the first time and the level has been maintained marginally below this threshold throughout the first half of the year (2017: £64m).

 

The effective tax rate for the period of 21% reflects the anticipated rate for 2018 as a whole (2017: 17%).

 

The half-year accounts are presented on a basis consistent with policies to be adopted for the Annual Report & Accounts for the year ending 31 December 2018.

 

Dividend

Our dividend for the full year to 31 December 2017 was 2.16 pence per share, in line with our strategy of progressive dividend growth. I can now confirm that an interim dividend of 0.65 pence per share will be paid on 8 November 2018 to shareholders on the register as at 12 October 2018.  The shares are expected to go ex-dividend on 11 October 2018.

 

Outlook

The second half of 2018 has started with strategic contract wins and solid performances deliveries on key projects. We are seeing healthy revenue growth, while cash flows remain strong.

 

Following the early end of the ring-fencing agreement with Annova's former owners, we have started the internal integration project of our Annova and M&B divisions, which are planned to operate as one division from 2019 onwards.

 

Based on current performance on projects, a buoyant order book and our new business pipeline, the Directors are confident that SCISYS will achieve year-on-year growth in 2018 and that the future prospects of the Group continue to look highly encouraging.

 

 

Mike Love,

Chairman



 

Consolidated Income Statement

 


Unaudited

Unaudited

Unaudited



Restated

Restated


6 months to
30 June
2018

6 months to
30 June
2017

Year ended
 31 December 2017


£'000

£'000

£'000

Revenue (note 2)

28,721

25,269

53,337

Operating costs

(27,509)

(26,601)

(48,792)

Share of results of associates

15

39

Operating profit/(loss)

1,212

(1,317)

4,584

"Adjusted operating profit" being operating profit before share based payments, exceptional charges and amortisation arising on business combinations 

2,526

1,249

4,491

Exceptional items

(666)

(1,561)

2,075

Amortisation of Intangibles

(626)

(991)

(1,982)

Share based payments

(22)

(14)

Operating profit/(loss)

1,212

(1,317)

4,584

Finance costs

(232)

(388)

(718)

Finance income

(5)

6

8

Profit/(loss) before tax

975

(1,699)

3,874

Tax (charge)/credit

(200)

282

(593)

Profit/(loss)for the period attributable to equity holders of the parent

775

(1,417)

3,281





Earnings/(loss) per share (note 5)




Basic

2.6p

(4.9p)

11.3p

Diluted

2.6p

(4.8p)

11.0p

 

 

 

Consolidated Statement of Comprehensive Income

 

 


Unaudited

Unaudited

Unaudited



Restated

Restated


6 months to
30 June
2018

6 months to
30 June
2017

Year ended 31 December 2017


£'000

£'000

£'000

Profit/(loss) for the period

775

(1,417)

3,281

Other comprehensive income not recycling through the Income Statement




Currency translation differences on foreign currency investments

57

54

369

Total comprehensive income/(expense) for the period attributable to equity holders of the parent

832

(1,363)

3,650

 

 



 

Consolidated Statement of Changes in Equity

 

For the six months ended

Share Capital

Share Premium

Merger Reserve

Capital Redemp-tion Reserve

Trans-lation Reserve

Retained Earnings

Total

30 June 2018 (unaudited)

£'000

£'000

£'000

£'000

£'000

£'000

£'000

Adjusted balance as at 1 January 2018

7,329

268

943

83

1,890

15,133

25,646

Total comprehensive income for the period








Profit for the period

775

775

Other comprehensive income








Foreign currency translation

57

57

Total comprehensive income for the period

57

775

832

Transactions with owners, recorded directly in equity








Contributions by and distributions to owners








Share based payments

22

22

Treasury shares

Share options

57

57

Total contributions by and distributions to owners

79

79

Balance as at 30 June 2018

7,329

268

943

83

1,947

15,987

26,557

 

 

 

 

