RNS Number:7195D
Tescom Software Systems Testing Ltd
30 May 2006
30 May 2006
Tescom Software Systems Testing Ltd. ("Tescom" or "the Company")
Quarterly Results for the Three Months Ended 31 March 2006
Tescom Software Systems Testing Ltd. (Symbol: TSCM), the international quality
assurance and software testing service provider, announces its quarterly results
for the three months ended 31 March 2006.
Highlights
* Revenues increased by 15.1% to NIS 59.6m ($12.8m), versus NIS 51.8m
in Q105
* Gross margins were 32.5%, compared to 38.7% in Q105
* Profit before tax was NIS 1.6m ($0.3m), versus NIS 4.5m in Q105
* Diluted earnings per share were NIS 0.06 ($0.01), versus NIS 0.19
in Q105
* Commencement of work on landmark transaction as main contractor with the
Ministry of Finance in France
* New contract wins in the UK, US, Singapore and Australia
* Strengthening of senior sales and marketing management in the UK, US and
Israel
Ofer Albeck, CEO of Tescom, said: "Tescom's Q106 results reflect a significant
increase in revenues over Q105, particularly in the UK, as well as in France,
where our contract with the French Ministry of Finance has commenced. We look
forward to a continuing positive trend in our top line throughout 2006, as the
reorganization and strengthening of our senior sales and management team begins
to bear fruit. The market in Israel remains extremely competitive, which has had
a negative effect on our gross margins and profitability. In addition, the loss
of a major customer in Australia has also affected profitability.
Despite this, Tescom has won a number of major new contracts, including
long-term fixed contracts in the public sector, from which we expect to benefit
during the remainder of 2006. We are looking at various strategic initiatives to
increase our gross margins, including assessing the feasibility of staffing
certain projects from less costly off-shore locations where suitable. We
anticipate these initiatives will begin to have a positive effect on our
operating results in the latter half of 2006."
Enquiries:
Tescom
Ofer Albeck, CEO + 972 3 535 0990
Corfin Communications
Harry Chathli, Clare Irvine +44 (0)20 7929 8989
Chief Executive's Review
Tescom's revenues increased by 15.1% from Q105, to NIS 59.6m ($12.8m). Revenues
increased in the UK, Continental Europe and in the US, mainly as a result of new
large contracts in each of these three locations. Tescom's strategy is to
continue focusing its efforts on large projects with fixed-price contracts,
mainly in Europe and the US. During the quarter, the Company began work on a
three-year contract with the French Ministry of Finance, and the Company hopes
to leverage its experience in this area in order to position itself to benefit
from other public sector projects throughout Europe.
In the UK, Tescom has been successful at gaining new contracts in both the
private and public sector, working for the Governmental departments that perform
testing on projects being carried out by systems integrators such as EDS. In
early 2006, BSkyB made Tescom their principal supplier for testing across the
UK, and Vodafone announced its continuing relationship with Tescom, including
the successful project regarding their "push e-mail" service.
Tescom continues to make progress in the US, after winning several long-term
contracts in the state and local government sector. Increased revenues in the US
reflect the Company's performance on these contracts.
In the Asia-Pacific region, Tescom Singapore has won a new contract with the
Land Transport Authority of Singapore and Tescom Australia signed a new contract
with the Victorian State Government. These wins have partially offset the loss
in revenues from the completion in 2005 of a large contract with Telstra.
Tescom Israel has experienced a small increase in revenues over the comparative
quarter in 2005, primarily due to several new large contracts at top-tier
customers in the Israeli market, including Teva and Straus-Elite. These wins
were partially offset by a reduction in activity in the defence sector. The
market continues to be very competitive, which is reflected in significantly
lower margins. In light of this, Tescom Israel has taken steps to increase
profitability in Israel, including the implementation of a cost reduction
programme, and the restructuring and augmentation of its sales team.
Since the beginning of 2006, Tescom has strengthened its management team in a
number of key areas. In January, Phil Serlin was appointed as Vice-President,
Finance. Mr Serlin joined Tescom from Chiaro Networks Ltd. in Israel, where he
served as Global Controller and Finance Manager since 2000. He brings extensive
experience in financial reporting and regulatory affairs to Tescom.
