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DRS Data & Research Services plc : Half-yearly report(dpa-AFX International Compact Via Acquire Media NewsEdge) DRS Data and Research Services plc (the "Group" or "DRS") (LSE: DRS) Half Year Results for the Six Month Period Ended 30 June 2014 Highlights * Half year results impacted by lower levels of business activity as a result of structural changes in the UK Education market * First phase of development of an enhanced electronic marking platform completed * Transition to cloud-based electronic marking successfully delivered in the UK * Myanmar census project successfully delivered Results Summary Six months ended Six months ended 30 June 2014 30 June 2013 £000 £000 Education revenue 4,590 5,897 Non-education revenue 770 746 -------------------- ------------------- Total revenue 5,360 6,643 -------------------- ------------------- £'000 £'000 Loss before tax (2,783) (638) Loss for the period (2,579) (488) Cash and cash equivalents 3,438 4,155 Basic loss per share (8.13p) (1.54p) Chairman's statement Results The results for the first half of 2014 are significantly down on the same period last year. Group revenue for the six months to 30 June 2014 was £5,360,000 (2013: £6,643,000) which represents a decrease of 19% over the previous year. As stated in the Interim Management Statement on 19 May 2014 the reason for the decline in revenue results principally from the structural change to academic qualifications in the UK, which has led to fewer examinations being sat in the January and March series. This resulted in a reduction in UK Education revenue in the first half of the year to £2,528,000 (2013: £4,061,000), a decline of 38%. Pre-tax operating loss for the six months to June 2014 before exceptional items was £1,970,000 (2013 Loss: £638,000). This is primarily as a result of the lower level of business activity in the UK. The downturn in the general level of activity of the Group has necessitated an impairment review of the value of business assets carried on the balance sheet, in accordance with IAS36. This has resulted in the value of the Linford Wood property being reduced to its most recent commercial valuation of £1,600,000, a reduction of £813,000, which is recognised as a non-cash impairment charge to the Income Statement. The resulting pre-tax operating loss for the period, after exceptional items, is £2,783,000. The Directors do not recommend the payment of an interim dividend (2013: Nil). Product Development The level of investment in new product development in the first half of 2014 was £1,401,000, a similar level to the same period in 2013. The development of the new e-Marker® platform has now reached the stage where the first release is being tested in preparation for initial market release. The Company has also successfully completed a transition of its electronic marking solution to a hosted environment for the UK summer series, as a first step to providing cloud- based solutions internationally. The design and development of the new PhotoScribe® scanning machine is progressing. Outlook The structural changes in examinations in the UK have reduced the overall volume of examinations taken. The reduction in UK Education revenue in the first half will be partly offset by increased examination volumes in the summer series, the revenue for which is recognised in the second half of the year. In addition to the changing environment in the UK Education market, conditions in the overseas Education markets for the Group's traditional scanner and print sales, including the multiple choice questionnaire (MCQ) market, are proving to be more challenging than anticipated. This is in large part due to increasing competition and reducing margins in the Company's traditional markets, leading to a lower level of revenue than in prior years. Overall, the full year performance of the Education business is expected to decline. The contract for the provision of forms and a data scanning solution for the Myanmar census was successfully completed in the first half of the year, however non-education revenue will be lower for the full year as there are no new large scale census or election opportunities in the current year. As stated in the Trading Update on 12 August 2014 full-year revenue and operating profit are likely to be considerably below expectations and a significant loss is probable for the full year. Appropriate cost reduction measures are being implemented to better align operating costs with the reduced level of revenue. Enquiries to: Sally Hopwood Company Secretary Tel: 01908 666088 [email protected] DRS Data and Research Services plc UNAUDITED RESULTS Consolidated income statement Six months Six months ended ended Six Six Year 30 June 30 June months months ended 2014 before 2014 ended ended 31 exceptional exceptional 30 June 30 June December items items* 2014 2013 2013 Note £000 £000 £000 £000 £000 Revenue 2 5,360 - 5,360 6,643 18,095 Cost of sales (4,660) - (4,660) (4,699) (11,286) -------------------------------------------------------- Gross