As expected, overall Group revenues in the first half of this year were below those of the previous half year. Weak market conditions in both the Banking and Securities Division and the Financial Services Division resulted in reduced revenues in both those divisions. In addition they were further reduced by the disposal of two non-core Banking and Securities businesses. In contrast, Misys Healthcare Systems reported increased revenues despite further adverse movements in exchange rates.

 

Overall Group revenues are expected to be 10% below last year and operating margins are expected to be below those in the same period last year, mainly because of the lower revenues.

 

Although trading conditions since the AGM have been more demanding than we anticipated, we have nevertheless been encouraged by evidence of our customers' future investment plans, particularly in the Banking and Securities Division.

 

The effect of the disposal of two non-core Banking and Securities businesses and charging the Patient1 integration costs as operating expenses as incurred will reduce this year's adjusted earnings per share, compared with last year, by around 2 pence per share. 

 

 

Total divisional revenues are expected to be down in the first half by 13% on the equivalent period last year reflecting the continued weakness in market conditions and the effect of declining professional services revenues as previously highlighted.  Whilst we see evidence that bank IT budgets are starting to grow again after a period of contraction, banks remain cautious in initiating larger IT projects.

 

Disposals - Towards the end of the first half we announced the sale of the UK back office products business from within Misys Asset Management Systems and certain equities trading products from within Misys Securities Trading Systems, with the remaining elements of Misys Securities Trading Systems sold in early December 2003.  From 1 June 2003 up to the date of their respective disposals (or 30 November 2003), these businesses recorded revenue of £13m (six months to 30 November 2002: £21m) and operated at break even (2002: operating profit £2m).  At the end of this trading update we have included more details on the results for the last 18 months of the businesses disposed from this division.

 

Acquisitions - In April 2003 we acquired Crossmar® Matching Service (CMS) which during the first half recorded revenues of £4m (all of which are transaction services revenues) and operating margins broadly in line with the rest of the division. 

 

Information on expected revenues and order intake for the first six months of the financial year are as follows.

 

 

 

* At constant exchange rates and excluding the acquisition and the disposals from both years

 

The following comments on revenue and order book are in respect of the results on a comparable basis.

 

Initial Licence Fee (ILF) order intake was 9% lower than last year. The closing ILF order book at £23m was £1m lower than at the end of November 2002 and £2m lower than at the end of May 2003.  ILF taken to revenue was, however, lower by 16% because last year we started with a larger opening order book. The lower level of ILF revenues over the last twelve months has continued to hold back the growth in maintenance revenues.  More significantly, the level of professional services has been disproportionately affected by cutbacks in banks' IT budgets as we highlighted both in July and in the AGM statement.  The sequential decline (six months to November 2003 vs six months to May 2003) of 15% in professional services is significantly better than the 27% decline experienced last year (six months to May 2003 vs six months to November 2002).  This is consistent with our comments in July that we expected to see a sequential increase in professional services revenues in the second half of the current financial year and provides further confidence that the level of professional services activity should now be at or close to the bottom.

 

Operating margins, excluding the effect of the acquisition and disposals from both years, are expected to be below those achieved last year principally as a result of the reduced revenues.

 

 

Total divisional revenues are expected to be 4% above the equivalent period last year.  The reported results have again been adversely affected by the strengthening of sterling against the US dollar; excluding both this effect and the benefit of the Patient1 acquisition in the period, revenues are expected to be 6% ahead of last year.

 

Acquisition - We have benefited from a strong start from the Patient1 product, which we acquired in July. We have signed a number of large orders including our first combined Misys Laboratory / Patient1 sale.  During the first half this product recorded revenues of £6m and, as expected, operated at break even before integration costs.  In the first half these one-off integration costs were less than £1m and will be charged to operating profit.  The total integration costs are expected to amount to well under £10m and will mostly be incurred over the next 18 months.  These costs will not be treated as exceptional costs and will be charged to operating profit.

 

Information on expected revenues and order intake for the first six months of the financial year are as follows.

 

 

 

*  At constant exchange rates and excluding the benefit of the acquisition of Patient1

 

The following comments on revenue and order book are in respect of the results on a comparable basis.

 

Overall, the division reported good growth in revenues with ILF revenue up by 14% and maintenance revenue achieving a 9% growth.  The slower growth in Transaction Services revenues continued the trend that was evident in the second half of last year and is in line with other suppliers in the market.  Total ILF order intake decreased by 8%, mainly reflecting a reduction in Hospital Systems, compared with a particularly strong performance in the prior year. The closing ILF order book on a comparable basis, at £24m, is below both November 2002 and May 2003; this principally reflects the fact that Hospital Systems have made good progress completing the final phases of a number of older orders, enabling us to recognise the related revenue.

 

Operating margins in Healthcare are expected to be slightly below last year principally due to the impact of the integration costs in respect of Patient1 which, as already noted, will be charged to operating profit.

 

 

Revenues in the Financial Services Division are expected to be 16% below last year due to the continued weakness in the IFA network business.  As anticipated in July, we have continued to see a reduction in the overall number of RIs, as set out below.

 

 

Operating margins in the Financial Services Division are expected to be significantly below those of last year.  This reduction is partly due to the reduced number of RIs in the network, and partly due to the increasing cost of compliance.

 

The General Insurance business has delivered another good performance.

 

 

Interest charged during the six months will be below the equivalent figure for last year reflecting the lower level of average borrowings during the respective periods. 

 

During the last few months the Group has reached agreements with various revenue authorities, particularly in the US, covering a number of prior years.  The provisions at 31 May 2003 relating to these outstanding periods exceeded the additional cash payments arising from the agreements and as a result there will be a prior year tax credit to the profit and loss account of approximately £15m (which will be booked in full in the first half).  Given the size of this prior year item we propose to exclude it from our adjusted EPS figures. The underlying tax rate, before the prior year credits, for the first half is expected to be an effective rate on profit before taxation and goodwill amortisation of no more than 15%. 

APPENDIX

 

 

 

* Operating profit is shown pre goodwill and reallocation of Group expenses

Enquiries to:

 

Misys plc                                                                    Tel: +44 (0)20 7368 2307                                                                                         Mobile: +44 (0) 7909 895094