Restated








For the six months ended

Share Capital

Share Premium

Merger Reserve

Capital Redemp-tion Reserve

Trans-lation Reserve

Retained Earnings

Total

30 June 2017 (unaudited)

£'000

£'000

£'000

£'000

£'000

£'000

£'000

Balance as at 1 January 2017

7,272

143

943

83

1,521

12,751

22,713

Adjustment on initial application of IFRS15 (net of tax)

(3)

(3)

Adjusted balance as at 1 January 2017

7,272

143

943

83

1,521

12,748

22,710

Total comprehensive income for the period








Loss for the period

(1,414)

(1,414)

Other comprehensive income








Foreign currency translation

54

54

Total comprehensive income for the period


54

(1,414)

(1,360)

Transactions with owners, recorded directly in equity








Contributions by and distributions to owners








Share based payments

14

14

Treasury shares

(361)

(361)

Share options

74

74

Total contributions by and distributions to owners

(273)

(273)

Balance as at 30 June 2017

7,272

143

943

83

1,575

11,061

21,077









 

 

 



 

 

Consolidated Statement of Changes in Equity continued

 

 

Restated








For the year ended

Share Capital

Share Premium

Merger Reserve

Capital Redemp-tion Reserve

Trans-lation Reserve

Retained Earnings

Total

31 December 2017 (unaudited)

£'000

£'000

£'000

£'000

£'000

£'000

£'000

Balance as at 1 January 2017

7,272

143

943

83

1,521

12,751

22,713

Adjustment on initial application of IFRS15 (net of tax)

(68)

(68)

Adjusted balance as at 1 January 2017

7,272

143

943

83

1,521

12,683

22,645

Total comprehensive income for the period








Profit for the period

3,349

3,349

Other comprehensive income








Foreign currency translation

369

369

Total comprehensive income for the period

369

3,349

3,718

Transactions with owners, recorded directly in equity








Contributions by and distributions to owners








Dividends paid

(586)

(586)

Issue of new shares

57

125

182

Treasury shares

(471)

(471)

Exercise of share options

158

158

Total contributions by and distributions to owners

57

125

(899)

(717)

Balance as at 31 December 2017

7,329

268

943

83

1,890

15,133

25,646

 

 



 

Consolidated Statement of Financial Position

 


Unaudited

Unaudited

Unaudited



Restated

Restated


30 June 2018

30 June 2017

31 December
2017


£'000

£'000

£'000

Non-current assets




Property, plant and equipment

9,165

9,295

9,261

Goodwill

15,902

15,950

15,913

Other intangible assets

4,467

5,810

5,173

Other receivables

94

87

92

Interests in associates

108

Deferred tax assets

23

311

26


29,651

31,561

30,465

Current assets




Inventories

133

434

321

Contract assets

12,795

10,478

10,256

Trade and other receivables

12,415

10,043

11,091

Corporation tax receivable

500

1,027

450

Cash and cash equivalents

9,394

7,166

8,021


35,237

29,148

30,139

Total assets

64,888

60,709

60,604

Equity




Issued share capital

7,329

7,272

7,329

Share premium account

268

143

268

Merger reserve

943

943

943

Retained earnings

15,987

11,061

15,133

Translation reserve

1,947

1,575

1,890

Other reserves

83

83

83

Equity attributable to equity holders of the parent

26,557

21,077

25,646

Current liabilities




Trade and other payables

11,944

11,995

10,452

Contract liabilities

10,010

5,831

7,026

Bank overdrafts and loans

2,469

3,707

2,290

Corporation tax payable

731

31

347

Deferred income

211

245

240


25,365

21,809

20,355

Non-current liabilities




Bank loans

10,263

12,514

11,667

Other payables

914

3,627

Provisions

929

1,572

Deferred tax

860

1,682

1,364


12,966

17,823

14,603

Total liabilities

38,331

39,632

34,958

Total equity and liabilities

64,888

60,709

60,604

 

