SYSOPEN PLC?S INTERIM REPORT FOR Q1 and
STOCK EXCHANGE RELEASE
7 August 2003 8.00 a.m.
SYSOPEN PLCS INTERIM REPORT FOR Q1 and Q2/2003
- Business profitability is still among the highest within
the IT sector.
- Consolidated turnover came to EUR 13.6 million, down 10
per cent on a year earlier.
- Earnings before interest, taxes and goodwill amortisation
(EBITA) accounted for 8 per cent of turnover, or EUR 1.1
million, down EUR 0.4 million.
- Profit before extraordinary items and taxes came to EUR
1.0 million, up EUR 0.9 million.
- Earnings per share were EUR 0.09, up EUR 0.09.
- The period-end number of employees totalled 294, showing a
staff reduction of 8 per cent.
- If the market does not experience any further
deterioration, SysOpen expects its 2003 profit to remain at
the previous years level, although turnover may fall by
around 1015 per cent from the 2002 level.
MARKETS AND SYSOPENS BUSINESS
The worldwide economic and political situation remained
uncertain during the report period, the corporate sector
continuing to maintain its investments at low levels. In
order to safeguard their competitiveness, a number of
companies had to cut jobs and also seek cost-savings in
purchases of external IT services
The report period saw sagging demand for products and
services of many of SysOpens corporate customers who, in
order to trim their costs, announced joint discussions on
job cuts and also reduced their IT purchases from SysOpen.
Despite the subdued market and the fall in turnover, SysOpen
succeeded in maintaining its business profitability and
competitiveness as one of the best within the IT industry.
During the second quarter, SysOpen agreed on a number of
further development projects with its existing customers.
The period also saw new customers and contracts, including
the Finnish Defence Forces. Responsible for technical
implementation and related methodology, SysOpen will
implement an operational management information system, AVT-
OPJO, for the Defence Forces Conscription Section, with the
value of the order totalling around EUR 2.5 million. The
joint project with the Defence Forces and SysOpen will
involve a total of 5,500 man-days and the new information
system will be adopted during 2005.
REPORTED TURNOVER YEAR-ON-YEAR
Consolidated turnover for the period reached EUR 13.6
million (Q1 and Q2/2002: EUR 15.1 million), down 10.1 per
cent on a year earlier. The divestments of unprofitable
businesses carried out in early 2003 and the previous year
reduced turnover by 4 per cent, while delays in customer
projects due to the unpredictable economic situation
accounted for the rest of the fall in turnover.
In the main, certain SysOpens regional units in Finland and
software solutions were faced with the fall in turnover,
whereas the enterprise application solutions units based in
the Helsinki Metropolitan Area maintained their turnover at
almost the previous years level.
International operations accounted for 2.3 per cent of
consolidated turnover (Q1 and Q2/2002: 3.9 per cent).
Turnover by business area for Q1 and Q2/2003:
Enterprise Application Solutions 93.9%
Software Solutions 6.1%
Q2/2003 TURNOVER COMPARED WITH Q1/2003 TURNOVER
Consolidated turnover for Q1/2003 of EUR 7.0 million was 5.5
per cent lower than the EUR 6.6 million reported for
Q2/2003, due to subdued market demand for IT services in
general and the delay in the launch of customer projects.
REPORTED OPERATING PROFIT AND FINANCIAL PERFORMANCE YEAR-ON-
YEAR
Amid the extremely challenging market situation, the Groups
business profitability remained among the highest within the
IT industry, albeit weakening slightly compared to the
previous year.
Consolidated earnings before interest, taxes and goodwill
amortisation (EBITA) came to EUR 1.1 million (EUR 1.5
million, down 28 per cent), accounting for 8.0 per cent of
reported consolidated turnover (Q1 and Q2/2002: 10.0 per
cent). In relative terms, EBITA was at 9.2 per cent, or at
almost the previous years level, if the EUR 0.17 million of
non-recurring layoff expenses for the period-end related to
job cuts in corporate administration were excluded. The
slight decrease in operating profit was largely due to the
fall in turnover.
