Preliminary Results
System C Healthcare plc
13 September 2006
System C Healthcare plc
Preliminary Results for Year Ended 31 May 2006
System C Healthcare plc ("System C"), a leading independent provider of IT
implementation solutions for the UK healthcare sector, announces its results for
the year ended 31 May 2006.
Summary
Financial Highlights
Audited Audited
2006 2005
Turnover £16.1m £18.2m
Profit before tax and exceptional items £1.1m £3.5m
Profit before tax £0.7m £2.5m
Profit after tax £1.1m £2.1m
Net cash inflow before financing £0.9m £3.4m
Earnings per share - basic 1.30p 3.48p
Net assets £15.2m £5.5m
Operating Highlights
• Placing and admission to AIM in June 2005 raises £8.4m net proceeds for
the business
• Product Division - revenues grow by 17 per cent in the year
• Services Division - Delays in National Programme for IT impacted significantly
on Services Division revenue in the year. Division restructured to focus on
diversification of customer base
• £1.1m profit before exceptional items and taxation
• Net cash inflow for the year of £0.9m before financing
• Successful operational delivery of our major contracts. We have signed a
contract with Fujitsu, so now have contracts with 3 of the 4 Local Service
Provider partners ('LSPs') in 4 out of 5 regional clusters in the National
Programme for IT ('NPfIT' or 'National Programme')
• Cost base reduced by over £2.0m (annualised savings) during the year
• Recent contract wins with CSC, Fujitsu, Nuffield, Connecting for Health and
NHS trusts with a total contract value of over £12m over a 3 year period
Commenting on the results Jim Horsburgh, the Chairman said:
"This has truly been a year of challenges and opportunities for System C. Whilst
I am both disappointed and frustrated by the problems and delays within our
market, I am proud of our achievements and feel that our market position is
stronger than ever, and that we will continue to make a significant contribution
to improving UK healthcare IT."
Enquiries:
System C Healthcare plc
Jim Horsburgh, Chairman 01622 691 616
Dr Ian Denley, Chief Executive
Maitland
Emma Burdett 020 7379 5151
Brian Hudspith
A presentation will be made today, Wednesday 13 September at 09.30am at the
offices of Collins Stewart (9th Floor, 88 Wood Street, London EC2V 7QR) to
analysts and investors. A copy of this presentation is available from the System
C System C web site from 10.30 am.
Chairman's Statement
System C is an independent British company specialising in the provision of
clinical information systems and services to the healthcare sector. These
services include data migration, data cleansing and the implementation of
electronic patient record (EPR) systems and patient administration systems
(PAS). We are facilitators - taking software and using our highly skilled and
experienced staff to install it successfully in the hospital workplace.
Healthcare IT is a significant market offering a wide range of opportunities for
growth. Within the UK, the National Programme for IT is at an early stage and
there remain a large number of acute, community and mental health Trusts still
requiring patient administration and clinical systems.
We began the year with our flotation on AIM, with our business plan underpinned
by significant Government investment in healthcare information technology - in
particular the National Programme for IT (NPfIT) which is being delivered by the
Department of Health Agency, NHS Connecting for Health. We raised net proceeds
of £8.4m to facilitate growth in the business by both organically expanding the
products and services we provide, as well as by acquisition.
Although market conditions have been difficult within the National Programme, we
have achieved many facets of our corporate strategy during the year, including:
consolidating our position as a leading professional services company in the
healthcare IT sector; the continued development of our product range and new
product sales; growth in our long-term order book; and expanding and
diversifying our client base - we now have contracts with 4 out of the 5 English
regions, have worked with over a 130 NHS Trusts, and have secured work with a
number of private healthcare providers.
Moving forward into 2006/07, well publicised delays in the roll-out of
electronic patient record systems in the secondary care sector have created a
backlog of NHS Trusts requiring systems, and this is our main area of expertise.
We remain confident of significant volumes of work within the National Programme
when current contractual discussions between Connecting for Health and its major
sub-contractors are concluded. However, the timing of such new work could also
have a significant impact on our results for the year. To mitigate such effects,
we will continue to broaden our client base, and to further enhance our product
range, to address a number of public and private sector opportunities both in
the UK and overseas.
Results
Turnover was £16.1m (2005: £18.2m) with profit before exceptionals and tax of
£1.1m (2005: £3.5m).
In the previous year (ended 31 May 2005), we saw a substantial increase in the
level of services delivered in partnership with our key LSP customers, and as a
result our revenues trebled in comparison with 2004. This reflected the rapid
growth in the National Programme in its first full working year, as it moved
from contract close to the delivery phase. Accordingly, we recruited heavily to
meet the demand from our LSP partners.
