RNS Number:8238W
Tescom Software Systems Testing Ltd
18 May 2007
Tescom Software Systems Testing Ltd. ("Tescom" or "the Company")
Quarterly Results for the three months ended 31 March 2007
Tescom Software Systems Testing Ltd. (Symbol: TSCM), the international quality
assurance and software testing service provider, announces its results for the
three months ended 31 March 2007.
Highlights
* Revenues remained stable, amounting to NIS 59.3 ($14.3m), versus NIS
59.6m in 2006
* Gross margins were 34.3%, compared to 32.3% in 2006
* Profit before tax was NIS 3.8m ($0.9m), versus NIS 1.4m in 2006
* Diluted earnings per share were NIS 0.18 ($0.04), versus NIS 0.05 in
2006
* Solid profitability improvement in all key territories
* Strengthening of senior sales and delivery management in the UK, US
and Israel
* Continued emphasis on European activities, which comprise over 52% of
consolidated revenues
Ofer Albeck, CEO of Tescom, said: "Tescom's results for the three months ended
31 March 2007 reflect a noticeable improvement in gross margins, alongside
stability in revenues. We look forward to a positive trend in our top line
throughout the remainder of 2007, as we see the benefit of the reorganization
and strengthening of our senior sales and management team. The market in Israel
remains extremely competitive, which continues to have a negative impact on our
overall sales growth and 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 2007. We also expect to leverage the infrastructure
improvements which we put in place during 2006 in order to achieve consistent
and sustainable growth in both revenues and profitability."
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
Teather & Greenwood
Tom Hulme +44 (0)20 7426 9593
Chief Executive's Review
Tescom's revenues for the three months ended 31 March 2007 of NIS 59.3m ($14.3m)
remained stable in comparison to the corresponding period in 2006. Revenue
increases in Europe and in the Asia-Pacific region, mainly as a result of new
contracts in these locations, were offset by a decline in revenues in Israel.
Tescom's strategy is to continue focusing its efforts on large projects with
fixed-price contracts, mainly in Europe and the US. Gross margins have increased
to 34.3% from 32.3% in the corresponding 2006 period, as we begin to see the
effects of improved account and delivery management.
Europe continues to represent over 50% of our consolidated revenues and this
percentage is expected to increase. The Company has been successful at gaining
new contracts in both the private and public sector and this is expected to bear
fruit in the latter half of 2007.
Revenues in the US increased in dollar terms by approximately 10% in comparison
to the corresponding 2006 period; however, this increase was offset by a
weakening of the dollar against the NIS of about 10%.Tescom continues to make
progress in the US, and has won several new long-term contracts in the state and
local government sector and the financial services sector. In addition, the
strengthening of new senior sales and delivery management in the US is expected
to have a positive effect on 2007 revenue and profitability.
In the Asia-Pacific region, Tescom has won several new contracts, which
contributed to an increase in revenues of over 60% in comparison with the 2006
quarter.
Tescom Israel has showed a 17% decrease in revenues over the comparative period
in 2006, primarily due a focus on accounts with higher margins. This strategy is
reflected in a 2% increase in gross margins during the period, which has
contributed to an overall increase in profitability. The Company has been
successful at gaining new contracts in the finance sector, as well as a new
framework contract in the defence sector. Nevertheless, the Israeli market
continues to be very competitive, and it is not expected to be a significant
source of growth in revenue or profitability in 2007.
Since the beginning of 2006, we have also placed significant emphasis on
strengthening our Global Executive Management Team. In this regard, in May 2007,
we appointed Ravit Halevy as Vice-President Corporate Development. Ms Halevy
brings extensive experience in the strategic business development and investor
relations fields, most recently with the U. Dori Group, a large publicly traded
company on the Tel Aviv Stock Exchange.
We are pleased with our progress and we expect to leverage the infrastructure
improvements which we have put in place in order to achieve consistent,
sustainable growth in both revenues and profitability. I also wish to thank our
employees for their efforts, which have contributed to a solid start to 2007.