 



 

Consolidated Statement of Cash Flows

 

 



Restated

Restated


Unaudited

Unaudited

Unaudited


6 months to
30 June
2018

6 months to
30 June
2017

Year ended 31 December 2017


£'000

£'000

£'000

Cash flow from operating activities




Profit/(loss) before tax

975

(1,699)

3,874

Net finance costs

237

382

710

Operating profit/(loss)

1,212

(1,317)

4,584

(Increase)/decrease in trade receivables

(1,068)

9,404

8,520

Increase in contract assets

(2,539)

(10,478)

(10,256)

Increase/(decrease) in trade payables

1,055

(4,114)

(921)

Increase in contract liabilities

2,983

5,831

7,026

Deferred consideration

616

1,561

(1,626)

Depreciation and amortisation

1,224

1,515

3,081

Share of profit of associate

(15)

(39)

Share based payments

22

14

Tax (payments)/credits

(371)

296

147

Net cash flow from operating activities

3,134

2,697

10,516

Cash flow from investing activities




Investment in associate

(20)

82

Proceeds from disposal of property, plant and equipment

1

4

Purchase of plant, property and equipment

(244)

(789)

(1,259)

Exercise of share options

57

74

158

Interest  received

(5)

6

8

Net cash flow from investing activities

(212)

(708)

(1,007)

Cash flows from financing activities




Dividends paid

(586)

Interest paid

(232)

(388)

(718)

Issue of new shares

182

Investment in own shares

(361)

(471)

Loans received

260

262

Debt repayments

(1,244)

(1,308)

(3,716)

Net cash flow from financing activities

(1,476)

(1,797)

(5,047)

Net increase in cash and cash equivalents

1,446

192

4,462

Cash and cash equivalents at the start of the period

8,021

6,666

6,666

Exchange and other movements

(73)

308

(3,107)

Cash and cash equivalents at the end of the period

9,394

7,166

8,021

Cash and cash equivalent deposits held in non-UK based banks

9,025

5,522

6,435

Net bank deposit with UK based banks

369

1,644

1,586


9,394

7,166

8,021

 

 



 

Notes to the Unaudited Interim Report

For the six months to 30 June 2018

 

1

Basis of preparation of Interim Financial Information & Statement of Compliance

 

SCISYS PLC (the "Company") is a UK company incorporated in England & Wales. The entities consolidated in the half year financial statements of the Company for the six months to 30 June 2018 comprise the Company and its subsidiaries (together referred to as the "Group"). The Group reports its financial results in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union ("EU").

 

This interim results announcement is prepared in accordance with the IFRS accounting policies expected to be applied by the Group at 31 December 2018.  These policies are set out by the Group in its consolidated financial statements for the year ended 31 December 2017 and available on the Group's website at www.scisys.co.uk. As permitted, this interim report has been prepared in accordance with the AIM rules and not in accordance with IAS 34 'Interim Financial Reporting' and is therefore not fully compliant with IFRS.  There are two new standards or interpretations endorsed by the EU during 2018.  IFRS 15 Revenue from contracts with customers (see Note 8) has had an impact on the financial results and presentation whereas IFRS 9 Financial Instruments has been adopted but has not had an impact on either measurement or disclosures. 

 

The interim financial information for the six months ended 30 June 2018 is unaudited and does not include all of the information required to constitute statutory accounts within the meaning of section 434 of the Companies Act 2006. It should therefore be read in conjunction with the audited financial statements for the year ended 31 December 2017. These published accounts have been reported on by KPMG, the Group's previous auditors, and have been delivered to the Registrar of Companies. The report of the auditors was (1) unqualified; (2) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (3) did not contain a statement under section 498 (2) or (3)  of the Companies Act 2006.