In the financial year ended 31 May 2006, the delays in the National Programme
resulted in a decline in revenues within our Services Division. As our costs
were relatively fixed, the shortfall in time and material revenues impacted
directly on our profitability.
As the scale of the delays within the National Programme became clear we focused
on a number of initiatives to mitigate against this decline in demand, and
deliver profitability in difficult market conditions. We introduced a new range
of fixed price services into our major LSP partners. We focused on the
development and deployment of our products and we restructured our Services
Division into specialist teams. By the year end, we had reduced our non-core
cost base significantly to reflect market conditions. In recent months, the
company has also achieved a number of significant milestones and we are pleased
to report several contract wins with a total contract value of over £12m (as
outlined in the CEO's report).
To conclude, we have begun our new financial year with a strong balance sheet
with resources for future growth, as well as a leaner business with considerable
flexibility to adapt to opportunities and changes in market conditions.
Dividends
The Board recommended and paid an ordinary dividend for the six months ending 30
Nov 2005 of 0.11p per share. The Board has proposed a final dividend for the
year ended 31 May 2006 of 0.22p per share.
Board Changes
During the year there were two changes to the Board of Directors. Andrew Coll
was appointed as Finance Director on 16 February 2006. Andrew was previously the
Chief Operating Officer of the Education Division of Enterprise plc and prior to
that held senior finance posts with Cable & Wireless plc, and trained as a
Chartered Accountant with PricewaterhouseCoopers. We are very pleased to welcome
Andrew to the Board of Directors.
Jeremy Morgan, of Barclays Ventures, left the Board on 2 June 2005, shortly
prior to our AIM flotation. I want to thank him for his tremendous support and
wish him well for the future.
Outlook
We believe that System C continues to be well placed within our markets as we
have a strong track record for delivery within the National Programme, as
demonstrated through the contracts we have signed recently including that with
Fujitsu. We also believe that the steps taken by System C to expand and
diversify its client base and product offering puts us in a strong position to
react positively to changes in the marketplace both inside and outside the
programme.
In recent months, however, the rate of roll out of patient administration and
clinical systems within the National Programme has again slowed considerably due
to product and deployment difficulties amongst some of the major contractors to
the programme.
As a result, System C is operating in challenging conditions in its core English
market, and performance in the year to date has been disappointing. However, we
believe that urgent steps are being taken to resolve the difficulties within the
National Programme, and following their resolution we are confident System C is
well positioned to secure further significant sales opportunities that are
likely to convert into revenues towards the second half of the year and beyond.
Whilst the Directors' believe that market expectations remain achievable,
significant risk remains around the timing of the resolution of the difficulties
in the National Programme. The rate and volume at which deployments re-commence
will be a crucial factor in determining our performance in the current financial
year.
Meanwhile, we continue to focus on building the long term order book, expanding
the client base, as well as protecting our strong cash position. We are ensuring
we retain flexibility in our business to support long term opportunities, and
will be placing increasing focus on the creation of new products for both the UK
and international healthcare markets.
Chief Executive's Review
The year ended 31 May 2006 was a year of challenges and opportunities for System
C. The Services Division faced difficult market conditions, and we focused on
adapting to these by both expanding our customer base within the National
Programme, and through new initiatives such as bidding for Diagnostic and
Elective Treatment opportunities.
We achieved a number of key successes in the form of our AIM flotation, enhanced
product development (System C Product revenues grew by 17 per cent in the year),
and successful deployment of PAS and Clinical systems. We have successfully
delivered fixed price projects to our LSP partners, contributing significantly
to the successful deployment of PAS and clinical systems.
In the products division we focused on the development and deployment of MedWay
(our Patient Administration System which was updated to ensure compliance with
the Connecting for Health 'Choose & Book' system that facilitates patient
choice) as well as other products such as the HealthData Suite which has been
successfully deployed to a number of NHS Trusts in the year.
We restructured our Services Division into specialist teams to enable greater
focus on the expansion of our customer base. As a result, we are currently
involved in bidding for activities related to the provision of Diagnostic and
Elective treatment centres, as well as procurements from hospitals outside the
National Programme for PAS and Clinical systems.
By the year end, we had reduced our non-core cost base significantly to reflect
market conditions. We have always kept tight control of our cash position, and
the Company generated a net cash inflow before financing of £0.9m. This,
combined with the proceeds raised from the flotation, enabled us to end the year
with a strong balance sheet with a net cash position of £8.0m.
We are also very pleased that, for the second year running, System C has been
voted one of the 'Sunday Times Top 100 Small Companies' to work for.
