SYSOPEN'S FAVOURABLE BUSINESS EXPECTATIONS
SysOpen Plc STOCK EXCHANGE RELEASE 28 October 2004, 8:00 a.m.
SYSOPEN'S FAVOURABLE BUSINESS EXPECTATIONS
SYSOPEN PLC'S INTERIM REPORT FOR 1 JANUARY-30 SEPTEMBER 2004
- Cumulative turnover for the period came to MEUR 18.4, down MEUR 0.2 compared to
the corresponding period a year ago
- Cumulative earnings before interest, taxes and goodwill amortisation (EBITA)
accounted for 5.1 per cent of turnover, amounting to EUR 942 thousand, down EUR
576 thousand
- Cumulative profit before extraordinary items and taxes came to EUR 988
thousand, down EUR 1,053 thousand
- Cumulative earnings per share were EUR 0.10, down EUR 0.09
- The period-end number of employees totalled 301, up 23
- Due to a marked improvement in business prospects since the end of the summer,
business profitability for the fourth quarter is expected clearly to outperform
the preceding quarters' figures. Consolidated turnover in 2004 is expected to
exceed the 2003 level (EUR 25.2 million) and operating profit (EBITA) to stand at
7 per cent.
- This favourable trend in profitability is expected to continue during 2005.
MARKETS
The markets for IT services were more subdued than usual during the first half of
2004. However, based on the volume of invitations to tender, customer companies
in the public and financial sectors in particular saw a rebound in their
investment activity over the course of the summer, this trend continuing after
the summer-holiday season. The launch of new project initiatives is expected to
show an upward trend towards the end of the current year and to continue to do so
in 2005. Pent-up demand for IT services, persisting over a couple of quiet years,
now looks as though it has thrown off its shackles.
SYSOPEN'S BUSINESS
Demand for SysOpen's IT services during the first three quarters of 2004 remained
at a more subdued level than expected. However, due to business acquisitions in
the early summer, the company's determined service development efforts and the
marked recovery in customer demand during the summer and early autumn, SysOpen's
business is now clearly on a more profitable track.
Operating profit for the summer-holiday months (July and August) was not yet in
line with the targeted level. However, the launch of project implementations in
September, based on customer contracts concluded in the summer, considerably
raised SysOpen's capacity utilisation rates and profitability towards the end of
the report period. The Group's equity ratio and financial position remained at
healthy levels throughout the period. By nurturing its competitiveness, SysOpen
has maintained a solid basis for future growth.
During the third quarter, SysOpen made offers more briskly than during the
preceding quarter and negotiated on a number of major IT development projects
with existing and new customers, with large contracts including those concluded
with the Police IT Management Agency, the Federation of Special Service and
Clerical Employees (ERTO) and Arek Oy. In addition, SysOpen has increased its
role with existing customers and projects.
On the basis of competitive tendering, the Police IT Management Agency selected
SysOpen as the supplier of a new ID card and passport information system, with
the newly launched implementation utilising SysOpen's OpenFrame architecture. The
contract is valued at around EUR 1.2 million.
SysOpen will implement its Lyyti membership information system and OpenDora and
Weblyyti software solutions for ERTO and the Tytti unemployment fund information
system, and WebTytti software for ERTO's unemployment fund.
Arek Oy selected SysOpen as a system architecture services provider for its
earnings information system involving, for example, the following
implementations: information security architecture, user identification and
session management services, authentication, access authorisation management,
user management, authorisation services, profiling services and message
architecture.
REPORTED TURNOVER YEAR-ON-YEAR
Consolidated turnover for the period came to EUR 18.4 million (Q1-Q3/2003: EUR
18.7, down 1.3 per cent). International operations accounted for 3.1 per cent of
consolidated turnover (2.7 per cent).
The marked rebound in demand for SysOpen's IT services that began in the summer
had only a minor effect on the cumulative turnover for the report period due, on
the one hand, to the summer holiday season and, on the other, the integration of
acquired businesses. In addition, new, large-scale information system projects
for our customers got off the ground only at the end of the report period.
