SYSOPEN PLC?S INTERIM REPORT FOR Q1-Q3/2
STOCK EXCHANGE RELEASE 30 October 2003, at 8.45 a.m.
SYSOPEN PLCS INTERIM REPORT FOR Q1-Q3/2003
- Still among the highest within the IT industry, the
Groups business profitability remained at the predicted
level.
- Consolidated turnover came to EUR 18.7 million, down 12
per cent on a year earlier.
- Earnings before interest, taxes and goodwill
amortisation (EBITA) accounted for 8 per cent of
turnover, or EUR 1.5 million, down EUR 0.6 million.
- Profit before extraordinary items and taxes amounted to
EUR 2.0 million, up EUR 0.7 million, year on year.
- Earnings per share were EUR 0.19, up EUR 0.05.
- The period-end number of employees totalled 278, down
12 per cent.
- If the market does not experience any further
deterioration towards the end of the year, SysOpen
expects its 2003 turnover to fall by 10-15 per cent from
that reported for 2002, and its 2003 profit to improve
from the level recorded for 2002.
- SysOpen will provide further information on the outcome
of its tender offer for Novo Group Plc shares and the
related effects on SysOpen Groups future prospects.
MARKETS AND SYSOPENS BUSINESS
The report period was characterised by economic
uncertainty, while the corporate sector did not show any
particular signs of an upturn in its investment activity.
In order to safeguard their competitiveness, a number of
companies had to cut jobs and seek prompt cost-savings,
for example, in external IT service purchases.
In order to trim their costs, a number of SysOpen
corporate customers announced joint discussions with
their employees (based on statutory information and
consultation) on job cuts, and, in most cases, suspended
their planned IT projects, leading to unusually lower
demand for SysOpens IT services. Consequently, in an
effort to match demand, the company laid off its staff on
a fixed term basis and cut jobs, chiefly in
administration. In this difficult market situation, the
company succeeded in maintaining its competitiveness, its
business profitability being among the highest within the
industry.
During the third quarter, SysOpen agreed on further
development projects with its existing customers. For
example, the increasingly deepening co-operation with
Tieto-Tapiola involves a broad range of various expert
and consulting services related to application
development and architecture consulting, as well as
mentoring services. A major new contract with Tieto-
Tapiola included a joint project of upgrading re-
insurance software.
REPORTED TURNOVER YEAR-ON-YEAR
Consolidated turnover for the period came to EUR 18.7
million (Q1Q3/2002: EUR 21.3 million), down 12.3 per
cent on a year earlier, due mainly to the postponement of
IT investments, because of the unpredictable economic
situation, and divestments of unprofitable businesses
carried out in early 2003 and the previous year.
Some of SysOpen's regional units in Finland, and software
solutions, suffered from 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 2.7 per cent of
consolidated turnover (Q1-Q3/2002: 3.6 per cent).
Turnover by business area for Q1-Q3/2003:
Enterprise Application Solutions 93.9%
Software Solutions 6.1%
Q3/2003 TURNOVER COMPARED WITH Q2/2003 TURNOVER
Consolidated turnover for Q2/2003 of EUR 6.6 million was
23.2 per cent lower than the EUR 5.1 million reported for
Q3/2003, due not only to difficult market conditions, but
also seasonal fluctuations typical of the summer holiday
period.
REPORTED OPERATING PROFIT AND FINANCIAL PERFORMANCE YEAR-
ON-YEAR
Although the Groups business profitability weakened on
the previous year in a challenging market situation, it
was still as planned and among the highest within the IT
industry.
Consolidated earnings before interest, taxes and goodwill
amortisation (EBITA) came to EUR 1.5 million (EUR 2.1
million, down 28.5 per cent), accounting for 8.1 per cent
of reported consolidated turnover (Q1-Q3/2002: 10.0 per
cent). The decline in EBITA was mainly due to the fall in
turnover stemming from difficult market conditions.
The Group has also paid particular attention to its cost
structure, as evidenced by the year-on-year reduction of
personnel expenses by 12.3 per cent, despite the fact
that these were burdened by the EUR 0.17 million non-
recurring layoff expenses, resulting mainly from
administrative job cuts. In an effort to streamline its
operations, SysOpen was also successful in cutting its
other operating expenses by 9.3 per cent, year on year.