Our focus is always on developing excellent relationships with our customers,
and delivering against our client commitments. We believe we have achieved this
as reflected in the wide range of positive feedback from our customers, as
illustrated below:
"System C has been developing and deploying clinical systems into the NHS for
over a decade. Their experience is invaluable and CSC are very pleased to be
extending our relationship." Bill Thomson, CSC Limited's Operations Director on
the NHS Programme.
We will continue to concentrate on our core strengths: delivery of high quality
products and services to clients, development of our people, expansion of our
client base, and ability to recognise and consequently adapt to market
conditions.
Contract Wins
In recent months, the company has achieved a number of significant milestones
and we are pleased to report the following successes with a total contract value
of over £12m over a 3 year period:
• The renewal of our 3 year contract with CSC Corporation for the provision of
professional services in the North West and Midlands cluster.
• A year contract with Fujitsu for the provision of professional services on its
LSP contract with the Southern Cluster.
• A contract with Connecting for Health for the provision of domain experts to
support the design of future software releases for the Southern Cluster
• A contract with the Nuffield Group of private hospitals for training and
deployment services to support a software upgrade for its chain of thirty nine
hospitals.
• Member of private consortium that has secured preferred bidder status on
several regions of large NHS public procurement programme outside NpFIT.
• A major upgrade of the company's Medway suite of products at University
Hospital Aintree.
• A number of contracts for the deployment of a range of third party clinical
systems.
Markets
The National Programme for IT, which is being delivered by the Department of
Health agency, Connecting for Health, has committed £6.3 billion to deliver an
integrated IT infrastructure in the English NHS by 2010. The National Programme
is being implemented by four LSPs who are responsible for system deployment and
integration in five regional 'clusters'.
In the year ended 31 May 2006, there was a scaling back of activity within the
National Programme. The timing of further deployments required in order to
deliver the programme is dependent on the outcome of current LSP negotiations.
System C looks forward to a potential increase in the volume of deployments once
these negotiations are concluded.
NHS IT spend outside the National Programme is projected to grow from the
current level of approximately £1.2 billion per annum. System C will seek to
generate further opportunities from this demand by providing IT solutions and
services to the many individual NHS hospitals and Trusts directly. We now have
over 130 customer relationships with hospitals and Trusts and we will build on
this further in the coming year.
Operating Review
System C is ideally structured to address two separate areas of market demand:
1 Services Division - where the Company delivers to either LSP customers or on
behalf of other organisations whose end customer is either the NHS or other
clinical organisations, and
2 Products Division - where the company contracts directly to provide products
and associated deliverables directly to NHS hospitals and Trusts.
Both are supported by our central development and support capability, which
provides our people working on client sites with both logistical and technical
support.
Services Division
2006 2005
Turnover £12.6m £15.2m
Gross profit £7.2m £8.9m
Operating profit before exceptional items £4.7m £6.9m
Services Division revenue in the year ended 31 May 2006 was £12.6m and relates
mainly to services delivered to LSPs. We have seen a decline in demand for
services from the National Programme from the prior financial year as outlined
in the Chairman's Statement. In November 2005, we proactively began to provide
services under fixed-price contracts with the LSPs to accelerate deployments.
Operating profit within the Services Division fell to £4.7m, principally as a
result of reduced revenues. Divisional operating profit is stated before taking
into account the Development and Shared Services expenditures, whose costs are
reported separately.
During the year, System C Services specialists were involved in multiple
projects on behalf of its LSP customers with staff playing vital roles in the
successful completion of many of the "go-lives" during the period.
Products Division
2006 2005
Turnover £3.5m £3.0m
Gross profit £0.8m £0.6m
Operating profit before exceptional items £0.5m £0.4m
We generated revenue growth of £0.5m in the Products Division in the year ended
31 May 2006. The System C product capability has benefited from the continued
investment during the last few years. Our MedWay Electronic Patient Record
system was upgraded to connect to the NHS Connecting for Health central 'Choose
and Book' system, which allows general practitioners to book hospital
appointments for their patients online. We implemented the first 'Choose and
Book' upgrade in March 2006 and others are expected to follow.
A significant number of new NHS Hospital Trust customers have been secured for
products such as the HealthData Suite, with renewable licence fee agreements.
Growth also came from additional contracts to provide data migration and systems
interfacing.
Development and Shared Services Division
2006 2005
Operating loss before exceptional items £(4.7)m £(3.8)m
Our Development and Shared Services Division enables us to effectively develop
and deliver products and services into the healthcare IT sector. Included within
this category are costs associated with the general development of products as
well as central corporate costs.
The growth in the cost base year on year is principally due to an increase in
employee numbers, as well as general overhead costs including insurance and
costs associated with being a listed company. As noted above, we reduced the
cost base of the Company in the final quarter to reflect market conditions.