Turnover by business area for Q1-Q3/2004:
Enterprise Application Solutions 88.5%
Software Solutions 11.5%
TURNOVER BY QUARTER
Third-quarter consolidated turnover came to EUR 5.4 million (Q3/2003: EUR 6.6
million), showing a decline over the previous quarter, due to the quieter summer
season, but exceeding the figure reported a year ago (EUR 5.1 million).
YEAR-ON-YEAR PROFITABILITY AND FINANCIAL PERFORMANCE
Consolidated earnings before interest, taxes and goodwill amortisation (EBITA)
came to EUR 942 thousand (Q1-Q3/2003: EUR 1,518 thousand, down 38 per cent),
accounting for 5.1 per cent of reported consolidated turnover (8.1 per cent). The
difference between year-on-year profitability was attributable to large-scale
temporary layoffs carried out in the summer of 2003, on the one hand, and staff
recruitment with related training in the summer of 2004, on the other.
Consolidated financial income and expenses totalled EUR 284 thousand (EUR 725
thousand). The most significant item under financial income reported a year ago
related to the sale of Create!Form Inc. shares held by SysOpen to Bottomline Inc.
During the report period, as part of the payment based on the contract, SysOpen
received additional holding in Bottomline Inc. shares (valued at EUR 283 thousand
on the day of the contract's conclusion).
Profit before extraordinary items and taxes came to EUR 988 thousand (EUR 2,041
thousand, down 52 per cent).
Profit for the period totalled EUR 849 thousand (EUR 1,675 thousand, down 49.3
per cent). Earnings per share were EUR 0.10 (EUR 0.19, down 47.4 per cent).
PROFITABILITY AND FINANCIAL PERFORMANCE BY QUARTER
Consolidated third-quarter earnings (EBITA) totalled EUR 71 thousand (Q3/2003:
EUR 449 thousand), the decline over the previous quarter's figure being mainly
due to the quieter summer season and the integration and training of recruits.
Business profitability for the third quarter was at 1.3 per cent (8.5 per cent).
This major difference between year-on-year profitability was attributable to
large-scale temporary layoffs carried out in the summer of 2003, on the one hand,
and staff recruitment with related training in the summer of 2004, on the other.
FINANCING AND CAPITAL EXPENDITURE
With a positive cash flow, the Group's financial position remained at a healthy
level throughout the report period.
The balance sheet total amounted to EUR 16.3 million (EUR 15.1 million) and
equity ratio stood at 74 per cent (80 per cent). The ratio of net liabilities to
shareholders' equity, or net gearing, was -47 per cent (-58 per cent). Liquid
assets totalled EUR 4.7 million (EUR 6.8 million), with business acquisitions
paid in cash having a major effect on this fall. The Group has no interest-
bearing liabilities.
The Group's gross capital expenditure rose to EUR 1,486 thousand (EUR 128
thousand), this significant growth coming mainly from the above-mentioned
business acquisitions coupled with service development efforts and related
software purchases. The Group also continued to spend on in-house software
component engineering. With respect to internal activities, research and
development costs were recorded as annual expenses throughout the report period.
ROI AND ROE
Reported return on investment (ROI) was 12 per cent (22 per cent) while reported
return on equity (ROE) was 11 per cent (18 per cent).
HUMAN RESOURCES AND ADMINISTRATION
The period-end number of employees totalled 301, up 23 year on year, or 8.3 per
cent (Q1-Q3/2003: 278), while the number of employees during the period averaged
282, down 4.7 per cent on a year earlier (296).
In comparison with the year-end 2003 figure, the number of employees has
increased by 37, due to business acquisitions and revived recruitment.
Reported employee turnover came to 10.4 per cent (12.6 per cent).
