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2009 Annual Report and Audited Accounts

2009 Annual Report and Audited Accounts

Misys plc (FTSE: MSY.L) the global applications software and services company, announces that two copies of the above document have been submitted to the UK Listing Authority and will shortly be available for inspection at the UKLA’s Document Viewing Facility, which is situated at:

The Financial Services Authority
25 The North Colonnade
Canary Wharf
London
E14 5HS

The Misys Annual Report and Audited Accounts 2009 and the Notice of Annual General Meeting 2009 will be made available on the Company's website at www.misys.com

The 2009 Annual General Meeting will be held at 12 noon on Wednesday 30 September 2009 at The Lincoln Centre, 18 Lincoln’s Inn Fields, London WC2A 3ED.

In accordance with the requirements of the Disclosure and Transparency Rules 4.1.3 and 6.3.5, additional details are given below in respect of Directors’ Responsibilities; Principal Risks and Uncertainties; Related Party Transactions and the adjustments between the unaudited Preliminary Results announced on 23 July 2009 and the Audited Full Year Results for the period ended 31 May 2009 which have been published today.

Adjustments between the unaudited Preliminary Results announced on 23 July 2009 and the Audited Full Year Results for the period ended 31 May 2009

Extract from balance sheet                          Unaudited Preliminary Results          Audited Full Year Results
                                                                  £m                                                   £m
Non Current Assets
                Goodwill                                    298.3                                               291.5
   Deferred tax assets                                 33.2                                                 28.5

Current Assets
  Current tax assets                                     4.3                                                    6.5

Non Current Liabilities
  Deferred tax liabilities                             (17.4)                                                 (6.4)

Total Net Assets                                        332.8                                                334.5

Extract from balance sheet                        Unaudited Preliminary Results         Audited Full Year Results
                                                                £m                                                  £m
Equity – Other Reserves
  Exchange differences                            6.8                                                    7.5
 

Tax credit on items taken

directly to reserves                                  12.3                                                   8.4
 

Minority interests on acquisition               84.1                                                 89.0

Total Equity                                            332.8                                                334.5

STATEMENT OF DIRECTORS’ RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report, the Directors’ remuneration Report and the financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union, and the Parent Company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss for that period. In preparing those financial statements, the Directors are required to:

• select suitable accounting policies and then apply them consistently;
• make judgments and estimates that are reasonable and prudent;
• state whether IFRSs as adopted by the European Union, and applicable United Kingdom Accounting Standards have been followed, subject to any material departures disclosed and explained in the Group and Parent Company financial statements respectively;
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group will continue in business

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s and the Group’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and the Group and to enable them to ensure that the financial statements and the Directors’ remuneration Report comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Each of the Directors, whose names and functions are listed in Board of Directors section confirm that, to the best of their knowledge:
• the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and
• the Financial Review and Principal Risks and Uncertainties sections includes a fair review of the development and performance of the business and the position of the group, together with a description of the principal risks and uncertainties that it faces.

PRINCIPAL RISKS AND UNCERTAINTIES
Our business is influenced by a number of risks and the more significant of these are described below. However, the financial performance of our business could be adversely affected not only by these factors but also by the risks that we do not currently consider to be significant or by other risks that are currently unknown to us. Not all of the risks that are identified below are under the direct control of Misys but in most cases we have built systems and controls into the Group operations to monitor and, where possible, mitigate the potential damage that could result from these risks

Global economic and market conditions and its effect on our business
As a global trading company with revenue generated principally in Western Europe, the Americas, the Middle East & Africa and Asia, we face potential challenges from economic, political and market conditions generally in all these regions. Difficult economic and market conditions in any or all of these regions may affect the financial position of our customers and suppliers and impact their ability to conduct business with us.

Misys is not immune from the economic slowdown and further deterioration in the global economy may have an impact on our financial position.

Competition
We operate in highly competitive markets that are characterised by changing technology, industry standards and customer needs as well as by frequent new software applications and products. If we do not respond effectively we may lose market share and the business could suffer.

Other factors which might lead to some concerns are pricing and commercial terms pressures from our customers, which if resisted, may lead to our customers turning to other suppliers.

These risks are managed through identifying appropriate partners and agreeing suitable commercial terms that are mutually beneficial. Likewise acquiring or disposing of companies gives rise to execution risks in identifying and valuing the target, managing the process to best advantage and integrating or separating the target business.

Intellectual property
We own substantial intellectual property rights and generally protect our proprietary application software products and services by licensing rights to use the application, rather than selling or licensing the computer source code. We also protect proprietary software and services by copyright law. Possible infringement of our intellectual property rights could cause loss of revenue, adversely affect business operations and damage our trademarks. Furthermore, there is always the risk that we have inadvertently infringed the intellectual property rights of a third party. There has been substantial litigation in the software applications industry regarding inadvertent infringement of intellectual property rights. There may be patents relevant to our product line that are unknown to us. If any such claim against us were successful we may need to re-design the product (which would demand further investment in that product), take a licence on the infringing intellectual property within the product (which may not always be possible on acceptable commercial terms) or even cease to sell that product and accept the decline in revenues. An intellectual property claim made against us and any action taken by third parties to protect their intellectual property rights would be a drain on management attention and disruptive to our business and could cause delays in product development. The risk is mitigated through our contractual arrangements.