Strategy
We continue to concentrate on our core areas of expertise: the provision of IT
solutions to the healthcare sector.
We are actively securing opportunities in areas both within and outside the
National Programme, including the provision of services to support Diagnostic
and Elective Treatment Centres, the private healthcare sector, NHS Trusts direct
and overseas opportunities.
Our strategy is to grow the business profitability by further developing our
products and services and expanding our customer base. In addition, we will look
to invest the funds we raised at flotation to grow the business either
organically or through suitable targeted acquisitions.
Financial Review
2006 2005
Audited Audited
Turnover £16.1m £18.2m
Gross profit £8.0m £9.5m
Profit before exceptionals and tax £1.1m £3.5m
Exceptional admin. expenses £(0.4)m £(1.0)m
Profit before tax £0.7m £2.5m
Tax £0.4m £(0.4)m
Profit after tax £1.1m £2.1m
EPS 1.30p 3.48p
Overview
Revenues of £16.1m in the year ended 31 May 2006 fell by £2.1m from the prior
year, reflecting both a reduction in our Services Division revenues, and growth
of 17% in our Product Division revenues.
Services Division revenue of £12.6m was £2.7m below the prior year, due to
delays in the National Programme as discussed in the Chairman's Statement and
Chief Executive's Review.
Turnover in our Products Division grew to £3.5m (2005: £3.0m) as a result of
sales of our HealthData Suite and our MedWay Electronic Patient Record system,
as well as contracts to provide data migration and systems interfacing. This
growth is in line with our stated strategy of expanding our Products Division
and building up a base of recurring product revenue for the future.
The total gross margin in the year ended 31 May 2006 showed a marginal fall from
the prior year. This was principally driven by a reduction in the day rates
achieved with the Services Division and was partially offset by an increase in
gross margin in the Products Division.
Operating Costs
2006 2005
Cost of sales £8.1m £8.7m
(direct operating costs)
Administration expenses £7.4m £6.0m
(indirect operating costs)
Total operating costs £15.5m £14.7m
before exceptional items
Total operating costs in the year increased by £0.8m compared to the prior year.
We began the year with a high employee base required to meet the demand, at that
time, for services from our LSP partners. As the level of demand from our LSP
partners began to diminish in the six months to November 2005, we reduced our
cost base in the last quarter of the year mainly through redundancies and other
headcount related costs.
Exceptional Items
2006 2005
Flotation costs £0.2m -
Redundancy costs £0.2m -
UITF 17 charge - £0.8m
UITF 25 charge - £0.2m
--------- ---------
£0.4m £1.0m
The overall level of profitability has been impacted by exceptional items in
both the current and preceding financial years. Exceptional charges in 2006
relate to flotation costs that can not be offset against the share premium
account as well as redundancy costs.
In 2005 the exceptional items related principally to share options, with the
'UITF 17' charge reflecting the difference between an estimate of market value
and the exercise price of options issued (or repriced) during the year. The
'UITF 25' charge relates to a provision made for estimated Employer's National
Insurance Contributions due when share options are exercised.
Interest
2006 2005
Net interest on customer contract assets £0.1m -
Net bank interest £0.4m -
--------- ---------
Net interest receivable £0.5m -
Interest receivable from customer contracts relates mainly to our long-term
contracts where an element of the charge includes a recovery for finance costs.
Offsetting this income is the interest on financing loans taken out to fund the
contract assets. The interest payable on the financing loans for such contracts
has reduced as we have repaid loan capital in accordance with the terms of these
loans.
Net bank interest has improved by £0.4m principally due to interest income
generated on both the net proceeds raised at flotation, and cash generated from
operating activities.
Taxation
A tax credit has been recognised in the profit and loss account in 2006, due to
the availability of research and development tax credits and Schedule 23 tax
credits. At the year end, the Company had £1.2m of tax value losses recognised
on the balance sheet as a deferred tax asset to offset against future
Corporation Tax liabilities (2005: £0.7m).
Dividends
Interim dividends of £0.11p per share were declared and paid during the year.
The Board proposes a final dividend of 0.22p per share.
Cash Flow
We started the year with net debt of £1.2m raised £8.4m from the flotation,
generated surplus cash of £0.9m and paid £0.1m in dividend. As a result we ended
the year with total net cash of £8.0m
At the year end financing loans outstanding amounted to £1.5m (100 per cent of
which is scheduled for repayment within the next two years), leaving a net cash
position of £8.0m at the year end.
Balance Sheet
2006 2005
Fixed assets £1.1m £2.0m
Trade debtors £2.6m £3.4m
Other debtors £1.7m £1.3m
Debtors - accrued income £4.4m £3.6m
Creditors and provisions £(2.6)m £(3.6)m
Net cash £8.0m £(1.2)m
--------- ---------
Net assets £15.2m £5.5m
Note: the balance sheet table above is simplified for the purposes of
highlighting key areas; please refer to the financial statements for a full
analysis.
