Continued optimism despite global challenges
We entered 2018 with an optimistic outlook based on a set of excellent results in 2017 and a healthy opening order book. I am delighted that this optimism was well justified and that the Group has delivered another record set of results for the year, comfortably in line with market guidance. Looking forward into 2019 we retain our favourable outlook despite the many challenges facing the world of business on the global scene: our opening order book is at a record level, cash generation is healthy, and all three divisions have ambitious business plans for the year.
Brexit contingency plans executed
Final dividend up 10%
Healthy organic revenue growth
The Group delivered a strong overall performance in 2018 and is reporting solid advances in results for both full-year revenues and adjusted profits. In prior years, we saw a pattern where earnings were skewed towards the second half: in 2018, earnings were more balanced across the year – though it is too early to determine if this pattern will become the norm going forward in future years.
The strength of growth in revenues in 2018 has provided us with the confidence to invest in the business to accommodate further growth, which has resulted in a significant expansion of our team. We added significantly to our head count and opened a supplementary office in Bristol to house members of our expanding Space division. Such investment followed on from similar initiatives during 2017 which saw the opening of a new office in Dortmund to house our Media & Broadcast division (previously based in Bochum), and we are actively looking to open a new and larger office in Bochum during 2019 due to the growth in our Space activities in Germany.
Operational cash flows were very healthy across the year, resulting in further reductions in net debt and underpinning a healthy 10% uplift in the recommended final dividend payment. As expected, our income streams, which are predominantly in pounds sterling and euros, were well balanced, providing an internal hedge against exchange-rate movements.
Brexit contingency planning, which commenced in 2017 to protect the Group from any potential adverse operational consequences in respect of the UK’s withdrawal from the EU, concluded in 2018 with the holding company for the Group completing its re-domiciliation to Dublin. This entailed setting up a new group holding company in Ireland and it acquiring all the shares in the old SCISYS group holding company. The process completed with the old SCISYS group holding company delisting from AIM and the new SCISYS group holding company “re-listing” on both AIM and the Irish Enterprise Securities Market of Euronext (“ESM”). All shareholders in “old” SCISYS received the same number of shares in “new” SCISYS. It was a complex and expensive exercise and has resulted in a one-off exceptional charge in our accounts of £0.7m for 2018. The new SCISYS group holding company has UK tax status.
Crucial to the process was the advisory resolution agreed by shareholders at the SCISYS 2018 AGM approving the contingency planning. Shareholder approval and subsequent re-domiciliation enabled SCISYS to participate in tender activities for a number of contracts within EU-funded space programmes from which it would otherwise have been excluded. Recent announcements by our Space division of contract wins valued in excess of €20m already justify the Board’s contingency planning.
SCISYS is now well placed to expand its participation in EU-funded space programmes (EGNOS, Galileo & Copernicus) and bring its wealth of expertise in the design and build of ground segment and on-board systems to the projected UK national programme for a UK satellite navigation system alternative to Galileo.
* Dividend figure subject to shareholder approval at the AGM.
Key financials reflect the success
In the year ended 31 December 2018, SCISYS posted overall revenues of £58.4m, which were up 10% on last year (2017: £53.2m restated under IFRS 15). Within this figure, professional fees were 16% higher at £55.7m (2017: £47.9m restated). The Group delivered an adjusted operating profit of £5.1m (2017: £4.4m restated), a 16% uplift on 2017. The statutory operating profit was £2.5m (2017: £4.5m restated). A reconciliation between the adjusted and statutory operating profit measures appears in the Finance Director’s Report. Adjusted basic earnings per share were 13.1p (2017: 9.3p restated); basic earnings per share were 4.9p (2017: 10.8p restated). Cash generation remained healthy and this resulted in a net operating inflow of £5.4m (2017: £10.5m). The Group’s year-end net debt position was £3.1m (2017: £5.9m). At 8.7% (2017: 8.3%), our adjusted operating margin has improved. The year-end order book was at a record level at £98.6m (2017: £88.2m restated).
Our people are the key to our success
Once again, our thanks rightly go to all our staff within the divisions, who actively implement our corporate core values of trust, respect and openness, combined with prudence and balanced growth. Their hard work and ability to deliver the business solutions that our customers need, within tight budgets and timescales, is the key factor to the on-going relationships that SCISYS enjoys with its many and varied long-standing customers. Our thanks also go to all our staff within the Group’s central functions, who provide essential services and valued support to the Group and who have made an important contribution to these results. In particular this year we must compliment the dedication and efforts of the team that led the re-domiciliation exercise, which involved a sustained and very substantial effort.
It gave me great pleasure announcing the appointment in December 2018 of Natasha Laird to the Board of Directors: Natasha has worked in the role of General Counsel and Company Secretary since 2016, during which period we have seen first-hand the many complementary strengths and values she will bring to the Board table. She has been involved in a wide range of commercial matters within both the UK and German arms of SCISYS and, most recently, successfully led the process of creating the new Irish holding company for the Group and listing it on AIM and the ESM.
An interim dividend of 0.65p per share was paid on 8 November 2018. The Directors are now proposing a final dividend of 1.73p per share, subject to approval by shareholders at the Annual General Meeting on 6 June 2019. The proposed final dividend will be paid on 26 July 2019 to shareholders on the register at 28 June 2019. The shares will go ex-dividend on 27 June 2019. This would make the dividend for the full year to 31 December 2018 2.38p per share (2017: 2.16p) and maintains our stated strategy of progressive dividend growth.
Governance matching our needs
We are committed to high standards of corporate governance. We have strong governance frameworks in place throughout the Group that are in balance with our growth. SCISYS adopted the QCA Corporate Governance Code during 2018 and now complies with Irish reporting and compliance requirements.
Looking to the future
Going into 2019, the outlook continues to be very encouraging. The key elements of the Group’s strategy remain unchanged. We continue to focus on balanced revenue growth, margin improvement, management and control of risk, as well as succession planning.
We are pleased with the healthy organic growth in revenues achieved in 2018. On a like-for-like basis, and ignoring any IFRS 15 adjustments, we have met our medium-term revenue aspiration of £60m substantially ahead of plan.
Moreover, our strong trading performance combined with steadily reducing levels of net debt and a record year-end order book provide a solid platform for delivering further progress in 2019 and beyond. To take advantage of the increased top-line momentum that we are now experiencing, we have adjusted our strategy to accommodate the anticipated higher revenue growth and are planning appropriate investments in facilities, infrastructure and personnel. This is reflected in our adjusted medium-term aspirations outlined in the Chief Executive’s Review.
Based on current project performance and our order pipeline across the entire Group, the Directors remain fully confident in the prospects of the Group’s future organic growth. We will also continue to look for opportunities – where there is a good market, product and cultural fit – to grow through acquisition.
Dr. Mike Love