The importance of Allscripts to the whole of Misys
Allscripts now forms a significant proportion of Misys’ overall business and its success is critical to the success of Misys as a whole. Should anything significant and detrimental happen to this business, Misys’ business may be affected as a consequence. As the Healthcare business post-merger is significantly larger than previously, Misys will need to ensure that the Allscripts business is properly resourced to ensure its continuing success.

People
People are our greatest asset and the market for quality technology skills and management is very competitive. It remains a constant challenge for us to attract, retain, develop, incentivise, manage and motivate our staff. If we were to lose members of management or employees who possess specialised market knowledge and technology skills, we may not be able to manage our operations effectively or develop new application software products and services. We therefore take talent management very seriously; our people are appraised regularly and are given individual development plans and other incentive packages. We are also committed to ongoing succession planning.

This focus on our people is important, as lack of skills, management systems and management focus may lead to inaccurate or unreliable sales forecasts and the financial consequences which would follow.

Product development
There are many risks in bringing a product development project to a conclusion on schedule and within budget. This process is managed by developing a product roadmap that identifies the enhancements that will be made to successive versions of the product. Our application software products and services are complex and may contain undetected errors, failures, performance problems or defects. The early releases of a product will have been subjected to beta tests but not the more stringent test of widespread use by large numbers of users. Consequently, despite pre-release testing, problems may not become apparent until the system is used in production environments. However, the product development teams network extensively amongst themselves and beyond to ensure best practice is followed.

Once developed, it is then necessary to ensure that quality standards are maintained, to ensure continuing customer satisfaction and confidence.

Changes in the industries which Misys serves
Consolidation in the industries that we serve could adversely affect our existing revenue or the potential for growing revenues. There has been, and continues to be, consolidation in the global financial services industry particularly in light of the recent sub-prime mortgage difficulties and lack of liquidity in the overall credit and financial markets. Furthermore, international financial services institutions are increasingly providing services from a single location, both of which could lead to a smaller market for our products and services.

Contract implementation
We see ourselves as business partners to our customers, supplying them with business critical systems. Often the system will transcend departmental boundaries within the client’s organisation and may be a part of a larger project involving other suppliers.

The process of introducing a system in such an environment may be disruptive to the client in the short term, and the implementation may include a protracted schedule which is subject to project management by the client or by others. This gives an increased risk of delay in execution with consequential risks to expected cash flows and profits.

Key suppliers
Certain of our products are dependent upon inputs from key suppliers. We are dependent on the performance, service and reliability of operating systems, middleware, databases, programming language compilers and similar software infrastructure, all of which we obtain from a large number of third party providers. Such third party applications may suffer from defects or errors which could adversely affect the performance of our application software products and services. Moreover, if we are unable to adapt our application software products and services to function with new releases of such third party applications, or if such third party applications were to be withdrawn or discontinued, then we may incur significant costs in eliminating these third party components from our products and our ability to deliver new systems and maintain existing customers could be adversely affected. Suppliers are consequently chosen that have stable strategies that match ours and produce a mutually beneficial relationship that is carefully managed by both parties.

Government regulation
We are subject to the laws and regulations of a number of countries covering a wide variety of areas affecting international transactions, including export controls, anti-corruption legislation and data protection requirements. It can sometimes require extra time and costs to ensure that local regulations are complied with.

Attack by IT viruses
As an IT business, attacks by IT viruses will always be a threat that requires sound IT infrastructure and virus protection software. Furthermore the Banking and Healthcare divisions both obtain significant revenues from online trading activity. A disruption to service would, in time, result in customers reverting to traditional means of conducting business and so circumventing the service we provide.

Finally if third parties misappropriate our users’ information, we may be liable for substantial damages, our reputation may be damaged and our users may be deterred from using our application software products and services.

Reliance on key locations and systems failures
Our geographic diversity reduces reliance on the success of any one economy and any one location but also exposes parts of the business to the risk of political unrest. We maintain significant research and development operations in Bangalore and Manila and political or social instability in either of these areas could seriously harm the research and development operations. Likewise we have a number of other key locations such as helpdesk support, transaction processing centres and large administrative centres. All of our operations are vulnerable to damage or interruption from floods, fires, power loss, telecommunications failures, flu pandemic and similar events. Whilst disaster recovery plans and business interruption insurance may be in place, these may be found to be inadequate and some disruption may be inevitable. This could reduce revenue and profit and could result in claims or product liability litigation. In addition, future revenues and profits could be harmed if customers believe that our systems are unreliable. This risk could be increased by the recent consolidation into one single location of all the Misys UK offices and facilities.