The company has a strong balance sheet with net assets of over £15.2m.
Trade debtors have decreased, principally due to a change in the invoicing
cycle, with a corresponding increase in accrued income. Other debtors include a
deferred tax asset of £1.2m in respect of unutilised losses brought forward.
At the year end, we had £4.4 million of accrued income (2005: £3.6 million).
This comprises:
• Services Division income generated in May 2006 and invoiced after the year
end. In the prior year Services Division income for May 2005 was invoiced
within the month, with any adjustments with the clients made in the subsequent
month. This has since been invoiced and fully paid.
• Accrued revenue recognised in relation to revenue from long-term contracts
which have not yet been invoiced. Revenue is only recognised once product
modules are installed, tested and the milestones are achieved and signed off
by the customer. Revenue accrued reflects the value of work delivered and is
then invoiced as a monthly payment over the life of the contract.
Creditors and other provisions have reduced from the prior year principally due
to a reduction in the VAT creditor and a reduced UITF 25 provision.
International Financial Reporting Standards ('IFRS')
As announced on our admission to AIM, the Company will prepare financial
statements under IFRS for the year ended 31 May 2007, which is a year earlier
than is required under the AIM rules.
We have reviewed the impact of IFRS in respect of the Company and identified the
key areas of impact as follows:
• Capitalisation of development costs
• Valuation of share based payments
• Segmental reporting of trading performance and financial position
System C will report its first set of results under the principles of IFRS in
its interim results for the six months ending 30 November 2006.
Profit and Loss Account for the year ended
31 May 2006
Notes Year ended Year ended
31 May 31 May
2006 2005
£ £
--------- ---------
Turnover 2 16,080,264 18,228,185
Cost of sales 2 (8,086,450) (8,757,318)
--------- ---------
Gross profit 2 7,993,814 9,470,867
Administration expenses - normal 2 (7,451,187) (5,978,204)
Administration expenses - exceptional items 3 (381,645) (986,004)
--------- ---------
Administration expenses - total (7,832,832) (6,964,208)
--------- ---------
Operating profit 160,982 2,506,659
Interest receivable and similar income 4 713,348 351,830
Interest payable and similar charges 5 (169,046) (326,914)
--------- ---------
Profit on ordinary activities before taxation 705,284 2,531,575
Tax credit/(charge) on profit on ordinary
activities 6 422,533 (421,882)
Profit for the financial year 1,127,817 2,109,693
Dividends and appropriations 7 (107,585) (66,742)
--------- ---------
Retained profit for the financial year 15 1,020,232 2,042,951
--------- ---------
Restated
Earnings per 1p ordinary share Pence Pence
- basic 8 1.30 3.48
--------- ---------
- diluted 8 1.28 3.08
--------- ---------
The results above relate entirely to continuing operations.
The Company has no recognised gains and losses other than the results above and
therefore no separate statement of total recognised gains and losses has been
presented. There is no difference between the profit on ordinary activities
before taxation and the results for the years stated above and their historical
cost equivalents.
Balance Sheet as at 31 May 2006
Notes Year ended Year ended
31 May 31 May
2006 2005
£ £
--------- ---------
Tangible assets 1,089,275 2,017,883
--------- ---------
Current assets
Debtors 9 8,686,467 8,318,821
Cash at bank and in hand 10 9,547,985 1,223,242
--------- ---------
18,234,452 9,542,063
Creditors - Amounts falling due within one year 11 (3,508,800) (4,314,872)
---------- ---------
Net current assets 14,725,652 5,227,191
---------- ---------
Total assets less current liabilities 15,814,927 7,245,074
Creditors - Amounts falling due after more
than one year 12 (528,122) (1,520,488)
Provisions for liabilities and charges 13 (81,407) (233,895)
--------- ---------
(609,529) (1,754,383)
---------- ---------
Net assets 15,205,398 5,490,691
---------- ---------
Capital and reserves
Called up share capital 892,765 3,821,683
Share premium account 15 9,731,885 -
Special reserve 15 - 1,308,496
Capital redemption reserve 15 3,127,023 134
Own shares held in trust 15 (1,235,381) -
Profit and loss account 15 2,689,106 360,378
---------- ---------
Total shareholders' funds 15,205,398 5,490,691
---------- ---------
Represented by:
Equity shareholders' funds 15,205,398 1,909,093
Non-equity shareholders' funds - 3,581,598
---------- ---------
Total shareholders' funds 15,205,398 5,490,691
---------- ---------
The financial statements which comprise the profit and loss account, balance
sheet, the cash flow statement and related notes were approved by the Board of
Directors on 6 September 2006.
