RNS Number:5143I
Tescom Software Systems Testing Ltd
27 November 2007
Tescom Software Systems Testing Ltd. ("Tescom", "The Group", or "the Company")
Quarterly Results for the Nine Months ended 30 September 2007
Tescom Software Systems Testing Ltd. (Symbol: TSCM), the international quality
assurance and software testing service provider, announces its results for the
nine months ended 30 September 2007.
Highlights
* Revenues amounting to NIS 170.8m ($42.6m), versus NIS 182.6m in 2006
* Gross margins were 33.0%, similar to 2006
* Profit before tax was NIS 4.7m ($1.2m), versus NIS 9.2m in 2006
* Diluted earnings per share were NIS 0.16 ($0.04), versus NIS 0.41 in 2006
* Continued emphasis on European activities, which comprise 55% of
consolidated revenues, versus 52% in 2006
Ofer Albeck, CEO of Tescom, said: "Tescom's results for the nine months ended 30
September 2007 reflect a 6% decrease in revenues which is disappointing.
However, this needs to be considered alongside what has been achieved in terms
of stability in gross margins as a result of re-focusing our efforts on
large-scale, long-term projects. We have also continued to invest in our sales
and marketing resources on a global basis. These actions will continue to have a
short term cost effect for the remainder of 2007 and we do not expect
significant financial benefit until 2008.
The Company expects to benefit from its continued emphasis on the European
market, now representing more than 55% of its total revenues, which has
significantly higher gross margins. Tescom continues to focus its efforts on
growth from new large-scale, long-term contracts, as well as on cultivating its
well established account management with existing customers."
Enquiries:
Tescom
Ofer Albeck, CEO + 972 3 535 0990
Phil Serlin, VP Finance + 972 3 535 0990
Ravit Halevy, VP Corporate Development + 972 3 535 0990
Landsbanki Securities (UK) Limited (Nominated Adviser)
Tom Hulme +44 (0)20 7426 9593
Chief Executive's Review
Tescom's revenues for the nine months ended 30 September 2007 of NIS 170.8m
($42.6m) reflect a 6% decrease in comparison to revenues of NIS 182.6m in 2006.
In US dollar terms, revenues remained stable, which reflects the weakening of
the US dollar against the major currencies of the Group of approximately 10% on
a weighted average basis for the 2007 period in comparison to 2006.
Gross margins have remained stable, at 33.0% for the comparable nine-month
periods. As part of our continuing efforts to improve our margins, we have also
invested in establishing a "near-shore" operation in Israel. This operation is
expected to improve the Group's gross margins in 2008, and we anticipate that
our near-shore experience from this operation will enhance our global off-shore
capabilities in the future.
Throughout the 2007 period, we made a strategic decision to significantly
enhance our sales and marketing efforts on a global basis, as we believe our
previous investments in delivery management have provided us solid delivery
capabilities and the necessary infrastructure for expansion. As part of this
decision, we have focused our investments in enlarging and upgrading our sales
force in most of our territories.
European activities have grown to represent 55% of consolidated revenues, in
comparison to 52% for the same period in 2006, and this percentage is expected
to increase.
Within the framework of the Company's enhanced sales and marketing efforts, we
recognized an opportunity to compete on a tender for additional work at a
principal customer in the European market. This tender, while consuming
significant resources and management attention, resulted in our entering into
new alliances and refining our marketing tools. This experience will serve the
Company in realizing similar opportunities in the future. We are proud of the
efforts invested by our local and global resources to produce a high-quality
submission. Revenues from this customer, which approximated 13% of consolidated
revenues in 2006 and for the nine months ended 30 September 2007, decreased to
approximately 10% in Q307. This trend is expected to continue.
Tescom completed two profitable contracts in the US at the end of Q207, which
have affected revenues and profitability in the US in the second half of 2007.
We have invested in new senior sales management in the US market and these
investments are expected to have a positive effect on long-term revenue and
profitability growth. In the Asia-Pacific region, Tescom has increased its
off-shore contract activities.
Tescom Israel has re-focused its efforts on large-scale projects for the long
term. These actions are expected to result in improved gross margins in the long
term, alongside a decrease in revenues in the short term. As stated above, the
Company has recently established a low-cost, near-shore operation in Modi'in
Elite, which has successfully completed training of the first group of new
employees. This operation is part of an Israeli-government subsidised programme
to provide employment and training to certain segments of the population. The
Company has also been successful at gaining new contracts in the insurance
sector and has won the principal tender for testing issued by the IDF (Israel
Defence Forces).
In response to the needs of the Company's global client base, the Company is
currently carrying out an organisational restructuring, in order to leverage the
accumulated knowledge and experience in the various Company sectors, with the
objective of forming global cross-organisational practices. We expect that our
investments in sales and marketing, along with the aforementioned restructuring,
will enable us to achieve consistent, sustainable long-term growth in both
revenues and profitability.