In the first quarter, international operations outside Israel were consolidated
into one division and David Oates was appointed to head it up. Based in Tescom's
London office, he took up his position in April. Mr Oates joins Tescom from
Primavera, where he was the Vice-President in charge of its international
operations.
In April, Mika Liss, Tescom's Executive Vice-President in charge of Global Human
Resources, was appointed interim Managing Director of Tescom's US operations. Ms
Liss' appointment has coincided with the departure of Sarah Bajc from the
Company's Atlanta office.
Financial Review
Tescom's shares are traded on both the AIM market of the London Stock Exchange
and the Tel Aviv Stock Exchange. In accordance with Israeli securities
regulations, the Company files its quarterly results with the Israel Securities
Authority. The Company's primary financial statements for Q1 2006 have been
prepared in adjusted New Israeli Shekels ("NIS") and in accordance with
accounting principles generally accepted in Israel ("Israeli GAAP"). Comparative
figures for Q1 2005 have been prepared on the same basis. The US dollar amounts
as of 31 March 2006 and for the three months then ended have been translated
from the NIS figures using the closing NIS/US dollar exchange rate of 4.665 as
of 31 March 2006.
Results
Revenues increased by 15.1%, to NIS 59.6m ($12.8m) from NIS 51.8m in Q105,
primarily resulting from new contracts in the UK and the Company's major
contract with the Ministry of Finance in France.
Pre-tax profit amounted to NIS 1.6m ($0.3m), versus NIS 4.5m in Q105. Despite
the significant increase in revenues, Q106 results were affected by a 6%
reduction in gross margins, mainly as a result of increased competition in
Israel and the completion of a high-margin contract in Australia in 2005. In
addition, G&A expenses increased by NIS 1.5m during the quarter, to NIS 13.2m
($2.8m) from NIS 11.7m in Q105. This increase reflects the required adoption in
Q106 of a new accounting standard relating to stock-option compensation, as well
as severance costs related to the former Managing Director in the Company's UK
office. Sales and marketing expenditure increased slightly during the period, to
NIS 4.0m ($0.9m), from NIS 3.8m in Q105. The Company's results were also
negatively impacted by an increase in financial expenses of NIS 0.6m ($0.1m),
due to exchange rate differences between the NIS and other operating currencies
in the various Group locations, primarily the US dollar.
The Company used NIS 6.0m ($1.3m) in cash for operating activities in Q106,
versus NIS 2.1m of cash generated from operations in Q105. The reduction in
operating cash flow results primarily from an increase in trade receivables, as
well as a reduction in net profits. The Company's cash balance at 31 March 2006
was NIS 6.9m ($1.5m), which also reflects the payment of an NIS 4.7m ($1.0m)
dividend in January 2006. The Company maintains short-term bank credit lines in
both Israel and the UK in the aggregate amount of approximately NIS 30m. NIS
13.5m had been drawn against these lines as of 31 March 2006.
Share Buyback
The Board of Tescom announced in July 2005 that it had approved a share buyback
of its ordinary shares on the open market. In November, the buyback programme
was extended to 31 March 2006. The total amount approved for the share
repurchase was approximately $550,000. From the July approval to 31 March 2006,
218,545 shares were bought back by the Company for a total sum of approximately
NIS 1.4m ($0.3m). These shares are held as treasury shares by the Company.
Dividends
The Company's dividend policy is subject to the future performance of the
Company and its funding requirements. The Company declared a total interim
dividend of NIS 4.7m ($1.0m) in the fourth quarter of 2005, which was paid in
January 2006. In view of 2005 financial results, the Board decided not to award
a final dividend on account of 2005, and has not declared an interim dividend
in 2006 in respect of the three months ended 31 March 2006.
Outlook
Tescom has won a number of significant long-term contracts in 2005 and the first
quarter of 2006. These new contracts have positively affected the top line in
Q106 and this trend is expected to continue throughout the remainder of the
year. Competitive pressures, particularly in the Israeli market, continue to
affect gross margins and operating profits, although there are signs of
improving performance. As a result, the Board remains cautious, at this early
stage, in its outlook for the year as a whole.
