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Half Year Results for the Six Month Period Ended 30 June 2009

ID: 1003584
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(Thomson Reuters ONE) - Highlights* Education revenue increased by 12% to £5,628,000* e-Marker® revenue increased to 39% of group revenue* Closing cash of £2,934,000* New products launched in census and education markets* Continued investment in new productsResults Summary 6 months ended 6 months ended 30 June 2009 30 June 2008 £000 £000 ChangeEducation revenue 5,628 5,033 12%Non-education revenue 954 3,086 (69%)Total revenue 6,582 8,119 (19%)Loss before tax (1,685) (762) (221%)Loss per share (4.10p) (3.56p) (15%)Net cash from operating 684 1,408 (51%)activitiesSir David Brown, Chairman, commented:"The Group's half-year performance in its education markets has beenstrong and profitable. However the Group's business in its othermarkets has been affected by both the difficult economic conditionsand the uneven nature of its election and census business, and hasdeclined quickly and significantly, leading to disappointinghalf-year results overall."We responded urgently and decisively with major cost reductions,which are continuing, and a determined approach to asset managementwhich has increased our cash holdings despite the trading loss."The first-half pattern of strong performance in the educationmarkets and weak performance in the non-education markets is expectedto continue through the second half of the year. Higher revenue fromthe UK education markets together with the effect of the stringentcost-reduction programme lead us to be hopeful of being able toreport an improvement at the time of the preliminary results."Looking further ahead, we expect that the Group's continuing,determined focus on building best-in-class customer relationshipscoupled with increasing product and service innovation, particularlyin its education markets, will secure the Group's return tosustainable profitability and provide a robust foundation forlong-term growth."Enquiries to:Sally HopwoodCompany SecretaryTel: 01908 666088enquiries(at)drs.co.ukChairman's StatementResultsThe results for the first half of 2009, are disappointing withturnover down 19% on the same period last year at £6,582,000 (2008:£8,119,000) and a loss before tax of £1,685,000 (2008: £762,000).The Group's performance in its education markets has been strong andprofitable, with first-half revenue increasing by 12% to £5,628,000(2008: £5,033,000). Indeed e-Marker® first-half sales were thehighest ever and alone accounted for 39% of DRS' total first-halfrevenue. First-half revenue from our more traditional educationbusiness, which includes UK student registration and the printing offorms for overseas education bodies, increased by 19% to £3,057,000(2008: £2,572,000). Overall, revenue from the education markets was86% of total first half revenue.However, the Group's performance in its non-education markets hasdeclined quickly and significantly. First-half census and electionrevenue fell by 83% to £395,000 (2008: £2,380,000), partly because ofthe uneven nature of election and census business. The economicdownturn is affecting our commercial markets, particularly in theUnited States where Peladon Software Inc has not made the progresswhich was expected, but now is focused on good prospects forDocXP(TM) in the US healthcare market.Part of the Group's response has been to reflect the rapidly changingbalance in its market emphasis in an extensive programme of changesto its cost base. Major cost reductions have been implemented in thefirst half of the year, including the postponement to next year ofthe intended move of the company's operational divisions to newpremises, and further cost reductions will be completed by the end ofthe year.Diligent control of expenditure and a determined approach to assetmanagement has resulted in an increase in cash holdings of £168,000to £2,934,000, despite the trading loss.The Directors do not recommend the payment of an interim dividend(2008: 0.30p per share).Trading HighlightsIn 2005, DRS adopted IFRS accounting policies and provided segmentalreporting for the first time. At that time the majority of theGroup's products and services fell into three groups; scanningequipment, print, and software services. These business segments weredirectly correlated to internal functional departments and were thekey elements of cost and revenue management within the business.However, in recent years the Group's strategic direction has beenincreasingly to develop and sell products and services which usevarying combinations of the Group's resources in an integrated way.Therefore reporting based on the historical segmentation is no