Profit before extraordinary items and taxes came to EUR
2.0 million (Q1-Q3/2002: EUR 1.3 million) and earnings
per share came to EUR 0.19 (Q1-Q3/2002: EUR 0.14).
During the report period, SysOpen divested its 15.5 per
cent holding in Create!form International Inc., a US
company, enhancing earnings by more than EUR 400,000, or
EUR 0.05 per share.
Q3/2003 OPERATING PROFIT AND FINANCIAL PERFORMANCE
COMPARED WITH Q2/2003
In spite of the decrease in turnover, consolidated EBITA
and profit were higher than in the previous quarter.
Consolidated earnings before interest, taxes and goodwill
amortisation (EBITA) reported for Q2/2003 came to EUR 0.2
million and profit was EUR 0.3 million, while those
reported for Q3/2003 amounted to EUR 0.4 million and EUR
0.8 million, respectively. This improvement in
profitability was mainly due to savings in personnel
expenses. Furthermore, the sale of the companys holding
in Create!form International Inc. contributed to higher
profitability.
Q3/2003 EBITA accounted for 8.5 per cent of reported
turnover (Q2/2003: 3.6 per cent).
FINANCING AND CAPITAL EXPENDITURE
With a positive cashflow from business operations , the
Groups financial position remained at a healthy level
throughout the report period.
The balance sheet total came to EUR 15.1 million
(September 2002: EUR 16.5 million) and equity ratio was
80 per cent (September 2002: 80 per cent). The ratio of
net liabilities to shareholders equity, or net gearing,
was -58 per cent (September 2002: -50 per cent). Liquid
assets totalled EUR 6.8 million (September 2002: EUR 6.5
million). The Group has no interest-bearing liabilities.
The Groups gross capital expenditure amounted to EUR 128
thousand (Q1-Q3/2002: EUR 300 thousand). The Group
continued to spend on service development and in-house
software component engineering, with the resulting
development costs being expensed as incurred.
ROI AND ROE
Reported return on investment (ROI) was 22 per cent (Q1-
Q3/2002: 14 per cent), while reported return on equity
(ROE) was 18 per cent (Q1-Q3/2002: 13 per cent).
HUMAN RESOURCES AND ADMINISTRATION
The period-end number of employees totalled 278 (Q3/2002:
317), down 12 per cent year-on-year, while the average
number of employees was 296, up 10.0 per cent on a year
earlier (Q13/2002: 330). 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 following joint
discussions with employees (based on statutory
information and consultation).
Reported employee turnover came to 12.6 per cent (Q1-
Q3/2002: 7.6 per cent).
Employees by function:
Enterprise Application Solutions 79%
Software Solutions 9%
Administration and Management 8%
International Operations 4%
JOINT DISCUSSIONS WITH EMPLOYEES (INFORMATION AND
CONSULTATION)
On 19 May 2003, SysOpen announced joint discussions
(based on statutory information and consultation) to be
held with its employees, due to the temporary reduction
in manpower requirements within the Group, which were
completed 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, all of the measures mainly applying to
administrative staff, with a view to adjusting its
operations to the prevailing market conditions.
Following the joint discussions, demand for SysOpen's
services picked up, and, finally, only 57 employees, or
19 per cent of all staff, were subject to layoffs, the
number of laid-off employees being lower than initially
decided.
GROUP STRUCTURE AND ORGANISATION
The SysOpen Group consists of SysOpen Plc (Parent
Company) and the following three operating subsidiaries:
SysOpen Object Team Oy (with a 90 per cent holding on 30
September 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
Convened on 20 March 2003, SysOpen Plcs Annual General
Meeting (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.
In addition, the AGM:
- Decided to issue new 2003A-2003D stock options;
- Authorised the Board to decide to issue one or several
convertible bonds, issue stock options and/or increase
share capital through one or several rights issues. The
Board has not exercised this authorisation.