I also wish to thank our employees for their continued efforts on the Company's
behalf.
Financial Review
Results
Revenues for the nine months ended 30 September 2007 of NIS 170.8m ($42.6m)
reflect a 6% decrease in comparison to 2006. Revenues remained stable in Europe
and increased in Asia-Pacific, mainly as a result of new contracts, which were
offset by a decline in revenues in Israel and the US.
Pre-tax profit amounted to NIS 4.7m ($1.2m), versus NIS 9.2m in 2006. Gross
margins have remained stable, at approximately 33.0% in the comparable
nine-month periods. G&A expenses decreased by 6%, to NIS 37.0m ($9.2m) from NIS
39.3m in 2006. Sales and marketing expenditure increased by 28%, to NIS 13.8m
($3.4m) from NIS 10.8m in the 2006 period, reflecting significant investments in
sales and marketing personnel.
The Company's revenues and operating profit were positively affected by the
weakening of the US dollar against the major currencies of the Group (Pounds
Sterling, Euro and Israeli Shekel) of approximately 10% on a weighted average
basis for the 2007 period in comparison to 2006.
Net financial expenses increased by NIS 0.1m ($0.02m), as a result of
fluctuations in the exchange rates between the NIS, the dollar and the other
operating currencies in the various Group locations.
The Company generated NIS 3.6m ($0.9m) in cash from operating activities for the
nine months ended 30 September 2007, versus NIS 0.3m in 2006. The increase in
operating cash flows resulted primarily from a smaller increase in trade
receivables, compared to the corresponding period last year. The Company's cash
balance at 30 September 2007 was NIS 9.4m ($2.4m), which reflects the payment of
a $0.9m dividend during the second quarter of 2007. The Company maintains
short-term bank credit lines in both Israel and the UK in the aggregate amount
of approximately NIS 34.0m ($8.5m). NIS 14.0m ($3.5m) had been drawn against
these credit lines as of 30 September 2007.
Dividends
The Company's dividend policy is subject to the future performance of the
Company and its funding requirements. In March 2007, the Company declared a
final dividend of NIS 3.8m ($0.9m) on account of 2006, which was paid in May
2007. In October 2007, the Company declared an interim dividend of NIS 3.6m
($0.9m), which was paid on 8 November 2007.
Outlook
Tescom expects revenues to remain flat and a decrease in operating profitability
for the remainder of 2007. Our focus on long-term, large-scale projects has
resulted in a stabilisation of gross margins, alongside a decrease in revenues
in the short term. Our increased investments in sales and marketing, while
reducing operating profit in 2007, are expected to improve the Group's gross
margins in 2008.
The Company expects to benefit from its continued emphasis on the European
market, now representing approximately 55% of its total revenues, which has
significantly higher gross margins. Tescom continues to focus its efforts on
growth from new large-scale, long-term contracts, as well as on cultivating its
well established account management with existing customers.
The Board of Tescom continues to examine a number of strategic opportunities to
expand its businesses in its current territories and enhance shareholder value.
CONSOLIDATED BALANCE SHEETS
Convenience
Translation
September 30, September 30, December 31,
2007 2007 2006 2006
(US$ 000's) (NIS 000's) (NIS 000's)
CURRENT ASSETS:
Cash and cash equivalents 2,354 9,449 10,930 8,750
Trade receivables 14,485 58,128 58,498 58,431
Other current assets and prepaid 1,643 6,591 9,640 5,185
expenses
Total current assets 18,482 74,168 79,068 72,366
NON-CURRENT ASSETS:
Severance pay fund 2,369 9,508 10,053 9,579
Property and equipment, net 1,958 7,860 6,524 7,016
Goodwill and other 410 1,644 1,882 1,826
intangible assets
Deferred income taxes 1,439 5,774 894 5,827
Total non-current assets 6,176 24,786 19,353 24,248
Total assets 24,658 98,954 98,421 96,614
The accompanying note is an integral part of the consolidated financial
statements.