profit 700 - 700 1,944 6,809 Other operating - 23 25 income 23 35 Selling and - (666) (1,155) marketing costs (666) (513) Administrative (813) (2,796) (4,327) expenses* (1,983) (2,053) Finance costs (44) - (44) (51) (83) -------------------------------------------------------- (Loss)/profit (813) (2,783) 1,269 before income tax (1,970) (638) Tax credit 3 120 84 204 150 120 -------------------------------------------------------- (Loss)/profit for (1,850) (729) (2,579) (488) 1,389 the period -------------------------------------------------------- Earnings per share Basic (8.13p) 4.38p (loss)/profit per share 4 (1.54p) Diluted (loss)/profit per share 4 (7.96p) (1.53p) 4.30p Consolidated statement of comprehensive income (Loss)/profit for the period and total 1,389 comprehensive (loss)/profit for the period (1,850) (729) (2,579) (488) * For details of exceptional items please refer to Note 6 Consolidated statement of financial position Year ended Six months ended Six months ended 31 December 30 June 2014 30 June 2013 2013 Note £000 £000 £000 ASSETS Non-current assets Property, plant and 2,908 equipment 5 2,291 2,925 Intangible assets 7 2,282 1,398 1,794 Deferred income tax assets 9 - 320 110 ----------------------------------------------- 4,573 4,643 4,812 ----------------------------------------------- Current assets Inventories 796 1,212 974 Trade and other 4,056 receivables 3,541 2,641 Current tax asset 408 - 264 Cash and cash equivalents 8 3,438 4,155 3,680 ----------------------------------------------- 8,183 8,008 8,974 ----------------------------------------------- ----------------------------------------------- Total assets 12,756 12,651 13,786 ----------------------------------------------- EQUITY Capital and reserves attributable to the Company's equity holders Share capital 1,731 1,731 1,731 Share premium account 5,377 5,377 5,377 Capital redemption reserve 115 115 115 Treasury shares (1,166) (1,166) (1,166) Own shares reserve (298) (306) (306) Retained earnings 285 1,113 2,996 ----------------------------------------------- Total equity 6,044 6,864 8,747 ----------------------------------------------- LIABILITIES Non-current liabilities Borrowings 1,392 1,618 1,505 Deferred income tax 222 liabilities 9 316 132 Long-term provisions 104 75 89 ----------------------------------------------- 1,812 1,825 1,816 ----------------------------------------------- Current liabilities Trade and other payables 4,900 3,936 3,223 Current income tax . liabilities - 26 ----------------------------------------------- 4,900 3,962 3,223 ----------------------------------------------- ----------------------------------------------- Total liabilities 6,712 5,787 5,039 ----------------------------------------------- ----------------------------------------------- Total equity and 13,786 liabilities 12,756 12,651 ----------------------------------------------- Consolidated statement of changes in equity Share Capital Own Share premium redemption Treasury shares Retained capital account reserve shares reserve earnings Total £000 £000 £000 £000 £000 £000 £000 At 1 January 2013 1,731 5,377 115 (1,166) (306) 1,723 7,474 Dividend - - - - - (127) (127) Employee share based compensation - - - - - 5 5 Own shares vesting - - - - - - - ---------------------------------------------------------------- Transactions with owners - - - - (122) (122) Loss for the period and total comprehensive loss for the period - - - - - (488) (488) ------------------------------------------------------------------------------- At 30 June 2013 1,731 5,377 115 (1,166) (306) 1,113 6,864 ------------------------------------------------------------------------------- At 1 July 2013 1,731 5,377 115 (1,166) (306) 1,113 6,864 Employee share based compensation - - - - - 6 6 Own shares vesting - - - - - - - ---------------------------------------------------------------- Transactions with owners - - - - - 6 6 Profit for the period and total comprehensive profit for the period - - - - - 1,877 1,877 ------------------------------------------------------------------------------- At 31 December 2013 1,731 5,377 115 (1,166) (306) 2,996 8,747 ------------------------------------------------------------------------------- At 1 January 2014 1,731 5,377 115 (1,166) (306) 2,996 8,747 Dividend - - - - - (127) (127) Employee share based compensation - - - - - 3 3 Own shares vesting - - - - 8 (8) - ---------------------------------------------------------------- Transactions with owners - - - - 8 (132) (124) Loss for the period and total comprehensive loss for the period - - - - - (2,579) (2,579) ------------------------------------------------------------------------------- At 30 June 2014 1,731 5,377 115 (1,166) (298) 285 6,044 ------------------------------------------------------------------------------- Consolidated statement of cash flows Six months ended Six months ended Year ended 30 June 30 June 31 December 2014 2013 2013 £000 £000 £000 Cash flows from operating activities (Loss)/profit after taxation (2,579) (488) 1,389 Adjustments for: Tax