Employees by function:
Enterprise Application Solutions 79%
Software Solutions 9%
Administration and management 9%
International operations 3%
Until the Annual General Meeting on 24 March 2004, SysOpen Plc's Board of
Directors comprised Kari Karvinen (Chairman), Matti Savolainen (Vice-Chairman),
Jorma Kylätie and Risto Linturi. The new Board of Directors elected by the AGM
consists of Kari Karvinen (Chairman), Risto Linturi (Vice-Chairman), Pekka
Eloholma, Reijo Koski-Lammi and Matti Mujunen. Arto Sahla is the Managing
Director.
During the report period, SysOpen adopted corporate governance procedures in line
with the recommendation on corporate governance for listed companies effective
since 1 July 2004 and issued by HEX, the Confederation of Finnish Industry and
Employers (TT) and the Central Chamber of Commerce. A more detailed description
of the key aspects of SysOpen's corporate governance can be found on the
company's website at www.sysopen.fi,'Investors'.
GROUP STRUCTURE AND ORGANISATION
On 22 June 2004, SysOpen agreed to buy the Kuopio software business of Yomi
Software Ltd based in Jyväskylä, with the result that 16 Yomi Software Oy
employees joined SysOpen's payroll, on their old employment terms, on 1 August
2004. This business acquisition has strengthened SysOpen's customer base and
regional presence in the Kuopio business area, improving the company's
competitiveness in the manufacturing and telecoms sectors in particular. As a
result of the acquisition, SysOpen has more than 50 employees in Kuopio.
The SysOpen Group consists of SysOpen Plc (Parent Company) and the following
three operating subsidiaries: SysOpen Object Team Oy (Parent Company holding of
93), SysOpen Limited (100 per cent) and SysOpen UK Limited (100 per cent).
The SysOpen Groups business units are as follows: Business Unit 1 (Telecoms,
Industry, Trade, Services, Kuopio, Jyväskylä), Business Unit 2 (Financing, Public
Administration, Organisations, Tampere), and SysOpen Object Team Oy. A new unit -
Consultation, Business Development and International Business - began operating
in August.
ADOPTION OF IFRS
The European Union requires that all listed companies registered in the EU adopt
IFRS (International Financial Reporting Standards) by 2005. SysOpen will apply
the IAS/IFRS standards in its interim and annual accounts as of 2005.
ANNUAL GENERAL MEETING
Convened on 24 March 2004, SysOpen Plc's Annual General Meeting (AGM) adopted the
financial statements for 2003, discharged Board members and the Managing Director
from liability, and approved the Board's proposed profit distribution for 2003.
It also made a decision on Board emoluments and elected the new Board of
Directors.
In addition, the AGM decided to:
1) Reduce the share capital by EUR 10,000 by invalidating 100,000 treasury
shares.
2) Authorise the Board of Directors, on certain conditions, to decide on issuing
one or several convertible bonds, issuing stock options and/or increasing the
company's share capital through one or several rights issues. Valid for one year
as of the date of the AGM's decision, the authorisation has not yet been
exercised.
3) Authorise the Board of Directors, on certain conditions, to decide on buying
back own shares using retained earnings. Valid for one year as of the date of the
AGM's decision, the authorisation has not yet been exercised.
4) Authorise the Board of Directors, on certain conditions, to decide on
disposing of the company's own shares. Valid for one year as of the date of the
AGM's decision, the authorisation has not yet been exercised.
5) Alter Article 6 of SysOpen Plc's Articles of Association in such a way that it
includes a mention of the election of the Board's Vice-Chairman.
6) Alter Article 8 of SysOpen Plc's Articles of Association in such a way that
two authorised persons are required to sign for the company.
SHARE CAPITAL AND SHARES
The nominal value of a share is EUR 0.1, with the number of shares at the end of
the period totalling 9,262,914.