longerappropriate.EducationThe Group's examinations and assessment business continues to growwith e-Marker® as our leading product and service offering. Our majorUK customer, AQA (Assessment and Qualifications Alliance), continuesto expand its use of e-Marker® for processing GCSE and 'A' levelexaminations. The Directors anticipate that more than 9 million AQAanswer scripts will be processed this year using e-Marker® comparedto approximately 7.5 million in 2008. The efficiency and accuracythat e-Marker® brings to the process has led to an extremelysuccessful summer series of examination marking generating higherrevenue than in previous years.A new feature of e-Marker® went live for the first time this summerwith the introduction of Long Form Answer (LFA) processing. It wasused in two subjects and is a significant competitive advance in theportfolio e-Marker® has to offer customers. Using LFA processes,examiners were able to mark essay-style answers on-screen with theability to annotate directly into the system. Also prior to beingdistributed to the markers, the scripts were automatically segmentedinto different answer groups making marking more efficient andallowing answers of particular types to be routed separately by thee-Marker® system.We were also pleased to sign a major new contract for e-Marker®services in June with the Associated Board of the Royal Schools ofMusic. The contract is for four years initially.In the first half of the year we successfully installed into severalschools a new version of our IntelliReg® product. IntelliReg® offersa wall-mounted fingertip biometric method of registering pupil'sattendance at school. The product builds on our many years ofexperience in this market where we have supplied paper-basedregistration systems to most secondary schools in the UK. The newproduct addresses the growing need of schools to have immediateaccess to attendance information and to monitor pupil attendance atall lessons rather than just twice per day. IntelliReg® provides anideal solution for both of these requirements and is able to registereach student in less than one second with no intervention by staffand no loss of valuable teaching time. An entry-level solution forprimary and small secondary schools has also been developed andsupplied. This version reduces the price and complexity ofinstallation by interfacing to a teacher's laptop computer. Bothversions integrate fully with schools' information management systemsand provide immediate on-line access to the data.Education-related printing for the African market remains goodbusiness for DRS. We have long-standing trading relationships incountries such as Nigeria, Ghana and Zambia, where we provide highquality paper forms for machine processing of data. Most of theseforms are for use in education, and many countries use our range ofscanners for reading the completed forms. In the first half wesecured significant scanner sales from both Nigeria and Zambia.Census and ElectionsThe Group continues to be one of the prominent suppliers of censusprojects around the world. Two major census projects in Malawi andSudan, which were started in 2008, were completed successfully in thefirst half-year. We designed and printed the millions of specialisedforms required for these projects in addition to capturing the censusdata using our unique PhotoScribe® scanners. The Group's ability todeliver comprehensive services dedicated to census-taking againproved to be reliable and efficient even in challenging geographicallocations.Our established range of census services was complemented in thefirst half-year with a new product which uses GPS to capturepositional information simply and cheaply as part of the censusprocess. The product, called Cense(TM), is a hand-held device whichcan be used by enumerators, with minimal training, to capture thelongitude and latitude of their location. The location, oncetransferred to census forms, can be processed with the other data andprovide valuable extra information. Pre-production units have beenmanufactured and released to census organisations around the worldand have been received well.The Group delivered e-counting services for two Scottish by-electionsin the first half-year, in Glasgow and East Ayrshire. The servicesincluded the supply of ballot papers and boxes, the scanning of allballot papers and the e-counting.CommercialThe current economic pressures in the market for the Group'scommercial products and services contributed to a 21% decrease infirst-half commercial revenue to £559,000 (2008: £706,000). Theproportion of commercial revenue attributable to DocXP(TM) was flatat 64% (2008: 68%).OutlookThe prospects for e-Marker® appear promising, both in the UK andinternationally. In June we won a contract