CONSOLIDATED BALANCE SHEETS
Convenience
Translation
September 30, September 30, December 31,
2007 2007 2006 2006
(US$ 000's) (NIS 000's) (NIS 000's)
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Short-term credit and current 3,464 13,900 13,128 10,588
portion of
long-term loans
Trade payables 1,126 4,518 6,307 5,643
Income taxes payable 417 1,674 1,880 1,237
Other current liabilities and 7,511 30,144 29,095 29,020
accrued expenses
Total current liabilities 12,518 50,236 50,410 46,488
LONG-TERM LIABILITIES:
Long-term loans 234 942 1,097 1,066
Accrued severance pay 2,869 11,513 11,585 11,370
Total long-term liabilities 3,103 12,455 12,682 12,436
EQUITY:
Share capital 56 225 225 225
Share premium 9,514 38,180 39,863 37,987
Treasury shares, at cost (379) (1,522) (1,522) (1,522)
Foreign currency translation 421 1,688 1,630 2,031
reserve
Accumulated deficit (575) (2,308) (4,867) (1,031)
Total equity 9,037 36,263 35,329 37,690
Total liabilities and equity 24,658 98,954 98,421 96,614
The accompanying note is an integral part of the consolidated financial
statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
Convenience
Translation
Nine Year ended
months ended Nine months ended
September 30, September 30, December 31,
2007 2007 2006 2006
(US$ 000's) (NIS 000's) (NIS 000's)
Revenues 42,560 170,795 182,629 237,933
Cost of revenues 28,526 114,476 122,505 159,436
Gross profit 14,034 56,319 60,124 78,497
Selling and marketing expenses 3,440 13,804 10,770 13,897
General and administrative 9,200 36,922 39,257 50,694
expenses
12,640 50,726 50,027 64,591
Operating profit 1,394 5,593 10,097 13,906
Financial income 300 1,202 179 472
Financial expenses (536) (2,150) (1,056) (1,111)
Other expenses (income), net (5) (21) 16 16
Profit before taxes on income 1,163 4,666 9,204 13,251
Taxes on income 534 2,143 2,713 2,924
Net profit 629 2,523 6,491 10,327
Earnings per share 0.04 0.16 0.19 0.65
The accompanying note is an integral part of the consolidated financial
statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Convenience
Translation
Nine months ended Year ended
Nine months ended
September 30, September 30, December 31,
2007 2007 2006 2006
(US$ 000's) (NIS 000's) (NIS 000's)
Cash flows from operating
activities
Net profit 629 2,523 6,491 10,327
Adjustments to reconcile net
profit to net cash provided by
operating activities:
Share-based compensation 33 132 92 (1,784)
Depreciation 345 1,383 1,131 1,670
Amortisation 44 177 231 303
Increase in accrued severance 53 214 280 539
pay, net
Deferred income taxes, net (8) (33) (849) (607)
Increase in trade receivables (99) (396) (6,526) (5,669)
Increase in other current (364) (1,459) (2,225) (2,204)
assets and prepaid expenses
Increase in trade payables (258) (1,035) 2,448 1,675
Increase (decrease) in other 520 2,087 (765) (2,797)
current liabilities and
accrued expenses
Net cash provided by operating 895 3,593 308 1,453
activities
Cash flows from investing
activities
Additions to property and (330) (1,324) (2,605) (2,092)
equipment
Proceeds from sale of property - - 46 -
and equipment
Net cash used in investing (330) (1,324) (2,559) (2,092)
activities
Cash flows from financing
activities
Short-term credit, net 725 2,908 5,533 2,434
Exercise of share options 15 61 - -
Shares repurchased by the Company - - (724) (724)
Proceeds from long-term loans - - 1,157 110
Repayments of long-term loans (147) (588) (141) -
Dividends paid (947) (3,800) (4,700) (4,700)
Net cash provided by (used in) (354) (1,419) 1,125 (2,880)
financing activities
Effect of exchange rate changes (37) (151) (157) 56
on cash and cash equivalents
Increase )decrease) in cash and 174 699 (1,283) (3,463)
cash equivalents
Cash and cash equivalents at 2,180 8,750 12,213 12,213
beginning of period
Cash and cash equivalents at end 2,354 9,449 10,930 8,750
of period
The accompanying note is an integral part of the consolidated financial
statements.
Convenience
Translation
Nine months ended Year ended
Nine months ended
September 30, September 30, December 31,
2007 2007 2006 2006
(US$ 000's) (NIS 000's) (NIS 000's)
Supplemental disclosure of cash
flow information:
Cash paid during period for 184 740 607 760
interest
Cash paid during period for 901 3,617 4,684 7,093
income taxes
Cash received during period for 51 204 179 156
interest
Non-cash transactions
Property and equipment purchased - - - 1,438
with loan received
The accompanying note is an integral part of the consolidated financial
statements.
NOTE 1:- GENERAL AND PRESENTATION
The accompanying financial statements have been prepared in adjusted New
Israeli Shekels ("NIS") and in accordance with International Financial Reporting
Standards ("IFRS"). The US dollar amounts as of September 30, 2007 and for the
nine months then ended have been translated for the convenience of the reader,
using the closing NIS/US dollar exchange rate of 4.013 as of September 30, 2007.
These financial statements should be read in conjunction with the Company's
audited annual financial statements and accompanying notes as of December 31,
2006.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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