Owing to the difficult market situation, the Group has also
paid a particular attention to its cost structure and has
succeeded in lowering its operating expenses by 8 per cent,
year-on-year, as a result of enhanced operational
efficiency.
Profit before extraordinary items and taxes totalled EUR 1.0
million (Q1 and Q2/2002: EUR 0.1 million) and earnings per
share came to EUR 0.09 (Q1 and Q2/2002: EUR 0.00). In the
previous year, the profit was burdened by non-recurring
write-downs related to loss-making subsidiary and associated
companies share capital, loans in terms of equity and
receivables, as well as impairment of marketable securities.
Q2/2003 OPERATING PROFIT AND FINANCIAL PERFORMANCE COMPARED
WITH Q1/2003
Earnings before interest, taxes and goodwill amortisation
(EBITA) reported for Q1/2003 were EUR 0.8 million, whereas
those reported for Q2/2003 were EUR 0.2 million, with the
decline due to the lower turnover and non-recurring layoff
expenses.
Q2/2003 EBITA accounted for 3.6 per cent of turnover
(Q1/2003: 12.1 per cent).
FINANCING AND CAPITAL EXPENDITURE
With a positive cashflow, the Groups financial position
remained at a healthy level throughout the report period.
The balance sheet total came to EUR 15.6 million (Q1 and
Q2/2002: EUR 16.0 million) and equity ratio was 74 per cent
(Q1 and Q2/2002: 73 per cent). The ratio of net liabilities
to shareholders equity, or net gearing, was 60 per cent
(Q1 and Q2/2002: 45 per cent), while liquid assets totalled
EUR 6.5 million (Q1 and Q2/2002: EUR 5.3 million). The Group
has no interest-bearing liabilities.
The Groups gross capital expenditure amounted to EUR 88,000
(Q1 and Q2/2002: EUR 264,000). The Group continued to spend
on service development and in-house software component
engineering. These development costs were expensed as
incurred.
ROI AND ROE
Reported return on investment (ROI) was 17 per cent (Q1 and
Q2/2002: 2 per cent), while reported return on equity (ROE)
was 14 per cent (Q1 and Q2/2002: 0 per cent).
HUMAN RESOURCES AND ADMINISTRATION
The period-end number of employees totalled 294 (Q1 and
Q2/2002: 319), down 8 per cent year-on-year, while the
average number of employees for the period totalled 302
(336), down 10 per cent on a year earlier. The year-on-year
reduction in staff was largely due to the divestment of
unprofitable businesses, SysOpens in-house IT support
outsourcing and job cuts carried out in June 2003 after
joint discussions with employees.
Reported employee turnover came to 7.5 per cent (Q1 and
Q2/2002: 5.6 per cent).
Employees by function:
Enterprise Application Solutions 76%
Software Solutions 9%
Administration and management 12%
International operations 3%
JOINT DISCUSSIONS WITH EMPLOYEES
On 19 May 2003, SysOpen announced that joint discussions
were to be held with its employees, due to the temporary
reduction in manpower requirements within the Group. These
discussions ended on 9 June 2003. Owing to the rapid decline
in demand for IT services at the end of the spring of 2003,
SysOpen decided to make 9 employees redundant and lay off
89, or 30 per cent of all staff, for a maximum of 90 days,
with a view to adjusting its operations to the prevailing
market conditions.
The redundancies applied mainly to those involved in
administrative duties, while the layoffs to be mainly
implemented during JuneOctober 2003 chiefly concerned staff
who, in times of normal demand, would be engaged in billable
customer projects. Depending on the unit and near-term
market prospects, the layoffs will vary from one week to 90
days.
As a result of the discussions, SysOpen also decided to
merge its unit in Varkaus with that based in Kuopio, in
order to enhance the Group's business opportunities and cost-
efficiency within the region. While the discussions were
underway, the company also identified other tools for
securing its profitability and competitiveness.
Through these measures, SysOpen estimates that it will
achieve cost-savings totalling EUR 0.61.0 million during
2003, with the cost-savings resulting from fixed-term
layoffs and redundancies reflected in the third and fourth
quarter profits. The non-recurring layoff expenses were
entered as incurred for Q1 and Q2/2003 results. In addition,
cost-savings due to restructuring measures will be allocated
for the coming years.