credit (204) (150) (120) Depreciation of property, 326 plant and equipment 157 175 Impairment of property, plant - and equipment 813 - Amortisation of intangible 235 assets 157 80 IFRS 2 charge in respect of 11 LTIP shares 3 5 Profit/(loss) on sale of property, plant & equipment 7 and intangibles (14) (10) Exchange losses/(gains) put (7) through income statement 6 (16) Investment income (8) (9) (14) Interest expense 37 41 81 Decrease in inventories 178 228 466 Decrease/(increase) in trade (1,017) and other receivables 515 398 Increase in trade and other 199 payables 1,677 912 Increase in long-term 29 provisions 15 15 ------------------------------------------------ Cash generated from operations 753 1,181 1,585 ------------------------------------------------ Interest paid (37) (41) (81) Income tax received/(paid) 264 (94) (114) ------------------------------------------------ Net cash generated from 1,390 operating activities 980 1,046 ------------------------------------------------ Cash flows from investing activities Purchases of property, plant (180) and equipment (PPE) (353) (45) Proceeds from sale of PPE 14 10 21 Purchase of intangible assets (645) (732) (1,310) Interest received 8 9 14 ------------------------------------------------ Net cash used in investing (1,455) activities (976) (758) ------------------------------------------------ Cash flows from financing activities Dividends paid to Group's (127) shareholders (127) (127) Repayment of loan (113) (12) (125) ------------------------------------------------ Net cash used in financial (252) activities (240) (139) ------------------------------------------------ Net (decrease)/increase in cash and cash equivalents (236) 149 (317) ------------------------------------------------ Cash and cash equivalents at 3,990 beginning of period 3,680 3,990 Exchange (decrease)/increase 7 on cash (6) 16 ------------------------------------------------ Cash and cash equivalents at 3,680 end of period 3,438 4,155 ------------------------------------------------ Notes to the half year results 1 Nature of operations DRS Data and Research Services plc is a public limited company with a premium listing on the London Stock Exchange, incorporated and domiciled in England. The address of the registered office is 1 Danbury Court, Linford Wood, Milton Keynes, MK14 6LR. Accounting policies and basis of preparation The financial information comprises the unaudited results for the six months to 30 June 2014 and to 30 June 2013, together with the audited results for the year ended 31 December 2013. The figures and financial information for the year to 31 December 2013 do not constitute the statutory financial statements for that year. Those financial statements have been delivered to the Registrar and included the auditor's report which was unqualified and did not contain a statement either under section 498(2) of the Companies Act 2006, or section 498(3). These unaudited half year results have been prepared on a basis consistent with IFRS accounting policies as set out in the Report and Accounts for the year ended 31 December 2013. Information provided is in accordance with IAS34 interim reporting requirements. These half year results have not been audited or reviewed by the auditor pursuant to the Auditing Practices Board's guidance on financial information. Basis of preparation The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to 31 December each year. Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities. The interim financial statements have been prepared in accordance with the accounting policies adopted in the Group's last annual financial statements for the year ended 31 December 2013. All intra-Group transactions, balances, income and expenses are eliminated on consolidation. Significant areas of judgement It should be noted that accounting estimates and assumptions are used in preparation of the financial statements. Although these estimates are based on management's best knowledge of current events and actions, actual results may ultimately differ from those estimates. In preparing these accounts: i. the following areas were considered to involve significant judgement: * when sales of services are recognised in the accounting period in which the work on the services is performed and the obligations have been satisfied in accordance with the customers' agreed requirements. DRS provides tailored solutions involving a range of the Group's products and services relating to scanning machines, software, printed forms and professional services. Each sales contract is different and it is necessary to consider the nature of the contract with the end user, the combination of deliverables and how transfer of responsibility of supply is deemed to take place. The judgement is when performance conditions are satisfied for the respective elements of the solution to become recognised revenue. * value of intangibles being covered by the future potential income that is expected to be derived from their use relating to internally generated software and research and development costs. The judgement is whether incremental revenue and margin justifies the capitalisation. * carrying value of work in progress assumes that work will be completed in accordance with contractual expectations. The judgement is whether this is the case. a. the following area was considered to involve significant estimates: * inventory provisions reflect future sales estimates over the useful life of the product. 