The Board of Tescom continues to examine a number of strategic opportunities to
expand its businesses in other regions and enhance shareholder value.
CONSOLIDATED BALANCE SHEETS
Convenience
Translation
---------
March 31, March 31, December 31,
2006 2006 2005 2005
--------- -------- --------- ---------
(US$ 000's) (NIS 000's) (NIS 000's)
--------- ---------------- ---------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents 1,487 6,935 9,145 12,213
Trade receivables 13,067 60,961 49,990 52,302
Other current assets and prepaid
expenses 1,729 8,064 7,385 6,619
--------- -------- --------- --------
16,283 75,960 66,520 71,134
--------- -------- --------- --------
LONG-TERM DEPOSITS 109 508 - 454
--------- -------- --------- --------
FIXED ASSETS:
Cost 3,835 17,894 16,270 17,508
Less - accumulated depreciation 2,772 12,932 13,840 12,409
--------- -------- --------- --------
1,063 4,962 2,430 5,099
--------- -------- --------- --------
OTHER ASSETS, NET 497 2,316 5,337 2,202
--------- -------- --------- --------
17,952 83,746 74,287 78,889
========= ======== ========= ========
The accompanying note is an integral part of the consolidated financial
statements.
CONSOLIDATED BALANCE SHEETS
Convenience
Translation
---------
March 31, March 31, December 31,
2006 2006 2005 2005
--------- -------- --------- ---------
(US$ 000's) (NIS 000's) (NIS 000's)
--------- ---------------- ---------
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Short-term bank credit 2,905 13,552 8,630 7,595
Trade payables 1,048 4,888 3,793 3,907
Other current liabilities and 6,919 32,278 24,132 31,555
accrued expenses
Dividend payable - - - 4,700
--------- -------- --------- --------
10,872 50,718 36,555 47,757
--------- -------- --------- --------
LONG-TERM LIABILITIES:
Long-term bank loans 10 46 123 77
Accrued severance pay, net 362 1,691 1,124 1,253
--------- -------- --------- --------
372 1,737 1,247 1,330
--------- -------- --------- --------
EQUITY 6,708 31,291 36,485 (*)29,802
--------- -------- --------- --------
17,952 83,746 74,287 78,889
========= ======== ========= ========
(*) Restated
The accompanying note is an integral part of the consolidated financial
statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
Convenience
Translation
---------
Three Three months ended Year ended
months ---------------- ---------
ended
---------
March 31, March 31, December 31,
2006 2006 2005 2005
--------- -------- --------- ---------
(US$ 000's) (NIS 000's) (NIS 000's)
--------- ---------------- ---------
Revenues 12,784 59,636 51,810 209,194
Cost of revenues 8,628 40,250 31,758 133,497
--------- -------- --------- ---------
Gross profit 4,156 19,386 20,052 75,697
--------- -------- --------- ---------
Selling and marketing
expenses 855 3,992 3,834 12,154
General and
administrative expenses 2,835 13,218 11,722 (*) 55,393
--------- -------- --------- ---------
3,690 17,210 15,556 (*) 67,547
--------- -------- --------- ---------
Operating income 466 2,176 4,496 (*) 8,150
Financial income
(expenses), net (125) (584) 21 712
Other expenses, net (5) (23) - (7,161)
--------- -------- --------- ---------
Profit before taxes on
income 336 1,569 4,517 (*) 1,701
Taxes on income 140 653 1,535 4,222
--------- -------- --------- ---------
Net profit (loss) 196 916 2,982 (*) (2,521)
========= ======== ========= =========
Earnings (loss) per share 0.01 0.06 0.19 (*) (0.16)
========= ======== ========= =========
(*) Restated
The accompanying note is an integral part of the consolidated financial
statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Convenience
Translation
---------
Three Three months ended Year ended
months ---------------- ---------
ended
---------
March 31, March 31, December 31,
2006 2006 2005 2005
--------- -------- --------- ----------
(US$ 000's) (NIS 000's) (NIS 000's)
--------- ---------------- ----------
Cash flows from operating
activities
Net profit (loss) 196 916 2,982 (*) (2,521)
Adjustments to
reconcile net profit (loss) (1,476) (6,887) (**)(866) (*) 9,157
to net cash provided by (used in)
operating activities (a)
--------- -------- --------- ----------
Net cash provided by