The total cost-savings for 2003 will depend on the actual
duration of the layoffs. If demand for SysOpen's IT services
returns to its normal level, the company will avoid
implementing the layoffs in terms of their planned scope and
duration.
Following the joint discussions, demand for SysOpens
services has picked up, and 68 employees, or 23 per cent of
all staff, have so far been, or will be, subject to layoffs
of varying duration.
GROUP STRUCTURE AND ORGANISATION
The SysOpen Group consists of SysOpen Plc (Parent Company)
and the following three subsidiaries: SysOpen Object Team Oy
(with a 90 per cent holding on 30 June 2003), SysOpen
Limited (100 per cent) and SysOpen UK Limited (83 per cent).
The SysOpen Groups business units are as follows: Commerce
and Services, Telecoms and Industry, Financing,
Organisations and Business Development, Domestic Regions and
SysOpen Object Team Oy.
ANNUAL GENERAL MEETING
SysOpen Plcs Annual General Meeting (AGM) convened on 20
March 2003.
The AGM adopted the financial statements for 2002,
discharged Board members and the Managing Director from
liability and, pursuant to the Board's proposal, confirmed
the profit distribution for 2002.
The AGM approved the following Board proposals:
- The AGM decided on issuing new 2003 A2003 D stock
options.
- The AGM authorised the Board to decide to issue one or
several convertible bonds, issue stock options and/or
increase the share capital through one or several rights
issues. The Board has not exercised this authorisation.
- The AGM authorised the Board to buy back own shares. The
Board has not exercised this authorisation.
- The AGM authorised the Board to dispose of the companys
own shares (treasury shares). The Board has not exercised
this authorisation.
The AGM also decided on Board emoluments and granting stock
options to Risto Linturi and Timo Tiihonen, members of the
Board of Directors who are entitled to stock options under
the terms and conditions of the new stock option scheme.
The AGM re-elected Kari Karvinen, Jorma Kylätie, Risto
Linturi, Matti Savolainen and Timo Tiihonen as Board
members. At its meeting held after the AGM, the Board of
Directors re-elected Kari Karvinen as Board Chairman on a
full-time basis and Matti Savolainen as Vice Chairman.
CHANGES IN SYSOPENS BOARD OF DIRECTORS
Timo Tiihonen, Senior Adviser at CapMan, has resigned from
SysOpen's Board of Directors at his own request, due to a
change in his status, i.e. the funds managed by CapMan have
proposed him as a member of the Board of Directors of a
listed IT company competing with SysOpen.
In accordance with SysOpens Articles of Association, a four-
member Board meeting constitutes a quorum. It is likely that
SysOpen's Board of Directors will be reinforced at a later
date, although it will, for the time being, continue with
the four members stated above.
SHARE CAPITAL AND SHARES
The nominal value per share is EUR 0.1, the number of shares
totalling 9,362,914. At the end of the period, SysOpen Plc
held a total of 100,000 treasury shares, their nominal value
totalling EUR 10,000, accounting for approximately 1.1 per
cent of the companys share capital and votes.
The Groups shares are quoted on the Main List of the
Helsinki Exchanges under the telecommunications and
electronics business sector. One trading lot includes 50
shares and the trading code is SYS1V. The lowest share
quotation reported for Q1 and Q2/2003 was EUR 2.83 and the
highest EUR 3.79. The Groups share closed at EUR 2.97. The
trade weighted average amounted to EUR 3.27. The Groups
market capitalisation totalled EUR 27,510,855 at the end of
the period. SysOpen reported a total of 3,019 shareholders
on 30 June 2003.
STOCK-OPTION SCHEMES
SysOpen Plcs Board of Directors meeting on 4 June 2003
agreed to distribute new stock options, issued by the Annual
General Meeting on 20 March 2003, to the personnel of the
SysOpen Group and to those members of the Board of Directors
who are entitled to stock options, as well as to SysOpen
Partners Oy, a subsidiary wholly owned by SysOpen Plc. The
Board of Directors also agreed to invalidate stock options
based on the stock option schemes for 19992004 and
20002005, held by the subsidiary, to the extent that these
stock option holders have converted their old stock options
into the stock options for 2003. In addition, the Board of
Directors agreed to invalidate all of the old stock options
held by SysOpen Partners, applying to a total of 319,815
stock options based on the stock option scheme for 19992004
and a total of 378,940 stock options based on the stock
option scheme for 20002005.