Cash Flow Statement for the year ended 31 May 2006
Notes Year ended Year ended
31 May 31 May
2006 2005
£ £
--------- ---------
Net cash inflow from operating activities 16 359,842 4,210,687
Returns on investments and servicing of
finance
Interest received 716,010 341,345
Interest paid (169,046) (326,914)
Dividends paid to non-equity preference
shareholders (123) -
--------- ---------
Net cash inflow from returns on investments
and servicing of finance 546,841 14,431
Taxation (1,357) 105,638
Capital expenditure and financial investment
Purchase of tangible fixed assets (54,299) (890,728)
--------- ---------
Net cash outflow for capital expenditure and
financial investment (54,299) (890,728)
--------- ---------
Net cash inflow before financing 851,027 3,440,028
Financing
Proceeds from issue of equity share capital 11,175,825 138,362
Share issue costs (1,354,461) -
Redemption of non-equity share capital (71,000) -
Payment to acquire own shares held in trust (1,235,381) -
Dividends paid (95,342) -
Net repayment of financing loans (933,163) (912,502)
--------- ---------
Net cash inflow/(outflow) from financing 7,486,478 (774,140)
--------- ---------
Increase in net cash 8,337,505 2,665,888
--------- ---------
Notes to the Financial Statements
1. Basis of Preparation and Financial Statements
The Board of Directors approved these preliminary audited results on 6 September
2006.
The financial information set out above is abridged and does not constitute the
Company's statutory financial statements for the years ended 31 May 2006 or 31
May 2005. Statutory financial statements for the year ended 31 May 2005 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 2006 will be posted
no later than 12 October 2006 to shareholders and once approved will be
delivered to the Registrar of Companies following the Annual General Meeting on
6 November 2006. The report of the auditor for the year ended 31 May 2005 was
unqualified.
Copies of the Annual Report and Financial Statements for the year ended 31 May
2006 will be available in due course from the Company Secretary, System C
Healthcare plc, Brenchley House, Week Street, Maidstone ME14 1RF.
2. Segmental Reporting
The Company'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 Company as given below:
Year ended 31 May 2006 Year ended 31 May 2005
Development Development
and Shared and Shared
Products Services Services Total Products Services Services Total
£ £ £ £ £ £ £ £
--------- --------- --------- --------- --------- --------- --------- ---------
Turnover 3,470,423 12,609,841 - 16,080,264 2,966,764 15,261,421 - 18,228,185
Cost of sales (2,659,286) (5,427,164) - (8,086,450) (2,330,372) (6,426,946) - (8,757,318)
Gross profit 811,137 7,182,677 - 7,993,814 636,392 8,834,475 - 9,470,867
Administration
expenses - before
exceptional items (324,190) (2,440,257) (4,686,740) (7,451,187) (272,981) (1,918,823) (3,786,400) (5,978,204)
Administration
expenses
- exceptional - - (381,645) (381,645) - - (986,004) (986,004)
Operating
profit/(loss) 486,947 4,742,420 (5,068,385) 160,982 363,411 6,915,652 (4,772,404) 2,506,659
Net interest 147,731 - 396,571 544,302 72,316 (62,666) 15,266 24,916
Profit/(loss)
before tax 634,678 4,742,420 (4,671,814) 705,284 435,727 6,852,986 (4,757,138) 2,531,575
Net assets 2,675,791 1,998,344 10,531,263 15,205,398 2,044,603 2,504,230 941,858 5,490,691
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 Service
segments.
There is no difference between the geographical origin and destination of
turnover, all of which arises in the United Kingdom.
3. Exceptional Items
Year ended Year ended
31 May 31 May
2006 2005
£ £
--------- ---------
Flotation costs 190,632 -
Redundancy costs 191,013 -
UITF 17 charge - 806,645
UITF 25 charge - 179,359
--------- ---------
381,645 986,004
The charges above relate to bonuses paid upon the flotation as well as
redundancy costs.
The UITF 17 and UITF 25 charges in the previous year arise on the re-pricing of
certain share options on 10 November 2004, together with the issue of additional
share options during the year ended 31 May 2005.