2 Segment Information The principal activities of the Group continue to be the provision of data capture services, the manufacture, sale and support of optical and image scanning equipment, design and printing of documentation used for data capture and associated software and bureau services. Approximately half the Group's revenue relates to products and services and the other half relates to providing tailored data capture solutions. The companies in the Group are organised functionally, with each function of the business specialising in its own area of expertise. Project managers look to the functional areas to provide the appropriate tailored mix of products and services to fulfil each specific contract. In turn, the functional areas are supported by indirect cost centre departments such as Research and Development and Information Systems. Management consider that there is only one operating segment, as this is the lowest level at which discrete financial information is available and is reflected by a single set of management accounts that are used throughout the Group. However, it reviews revenue according to various segments and the revenue split is disclosed below. The delivery of market-focussed solutions results in a 'many to many' relationship between department costs and revenue streams. The individual standard costs of each type of supply are carefully controlled, but due to the effect sales mix has on recovery rates, reporting the relative profitability of the revenue streams would not be consistent with management processes within the Company. The revenue analysis for the six months ended 30 June 2014 is as follows: Education revenue Non-education revenue Examination & Census & assessment Other Commercial elections Total £000 £000 £000 £000 £000 ----------------------------------------------------------------- Region UK 2,270 258 9 181 2,718 Africa 1,881 27 - - 1,908 Rest of world 140 14 51 529 734 ----------------------------------------------------------------- Total 4,291 299 60 710 5,360 ----------------------------------------------------------------- Revenue arising from specific products and related services thereon: e-Marker(®) 2,368 e-Counting 352 ----------------------------------------------------------------- The revenue analysis for the six months ended 30 June 2013 is as follows: Education revenue Non-education revenue Examination & Census & assessment Other Commercial elections Total £000 £000 £000 £000 £000 ----------------------------------------------------------------- Region UK 3,799 262 8 7 4,076 Africa 1,698 24 481 134 2,337 Rest of world 101 13 44 72 230 ----------------------------------------------------------------- Total 5,598 299 533 213 6,643 ----------------------------------------------------------------- Revenue arising from specific products and related services thereon: e-Marker(®) 3,606 e-Counting 63 ----------------------------------------------------------------- The revenue analysis for the year ended 31 December 2013 is as follows: Education revenue Non-education revenue Examination & assessment Other Commercial Census & elections Total £000 £000 £000 £000 £000 ----------------------------------------------------------------- Region UK 10,057 513 39 11 10,620 Africa 4,709 25 494 135 5,363 Rest of world 128 18 69 1,897 2,112 ----------------------------------------------------------------- Total 14,894 556 602 2,043 18,095 ----------------------------------------------------------------- Revenue arising from specific products and related services thereon: e-Marker(®) 9,713 e-Counting 94 ----------------------------------------------------------------- 3 Income tax expense Six months ended Six months ended Year ended 30 June 30 June 31 December 2014 2013 2013 £000 £000 £000 Current tax - domestic (243) 21 - Foreign taxation - - 20 Adjustment in respect of previous period (165) - (269) ----------------------------------------------- Total current tax (408) 21 (249) Deferred tax current year (Note 9) 94 (171) 55 Deferred tax prior year (Note 9) 110 - 74 ----------------------------------------------- (204) (150) (120) ----------------------------------------------- Domestic income tax is calculated at 21.5% (2013: 23.25%) of the estimated assessable profit for the year. 4 Earnings per share The calculation of basic earnings per share is based on the earnings attributable to ordinary shareholders divided by the weighted average number of shares in issue during the year. Shares held in employee share trusts are treated as cancelled for the purposes of this calculation. The calculation of diluted earnings per share is