- Authorised the Board to buy back own shares. For the
moment, the Board has not exercised this authorisation;
- Authorised the Board to dispose of the companys own
shares (treasury shares). The Board has not exercised
this authorisation;
- Decided on Board emoluments and issuing stock options;
and
- Re-elected the following Board members: Kari Karvinen,
Jorma Kylätie, Risto Linturi, Matti Savolainen and Timo
Tiihonen.
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.
At his own request, Timo Tiihonen resigned from SysOpens
Board on 30 May 2003.
SHARE CAPITAL AND SHARES
The nominal value of a SysOpen share is EUR 0.1, the
number of shares totalling 9,362,914. On 30 September
2003, the Group 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-Q3/2003 was EUR 2.83 and the
highest EUR 3.79. The Groups share closed at EUR 3.46.
The trade weighted average amounted to EUR 3.36. The
Groups market capitalisation totalled EUR 32,049,682 at
the end of the period. SysOpen reported a total of 3,165
shareholders on 30 September 2003.
STOCK-OPTION SCHEMES
The number of stock options left, included in the 1999-
2004 stock option scheme totalled 49.185 as follows:
23,700 1999 A stock options, 10,485 1999 B stock options,
7,500 1999 C 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. SysOpen holds no stock
options based on the 1999-2004 stock-option scheme.
The number ofstock options left, included in the 2000-
2005 stock option scheme, totalled 21,060 as follows:
19,960 2000 E stock options, 850 2000 F stock options and
250 2000 G 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 per share and for G
warrants at EUR 3.28. SysOpen holds no stock options
based on the 2000-2005 stock-option scheme.
The number of stock options left, included in the 2003
stock option scheme, totalled 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 September 2003, SysOpen Partners Oy, the
Groups wholly owned subsidiary, held a total of 307,801
stock options, based on the 2003 stock-option scheme.
The number of all stock options issued by SysOpen totals
740,245. The shares to be subscribed on the basis of the
stock options will account for a maximum of 7.3 per cent
of the companys shares and the votes entitled by the
shares after any possible increase of the companys share
capital. SysOpen Partners still holds 307,801 of all
stock options. The dilution effect of the distributed
stock options is currently a maximum of 4.3 per cent.
TENDER OFFER FOR NOVO GROUP PLC SHARES
On 25 September 2003, SysOpen Plc and Novo Group Plc
signed a combination merger agreement, whereby, based on
a tender offer, SysOpen will buy all of Novo Groups
shares. A Novo Group shareholder, who has accepted the
offer, will receive EUR 1.90 in cash for one (1) Novo
Group share and 0.545 new SysOpen shares.
The initial offer will be valid from 6 October until 7
November 2003, unless the period is extended.
However, Novo Group Plcs Board of Directors decided on
29 October 2003 to withdraw unilaterally from the
combination merger agreement. In its stock exchange
release published on 29 October 2003, SysOpen announced
that it would re-assess the situation arising from Novo
Groups measures, and consider any necessary measures in
this respect, including any changes in the tender offers
terms and conditions.
EVENTS AFTER Q1-Q3/2003
The period after Q1-Q3/2003 saw new customer
relationships and contracts with travel service
providers, among others.
SysOpen will implement a rail traffic monitoring system
for The Finnish Rail Administration, which collects and
generates real-time information on rail traffic as part
of the Rail Administrations basic infra service. This
system will also provide other relevant parties with
information via the planned standard interface, while
streamlining rail traffic control and service by, for
example, reducing the manual and overlapping processing
of rail traffic information.
SysOpen Plc will implement an information system for
Amadeus Finland Oy, which manages ticket processing for
local travel service providers and messaging for
Finnish travel agencies. Furthermore, the adoption of the
system will standardise and intensify communication and
partnership integration in the Finnish travel industry.
NEAR-TERM PROSPECTS
General economic uncertainty and subdued demand for the
products and services provided by SysOpens customers in
different industries will also keep SysOpen cautious
about the expected near-term demand for its IT services
and products. Based on the new customer relationships
SysOpen has recently established and the forecasts issued
by research firms, there are, however, signs of a slight
economic recovery. Once the economy rebounds, corporate
IT investments are expected to revive gradually during
2004.
SysOpen will continue to make dedicated efforts to
enhance its sales, while paying particular attention to
reining in costs, in order to remain competitive. It will
continue to focus on strengthening profitable and
expanding business areas in its strategy implementation.