4. Interest receivable and similar income
Year ended Year ended
31 May 31 May
2006 2005
£ £
Bank interest receivable 398,560 20,458
Other interest receivable 314,788 331,372
--------- ---------
713,348 351,830
5. Interest payable and similar charges
Year ended Year ended
31 May 31 May
2006 2005
£ £
Interest payable on bank loans and overdrafts 1,989 67,858
Interest on financing loans (Note 14) 167,057 259,056
--------- ---------
169,046 326,914
6. Tax (credit)/charge on profit on ordinary activities
(a) Analysis of tax (credit)/charge in the year
Year ended Year ended
31 May 31 May
2006 2005
£ £
Current tax
United Kingdom corporation tax at 30%/19%
on profit for the year - 3,887
Adjustments in respect of previous years (3,439) -
Total current tax (credit)/charge (Note 8b) (3,439) 3,887
Deferred tax
Origination and reversal of timing differences (419,094) 417,995
Total deferred tax (credit)/charge (Note 8c) (419,094) 417,995
--------- ---------
Tax (credit)/charge on profit on ordinary
activities (422,533) 421,882
(b) Factors affecting the current tax (credit)/charge in the year
The tax for the year differs from the standard rate of corporation tax in the UK
(30 per cent for the year ended 31 May 2006 and 19 per cent for the year ended
31 May 2005). The differences are explained below:
Year ended Year ended
31 May 31 May
2006 2005
£ £
Profit on ordinary activities before tax 705,284 2,531,575
Profit on ordinary activities multiplied by
standard rate of corporation tax in the UK of 30% 211,585 759,473
Effects of:
Expenses not deductible for tax purposes 65,414 35,797
Tax benefit of research and development
expenditure (200,172) -
Tax effect of share options issued (250,229) -
Differences between capital allowances
and depreciation 161,587 51,543
Unutilised/(Utilised) losses 246,216 (1,084,135)
Other timing differences (234,401) 243,280
Net difference between standard rate
of tax and small company rate - (2,071)
Adjustments in respect of prior years (3,439) -
--------- ---------
Current tax (credit)/charge for the year (Note 8a) (3,439) 3,887
c) Components of Deferred Tax Charge
Year ended Year ended
31 May 31 May
2006 2005
£ £
Net (recognition)/utilisation of tax losses (491,908) 712,818
Other timing differences 234,401 (243,280)
Differences between capital allowances and
depreciation (161,587) (51,543)
--------- ---------
Total Deferred tax charge (419,094) 417,995
The company had unutilised tax losses at the end of each year which would be
available to offset future taxable profits as set out in Note 14.
7. Dividends and appropriations
Year ended Year ended
31 May 31 May
2006 2005
£ £
£1 preference shares - 7
5% £1 convertible participating preference shares 12,243 66,735
£1 ordinary equity shares 95,342 -
--------- ---------
107,585 66,742
On the 17 January 2006 the Directors declared an interim dividend of 0.11 pence
per ordinary share, however the Trustees of the System C Healthcare plc Employee
Benefit Trust waived the rights of the Trust in respect of such dividends.
8. Earnings per share
The calculation of the basic earnings per ordinary share ("EPS") is based on the
profit attributable to ordinary shareholders for the financial year of
£1,127,817 (2005: profit of £2,109,686) and the weighted average number of
ordinary shares in issue during the year of 86,520,460 (2005: 60,568,411). The
profit attributable to ordinary shareholders has only been adjusted for
dividends relating to the redeemable preference shares as any dividends or
appropriations in respect of the convertible participating preference shares do
not require adjustment as these shares were converted into equity shares
immediately prior to the admission to AIM.
(As restated)
Year ended 31 May 2006 Year ended 31 May 2005
Earnings Earnings
Earnings per share Earnings per share
£ pence £ pence
Basic 1,127,817 1.30 2,109,686 3.48
Diluted 1,127,817 1.28 2,109,686 3.08
The following table shows a reconciliation of the weighted average number of
shares used for calculating the basic and diluted earnings per share.
(As restated)
Year ended Year ended
31 May 31 May
2006 2005
Number of Number of
shares shares
Used for calculating basic EPS 86,520,460 60,568,411
Dilution due to share options 1,474,710 7,890,523
--------- ---------
Used for calculating diluted EPS 87,995,170 68,458,934
9. Debtors
31 May 31 May
2006 2005
£ £
Amounts falling due within one year:
Trade debtors 2,648,250 3,399,174
Other debtors 17,693 28,705
Prepayments and accrued income 4,789,425 4,078,937
Deferred tax asset (Note 17) 1,231,099 812,005
--------- ---------
8,686,467 8,318,821
Prepayments and accrued income as at 31 May 2006 include £4,390,633 in respect
of revenue that has been recognised by the Company but which had not been
invoiced to the customer as at the year end (2005: £3,592,329). Of this amount,
£1,503,328 is due in more than one year (2005: £1,923,372).