for a pilot project in theCaribbean which we expect to lead to a longer term contract in duecourse. The successful introduction of the Long Form Answer processduring the summer with AQA is likely to lead to new business with theawarding bodies for professional qualifications. The examinationswhich these awarding bodies conduct are based predominantly onessay-style answers and the cost of marking time is high. The latestversion of e-Marker® offers benefits in both reducing costs andproviding results more quickly.Also, our existing customers in Africa are keen to implemente-Marker®. During recent years the communication infrastructurewithin a number of countries has grown enormously in coverage andcapability, and high speed data communications and availability ofthe Internet now makes e-Marker® a viable solution for examinationprocessing in these countries. A number of negotiations have takenplace and a pilot with a key customer is likely this year.Sustaining the competitiveness of e-Marker® and its associatedservices is of central importance to the Group's strategy forreturning to profitability and growth, and the company expects tocontinue to invest in e-Marker® accordingly.To capitalise on our early successes with IntelliReg® we are workingto establish a partnership with leading suppliers of biometricsystems into schools, including those engaged in the BSF (BuildingSchools for the Future) programme. This will broaden our sales andmarketing strategy and enable us to cover substantially more schoolsdirectly and build relationships with local authorities.The possibilities for selling PhotoScribe® scanners into the Americanelections market appear promising. The US market has been moving awayfrom electronic voting in recent years and electronic counting ofpaper ballots is seen as a better alternative by a number of States.The DRS scanner has been sold into States which have their owncertification processes but the scanner has been waiting for Federalcertification for approved use in all States. A prolonged waitingtime for such approval has delayed matters but approval is expectedthis year. Our reseller in the United States believes that asignificant take up of sales is possible when Federal certificationis confirmed.Next year and 2011 are expected to be major years for census activityinternationally and DRS is already shortlisted for several of theseprojects. Although competition is increasing significantly, we havean excellent reputation for delivery and we are developing newfeatures to enhance our solution. The GPS (Global Positioning System)Cense(TM) device will also offer customers increased levels of censusdata.A new market for Cense(TM) is also possible in UK education. GPS hasbeen introduced into the geography syllabus from September 2009 andinterest has already been shown by academics and school suppliers. Weare using our established links with schools and their supply chainsto explore this opportunity.The US market for DocXP(TM) is expected to remain very difficult forthe rest of this year at least, with the singular exception ofhealthcare applications. DocXP(TM) has a technological advantage overthe competition in the processing of complex forms, particularly"Explanation of Benefits" (EOB) forms. These can be many hundreds ofpages long and have traditionally only been processed manually.Peladon Software Inc has demonstrated to key prospects the ability ofDocXP(TM) to extract the data from these forms automatically, andexpects to receive the first orders this year.In summary, the first-half pattern of strong performance in theeducation markets and weak performance in the non-education marketsis expected to continue through the second half of the year. Revenuefrom the UK education markets is expected to be higher in the secondhalf than in the first half, principally because of the seasonalityin the e-Marker® revenue. Taken together with the stringentcost-reduction programme, which will have full effect in the secondhalf, the Directors are hopeful of being able to report animprovement at the time of the preliminary results.Looking further ahead, the Directors expect that the Group'scontinuing, determined focus on building best-in-class customerrelationships coupled with increasing product and service innovation,particularly in its education markets, will secure the Group's returnto sustainable profitability and provide a robust foundation forlong-term growth.DRS Data & Research Services plcUNAUDITED RESULTSConsolidated income statement 6 months 6 months ended ended Year ended 30 June 30 June 31 December 2009 2008 2008 Notes £000 £000 £000Revenue 6,582 8,119 17,429Cost of sales (4,980) (5,232) (11,560)Gross profit 1,602 2,887 5,869Other operating income 11 86 763Selling and