SysOpen reported a total of 3,279 shareholders on 30 September 2004. Ten major
shareholders are as follows:
Shareholder Proportion (%) of shares
and votes
Kari Karvinen 17.1
Matti Savolainen 17.0
Jorma Kylätie 16.0
Etera Mutual Pension Insurance Company 2.4
Olli Ahonen 2.0
Mutual Fund Pohjola Finland Growth 1.8
Seppo Sneck 1.2
Suomi Mutual Life Assurance Company 1.1
Yrjö Toiviainen 1.1
Sijoitusrahasto Conventum korko + osake 1.0
The Group's shares are quoted on the Main List of the Helsinki Stock Exchange
under the telecommunications and electronics business sector. One trading lot
includes 50 shares, and the trading code is SYS1V. The lowest reported share
quotation was EUR 2.90 and the highest was EUR 5.35. The share closed at EUR 3.38
on the final trading day during the report period. The trade-weighted average
price was EUR 3.77. The Group's market capitalisation totalled EUR 31,308,649.32
on the balance sheet date.
STOCK-OPTION SCHEMES
The number of stock options attached to the 1999-2004 stock-option schemes totals
49.185 as follows: 23,700 1999A stock options, 10,485 1999B stock options, 7,500
1999C stock options and 7,500 1999D 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. On 30 September
2004, SysOpen held a total of 3,100 stock options based on the 1999-2004 stock-
option scheme.
The number of stock options attached to the 2000-2005 stock-option schemes totals
21,060 as follows: 19,960 2000E stock options, 850 2000F stock options and 250
2000G 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, F and G warrants per share is EUR 8.30, EUR 5.36 and EUR 3.28,
respectively. On 30 September 2004, SysOpen held no stock options based on the
2000-2005 stock-option scheme.
The number of the stock options under the 2003 stock option scheme totalled
670,000 as follows: 210,000 2003A stock options, 160,000 2003B stock options,
150,000 2003C stock options and 150,000 2003D stock options, all of which have
been subscribed. The share subscription period for 2003A stock options will be
from 2 May 2004 until 31 October 2005, 2003B stock options from 1 November 2004
until 31 October 2006, 2003C stock options from 1 November 2005 until 31 October
2007 and 2003D stock options from 1 November 2006 until 31 October 2008. The
share subscription price for 2003A, 2003B and 2003C options is currently EUR
3.04, EUR 2.95 and EUR 3.92, respectively. For 2003D stock options, the
subscription price will be determined during the period of 1-30 April 2005 by
SysOpen's share prices quoted in public trading, less the distributed dividends
under the terms and conditions of the stock-option scheme. On 30 September 2004,
SysOpen Partners Oy, the Group's wholly owned subsidiary, held a total of 221,810
stock options under the 2003 stock-option scheme. The 2003A options have been
quoted on the Helsinki Stock Exchange's Stock Options list since 25 May 2004.
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 7.4
per cent of the company's shares and votes entitled by the shares as a result of
any increase of the company's share capital. On 30 September 2004, SysOpen
Partners held 224,910 of all stock options. The dilution effect of the
distributed stock options is currently a maximum of 5.3 per cent.
NEAR-TERM PROSPECTS
SysOpen's success has lain in its capabilities to respond to market changes. The
company will continue to develop and upgrade its service and solution offering to
meet changing customer needs, with the core business maintaining a particular
focus on areas with prospects for strengthening demand in the medium and long
term. Accordingly, SysOpen has set up a new unit focusing on supportive ICT
consulting services for business and information management. Furthermore, in
addition to implementing customer-specific IT systems, SysOpen will focus its
service offerings on services covering the entire life cycle of applications,
with a special emphasis on application maintenance and support services.
Based on organic growth, investments in new market areas with a growth potential
and company and business acquisitions, SysOpen aims primarily to increase its
domestic market share and improve its profitability and profit performance
considerably. In addition to the service-development work stated above, SysOpen's
Board of Directors has prepared a new long-term plan for the Group to replace the
current one with the new corporate plan, vision and goals due for release by the
end of November 2004.