Financial risks
Incomplete management Information
Should it be found that there is incomplete management information, this would result in the business being managed sub-optimally and adversely impact the Company’s performance.

Tax risks
We may be subject to tax audit in any of the countries in which we operate, in accordance with the local practice. This introduces an exposure to new tax risks, such as a challenge to our transfer pricing policies and it raises the possibility of the same profits being taxed in more than one country. Furthermore, tax legislation is complex and often results in lengthy negotiations before certainty of the tax treatment of a complex transaction is achieved.

Treasury controls and operations
The Group has in place treasury policies that are reviewed annually by the Board and more regularly by the Treasury Committee. The policy covers all significant areas of treasury activity, including liquidity, foreign exchange and interest rate. The Group has a centralised treasury that provides a service to the corporate centre and to the operating businesses. Its primary function is to manage the liquidity, foreign exchange and interest rate risks arising from the operations of the business. It is not a profit centre and enters into derivative contracts solely for the purpose of hedging the exposures that arise in the normal course of business. The Group’s policy is not to enter into speculative transactions.

The Group finances its operations through a mixture of retained profits, new equity and bank borrowings. It is policy to ensure that the Group has sufficient financial resources to support the business and always maintains a comfortable headroom between committed facilities and the likely peak borrowings during a year.

Liquidity risk
The core debt of the Group is provided by a revolving credit facility of £130m and a term loan of £80m both maturing in May 2012. As at 31 May 2009, the revolving credit facility was drawn at £75m together with the term loan giving a total of £155m. The term facility is fixed in sterling and the revolving credit facility can be drawn in any major currency at the related floating rates of interest.

Foreign currency risk
It is Group policy to manage the economic exposure of the Group by entering into forward foreign currency contracts at the start of the financial year based on its expectations of the coming year. The key economic exposures to the Group for the forthcoming year are the US dollar, the Euro, Philippine Peso and Indian Rupee. Subsidiaries may trade in currencies other than the functional currency of their operation and in such cases the currency is usually £ Sterling or the US dollar. It is Group policy to eliminate such transactional currency exposures within the subsidiaries through forward foreign exchange contracts as soon as the contractual commitments to receive (or pay) the foreign currency is known. The Group Balance Sheet is also subject to a currency exposure on the translation of the net assets of overseas subsidiaries. This exposure is partially hedged through foreign currency intercompany loans with the Centre.

Interest rate risk
It is Group policy to actively review the projected interest rate risk over future periods based on expected future borrowing. As at 31 May 2009, there were no interest rate hedges in place. This will continue to be reviewed on a regular basis.

Cash management
The Group invests its cash and cash equivalents with institutions of high credit quality and limits its exposure to any one counterparty. As at 31 May 2009, the Group was a net borrower but had some surplus cash in banks around the world.

Credit risk
The Group’s revenue is derived from various industries and could be directly affected by the overall conditions of those industries. The large number of customers, their geographical distribution and the reasonably short collection terms mitigates the credit risk associated with this. The Group routinely monitors its exposure to credit losses and maintains an allowance for anticipated losses.

RELATED PARTY TRANSACTIONS
Transactions between Misys plc and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note.

Remuneration of key management personnel
The key management personnel of the Group comprise the Company Directors and Executive Vice Presidents. Their remuneration is set out below in aggregate.

                                                                                              2009                    2008
                                                                                              £m                        £m
Short-term employment benefits                                            11.9                      6.1

Post employments benefits                                                     0.3                        0.3

Other long-term benefits                                                         –                           0.3

Termination benefits                                                                0.2                        0.2

Share-based payments benefits                                             6.9                         3.8

ValueAct Capital has a holding of approximately 25.7% (2008: approximately 19%) in the Company on an aggregated basis. Mr. Ubben, who is a non-executive Director of the Company, is Chief Executive Officer and Chief Investment Officer of ValueAct Capital.

A placing and underwriting agreement was entered into on 17 March 2008 between the Company, ValueAct Capital Master Fund, L.P. acting through its general partner, VA Partners I, LLC (‘ValueAct’) and JP Morgan Cazenove Limited. On 10 October 2008 in connection with the Allscripts merger, ValueAct Capital Master Fund L.P. (acting through ValueAct) acquired all of the Placing Shares pursuant to the underwriting commitment provided by it at the time of the Placing. Upon acquisition of the Placing Shares, the percentage of the issued voting share capital of the Company controlled by affiliates within ValueAct’s group increased to approximately 25.7%.

On 29 September 2008 the Company entered into a US$190.0m bridge facility with a subsidiary of ValueAct Capital. (On 27 May 2009 Misys announced that it had successfully completed refinancing which included repayment of the bridge facility).

ENDS