marketing costs (1,012) (933) (1,903)Administrative expenses (1,883) (2,728) (7,004)Finance costs (403) (74) (272)Loss before income tax 3 (1,685) (762) (2,547)Tax credit/(charge) 4 387 (362) (445)Loss for the period 3 (1,298) (1,124) (2,992)Consolidated statement ofcomprehensive incomeLoss for the period (1,298) (1,124) (2,992)Other comprehensive income - exchange difference ontranslation of foreignoperations 307 3 (70)Total comprehensive loss for theperiod (991) (1,121) (3,062)Loss per share attributable tothe equity holders of theCompany during the year(expressed in pence per share)- basic 5 (4.10p) (3.56p) (9.46p)- diluted 5 (4.10p) (3.56p) (9.46p)Consolidated statement of financial position At At 30 June 30 June At 2009 2008 31 December 2008 Notes £000 £000 £000ASSETSNon-current assetsProperty, plant and equipment 3,268 3,673 3,511Intangible assets 1,245 2,533 1,174Deferred income tax assets 7 468 116 6 4,981 6,322 4,691Current assetsInventories 1,122 1,493 1,421Trade and other receivables 2,772 3,063 2,557Cash and cash equivalents 6 2,975 4,716 2,766 6,869 9,272 6,744Total assets 11,850 15,594 11,435EQUITYCapital and reservesattributable to the Company'sequity holdersShare capital 1,731 1,731 1,731Share premium account 5,377 5,377 5,377Capital redemption reserve 115 115 115Treasury shares (1,166) (1,166) (1,166)Own shares reserve (319) (335) (319)Translation reserve (72) (266) (379)Retained earnings (1,242) 2,071 68Total equity 4,424 7,527 5,427LIABILITIESNon-current liabilitiesBorrowings 2,250 2,250 2,250Deferred income taxliabilities 7 17 156 34 2,267 2,406 2,284Current liabilitiesTrade and other payables 5,085 5,510 3,549Current income tax liabilities 74 151 175 5,159 5,661 3,724Total liabilities 7,426 8,067 6,008Total equity and liabilities 11,850 15,594 11,435Consolidated statement of changes in equity Share Capital Own Share premium redemption Treasury shares Retained Translation capital account reserve shares reserve earnings reserve Total £000 £000 £000 £000 £000 £000 £000 £000At 1 January2008 1,731 5,377 115 (1,166) (335) 3,387 (269) 8,840Dividend - - - - - (189) - (189)Employeeshare basedcompensation - - - - - (3) - (3)Transactionswith owners - - - - - (192) - (192)Loss for theperiod - - - - - (1,124) - (1,124)Othercomprehensiveincome:Currencytranslationadjustment - - - - - - 3 3Totalcomprehensiveincome forthe sixmonths - - - - - (1,316) 3 (1,313)At 30 June2008 1,731 5,377 115 (1,166) (335) 2,071 (266) 7,527At 1 July2008 1,731 5,377 115 (1,166) (335) 2,071 (266) 7,527Dividend - - - - - (96) - (96)Employeeshare basedcompensation - - - - - (23) - (23)Own sharesvesting - - - - 16 (16) - -Transactionswith owners - - - - 16 (135) - (119)Loss for theperiod - - - - - (1,868) - (1,868)Othercomprehensiveincome:Currencytranslationadjustment - - - - - - (73) (73)Deferred taxon itemsrelating toequity - - - - - - (40) (40)Totalcomprehensiveincome forthe sixmonths - - - - 16 (2,003) (113) (2,100)At 31December 2008 1,731 5,377 115 (1,166) (319) 68 (379) 5,427At 1 January2009 1,731 5,377 115 (1,166) (319) 68 (379) 5,427Employeeshare basedcompensation - - - - - (12) - (12)Transactionswith owners - - - - - (12) - (12)Loss for theperiod - - - - - (1,298) - (1,298)Othercomprehensiveincome:Currencytranslationadjustment - - - - - - 307 307Totalcomprehensiveincome forthe sixmonths - - - - - (1,310) 307 (1,003)At 30 June2009 1,731 5,377 115 (1,166) (319) (1,242) (72) 4,424Consolidated statement of cash flows 6 months 6 months ended 30 Year ended ended 30 June June 31 December 2009 2008 2008 £000 £000 £000Cash flows from operatingactivitiesLoss after taxation (1,298) (1,124) (2,992)Adjustments for: Tax (credit)/charge (387) 362 445 Depreciation of property,plant and equipment 273 342 630 Amortisation of intangibleassets 382 488 988 Impairment charge - 600 2429 IFRS 2 (credit) in respect ofEBT - (13) (32) IFRS 2 (credit)/charge inrespect of LTIP shares (12) 18 6 Profit on sale of property,plant & equipment and intangibles (2) (22) (5) Exchange losses/(gains) putthrough income statement 353 (4) (607) Investment income (11) (86) (156) Interest expense 50 69 138 Decrease/(increase) ininventories 299 (266) 25 (Increase)/decrease in tradeand other receivables (215) (47) 240 Increase/(decrease) in tradeand other payables 1,495 1,589 (222)Cash generated from operations 927 1,906 887Interest paid (50) (69) (138)Income tax paid (193) (429) (538)Net cash generated from operatingactivities 684 1,408 211Cash flows from investingactivitiesPurchases of property, plant andequipment (PPE) (46) (75) (221)Proceeds from sale of PPE 2 39 47Purchase of intangible assets (453) (261) (747)Interest received 11 86 156Net cash used in investingactivities (486) (211) (765)Cash flows from financingactivitiesDividends