10. Cash
31 May 31 May
2006 2005
£ £
Cash at bank and in hand 9,547,985 1,223,242
11. Creditors - Amounts due within one year
31 May 31 May
2006 2005
£ £
Bank overdrafts - 12,762
Financing loans (Note 14) 992,366 933,163
Trade creditors 360,007 736,030
Other taxation and social security 790,318 1,311,804
Proposed dividends - 166,923
Corporation tax - 4,796
Accruals and deferred income 1,366,109 1,149,394
--------- ---------
3,508,800 4,314,872
12. Creditors - Amounts due after more than one year
31 May 31 May
2006 2005
£ £
Financing loans 528,122 1,520,488
Maturity profile of financing loans
31 May 31 May
2006 2005
£ £
Due within one year 992,366 933,163
Between one and two years 528,122 992,366
Between two and five years - 528,122
--------- ---------
1,520,488 2,453,651
The financing loans represent the outstanding amounts owing in respect of gross
borrowings of £4.5 million obtained in order to finance certain of the Company's
contracts.
13. Provisions for liabilities and charges
Property UITF 25
dilapidations provision Total
£ £ £
At 31 May 2005 54,536 179,359 233,895
Provision utilised in the year - (137,893) (137,893)
Charged/(credited) in the year 17,989 (32,584) (14,595)
------- ------- --------
At 31 May 2006 72,525 8,882 81,407
14. Deferred tax
31 May 31 May
2006 2005
£ £
Balance at start of year 812,005 1,230,000
Credited/(charged) to the profit and loss account 419,094 (417,995)
Balance at end of year 1,231,099 812,005
Deferred tax recognised comprises:
Accelerated capital allowances 51,456 (110,131)
Unutilised tax losses 1,168,964 677,056
Short term timing differences - 241,994
Other 10,679 3,086
--------- ---------
Deferred tax asset 1,231,099 812,005
15. Share premium account and reserves
Share Capital Own Profit and
premium redemption Special shares held loss
account reserve reserve in trust account
£ £ £ £ £
------- ------- -------- ------- --------
As at 1 June 2005 - 134 1,308,496 - 360,378
Retained profit for the year - - - - 1,020,232
Credit arising on the conversion of the
Company's £1 convertible participating
preference shares - 3,126,889 - - -
Premium arising on settlement of
accrued dividend 179,596 - - - -
Premium on 1p ordinary shares issued 10,906,750 - - - -
Share issue costs (1,354,461) - - - -
Release of special reserve - - (1,308,496) - 1,308,496
Employee benefits trust - - - (1,235,381) -
------- ------- -------- ------- --------
As at 31 May 2006 9,731,885 3,127,023 - (1,235,381) 2,689,106
Capital reduction and transfer of special reserve
The Company was able to reduce the amount credited to the special reserve
equivalent to any increase in its paid up share capital or its share premium
account arising from new consideration. Accordingly, the Company transferred
£1,308,496 from the special reserve to profit and loss reserve following the
placing and admission of its ordinary shares to AIM.
Own shares held in trust
The System C Healthcare plc Employee Benefit Trust (the "Trust") holds 2,287,741
ordinary shares of 1p each with a cost of £1,235,381 and a market value as at 31
May 2006 of £537,619. The Trust acquired these shares at 54p each on the placing
and admission of the Company's ordinary shares to AIM.
The Trust used the funds loaned to it by System C Healthcare plc to meet the
obligations under the various share option schemes that the Company operates.
Share options are granted to the employees at the discretion of the Company and
shares are awarded to employees by the Trust in accordance with the wishes of
System C Healthcare plc. The loan provided to the Trust will be repaid from the
proceeds payable by employees to exercise share options that have been granted
to them.
16. Reconciliation of operating profit to net cash inflow from operating
activities
Year ended Year ended
31 May 31 May
2006 2005
£ £
Operating profit 160,982 2,506,659
Depreciation 976,640 892,135
Loss on disposal of tangible fixed assets 854 17,498
Exceptional charge on share options (Note 4) - 986,004
Dilapidations provision 17,989 54,536
Decrease in UITF 25 provision (170,477) -
Decrease in stocks - 7,902
Decrease/(increase) in debtors 38,424 (2,177,636)
(Decrease)/increase in creditors (664,570) 1,923,589
--------- ---------
Net cash inflow from operating activities 359,842 4,210,687
17. Reconciliation of cash inflow to movement in funds / (net debt)
Year ended Year ended
31 May 31 May
2006 2005
£ £
Increase in cash in the year 8,337,505 2,665,888
Cash outflow from net repayment of financing loans 933,163 912,502
--------- ---------
Change in net funds resulting from cash flows 9,270,668 3,578,390
Net debt at start of year (1,243,171) (4,821,561)
--------- ---------
Net funds/(debt) at end of year 8,027,497 (1,243,171)
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