based on the basic earnings per share, adjusted where applicable to allow for the issue of shares and the post tax effect of dividends and/or interest, on the assumed conversion of all dilutive options and other dilutive potential Ordinary shares. Reconciliations of the earnings and weighted average number of shares used in the calculations are set out below: Basic earnings per share Six months ended Six months 30 June ended Six months Six months before 30 June ended ended Year ended exceptional exceptional 30 June 30 June 31 December items 2014 items 2014 2014 2013 2013 £000 £000 £000 £000 £000 Earnings (1,850) (729) (2,579) (488) 1,389 attributable to Ordinary Shareholders being (loss)/profit for the period Weighted 31,731,071 31,731,071 average number 31,731,071 of shares 31,731,071 31,731,071 Basic (2.30p) (8.13p) (loss)/profit 4.38p per Ordinary share (5.83p) (1.54p) --------------------------------------------------------------- Diluted earnings per share Six months ended Six months 30 June ended Six months Six months before 30 June ended ended Year ended exceptional exceptional 30 June 30 June 31 December items 2014 items 2014 2014 2013 2013 £000 £000 £000 £000 £000 Earnings (1,850) (729) (2,579) (488) 1,389 attributable to Ordinary Shareholders being (loss)/profit for the period --------------------------------------------------------------- Weighted average number of shares Basic 31,731,071 31,731,071 31,731,071 31,731,071 31,731,071 Dilutive effect of: - options - 40,000 40,000 under the Enterprise Management Incentive Scheme - options under LTIP 544,550 option scheme 667,044 667,044 667,044 139,113 --------------------------------------------------------------- Diluted 32,398,115 32,398,115 32,398,115 31,910,184 32,315,621 --------------------------------------------------------------- Diluted (2.25p) (7.96p) (loss)/profit 4.30p per Ordinary share (5.71p) (1.53p) --------------------------------------------------------------- 5 Property, plant and equipment Freehold Fixtures land & Computer & Plant & Rental Motor Total buildings equipment fittings machinery machines vehicles £000 £000 £000 £000 £000 £000 £000 At 1 January 2014 Cost 10,237 2,900 1,185 2,473 3,226 447 6 Accumulated depreciation (7,329) (454) (1,071) (2,325) (3,026) (447) (6) ----------------------------------------------------------------- Net book amount 2,908 2,446 114 148 200 - - ----------------------------------------------------------------- For the period ended 30 June 2014 Opening net amount at 1 January 2014 2,908 2,446 114 148 200 - - Additions 353 - 82 189 82 - - Depreciation charge (157) (33) (53) (32) (39) - - Impairment charge (813) (813) - - - - - ----------------------------------------------------------------- Closing net book amount at 30 June 2014 2,291 1,600 143 305 243 - - ----------------------------------------------------------------- At 1 January 2013 Cost 11,386 2,900 2,192 2,558 3,144 586 6 Accumulated depreciation (8,331) (387) (2,020) (2,364) (2,968) (586) (6) ----------------------------------------------------------------- Net book amount 3,055 2,513 172 194 176 - - ----------------------------------------------------------------- For the period ended 30 June 2013 Opening net amount at 1 January 2013 3,055 2,513 172 194 176 - - Additions 45 - 32 7 6 - - Disposals - - - - - - - Depreciation charge (175) (34) (60) (39) (42) - - ----------------------------------------------------------------- Closing net book amount at 30 June 2013 2,925 2,479 144 162 140 - - ----------------------------------------------------------------- At 1 January 2013 Cost 11,386 2,900 2,192 2,558 3,144 586 6 Accumulated depreciation (8,331) (387) (2,020) (2,364) (2,968) (586) (6) ----------------------------------------------------------------- Net book amount 3,055 2,513 172 194 176 - - ----------------------------------------------------------------- For the period ended 31 December 2013 Opening net amount at 1 January 2013 3,055 2,513 172 194 176 - - Additions 180 - 59 21 100 - - Disposals (1) - - (1) - - - Depreciation charge (326) (67) (117) (66) (76) - - ----------------------------------------------------------------- Closing net book amount at 31 December 2013 2,908 2,446 114 148 200 - - ----------------------------------------------------------------- 6 Impairment of property, plant and equipment The Freehold land and buildings relate to the Linford Wood property that was acquired by the Group in 2001. Its acquisition was justified on the savings gained against the rental cost of leasing. The use and justification remain the same. During November 2012 in accordance with extending the mortgage on the property, Barclays Bank plc conducted a commercial valuation of the property based on tenanted occupancy which calculated the current market value at £1,600,000. The decline in commercial valuation reflects the general fall in the value of commercial property within the locality and does not alter its condition or expected useful life. An impairment review was undertaken in July 2014 to consider whether the property is impaired in accordance with IAS36. The Group has experienced a downturn in the level of trading activity in the first six months of 2014, details of which are provided in the Chairman's Statement. Changes in the UK Education market place to core curriculum examinations suggest the changes will impact future years. As a consequence, management have reassessed the value in use of the Linford Wood property based on revised forecasts of future cash flows discounted at the average cost of capital for the Group. This calculation shows a reduction in value in use resulting in an impairment charge of £813,000, which has been treated as an exceptional item in the Consolidated Income Statement. 