paid to Group'sshareholders - (189) (285)Net cash used in financialactivities - (189) (285)Net increase/(decrease) in cashand cash equivalents 198 1,008 (839)Cash and cash equivalents atbeginning of period 2,766 3,558 3,558Exchange (decrease)/increase oncash (30) - 47Cash and cash equivalents at endof period 2,934 4,566 2,766Notes to the half year results1. Nature of operationsDRS Data & Research Services plc is a public limited company with afull listing on the London Stock Exchange incorporated and domiciledin England. The address of the registered office is 1 Danbury Court,Linford Wood, Milton Keynes, MK14 6LR.Accounting policies and basis of preparationThe financial information comprises the unaudited results for the sixmonths to 30 June 2009 and to 30 June 2008 together with the auditedresults for the year ended 31 December 2008. The figures andfinancial information for the year to 31 December 2008 do notconstitute the statutory financial statements for that year. Thosefinancial statements have been delivered to the Registrar andincluded the auditor's report which was unqualified and did notcontain a statement either under section 237(2) of the Companies Act1985, or section 237(3).DRS adopted International Financial Reporting Standards (IFRS) witheffect from 1 January 2005. These unaudited half year results havebeen prepared on a basis consistent with IFRS accounting policies asset out in the Report and Accounts for the year ended 31 December2008. Information provided is in accordance with IAS34 interimreporting requirements.These half year results have not been audited or reviewed by theauditor pursuant to the Auditing Practices Board's guidance onfinancial information.Basis of preparationThe consolidated financial statements incorporate the financialstatements of the Company and entities controlled by the Company (itssubsidiaries) made up to 31 December each year. Control is achievedwhere the Company has the power to govern the financial and operatingpolicies of an investee entity so as to obtain benefits from itsactivities.These condensed half year results have been prepared in accordancewith the accounting policies adopted in the last annual financialstatements for the year to 31 December 2008 except for the adoptionof IAS 1 Presentation of Financial Statements (Revised 2007), IFRS 8Operating Segments.The adoption of IAS 1 (Revised 2007) does not affect the financialposition or profits of the Group, but gives rise to additionaldisclosures. The measurement and recognition of the Group's assets,liabilities, income and expenses is unchanged, however some itemsthat were recognised directly in equity are now recognised in othercomprehensive income.The adoption of IFRS 8 has changed the segments that are disclosed inthe half year results. In the previous annual and half year results,segments were identified by reference to the dominant source andnature of the group's risks and returns. Under IFRS 8 the accountingpolicy for identifying segments is now based on the internalmanagement reporting information that is regularly reviewed by thechief operating decision maker.All intra-group transactions, balances, income and expenses areeliminated on consolidation.The principal accounting policies of the Group are set out in theGroup's 2008 Annual Report. They remain unchanged from the previousyear and have been consistently applied to all periods presented inthese financial statements.Significant areas of judgementIt should be noted that accounting estimates and assumptions are usedin preparation of the financial statements. Although these estimatesare based on management's best knowledge of current events andactions, actual results may ultimately differ from those estimates.In preparing these accounts:(i) the following areas were considered to involve significantjudgement:* 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.* 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.* recognition of deferred tax on trading losses in assessing if they will be recovered by future trading profits.* carrying value of work in progress assumes that work will be completed in accordance with contractual expectations.(ii) the following areas were considered to involve significantestimates:* stock provisions reflect future sales estimates over the useful life of the product.