Through the stock option invalidation, SysOpen reduced
substantially the dilution effect of its stock option
schemes. As a result of the invalidation, the number of all
stock options issued by SysOpen totals 740,245. The
proportion of the shares to be subscribed on the basis of
the stock options will decrease to a maximum of 7.3 per cent
of the companys shares and votes entitled by the shares
after any possible increase of the companys share capital.
SysOpen Partners still holds 319,376 of all stock options.
The dilution effect of the distributed stock options is
currently a maximum of 4.3 per cent.
The number of the stock options remaining in the 19992004
stock option scheme totalled only 49,185 as follows: 23,700
1999 A stock options, 10,485 1999 B stock options, 7,500
1999C stock options and 7,500 1999 D stock options, all of
which have been subscribed. The share subscription period
for all warrants will expire on 31 October 2004. The share
subscription price for A, B, C and D warrants is EUR 6.40,
EUR 9.30, EUR 6.55 and EUR 4.43 per share, respectively.
Following the invalidation, SysOpen Partners held no stock
options based on the 19992004 stock option scheme.
The number of the stock options remaining in the 20002005
stock option scheme totalled only 21,060 as follows: 19,960
2000 E stock options, 850 2000 F stock options, 250 2000 G
stock options and 0 2000 H stock options, all of which have
been subscribed. The share subscription period for all
warrants will expire on 31 May 2005 and the share
subscription price for E warrants is set at EUR 8.30 per
share, for F warrants at EUR 5.36 and for G warrants at EUR
3.28. Following the invalidation, SysOpen Partners held no
stock options based on the 20002005 stock option scheme.
The number of the stock options remaining in the 2003 stock
option scheme totalled only 670,000 as follows: 210,000 2003
A stock options, 160,000 2003 B stock options, 150,000 2003
C stock options and 150,000 2003 D stock options, all of
which have been subscribed. The share subscription period
for 2003 A stock options will be from 2 May 2004 until 31
October 2005, 2003 B stock options from 1 November 2004
until 31 October 2006, 2003 C stock options from 1 November
2005 until 31 October 2007 and 2003 D stock options from 1
November 2006 until 31 October 2008. The share subscription
price for 2003 A and 2003 B options is EUR 3.28 and EUR
3.19, respectively. For other stock options, the
subscription price will be determined by SysOpens share
prices quoted in public trading. On 30 June 2003, SysOpen
Partners held a total of 319,376 stock options based on the
2003 stock option scheme. SysOpen Plcs Board of Directors
will at a later date decide to distribute these stock
options held by SysOpen Partners to the SysOpen Groups key
employees and key recruits. The shareholders meeting is
responsible for deciding on any distribution of stock
options to SysOpen Plcs Board members.
EVENTS AFTER Q1+Q2/2003
There have been no major events since the report period.
NEAR-TERM PROSPECTS
General economic uncertainty and the subdued demand for
customers products and services have also undermined
SysOpens expectations for near-term demand for its IT
services and products.
Despite the highly challenging markets, SysOpen has
attracted new customers with great growth potential, who are
expected to increase demand for SysOpens services towards
the end of 2003 and in 2004. The Group will continue its
dedicated efforts to expand sales and will also pay a
particular attention to reining in costs. It will continue
to focus on strengthening profitable and expanding business
areas in its strategy implementation.
SysOpen estimates that if the market does not experience any
further deterioration, consolidated turnover for 2003 may
fall by around 1015 per cent of the 2002 level, due, on the
one hand, to the flat demand for IT services in general and,
on the other, the previous divestments of SysOpens
unprofitable businesses.
Strategic fit and the promotion of factors critical to
shareholder value will be given a special emphasis when it
comes to potential company acquisitions and alliances.