Financial Review
Results
Revenues for the three months ended 31 March 2007 of NIS 59.3m ($14.3m) remained
stable in comparison to the corresponding period in 2006. Revenue increases in
Europe and in the Asia-Pacific region, mainly as a result of several new
contracts in these locations, were offset by a decline in revenues in Israel.
Pre-tax profit amounted to NIS 3.8m ($0.9m), versus NIS 1.4m in 2006. Despite
the stable revenues, gross profit increased by 5.5% from the 2006 period, mainly
as a result of higher margin contracts in Israel, the US and Australia. G&A
expenses decreased by NIS 0.6m in the 2007 period, to NIS 12.6m ($3.0m) from
NIS 13.2m in 2006. This decrease primarily relates to management's continuing
emphasis on cost control. Sales and marketing expenditure was in line with the
2006 period, showing a slight decrease to NIS 3.9m ($0.9m), from NIS 4.0m in the
2006 period.
The Company's results were also positively impacted by a decrease in net
financial expenses of NIS 0.5m, as a result of fluctuations in the exchange
rates between the NIS, dollar and the other operating currencies in the various
Group locations.
The Company utilized NIS 2.7m ($0.6m) in cash from operating activities in the
three-month 2007 period, versus utilizing NIS 5.9m in 2006. The utilization of
operating cash flows results primarily from an increase in trade receivables,
which is mainly due to certain government contracts with longer trade terms. The
Company's cash balance at 31 March 2007 was NIS 6.0m ($1.5m). The Company
maintains short-term bank credit lines in both Israel and the UK in the
aggregate amount of approximately NIS 32.0m ($8.0m). NIS 11.5m ($2.8m) had been
drawn against these lines as of 31 March 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 ($0.9m) on account of 2006, which was paid on 2 May
2007.
Outlook
Tescom has won a number of significant long-term contracts in 2006 and the first
three months of 2007. These contracts are expected to positively affect the top
line towards the latter half of 2007. The Company also expects to benefit from
its continued emphasis on the European market, which has higher gross margins.
Competitive pressures, particularly in the Israeli market, continue to affect
revenue growth, but there are signs of improving performance in gross margins
and operating profitability. Tescom intends to focus efforts on increasing gross
margins, including assessing the feasibility of staffing certain projects from
less costly locations where suitable. We anticipate continuing the year-on-year
progress that has been achieved over the last five quarters.
The Board of Tescom continues to examine a number of strategic opportunities to
expand its businesses in its current territories and enhance shareholder value.
CONSOLIDATED BALANCE SHEETS
Convenience
Translation
March 31, March 31, December 31,
2007 2007 2006 2006
(US$ 000's) (NIS 000's) (NIS 000's)
CURRENT ASSETS:
Cash and cash equivalents 1,456 6,049 6,935 8,750
Trade receivables 15,797 65,638 60,961 58,431
Other current assets and 1,488 6,184 3,686 5,185
Prepaid expenses
Total current assets 18,742 77,871 71,582 72,366
NON-CURRENT ASSETS:
Severance pay fund 2,338 9,715 10,066 9,579
Property and equipment, net 1,866 7,751 4,906 7,016
Goodwill and other intangible 424 1,761 2,090 1,826
assets
Deferred income taxes 1,378 5,726 5,491 5,827
Total non-current assets 6,006 24,953 22,553 24,248
Total assets 24,747 102,824 94,135 96,614
The accompanying note is an integral part of the consolidated financial
statements.