7 Intangible assets Computer software Development expenditure Total £000s £000s £000s At 1 January 2014 Cost 6,481 1,381 5,100 Accumulated amortisation (4,687) (1,171) (3,516) -------------------------------------------------- Net book amount 1,794 210 1,584 -------------------------------------------------- For the period ended 30 June 2014 Opening net amount at 1 1,794 210 1,584 January 2014 Additions 645 5 640 Amortisation charge (157) (67) (90) -------------------------------------------------- Closing net book amount at 2,282 148 2,134 30 June 2014 -------------------------------------------------- Computer software Development expenditure Total £000s £000s £000s At 1 January 2013 Cost 5,206 1,311 3,895 Accumulated amortisation (4,460) (1,049) (3,411) -------------------------------------------------- Net book amount 746 262 484 -------------------------------------------------- For the period ended 30 June 2013 Opening net amount at 1 746 262 484 January 2013 Additions 732 82 650 Amortisation charge (80) (65) (15) -------------------------------------------------- Closing net book amount at 1,398 279 1,119 30 June 2013 -------------------------------------------------- Computer software Development expenditure Total £000s £000s £000s At 1 January 2013 Cost 5,206 1,311 3,895 Accumulated amortisation (4,460) (1,049) (3,411) -------------------------------------------------- Net book amount 746 262 484 -------------------------------------------------- For the period ended 31 December 2013 Opening net amount at 1 746 262 484 January 2013 Additions 1,310 105 1,205 Disposals (27) (27) - Amortisation charge (235) (130) (105) -------------------------------------------------- Closing net book amount at 1,794 210 1,584 31 December 2013 -------------------------------------------------- 8 Cash and cash equivalents Six months ended Six months ended Year ended 30 June 2014 30 June 2013 31 December 2013 £000 £000 £000 Cash at bank and in hand 180 347 124 Short-term bank deposits 3,258 3,808 3,556 --------------------------------------------------- 3,438 4,155 3,680 --------------------------------------------------- The effective interest rate on short term bank deposits was 0.24% (2013: 0.34%). These deposits have an average maturity of one day (2013: three days). Cash at bank and in hand include the following for the purposes of the cash flow statement: Six months ended Six months ended Year ended 30 June 2014 30 June 2013 31 December 2013 £000 £000 £000 Cash and cash equivalents 3,438 4,155 3,680 --------------------------------------------------- 3,438 4,155 3,680 --------------------------------------------------- The Group's approach to managing liquidity and currency risks is set out in Note 3.1(c) and 3.1(a)(i), respectively, of the 2013 Annual Report and Accounts. The tables below show the extent to which the Group has monetary assets in currencies other than Sterling. At 30 At 30 At 31 At 31 At 30 June June At 30 June June December December 2014 2014 2013 2013 2013 2013 US Dollars Euro US Dollars Euro US Dollars Euro £000 £000 £000 £000 £000 £000 Sterling equivalent 130 27 75 45 87 27 ---------------------------------------------------------------- 9 Deferred income tax Six months ended Six months ended Year ended 30 June 2014 30 June 2013 31 December 2013 £000 £000 £000 Analysis for financial reporting purposes Deferred tax liabilities 316 132 222 Deferred tax assets - (320) (110) --------------------------------------------------- 316 (188) 112 --------------------------------------------------- The movement in the Group's net deferred tax position was as follows: Six months ended Six months ended Year ended 30 June 2014 30 June 2013 31 December 2013 £000 £000 £000 At the beginning of the period 112 (17) (17) Charge/credit to income for the current period 94 (171) 55 Charge to income for the prior period 110 - 74 --------------------------------------------------- At the end of the period 316 (188) 112 --------------------------------------------------- The following are the major deferred tax liabilities and assets recognised by the company and the movements thereon during the period: Capital allowances Total R&D tax credits £000 £000 £000 At 1 January 2014 (110) 222 112 Charge to income for the period 110 94 204 ---------------------------------------------- At 30 June 2014 - 316 316 ---------------------------------------------- 10 Dividend per share On 30 May 2014 a final dividend of £127,000 was declared and subsequently paid to the Company's equity shareholders out of the profit achieved at 31 December 2013. This represents a payment of 0.40p per share. The Directors do not recommend an interim dividend. 