BRIEFING
SysOpen will hold a briefing on its Interim Report for Q1
and Q2/2003 for equity analysts and the press at the Hotel
Vaakuna, 10th floor, Kaivokatu 3, FIN-00100 Helsinki,
starting at 12:00 p.m. on 7 August 2003. All are welcome
The Interim Report for Q1Q3/2003 will be released on
Thursday, 30 October 2003.
Helsinki, 7 August 2003
Sysopen Plc
Board of Directors
FOR FURTHER INFORMATION, PLEASE CONTACT
Arto Sahla, Managing Director
Tel. +358 424 2020 339, gsm +358 400 442 986, email:
arto.sahla@sysopen.fi
The Interim Report and the related slide show are also
available on the Groups Web site: www.sysopen.fi, as of
1:00 p.m. Thursday, 7 August 2003.
DISTRIBUTION
Helsinki Exchanges
Consolidated Income Statement for 1 January30 June 2003,
EUR 1,000
Q1+Q2/2003 Q1+Q2/2002 2002
EUR 1,000
TURNOVER 13,596 15,122 28,997
Other operating income
116 114 166
Materials and services - 591 -465 -902
Personnel expenses - 8,156 -8,976 -16,863
Depreciation and write
downs - 325 - 385 -882
Other operating
expenses - 3,553 - 3,895 -7,278
EBITA
1,087 1,515 3,237
Goodwill amortisation - 136 - 175 -342
OPERATING PROFIT 951 1,340 2,895
Financial income and -1,200 -699
expenses 90
Profit before
extraordinary items 1,041 140 2,196
and taxes
Direct taxes -141 -123 -284
Minority interest -21 8 -26
PROFIT/LOSS FOR THE 879 25 1886
PERIOD
Consolidated Balance Sheet on 30 June 2003, EUR 1,000
ASSETS 30 June 30 June 31 Dec.
2003 2002 2002
FIXED AND OTHER NON-
CURRENT ASSETS
Development costs 85 37
0
Intangible rights 475 529 517
Other non-current
assets 114 180 147
Group goodwill 443 960 620
Intangible assets
total 1,032 1,753 1,321
Tangible assets 1,285 1,759 1,548
Long-term investments 1,191 1,198 1,191
INVENTORIES AND
CURRENT ASSETS
Current receivables 5,581 6,057 5,205
Short-term investments 1,581 1,613 1,524
Cash and bank 4,949 3,650 6,894
receivables
ASSETS TOTAL 15,619 16,031 17,683
LIABILITIES AND 30 June 30 June 31 Dec.
SHAREHOLDERS EQUITY 2003 2002 2002
SHAREHOLDERS EQUITY
Share capital 936 936 936
Share issue 0 149 0
Issue premium fund 7,091 7,092 7,091
Retained earnings
1,807 3,430 3,441
Profit/loss for the 879 25 1,886
period
Translation 11 11
difference,
unrestricted
shareholders equity
SHAREHOLDERS EQUITY 10,714 11,483 13,355
TOTAL
MINORITY INTEREST 138 145 192
LIABILITIES
Short-term liabilities
4,768 4,403 4,136
LIABILITIES AND 15,619 16,031 17,683
SHAREHOLDERS EQUITY
TOTAL
Consolidated cashflow statement for 1 January30 June 2003,
incl. comparable data, EUR 1,000
Q1+Q2/2003 Q1+Q2/2002 2002
Cashflow from 1,602 5,466
business operations 2,121
Cashflow from 29 - 121 -307
investments
Cashflow from
financing:
dividends paid
-3,516 -2,038 -2,038
change in liabilities
- 3 -5 -7
Cashflow from
financing: - 3,519 -2,042 - 2,045
Change in liquid -1,888 -41 3,114
assets
Liquid assets at 8,418 5,305
period-start 5,305
Liquid assets at 8,418
period-end 6,530 5,264
Difference -1,888 -41 3,114
Group key figures and ratios (on a comparable basis)
Q1+Q2/ Q1+Q2/ 2002
2003 2002
Extent of
business
Turnover 13,596 15,122 28,997
- % of change, -10 0.8 -6
year-on-year
Capital 10,851 11,628 13,546
invested
Gross capital 88 264 477
expenditure
- % of turnover 1 2 2
Personnel at 294 319 323