If the market does not experience any further
deterioration towards the end of the year, SysOpen
expects its 2003 turnover to fall by 10-15 per cent from
that reported for 2002, and its 2003 profit to improve
from the level recorded for 2002.
With respect to the above prognosis of the current
SysOpen Groups near-term developments, SysOpen has
capitalised the tender offer related expenses, provided
that the tender offer for Novo Group Plc shares becomes
effective. SysOpens Board of Directors will, in due
course, provide further information on the outcome of the
companys tender offer for Novo Group Plc shares and the
related effects on the Group's future prospects.
BRIEFING
SysOpen will hold a briefing on its Interim Report for Q1-
Q3/2003 for equity analysts and the press at the Hotel
Torni, Torni vista cabinet, 12th floor, Kalevankatu 5,
FIN-00100 Helsinki, on Thursday, 30 October 2003,
starting at 12.00 p.m. All are welcome.
Helsinki, 30 October 2003
SysOpen Plc
Board of Directors
FOR FURTHER INFORMATION, PLEASE CONTACT
Arto Sahla, Managing Director
Tel. +358 (0) 424 2020 339, gsm +358 (0)400 442 986, e-
mail: arto.sahla@sysopen.fi
The Interim Report and related slide show are also
available on the Groups website: www.sysopen.fi, as of
1:00 p.m. Thursday, 30 October 2003.
DISTRIBUTION
Helsinki Exchanges
Consolidated Income Statement for 1 January-30 September
2003, EUR 1,000
Q1- Q1- 2002
EUR 1,000 Q3/2003 Q3/2002
TURNOVER 18,671 21,298 28,997
Other operating income
156 121 166
Materials and services - 796 -604 -902
Personnel expenses - 10,987 -12,526 -16,863
Depreciation and write
downs - 493 - 621 -882
Other operating
expenses - 5,033 - 5,546 -7,278
EBITA
1,518 2,122 3,237
Goodwill amortisation - 202 - 257 -342
OPERATING PROFIT 1,316 1,865 2,895
Financial income and 725 -531 -699
expenses
Profit before
extraordinary items 2,040 1,334 2,196
and taxes
Direct taxes -331 -44 -284
Minority interest -35 1 -26
PROFIT/LOSS FOR THE 1,675 1,291 1,886
PERIOD
Consolidated Balance Sheet on 30 September, EUR 1,000
ASSETS 30 Sept. 30 Sept. 31 Dec.
2003 2002 2002
FIXED AND OTHER NON-
CURRENT ASSETS
Development costs 0 57 37
Intangible rights 421 489 517
Other non-current
assets 98 164 147
Group goodwill 377 852 620
Intangible assets
total 896 1,562 1,321
Tangible assets 1,227 1,646 1,548
Long-term investments 987 1,191 1,191
INVENTORIES AND
CURRENT ASSETS
Current receivables 5,229 5,608 5,205
Short-term investments 1,953 1,549 1,524
Cash and bank 4,802 4,907 6,894
receivables
ASSETS TOTAL 15,094 16,463 17,683
LIABILITIES AND 30 Sept. 30 Sept. 31 Dec.