11 Principal risks and uncertainties The Directors have considered the principal risks and uncertainties relating to its future business which might affect the financial performance of the Group in 2014. The Group continues to be exposed to the principal risks and uncertainties as described on page 16 of the 2013 Annual Report and Accounts. A copy of the 2013 Annual Report and Accounts is available on the Company's website at www.drs.co.uk. The principal risks currently facing the Group are set out below but are not arranged in order of relative impact or probability. Risk Impact Mitigation MARKET Changes to national and DRS seeks to work closely Political and political policies or with its customers to geographical uncertainties over better understand their uncertainties environmental stability local environment and could lead to a reduction their changing in the size of the market requirements in order to or delays in anticipate such changes implementation of and adapt to the changing solutions environment STRATEGIC DRS may not have Establish a cost base and Ability to respond to sufficient resources and organisational structure pace of change of the resilience to be able to based on the current markets in which DRS restructure and outlook. Align product operates reposition the business development to market quickly enough to keep up requirements, whilst with changing market continuing to focus on key conditions opportunities that will enable DRS to achieve its strategic objectives MARKET The risk that new Adopting a structured, New products meeting products may not meet responsive and flexible market requirements market expectations due approach to identifying to factors such as change requirements and in product requirements, incorporating technology substitution, technological and new competitors, functional innovation into regulatory intervention new versions of the product minimises the risk of not meeting requirements STRATEGIC There is a risk that the DRS looks to develop a Over reliance on key Group's business model of good understanding of its customers focussing on large- customers' needs and scale, technically thereby create a long-term complex projects places working relationship that over-reliance on a small leads to repeat business number of key customers. as well as new business. This could result in It is a core strategy to revenue and profit focus on the international volatility education market to increase geographical diversification in new areas that offer sustainable recurring revenue growth STRATEGIC The risks associated with The Group's strategic Complexity of customer providing large-scale approach takes into environments technically complex account the need to invest solutions which are in the development of its automating previously people, products and manual processes require services, placing a high comprehensive planning level of importance on and a phased delivery to ensuring the right mix of implement effective skills and knowledge is change, with a retained in the business corresponding delay of with a particular focus on revenue generation opportunities where there is detailed knowledge of the customers' markets as well as the prevailing operating conditions OPERATIONAL Handling large volumes of The business has engaged Data security sensitive data is a in an on-going improvement fundamental part of the programme to ensure the business and there is a use of up to date business possibility that this practice and appropriate information could be hardware, infrastructure accessed by unauthorised and software allow people and its integrity security measures to be compromised, applied, maintained and resulting in loss of controlled at a suitable revenue and a potential level to meet the needs of negative impact on both customer and reputation corporate obligations. The company continues to be certified to BS ISO/IEC 27001:2005 OPERATIONAL Any substantial business Certification of Infrastructure and disruption, whatever the compliance to Business process resilience cause, could Continuity Management has significantly impede our been in place since ability to operate as February 2012 (Standard BS usual. This could be as 25999-2:2007). The a consequence of the lack processes and controls of availability or denied supporting business access to premises, continuity and incident equipment or data used in management are tested our normal operations. regularly. The system Significant outages of provides a series of this nature could result mitigating and contingency in missed service level measures that provide arrangements, assurance of process and reputational damage and data resilience should the loss of revenue and unexpected happen. Due profit diligence