CONSOLIDATED BALANCE SHEETS
Convenience
Translation
March 31, March 31, 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 2,769 11,504 13,552 10,588
portion of long-term loans
Trade payables 1,807 7,509 4,888 5,643
Income taxes payable 169 704 2,419 1,237
Other current liabilities and 7,300 30,330 29,859 29,020
accrued expenses
Dividend payable 915 3,800 - -
Total current liabilities 12,960 53,847 50,718 46,488
LONG-TERM LIABILITIES:
Long-term loans 334 1,388 46 1,066
Accrued severance pay 2,775 11,530 11,757 11,370
Total long-term liabilities 3,109 12,918 11,803 12,436
EQUITY:
Share capital 54 225 225 225
Share premium 9,157 38,046 40,094 37,987
Treasury shares, at cost (366) (1,522) (1,460) (1,522)
Foreign currency translation (507) (2,108) (10,578) (1,031)
reserve
Accumulated deficit 341 1,418 3,333 2,031
Total equity 8,678 36,059 31,614 37,690
Total liabilities and equity 24,747 102,824 94,135 96,614
The accompanying note is an integral part of the consolidated financial
statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
Convenience
Translation
Three months
ended Three months ended Year ended
March 31, March 31, December 31,
2007 2007 2006 2006
(US$ 000's) (NIS 000's) (NIS 000's)
Revenues 14,264 59,267 59,636 237,933
Cost of revenues 9,376 38,959 40,395 159,436
Gross profit 4,888 20,308 19,241 78,497
Selling and marketing 930 3,861 3,992 13,897
expenses
General and administrative 3,035 12,612 13,208 50,694
expenses
3,965 16,473 17,200 64,591
Operating profit 923 3,835 2,041 13,906
Financial income 107 444 83 472
Financial expenses (127) (529) (668) (1,111)
Other expenses, net - - (23) (16)
Profit before taxes on 903 3,750 1,433 13,251
income
Taxes on income 247 1,027 653 2,924
Net profit 656 2,723 780 10,327
Earnings per share 0.04 0.17 0.05 0.65
The accompanying note is an integral part of the consolidated financial
statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Convenience
Translation
Three Three months Year ended
months ended
ended
March 31, March 31, December 31,
2007 2007 2006 2006
(US$ 000's) (NIS 000's) (NIS 000's)
Cash flows from operating
activities
Net profit 656 2,725 780 10,327
Adjustments to reconcile
net profit to net
cash provided by (used
in) operating activities
Share-based compensation 14 59 323 (1,784)
Depreciation 102 423 432 1,670
Amortisation 15 62 24 303
Increase in accrued 6 24 438 539
severance pay, net
Deferred income taxes, net 14 60 (826) (607)
Increase in trade (1,901) (7,899) (8,023) (5,669)
receivables
Increase in other current (251) (1,044) (713) (2,204)
assets and prepaid expenses
Increase in trade payables 473 1,965 923 1,675
Increase (decrease) in other 223 928 749 (2,797)
current liabilities and
accrued expenses
Net cash provided by (used (649) (2,699) (5,893) 1,453
in) operating activities
Cash flows from investing
activities
Additions to property and (108) (448) (174) (2,092)
equipment
Proceeds from sale of - - 12 -
property and equipment
Net cash used in investing (108) (448) (62) (2,092)
activities
Cash flows from financing
activities
Short-term credit, net 126 523 5,957 2,434
Shares repurchased by the Company - - (662) (724)
Proceeds of long-term loans - - - 110
Repayments of long-term loans (7) (29) (31) -
Dividends paid - - (4,700) (4,700)
Net cash provided by (used in) 119 494 564 (2,880)
financing activities
Effect of exchange rate changes on (12) (48) 213 56
cash and cash equivalents
Decrease in cash and cash (650) (2,701) (5,278) (3,463)
equivalents
Cash and cash equivalents at 2,106 8,750 12,213 12,213
beginning of period
Cash and cash equivalents at end of 1,456 6,049 6,935 8,750
period
The accompanying note is an integral part of the consolidated financial statements.
Convenience
Translation
Three months
ended Three months ended Year ended
March 31, March 31, 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 interest 49 205 179 760
Cash paid during period for income taxes - - 421 7,093
Cash received during period for interest 10 40 97 156
Non-cash transactions
Property and equipment purchased with 226 938 - 1,438
loan received
Dividends declared but not paid 915 3,800 - -
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 March 31, 2007 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 4.155 as of March 31, 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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