As a result of new major contracts and bids, SysOpen is of the view that demand
for its IT services and solutions has taken off, pent-up demand finally having
been freed and generating orders. Accordingly, SysOpen expects companies to start
increasing their IT investments during the current year, an upward trend which
should prove prevalent in 2005. This view is also supported by SysOpen's staff
capacity utilisation, which has improved significantly since the beginning of the
autumn.
SysOpen expects to show markedly greater business profitability during the fourth
quarter than that reported for the previous quarters. Consolidated turnover in
2004 is expected to exceed the 2003 level (EUR 25.2 million) and operating profit
(EBITA) to stand at a level of 7 per cent. These estimates are based on the
previous quarters' profit performance, the current order and tender volumes and,
as stated above, the company's view of favourable market developments. This
favourable trend in profitability is expected to continue during 2005.
BRIEFING
SysOpen will hold a briefing on its Interim Report for Q1-Q3/2004 for analysts
and the press at the World Trade Centre, Kabinetti 10, 3rd floor,
Aleksanterinkatu 17, FI-00100 Helsinki, on Thursday, 28 October 2004, starting at
10.00 a.m. All are welcome.
Helsinki, 28 October 2004
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 financial statements and the associated slide show will be available at
www.sysopen.fi in the 'Investors' section from 11.00 a.m.
DISTRIBUTION
Helsinki Stock Exchange
Major media
ATTACHMENTS
Consolidated Income Statement
Consolidated Balance Sheet
Consolidated Cash Flow Statement
Key Figures and Ratios
The data in this Interim Report are based on unaudited figures.
Consolidated Income Statement for 1 January-30 September 2004
Q1-Q3/2004 Q1-Q3/2003 2003
EUR 1,000
TURNOVER 18,427 18,671 25,211
Other operating income 118 156 243
Materials and services -735 -796 -1,055
Personnel expenses -11,200 -10,987 -15,101
Depreciation and write-downs -448 -493 -666
Other operating expenses -5,220 -5,033 -6,722
EBITA 942 1,518 1,910
Goodwill amortisation -238 -202 -266
OPERATING PROFIT 704 1,316 1,644
Financial income and expenses 284 725 739
Profit before extraordinary items and 988 2,040 2,383
taxes
Extraordinary expenses -46 0 -667
Pre-tax profit 942 2,040 1,716
Direct taxes -74 -331 -258
Minority interest -19 -35 -35
PROFIT/LOSS FOR THE PERIOD 849 1,675 1,442
Consolidated Balance Sheet on 30 September 2004, EUR 1,000
ASSETS 30 Sept. 30 Sept. 31 Dec.
2004 2003 2003
FIXED AND OTHER NON-CURRENT ASSETS
Intangible assets
Development costs 58 0 10
Intangible rights 480 421 393
Other non-current assets 57 98 82
Goodwill 1,179 377 312
Intangible assets total 1,774 896 797
Tangible assets 1 000 1,227 1,137
Long-term investments 935 987 1,004
INVENTORIES AND CURRENT ASSETS
Current receivables 7,947 5,229 5,362
Short-term investments 2,320 1,953 2,014
Cash and bank receivables 2,353 4,802 5,767
TOTAL ASSETS 16,328 15,094 16,081
LIABILITIES AND SHAREHOLDERS' EQUITY 30 Sept. 30 Sept. 31 Dec.