SHAREHOLDERS EQUITY 2003 2002 2002
SHAREHOLDERS EQUITY
Share capital 936 936 936
Issue premium fund 7,091 7,092 7,091
Retained earnings
1,807 3,430 3,441
Profit/loss for the 1,675 1,291 1,886
period
SHAREHOLDERS EQUITY 11,509 12,749 13,355
TOTAL
MINORITY INTEREST 152 152 192
LIABILITIES
Short-term liabilities
3,433 3,562 4,136
LIABILITIES AND 15,094 16,463 17,683
SHAREHOLDERS EQUITY
TOTAL
Consolidated cashflow statement for 1 January-30
September 2003, incl. comparable data, EUR 1,000
Q1-Q3/2003 Q1- 2002
Q3/2002
Cashflow from 1,399 3,527 5,466
business operations
Cashflow from 456 - 332 -307
investments
Cashflow from
financing:
dividends paid
-3 516 -2,038 -2,038
change in liabilities
- 3 -5 -7
Cashflow from - 3,519 -2,042 -2,045
financing:
Change in liquid -1,663 1,152 3,114
assets
Liquid assets at 8,418 5,304
period-start 5,305
Liquid assets at 8,418
period-end 6,755 6,456
Difference -1,663 1,152 3,114
Group key figures and ratios (on a comparable basis)
Q1-Q3/ Q1-Q3/ 2002
2003 2002
Extent of
business
Turnover 18,670 21,298 28,997
- change %, -12 -3 -6
year-on-year
Capital 11,661 12,902 13,546
invested
Gross capital 128 300 477
expenditure
- % of turnover 1 1 2
Personnel at 278 317 323
period-end
Average 296 330 328
personnel
Profitability
EBITA 1,518 2,122 3,237
- % of turnover 8 10 11
Operating 1,316 1,865 2,895
profit
- % of turnover 7 9 10
Profit before 2,040 1,334 2,196
extraordinary
items and taxes
- % of turnover 11 6 8
Profit/loss for 1,675 1,291 1,886
the period
% of turnover 9 6 7
Return on 18 13 14
equity, %
Return on 22 14 16
investment, %
Financing and
financial
position
Interest- 0 4 2
bearing
liabilities
Short-term 6,755 6,456 8,418
investments +
cash and bank
receivables
Net Gearing, % -58 -50 -62
Equity ratio, % 80 80 77
Cashflow from 3,527 5,463
business 1,399
operations
Earnings per 0.19 0.14 0.20
share, EUR
(Group)
Equity per 1.24 1.38 1.44
share
Price-earnings 19.1 28.6 17.2
ratio (P/E)
Lowest share 2.83 2.52 2.52
price
Highest share 3.79 6.35 6.35
price
Average share 3.36 4.71 4.51
price
Market 32,050 25,280 29,868
capitalisation
at period-end
Group key figures and ratios (on a comparable basis)
Q1- Q1+Q2/ Q1/2003 2002 Q1-
Q3/2003 2003 Q3/2002
Extent of
business
Turnover 18,670 13,596 6,991 28,997 21,298
change %, year- -12 -10 -8 -6 -3
on-year
Capital 10,851 10,599 13,546 12,902
invested 11,661
Gross capital 128 88 20 477 300
expenditure
- % of turnover 1 1 0 2 1
Personnel at 278 294 305 323 317
period-end
Average 296 302 306 328 330
personnel
Profitability
EBITA 1,518 1,087 849 2,122
3,237
- % of turnover 8 8 12 11 10
Operating 1,316 951 781 2,895 1,865
profit
- % of turnover 7 7 11 10 9
Profit before 2,040 1,041 734 2,196 1,334
extraordinary
items and taxes
- % of turnover 11 8 10 8 6
Profit/loss for 1,675 879 586 1,886 1,291
the period
% of turnover 9 6 8 7 6
Return on 18 15 20 14 13
equity, %
Return on 22 17 24 16 14
investment, %
Financing and
financial
position
Interest- 0 0 0 2 4
bearing
liabilities
Short-term 6,755 6,530 5,891 8,418 6,456
investments +
cash and bank
receivables
Net Gearing, % -58 -60 -56 -62 -50
Equity ratio, % 80 74 73 77 80
Cashflow from 995 5,463 3,527
business 1,399 1,602
operations
Earnings per 0.19 0.09 0.06 0.20 0.14
share, EUR
(Group)
Equity per 1.24 1.16 1.13 1.44 1.38
share
Price-earnings 19.1 31.2 46.6 17.2 28.6
ratio (P/E)
Lowest share 2.83 2.83 2.95 2.52 2.52
price
Highest share 3.79 3.79 3.79 6.35 6.35
price
Average share 3.36 3.27 3.44 4.51 4.71
price
Market 32,050 27,511 27,326 29,868 25,280
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
and the balance sheet of June 30/2002 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 shares (diluted)
totalling 9,269,055 has no effect on earnings per share.
The number of outstanding shares totalled 9,262,914 at
the end of the period.
The figures for return on equity and return on investment
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.
The figures in this Interim Report are unaudited.
Helsinki, 30 October 2003
SysOpen Plc
Board of Directors