processes are also in place to ensure similar assurance of our key supply chain OPERATIONAL The business model Recruitment, retention and Employee recruitment and requires the design, development of staff is a retention of development and priority for DRS and a appropriately skilled implementation of high value is placed on staff technically complex training and professional solutions that makes the development with the aim business very dependent of providing career on the skill of the advancement workforce. There is a risk that rapid changes to meet market needs increase the burden of identifying the right skills and retaining these to remain competitive The Directors haveconsidered the issues identified in the FRC's "Update for directors of listed companies: Responding to heightened country and currency risk in interim financial reports" and can report that in respect of currency risk, the Group operates internationally and is subject to foreign exchange risk arising from various currency exposures, primarily with respect to the US dollar and the Euro. The Group does not hedge any transactions, and foreign exchange differences on retranslation of foreign assets and liabilities are recognised in profit or loss. Wherever possible the Group looks to negotiate its sales contracts in Sterling. Occasionally, DRS Data Services Limited uses either US dollars or Euros. In the first six months of 2014 the Group received non Sterling payments totalling £87,000. Cautionary statement The Chairman's Statement has been prepared solely to provide additional information to shareholders to assess the Group's strategies and the potential for those strategies to succeed. It should not be relied upon by any other party for any other purpose. Certain forward-looking statements are contained in The Chairman's Statement. These statements are made by the Directors in good faith based on the information available to them up to the time of their preparation of this report and such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information. 12 Going Concern The Group meets its day-to-day working capital and other funding requirements through a combination of long-term funding and short-term cash holdings. The Group's principal financing facility is a mortgage, through Barclays Bank plc, secured by a fixed charge against the freehold land and buildings of the parent company, which expires in January 2018. The balance outstanding at 30 June 2014 was £1,618,000. The Group actively manages its strategic, commercial and day-to-day operational risks through its Treasury function, operating Board-approved financial policies. At the end of the first half year of 2014, the Group generated a negative cash flow of £242,000. The Directors have considered the trading outlook to the end of 2016 which includes the delivery of the Greater London Authority elections in May 2016. In the short to medium term the Group's prospects have reduced, requiring restructuring to reposition the business within the markets in which it operates. This will require a reduction in the Group's cost base. The implementation of cost saving measures has already commenced and Barclays Bank plc has been informed of the change in the Group's situation and the potential impact on banking covenants. In light of the Group's strong cash position and the measures being put in place, the Directors believe that the Company and its subsidiaries have adequate resources to continue in operational existence over this period and therefore consider it appropriate to continue to prepare the Interim Statement on a going concern basis. 13 Statement of Responsibility of Directors We confirm to the best of our knowledge: i. This Half-Yearly Financial Report has been prepared in accordance with IAS34 Interim Financial Reporting as adopted by the EU and gives a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation taken as a whole; and ii. The Half-Yearly Financial Report includes a fair review of the information required by: * DTR 4.2.7.R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the Half-Yearly Financial Report; and a description of the principal risks and uncertainties for the remaining six months of the year; and * DTR 4.2.8.R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the latest annual financial statements that could do so. This report was approved by the Board of Directors on 27 August 2014 and is available on the Company's website (www.drs.co.uk). For and on behalf of the Board Steve Gowers Mark Tebbutt Chief Executive Officer Finance Director 01908 666088 01908 666088 [email protected] [email protected] This announcement is distributed by GlobeNewswire on behalf of GlobeNewswire clients. The owner of this announcement warrants that: (i) the releases contained herein are protected by copyright and other applicable laws; and (ii) they are solely responsible for the content, accuracy and originality of the information contained therein. Source: DRS Data & Research Services plc via GlobeNewswire [HUG#1851395] 0250258R3 Copyright RTT News/dpa-AFX |