* receivable provisions reflect future trade receivable amounts collectable.2. Segment InformationIn 2005 DRS adopted IFRS accounting policies and provided segmentalreporting for the first time. At that time the majority of thecompany's products and services fell into three groups; scanningequipment, print, and software services. These business segments weredirectly correlated to internal functional departments and were thekey elements of cost and revenue management within the business.In the period since 1 January 2006, the Group has taken a strategicdecision to develop and sell products and services which integratemulti-functional skills and technologies. These market solutions usevarying combinations of the Group's resources and are controlled bycross company project management. Consequently management of thebusiness is now centred on revenue markets and project cost controland therefore the correlation between functional costs and revenuehas been reduced significantly. Although the Group considers that itonly has one operating segment, it reviews revenue according tovarious segments and the revenue split is disclosed below.The delivery of market focused solutions results in a "many to many"relationship between department costs and revenue streams. Theindividual standard costs of each type of supply are carefullycontrolled, but due to the effect sales mix has on recovery rates,reporting the relative profitability of the revenue streams would notbe consistent with management processes within the company.Recognising the manner in which management currently reviews thebusiness, the revenue for 2008 has been restated in the new formatfor comparison purposes.The revenue analysis for the six months ended 30 June 2009 is asfollows: Education revenue Non-education revenue Examination & Census & assessment Other Commercial elections Total £000 £000 £000 £000 £000RegionUK 3,134 831 273 24 4,262Africa 1,603 (12) 26 296 1,913Rest of world 46 26 260 75 407Total 4,783 845 559 395 6,582 Revenue arising from specific products and related services thereon:e-Marker® 2,571Doc-XP(TM) 358e-Counting 165IntelliReg® 12The revenue analysis for the six months ended 30 June 2008 is asfollows: Education revenue Non-education revenue Examination & Census & assessment Other Commercial elections Total £000 £000 £000 £000 £000RegionUK 3,016 1,217 387 - 4,620Africa 732 44 39 2,085 2,900Rest of world 6 18 280 295 599Total 3,754 1,279 706 2,380 8,119Revenue arising from specific products and relatedservices thereon:e-Marker® 2,461Doc-XP(TM) 481e-Counting 488IntelliReg® 96The revenue analysis for the year ended 31 December 2008 is asfollows: Education revenue Non-education revenue Examination & Census & assessment Other Commercial elections Total £000 £000 £000 £000 £000RegionUK 8,904 2,346 513 70 11, 833Africa 1,901 55 62 2,439 4,457Rest of world 130 33 614 362 1,139Total 10,935 2,434 1,187 2,871 17,429Revenue arising from specific products and related services thereon:e-Marker® 7,734Doc-XP(TM) 767e-Counting 741IntelliReg® 1533. Exceptional items 6 months 6 months ended ended Year ended 30 June 30 June 31 December 2009 2008 2008 £000 £000 £000Loss before exceptional itemsand tax (1,685) (162) (118)Exceptional items - impairmentcharge - (600) (2,429)Loss before tax (1,685) (762) (2,547)Tax credit/(charge) beforeexceptional items 387 (45) (274)Exceptional items - deferred taxcharge - (317) (171)Tax credit/(charge) 387 (362) (445)Loss for the period (1,298) (1,124) (2,992)The Peladon Software Group was purchased to acquire the DocXP(TM)document management product and to provide the DRS Group with achannel to distribute the product throughout North America. Thevolume of DocXP(TM) sales since acquisition has been materially belowexpectation and in 2008 the decision was taken to write off thecarrying value of the investment down to zero. A more detailedexplanation is provided in Note 14 of the 2008 Annual Report andAccounts.The exceptional items in the consolidated income statement represent:* impairment charge against know-how, unpatented intangibles and goodwill on acquisition which is charged to administrative expenses* deferred tax charge for the write off of deferred tax asset in respect of unused tax losses in Peladon Software Inc as future utilisation is no longer considered probable, and the release of deferred tax provision related to the carrying value of know-how and unpatented intangibles following their impairment.4. Income tax expense 6 months ended 6 months ended Year ended 30 June 30 June 31 December 2009 2008 2008 £000 £000 £000Current tax - domestic 92 129 262Adjustment in respect ofprevious period - - 2Total current tax 92 129 264Deferred tax (Note 7) (479) 233 181 (387) 362 445Domestic income tax is calculated at 28% (2008: 28.5%) of theestimated assessable profit for the year.The deferred tax asset is calculated on the basis of unused taxlosses assumed to be utilised over the next four years. In view ofthis no deferred tax asset is recognised in the balance sheet for£825,000 of unused tax losses for Peladon Software Inc.