 

The preparation of these consolidated half year financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense.  Actual results may differ from these estimates.  In preparing these consolidated half year financial statements, the significant judgements made by management in applying the Group's accounting policies and the key areas of estimation were the same as those that applied to the consolidated financial statements for the year ended 31 December 2017.

 

The Interim Report was approved by the Directors on 19 September 2018.



2

Segmental analysis

 

The management structure and reporting of financial information to the chief operating decision maker (the Board) is the basis used to define operating segments.

 

The Group provides IT services to commercial and public sector organisations through the following four divisions:

                Space

                Enterprise Solutions & Defence (ESD) (Includes Xibis from 1 January 2018)

                Media & Broadcast (M&B)

                ANNOVA Systems (Annova)

               

Divisional results, assets and liabilities represent items directly attributable to a division.  Unallocated expenses comprise central overheads and corporate expenses.  Assets and liabilities which are allocated to operating divisions comprise trade receivables, contract assets, inventories and contract liabilities.



 



 

 

2

Segmental analysis continued







Information about reportable segments








Space

ESD

M&B

Annova

Total


External revenues

£'000

£'000

£'000

£'000

£'000


6 months ended 30 June 2018 (unaudited)







Professional fees revenue

11,100

8,862

3,678

3,957

27,597


Other revenue

84

694

170

948


External revenue for reportable segments

11,184

9,556

3,848

3,957

28,545


Other external revenue





176


Consolidated revenue





28,721


6 months ended 30 June 2017 (unaudited)







Professional fees revenue

8,631

6,762

3,326

3,610

22,329


Other revenue

2,930

1,541

213

4,684


IFRS 15 Adjustment

(1,716)

(190)

(1,906)


Restated other revenue

1,214

1,351

213

2,778


External revenue for reportable segments

9,845

8,113

3,539

3,610

25,107


Other external revenue





162


Consolidated revenue





25,269


Year ended 31 December 2017 (unaudited)







Professional fees revenue

18,629

14,164

7,958

7,291

48,042


Other revenue

4,842

3,193

757

8,792


IFRS 15 Adjustment

(3,448)

(379)

(3,827)


Restated other revenue

1,394

2,814

757

4,965


External revenue for reportable segments

20,023

16,978

8,715

7,291

53,007


Other external revenue





330


Consolidated revenue





53,337

 

 

 

 



 

 

2

Segmental analysis continued







Information about reportable segments continued








Space

ESD

M&B

Annova

Total


Profit/(loss) before tax

£'000

£'000

£'000

£'001

£'000


6 months ended 30 June 2018 (unaudited)







Reportable segment contribution

3,311

2,790

604

206

6,911


Other contribution

38

38


Contribution

3,349

2,790

604

206

6,949


Central overheads





(4,423)


Total adjusted EBITA





2,526


Exceptional items and share based payments





(688)


EBITA





1,838


Amortisation of intangible assets comprising acquired software solution





(258)


Amortisation of intangible assets comprising acquired order book





(368)


Operating profit





1,212


Finance costs





(232)


Finance income





(5)


Profit before tax





975


6 months ended 30 June 2017 (unaudited)







Reportable segment contribution

2,087

1,853

728

283

4,951


IFRS 15 adjustment

(3)

(3)


Restated reported segmental contribution

2,084

1,853

728

283

4,948


Other contribution

336

336


Contribution

2,420

1,853

728

283

5,284


Central overheads





(4,035)


Total adjusted EBITA





1,249


Exceptional items and share based payments





(1,575)


EBITA





(326)


Amortisation of intangible assets





(991)


Operating loss





(1,317)


Finance costs





(388)


Finance income





6


Loss before tax





(1,699)


Year ended 31 December 2017 (unaudited)







Reportable segment contribution

4,891

4,274

2,625

510

12,300


IFRS 15 adjustment

(68)

(68)


Restated reported segmental contribution

4,823

4,274

2,625

510

12,232


Other contribution

22

33

10

65


Contribution

4,845

4,307

2,635

510

12,297


Central overheads





(7,806)