period-end
Average 302 336 328
personnel
Profitability
EBITA 1,087 1,515 3,237
- % of turnover 8 10 11
Operating 951 1,340 2,895
profit
- % of turnover 7 9 10
Profit before 1,041 140 2,196
extraordinary
items and taxes
- % of turnover 8 8
1
Profit/loss for 879 25 1,886
the period
% of turnover 6 0 7
Return on 15 0 14
equity, %
Return on 17 2 16
investment, %
Financing and
financial
position
Interest- 0 6 2
bearing
liabilities
Short-term 6,530 5,263 8,418
investments +
cash and bank
receivables
Net Gearing, % -60 -45 -62
Equity ratio, % 74 73 77
Cashflow from 2,121 5,463
business 1,602
operations
Earnings per 0.09 0.00 0.20
share, EUR
(Group)
Equity per 1.16 1.24 1.44
share
Price-earnings 31.2 3568 17.2
ratio (P/E)
Lowest share 2.83 3.50 2.52
price
Highest share 3.79 6.35 6.35
price
Average share 3.27 5.24 4.51
price
Market 27,511 32,770 29,868
capitalisation
at period-end
Group key figures and ratios (on a comparable basis)
Q1+Q2/2 Q1/2003 2002 Q1Q3/2 Q1+Q2/2
003 002 002
Extent of
business
Turnover 13,596 6,991 28,997 21,298 15,122
- % of change, -10 -8 -6 -3 0.8
year-on-year
Capital 10,851 10,599 13,546 12,902 11,628
invested
Gross capital 88 20 477 300 264
expenditure
- % of turnover 1 0 2 1 2
Personnel at 294 305 323 317 319
period-end
Average 302 306 328 330 336
personnel
Profitability
EBITA 1,087 849 3,237 2,122 1,515
- % of turnover 8 12 11 10 10
Operating 951 781 1,865 1,340
profit 2,895
- % of turnover 7 11 10 9 9
Profit before 1,041 734 2,196 1,334 140
extraordinary
items and taxes
- % of turnover 8 10 8 6 1
Profit/loss for 879 586 1,886 1,291
the period 25
% of turnover 6 8 7 6 0
Return on 14 13 0
equity, % 15 20
Return on 17 24 16 14 2
investment, %
Financing and
financial
position
Interest- 0 0 2 4 6
bearing
liabilities
Short-term 6,530 5,891 8,418 6,456 5,263
investments +
cash and bank
receivables
Net Gearing, % -60 -56 -62 -50 -45
Equity ratio, % 74 73 77 80 73
Cashflow from 1,602 995 5,463 3,356 2,121
business
operations
Earnings per 0.09 0.06 0.20 0.14 0.00
share, EUR
(Group)
Equity per 1.6 1.13 1.44 1.38 1.24
share
Price-earnings 31.2 46.6 17.2 28.6 3,568
ratio (P/E)
Lowest share 2.83 2.95 2.52 2.52 3.50
price
Highest share 3.79 3.79 6.35 6.35 6.35
price
Average share 3.27 3.44 4.51 4.71 5.24
price
Market 27,511 27,326 29,868 25,280 32,770
capitalisation
at period-end
In our Interim Report for the second quarter of 2002, we
announced that we would adopt a new reversal procedure for
holiday pay provisions as of the beginning of 2003, to
better correspond to the actual holiday periods, affecting
the Q1+Q2/2002 income statement and key figures, as well as
the balance sheet 6/2002 accordingly,
with no impact on other periods.
The earnings-per-share ratio is based on the average share-
issue adjusted number of shares (9,262,914) for the
financial period. The number of outstanding shares totalled
9,262,914 at the end of the period.
The return on equity and return on investment figures have
been annualised.
The company held a total of 100,000 treasury shares at the
end of the period.
The Group has no liabilities associated with derivative
contracts.
Figures in this Interim Report are unaudited.
Helsinki, 7 August 2003
SysOpen Plc
Board of Directors
