SciSys Chairman Mike Love, describes the market in which the company operates as “stubbornly challenging”. And while Group revenues were up 9% over H1, to £21.4 million, the top-line performance disguises mixed fortunes amongst the divisions and a deteriorating picture in the new ‘Enterprise Solutions & Defence’ (ESD) business. Professional services fees rose by 1% and adjusted operating margins were maintained at 6%.
The ‘Space’ division was the star performer (fortunately 45% of revenues), growing revenues by 35% and operating profits by 54%. The ‘ESD’ division (30% of revenues), also grew revenues by 6% and profits by 43%. The performance was made possible due to a solid start defined by signings such as the Warrior Armed Fighting Vehicle subcontractor contract with Lockheed and further post-pilot business with the RNLI. But “the vagaries of public sector procurement” have now resulted in deferred procurements and “softness” in the non-defence business. Profitability has been maintained by aggregating three former business units allowing a more flexible approach to resourcing contracts. But, the impression given is that H2 performance will not be as strong. Finally, the Media & Broadcast division (25% of revenues) saw revenues drop by 19%, despite a win with BBC Scotland (see SciSys signs Scottish deal with BBC), and profits dived by 49%; some sales opportunities have been deferred into 2014 and beyond and this will adversely impact 2013 revenues and margins.
As a provider of bespoke software systems and solutions in support of its clients’ core business processes, SciSys is heavily reliant on the company maintaining close relationships with existing clients. Last year Love described “plotting and planning with them how they will spend money on systems development” (see SciSys: turned around by Love). In the public sector, money for new systems development is limited. And where money is being spent, there is significant pressure to take a different approach, whether buying components from the G-Cloud framework, utilising the Digital Services framework or using internal development capabilities. Bespoke development is often a final consideration. We suspect we may see SciSys diversifying further away the Government market as it seeks out potential acquisition targets.