Total adjusted EBITA





4,491


Exceptional items and share based payments





2,075


EBITA





6,566


Amortisation of intangible assets comprising acquired software solution





(1,246)


Amortisation of intangible assets comprising acquired order book





(736)


Operating profit





4,584


Finance costs





(718)


Finance income





8


Profit before tax





3,874

 

 

2

Segmental analysis continued







Information about reportable segments continued








Space

ESD

M&B

Annova

Total


Group assets

£'000

£'000

£'000

£'000

£'000


As at 30 June 2018 (unaudited)







Reportable segment - non-current assets

3,507

1,110

3,380

7,905

15,902


Reportable segment - current assets

9,905

7,659

2,938

3,045

23,547



13,412

8,769

6,318

10,950

39,449


Other - non-current assets





13,749


Other - current assets





11,690


Total assets





64,888


As at 30 June 2017 (unaudited)







Reportable segment - non-current assets

3,500

1,090

3,380

7,980

15,950


Reportable segment - current assets

9,093

4,113

1,139

5,163

19,508


IFRS 15 adjustments

(3)

(3)


Restated reportable segments - current
assets

9,090

4,113

1,139

5,163

19,505



12,590

5,203

4,519

13,143

35,455


Other - non-current assets





15,611


Other - current assets





9,643


Total assets





60,709


As at 31 December 2017 (unaudited)







Reportable segment - non-current assets

3,511

1,090

3,380

7,931

15,912


Reportable segment - current assets

9,185

6,633

1,446

2,862

20,126


IFRS 15 adjustments

(68)

(68)


Restated reportable segments - current
assets

9,117

6,633

1,446

2,862

20,058



12,628

7,723

4,826

10,793

35,970


Other - non-current assets





14,553


Other - current assets





10,081


Total assets





60,604










Space

ESD

M&B

Annova

Total


Group liabilities

£'000

£'000

£'000

£'000

£'000


As at 30 June 2018 (unaudited)







Reportable segment - current liabilities

2,533

4,191

699

2,576

9,999


Other - non-current liabilities





12,966


Other - current liabilities





15,366


Total liabilities





38,331


As at 30 June 2017 (unaudited)







Reportable segment - current liabilities

1,773

1,549

375

2,133

5,830


Other - non-current liabilities





17,823


Other - current liabilities





15,979


Total liabilities





39,632


As at 31 December 2017 (unaudited)







Reportable segment - current liabilities

1,164

3,231

727

1,905

7,027


Other - non-current liabilities





14,603


Other - current liabilities





13,328


Total liabilities





34,958

 

 



 

 

 

2

Segmental analysis continued






Information about reportable segments continued







UK

Rest of Europe

Other

Total


Geographical split

£'000

£'000

£'000

£'000


6 months ended 30 June 2018 (unaudited)






Revenue from external customers by location of customers

15,438

12,206

1,077

28,721


As at 30 June 2018






Non-current assets:






Intangible assets

20,369

20,369


Tangible assets

5,917

3,248

9,165


Other long term assets

117

117


6 months ended 30 June 2017 (unaudited)






Revenue from external customers by location of customers

12,299

14,319

557

27,175


IFRS 15 adjustment

(190)

(1,716)

(1,906)


Restated revenue from external customers by location of customers

12,109

12,603

557

25,269


As at 30 June 2017






Non-current assets:






Intangible assets

21,760

21,760


Tangible assets

5,910

3,385

9,295


Interests in associates

108

108


Other long term assets

398

398


Year ended 31 December 2017 (unaudited)






Revenue from external customers by location of customers

28,485

27,273

1,406

57,164


IFRS 15 adjustment

(379)

(3,448)

(3,827)


Restated revenue from external customers by location of customers

28,106

23,825

1,406

53,337


As at 31 December 2017






Non-current assets:






Intangible assets

21,086

21,086


Tangible assets

5,847

3,414

9,261


Other long term assets

118

118

 