£477,000 of the deferred tax credit relates to accelerated taxallowances within DRS Data Services Limited that will be recovered atthe year end.5. Loss per shareThe calculation of basic loss per share is based on the lossattributable to ordinary shareholders divided by the weighted averagenumber of shares in issue during the year. Shares held in employeeshare trusts are treated as cancelled for the purposes of thiscalculation.The calculation of diluted loss per share is based on the basic lossper share, adjusted where applicable to allow for the issue of sharesand the post tax effect of dividends and/or interest, on the assumedconversion of all dilutive options and other dilutive potentialordinary shares.Reconciliations of the earnings and weighted average number of sharesused in the calculations are set out below:Basic loss per share 6 months ended Year ended 31 6 months ended 30 June December 30 June 2009 2008 2008 £000 £000 £000Loss attributable toordinary shareholdersbeing loss for the period (1,298,000) (1,124,000) (2,992,000)Weighted average numberof shares 31,671,071 31,591,071 31,618,858Basic loss per ordinaryshare (4.10p) (3.56p) (9.46p)Diluted loss per share 6 months ended Year ended 31 6 months ended 30 June December 30 June 2009 2008 2008 £000 £000 £000Basic loss per shareLoss attributable toordinary shareholdersbeing loss for the period (1,298,000) (1,124,000) (2,992,000)Weighted average numberof sharesBasic 31,671,071 31,591,071 31,618,858Dilutive effect of:- shares in restrictedshare scheme - - -- options underunapproved share optionscheme - - -- options under theEnterprise ManagementIncentive Scheme - - -- options under LTIPoption scheme - - -Diluted 31,671,071 31,591,071 31,618,868Diluted loss per ordinaryshare (4.10p) (3.56p) (9.46p)6. Cash and cash equivalents At 30 June At 30 June At 31 December 2009 2008 2008 £000 £000 £000Cash at bank and in hand 27 62 279Short-term bank deposits 2,907 4,654 2,487 2,934 4,716 2,766The effective interest rate on short term bank deposits was 0.76%(2008: 4.82%). These deposits have an average maturity of 1 day(2008: 3 days).Cash and bank overdrafts include the following for the purposes ofthe cashflow statement: At 30 June At 30 June At 31 December 2009 2008 2008 £000 £000 £000Cash and cash equivalents 2,975 4,716 2,766Bank overdrafts (41) (150) - 2,934 4,566 2,766The Group's approach to managing liquidity and currency risks is setout in Note 3.1(ii) of the 2008 Annual Report and Accounts.The tables below show the extent to which the Group has monetaryassets in currencies other than Sterling. At 31 At 30 At 30 At 30 December At 31 At 30 June June June 2008 June 2008 December 2009 2009 US 2008 US 2008 US Dollars Euro Dollars Euro Dollars Euro £000 £000 £000 £000 £000 £000Sterlingequivalent 52 97 336 83 67 1267. Deferred income tax 6 months ended 6 months ended Year ended 30 June 30 June 31 December 2009 2008 2008 £000 £000 £000Analysis for financialreporting purposesDeferred tax liabilities 17 156 34Deferred tax assets (468) (116) (6) (451) 40 28The movement in the Group's net deferred tax position was as follows: 6 months 6 months ended ended Year ended 30 June 30 June 31 December 2009 2008 2008 £000 £000 £000At 1 January 28 (193) (193)(Credit)/charge to income for the year (479) 235 181(Credit)/charge to equity for the year - (2) 40At 31 December (451) 40 28The losses in the table above relate to deferred tax losses inPeladon Software Inc. The charge to income arose from the decisiontaken to impair the carrying value of the assets relating to thePeladon Software Group, an explanation of which is given in the 2008Annual Report and Accounts.The withdrawal of industrial building allowances in 2008 has resultedin an increase in the deferred tax charge of £144,000 for the year.The following are the major deferred tax liabilities and assetsrecognised by the company and the movements thereon during theperiod: Revaluation of Accelerated tax General property depreciation provision Total £000 £000 £000 £000At 1 January 2009 18 16 (6) 28Charge to income forthe period (1) (480) 2 (479)Charge to equity forthe period - - - -At 30 June 2009 17 (464) (4) (451)The explanations for the movements have been provided in Note 4.8. Dividends per share 2009 2008 2009 2008 Pence /share Pence /share £000 £000Amounts recognised asdistributions to equity holdersin the year:Final dividend for the year ended31 December 2007 - 0.60 - 190Interim dividend for the yearended 31 December 2008 - 0.30 - 95The Directors do not recommend an interim dividend.9. Principal risks and uncertaintiesThe Group is subject to risks and uncertainties relating to itsfuture business which might affect the financial performance of theGroup. The Board has implemented systems to identify risks, to assessthem and to ensure that reasonable mitigation plans are in place.The