2004 2003 2003
SHAREHOLDERS' EQUITY
Share capital 926 936 936
Issue premium fund 7,101 7,091 7,091
Retained earnings 995 1,807 1,796
Profit/loss for the period 849 1,675 1,422
Translation difference, unrestricted 32 35
shareholders' equity
SHAREHOLDERS' EQUITY TOTAL 9,903 11,509 11,280
MINORITY INTEREST 111 152 153
LIABILITIES
Short-term liabilities 6,315 3,433 4,648
TOTAL LIABILITIES AND SHAREHOLDERS' 16,328 15,094 16,081
EQUITY
Consolidated Cash Flow Statement, EUR 1,000
Cash flow from business operations: Q1-Q3/2004 Q1-Q3/2003 2003
Cash flow from business operations 141 1,399 2,134
Cash flow from investments -1,026 456 748
Cash flow from financing:
Repayment of short-term loans -3 -2
Dividends paid and other profit -2 ,223 -3,516 -3,516
distribution
Cash flow from financing: -2,223 -3,519 -3,518
Change in liquid assets -3,108 -1,663 -637
Liquid assets at period-start 7,781 8,418 8,418
Liquid assets at period-end 4,673 6,755 7,781
Difference -3,108 -1,663 -637
Group's financial indicators, incl. comparable data
E1,000
Q1-Q3/2004 Q1-Q3/20 2003
03
Extent of business
Turnover 18,427 18,670 25,211
- change %, year on year -1% -12% -13%
Capital invested 10,013 11 661 11,432
Gross capital expenditure 1,486 128 223
- % of turnover 8% 1% 1%
Capitalised R&D 48 0 10
- % of turnover 0% 0% 0%
Personnel at period-end 301 278 270
Average personnel 282 296 290
Profitability
EBITA 942 1,518 1,911
- % of turnover 5% 8% 8%
Operating profit 704 1,316 1,644
- % of turnover 4% 7% 7%
Profit before extraordinary items and 988 2,040 2,383
taxes
- % of turnover 5% 11 % 9%
Profit/loss for the period 849 1,675 1,422
% of turnover 5% 9% 6%
Return on equity, % 11% 18% 17%
Return on investment, % 12% 22% 19%
Financing and financial position
Interest-bearing liabilities 0 0 0
Short-term investments + cash and bank 4,673 6,755 7,781
receivables
Net Gearing, % -47% -58% -68%
Equity ratio, % 74% 80% 76%
Cash flow from business operations 141 1,399 2,134
Earnings per share, EUR (Group) 0.10 0.19 0.23
undiluted
Earnings per share, EUR (Group) 0.10 0.19 0.23
diluted
Equity per share 1.07 1.24 1.22
Price-earnings ratio (P/E) 35.72 19.1 17.28
Lowest share price 2.90 2.83 2.83
Highest share price 5.35 3.79 4.44
Average share price 3.77 3.36 3.63
Market capitalisation at period-end 31,309 32,050 37,733
Group key figures and ratios by quarter, EUR 1,000
Q3/2004 Q2/2004 Q1/2004 Q4/2003 Q3/2003
Extent of business
Turnover 5,415 6,551 6,460 6,541 5,074
- change %, year on 7% -1% -8% -15% -18%
year
Gross capital 501 916 69 95 40
expenditure
- % of turnover 9% 14% 1% 1% 1%
Profitability
EBITA 71 449 421 393 431
- % of turnover 1% 7% 7% 6% 7%
Operating profit -6 358 352 328 365
- % of turnover 0% 5% 5% 5% 6%
Profit before 279 381 327 343 999
extraordinary items
and taxes
- % of turnover 5% 6% 5% 5% 15%
Profit/loss for the 180 410 259 -253 796
period
% of turnover 3% 6% 4% -4% 12%
Cash flow from -499 233 407 735 -203
business operations
Earnings per share, 0.03 0.04 0.03 0.04 0.10
EUR (Group)
undiluted
Earnings per share, 0.03 0.04 0.03 0.04 0.10
EUR
(Group)
diluted
The weighted average for the issue-adjusted number of shares during the period
was 9,262,914. The dilution-adjusted number of shares at the end of the report
period was 9,458,471, while the number of outstanding shares totalled 9,262,914.
At the beginning of the report period, the company held a total of 100,000
treasury shares, which were invalidated on 16 April 2004, based on the AGM's
decision.
The Group has no liabilities associated with derivative contracts.