 



 

 

3

Exceptional items






Unaudited

Unaudited

Unaudited



6 months to
30 June
2018

6 months to
30 June
2017

Year ended
31 December 2017



£'000

£'000

£'000


R&D tax credits

225

450


Contingent consideration

(616)

(1,786)

1,625


Other

(50)


Exceptional items

(666)

(1,561)

2,075

 

Contingent consideration payable for the Annova acquisition is linked both to average profitability over a 3-year earn out period and achievement of key commercial milestones. The exceptional charge recognised in 2018 represents the contractual liability for a fixed and final earn out payment to Annova's former owners. The sum is consideration for early termination of the acquisition ring-fence agreement enabling accelerated achievement of potential medium-term benefits in combined media-sector operations by the removal of constraints on collective management. The anticipated total contingent consideration payable is reassessed at the end of each half-year reporting period based on the latest trading forecasts.

 

The "Other" exceptional item relates to charges for external professional advice regarding the development and implementation of the Group's contingency plans to mitigate any adverse impact of Brexit on cross-border operations, particularly in the space segment.

 

Up to and including 2016 R&D tax credits were incorporated into the net tax charge but from 2017 these are treated as deductions from operating expenses. 2017 was also the final year in which the Company qualified for the SME tax credit scheme as it has subsequently exceeded the headcount threshold for eligibility. Consequently the non-recurring high credit in 2017 was treated as an exceptional item.

 

4

Taxation






Unaudited

Unaudited

Unaudited



6 months to
30 June
2018

6 months to
30 June
2017

Year ended 31 December 2017



£'000

£'000

£'000


Current tax charge/(credit)

702

(114)

617


Deferred tax credit

(502)

(168)

(24)


Total tax charge/(credit)

200

(282)

593

 

 

The charge for taxation for the six months ended 30 June 2018 reflects an effective rate for the period consistent with the anticipated rate for the full year.

 

 

 



 

5

Earnings/(loss) per share

 

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

 




Restated

Restated



Unaudited

Unaudited

Unaudited



6 months to
30 June
2018

6 months to
30 June
2017

Year ended 31 December 2017



£'000

£'000

£'000


Profit/(loss) attributable to shareholders

775

(1,414)

3,349


IFRS15 adjustment

(3)

(68)


Restated profit/(loss) attributable to shareholders

775

(1,417)

3,281


Number of shares

'000

'000

'000


Basic weighted average number of shares

29,366

29,005

29,154


Diluted weighted average number of shares

30,005

29,677

29,723


Basic

2.6p

(4.9)p

11.3p


Diluted

2.6p

(4.8)p

11.0p

 

The weighted average number of shares for the calculation of basic earnings/(loss) per share excludes own shares held in treasury.

 

The weighted average number of shares for the calculation of diluted earnings/(loss) per share includes own shares held in treasury together with EMI, CSOP and unapproved share options outstanding during the period.

 

6

Adjusted Earnings per Share


Restated

Restated



Unaudited

Unaudited

Unaudited



6 months to
30 June
2018

6 months to
30 June
2017

Year ended
 31 December 2017


Basic

6.1p

1.4p

9.8p


Diluted

5.9p

1.3p

9.6p

 


In order to present a measure of earnings per share which is more representative of the Group's underlying operating performance, earnings are adjusted to be net of the post-tax costs shown in the highlighted box on the face of the Income Statement.