Board is paying particular attention to the operational risks anduncertainties of current recessionary conditions in all of theGroup's markets and further details are provided under the heading'Internal controls and risk management' within the CorporateGovernance Report on page 36 of the Annual Report and Accounts forthe year ended 31 December 2008. A copy of the 2008 Annual Report andAccounts is available on the Company's website athttp://www.drs.co.uk/results.html.The main risk issues that are specific to the business are set outbelow and remain consistent with 2008.Information technologyThe Group is increasingly dependent on IT (Information Technology)systems, including Internet-based systems, for internal communicationas well as communication with customers and suppliers. Anysignificant disruption of these systems, whether due to computerviruses or other outside incursions, could materially and adverselyaffect the Group's operations.Our business involves handling large databases containing highvolumes of data to be accessed by thousands of users from theirhomes. We are therefore heavily dependent on the resilience of boththe application software and the data-processing support servicestogether with the service providers for sound networkinfrastructure. A serious failure in any of these areas couldimmediately and materially affect our business.We continue to invest in reliable and fault-tolerant ITinfrastructures to mitigate these risks.Trading volumesA significant proportion of the Group's business can comprise one-offlarge contracts providing tailored solutions. The nature of thesecontracts requires each to be managed as a unique project withproject teams required to address the specific complexities andcommercial risks. Group sales have a tendency to be lumpy, dependenton when these contracts occur. The Group has a high proportion offixed overheads and consequently these fluctuations in revenue canlead to significant variations in profitability.Spread of customersAn analysis of the revenue generated in the 6 months to 30 June 2009identified 68.1% of the Group's sales coming from its top fivecustomers. It is an issue the management team recognises and thestrategy to invest in new products and markets is designed to broadenthe number of key recurring revenue generating customers.Cautionary statementThe Chairman's Statement has been prepared solely to provideadditional information to shareholders to assess the Group'sstrategies and the potential for those strategies to succeed. Itshould not be relied upon by any other party for any other purpose.The Chairman's Statement contains certain forward-lookingstatements. These statements are made by the Directors in good faithbased on the information available to them up to the time of theirapproval of this report and such statements should be treated withcaution due to the inherent uncertainties, including both economicand business risk factors, underlying any such forward-lookinginformation.10. Going ConcernThe Group meets its day-to-day working capital and other fundingrequirements through a combination of long-term funding andshort-term cash holdings. The Group's principal financing facilityis a mortgage of £2.25m secured by a fixed charge against thefreehold land and buildings of the parent company which expires inMarch 2011.The Group actively manages its strategic, commercial and day-to-dayoperational risks and through its Treasury function operatesBoard-approved financial policies. During the first half of 2009 theGroup cash holding increased.After making enquiries, the Directors have a reasonable expectationthat the Company and its subsidiaries have adequate resources tocontinue in operational existence for the foreseeable future andtherefore adopt the going concern principle.11. Statement of Responsibility of DirectorsWe confirm to the best of our knowledge:(i) This Half-Yearly Financial Report has been prepared inaccordance with IAS34 Interim Financial Reporting as adopted by theEU and gives a true and fair view of the assets, liabilities,financial position and profit or loss of the company and theundertakings included in the consolidation taken as a whole; and(ii) The Half-Yearly Financial Report includes a fair review of theinformation 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 25 August 2009and is available on the Company's website (www.drs.co.uk).For and on behalf of the BoardMark TebbuttFinance Director01908 666088This announcement was originally distributed by Hugin. The issuer is solely responsible for the content of this announcement.



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Date: 08/26/2009 - 08:01
Language: English
News-ID 1003584
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