(used in) operating
activities (1,280) (5,971) (**) 2,116 6,636
--------- -------- --------- ----------
Cash flow from investing
activities
Purchase of fixed
assets (37) (174) (481) (4,345)
Proceeds from sale
of fixed assets 3 12 - 588
Maturities of
short-term bank
deposits, net - - 7,703 7,703
Payments for
forwards transactions - - (**) (98) (106)
Proceeds from sale
of forward transactions 16 78 (**) 5 333
--------- -------- --------- ----------
Net cash provided by
(used in) investing
activities (18) (84) (**)7,129 4,173
--------- -------- --------- ----------
Cash flows from financing
activities
Payment of dividends
declared in prior year (1,008) (4,700) - -
Exercise of stock
options - - - 3,676
Shares repurchased
by the Company (142) (662) - (796)
Repayment of
convertible debentures - - (19,643) (19,643)
Proceeds of
long-term bank loan - - 184 184
Repayment of
long-term bank loan (7) (31) - (46)
Short term bank
credit, net 1,278 5,957 (318) (1,354)
--------- -------- --------- ----------
Net cash provided by
(used in) financing
activities 121 564 (19,777) (17,979)
--------- -------- --------- ----------
Effect of exchange
rate changes on cash
and cash equivalents 46 213 (58) (352)
--------- -------- --------- ----------
Decrease in cash and
cash equivalents (1,131)(5,278) (10,590) (7,522)
Cash and cash
equivalents at the
beginning of the
period 2,618 12,213 19,735 19,735
-------- --------- --------- ----------
Cash and cash
equivalents at the
end of the period 1,487 6,935 9,145 12,213
========= ======== ========= ==========
(*) Restated
(**) Reclassified
The accompanying note is an integral part of the consolidated financial
statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Convenience
Translation
---------
Three Three months ended Year ended
months ---------------- ---------
ended
---------
March 31, March 31, December 31,
2006 2006 2005 2005
--------- -------- --------- ---------
(US$ 000's) (NIS 000's) (NIS 000's)
--------- ---------------- ---------
a) Adjustments to
reconcile net profit
(loss) to net cash
provided by
(used in) operating
activities
Depreciation and
amortization 79 378 520 1,539
Impairment of goodwill - - - 2,600
Deferred income taxes, net (176) (826) (57) (924)
Increase in accrued
severance pay, net 94 438 326 455
Gain from
forward transactions (16) (78) (**) 93 (227)
Loss (gain) on
sale of fixed assets - 1 - (2)
Exchange differences on
convertible debentures - - 257 257
Exchange differences on
short-term deposits - - 57 57
Share-based
compensation expenses 53 248 - (*) 1,295
Exchange differences on
long-term loan - - (1) -
Increase in trade receivables (1,719) (8,028) (128) (2,463)
Decrease (increase) in
other current (153) (711) 374 1,839
assets and prepaid expenses
(including long-term deposits)
Increase in trade payables 198 925 401 544
Increase (decrease) in
other current liabilities
and accrued expenses 164 766 (2,708) 4,187
--------- -------- --------- --------
(1,476) (6,887) (**) (866) (*) 9,157
========= ======== ========= ========
b) Non-cash transactions
Dividend
declared - - - 4,700
========= ======== ========= ========
Receivables in
respect of
shares - - 3 -
========= ======== ========= ========
(*) Restated
(**) Reclassified
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 accounting principles generally accepted
in Israel ("Israeli GAAP"). The US dollar amounts as of March 31, 2006 and for
the three months then ended have been translated for the convenience of the
reader, using the closing NIS/US dollar exchange rate of 4.665 as of March 31,
2006.
These financial statements should be read in conjunction with the Company's
audited annual financial statements and accompanying notes as of December 31,
2005.
The restatements in these financial statements relate to the adoption of two new
accounting standards during the reporting period in respect of stock-based
compensation and earnings per share, pursuant to Israeli GAAP. Both of these
accounting standards required restatement of prior periods.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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