 

The calculation of the Group adjusted basic and diluted earnings per ordinary share is based on the number of shares in Note 5  and the following earnings data:

 



Unaudited

Unaudited

Unaudited



6 months to
30 June
2018

6 months to
30 June
2017

Year ended
 31 December 2017



£'000

£'000

£'000


Profit/(loss) attributable to shareholders

775

(1,414)

3,349


IFRS15 adjustment

(3)

(68)


Restated profit/(loss) attributable to shareholders

775

(1,417)

3,281







Adjusted for:





Exceptional items

666

1,561

(2,075)


Corporation tax

(203)

(589)


Amortisation of intangible assets

626

991

1,982


Deferred tax

(106)

(168)

(337)


Share based payments

22

14


Adjusted earnings

1,780

392

2,851

 

 

 

 

The weighted average number of shares for the calculation of basic earnings per share excludes own shares held in treasury.  The weighted average number of shares for the calculation of diluted earnings per share includes own shares held in treasury together with EMI, CSOP and unapproved share options outstanding during the period.

 

 

7

Dividends

 

For year ended 31 December 2017 the Company paid a final dividend of 1.57 pence per share in July 2018.  The Board is recommending payment of an interim dividend for 2018 of 0.65 pence per share, to be paid on 8 November 2018 to shareholders on the register as at 12 October 2018.

 

8

Impact of changes in accounting policies

 

Impact of IFRS 15 Revenue from contracts with customers

 

The Group has initially applied IFRS15 and IFRS 9 with effect from 1 January 2018. Under the transition method chosen, comparative information has been restated following the change in accounting policy. The Group has included additional line items as their omission would make the financial statements potentially misleading.

 

Implementation of the new IFRS 15 standard had a minor impact on the phasing of anticipated operating profits, although reported revenues and costs are more significantly reduced when compared with the previously applied treatment because the Company acts as an agent in certain circumstances.

 

If IFRS 15 had been applied in 2017, revenues would have been £3.827,000 lower for the full year and £1,906,000 lower for the six months ended 30 June 17. Operating profits for 2017 would have been £68,000 lower for the full year and £3,000 lower for the six months ended 30 June 2017.

 

The Group IFRS 15 policy deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entities contracts with customers.

 

With effect from 1 January 2018 the Group takes into account principal v agent considerations. In situations where the Group acts in the capacity of an agent, simply passing the third party goods and services to customers through its books, only the mark-up element is disclosed as revenue, whereas previously the full contract value was recognised and included as "Other revenue" in the segmental analysis, Note 2.

 

Where the customer simultaneously receives and consumes the benefit revenue is recognised in line with performance of the service.

 

For the delivery of unique customer solutions, recognition of Performance Over Time revenues is subject to an enforceable right to payment (cost plus profit) if the customer were to terminate without the Company's default before expiry of the natural contract term.

 

Revenue from consultancy and other professional services that have been identified as being Performance Over Time are recognised by reference to the degree of completion of the contract.  The input measure used to calculate Performance Over Time for a performance obligation is by reference to own labour costs incurred by the balance sheet date as a percentage of the total estimated own labour costs to completion of the performance obligation. Revenues associated with subcontractors or bought-in goods that contribute to a performance obligation are recognised when the customer's goods are purchased and when the subcontractor's deliverables are accepted.

 

Where the Company's own licenced products and configuration services are required to create the customer's unique solution, without which the customer obtains no benefit, the licences and services are recognised together as a single performance obligation. If Performance over Time applies these revenues are recognised over time on as for professional service revenues.  Licences sold without the need for configuration services (e.g. additional concurrent users) are recognised at the Point in Time when the licences are transferred to the customer.

 

Maintenance services are considered to be Service Warranty and involve standing ready to provide the services for handling calls, defect fixing and delivery of new releases to the customer on a regular basis. Revenue is recognised evenly over the time period (eg. at one twelfth of the annual charge per month).

 

Revenues for enhancements to systems already owned by customers are recognised as Performance Over Time as for professional services.

 

 

Interim Report

 

The Interim Report will be posted to shareholders shortly and for those shareholders who have elected to receive communications electronically it will be available to view on the SCISYS website at www.scisys.co.uk.  Copies will also be available at SCISYS PLC's Registered Office at Methuen Park, Chippenham, Wiltshire, SN14 0GB.

 

 

 

 


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