PILAT TECHNOLOGIES INTERNATIONAL LTD
("Pilat", "PTI", the "Group" or the "Company")
Announces Preliminary Results for the year to 31 December 2007
London and Tel Aviv, 28th March 2008 - Pilat Technologies International Ltd,
the AIM quoted integrated HR consulting, IT solutions and services group
announces its results for the year ended 31 December 2007.
HIGHLIGHTS
* Strong Q4 reverses earlier losses
* Full year like-for-like sales up 4%
* Gross profit unchanged from 2006
* Operating profit of �218,000 (2006: �547,000)
* Group sales down 4% overall after disposals
* Fully diluted earnings per share of 0.67p (2006: 3.49p)
Through three main subsidiaries, Pilat Europe, Pilat North America and Pilat
Israel, the Group provides consultancy, advanced web based software
applications and data processing and analysis services in the fast growing
field of Human Capital Management.
Pilat has a wide and varied client base including many major global
corporations and international public sector bodies. The Company works across
all sectors with organisations employing from a few hundred to hundreds of
thousands of staff. Pilat has extensive industry experience in Financial
Services, Energy and Telecommunications and sector specific offerings in
Healthcare, Public Housing, Local Government and Education.
The shares of PTI are quoted on both AIM and the Tel Aviv Stock Exchange.
Enquiries:
Pilat Technologies International Ltd +972 3 767 9272
Jonathan Berger
Chief Financial Officer
Hanson Westhouse Limited +44 113 246 2610
Tim Feather / Matthew Johnson
Chairman's Statement
Summary
The fourth quarter showed a strong performance from the Group which transformed
the aggregate loss of �42,000 for the first three quarters into a full year
operating profit of �218,000. Sales for the final quarter were up 21% compared
with Q4 2006 and quarterly operating profits were up from �95,000 to �260,000.
Overall full year sales were down 4% compared to 2006 reflecting the disposal
of the Project Management Consulting operations in Israel in Q4 2006 and lower
sales in North America. Disregarding the disposal, like-for-like sales for the
Group grew by 4% over the year.
Gross profits were broadly unchanged from 2006 but operating profits were �
218,000 compared with �547,000 in 2006 reflecting a sharp increase in Research
and Development spending (up �217,000) and some additional overhead spending.
Cash generation from operations was �376,000 (2006: �1,075,000). Group cash now
stands at �2,411,000 which we believe is enough to fund our immediate needs
without recourse to borrowing. We will continue to monitor our funding mix and
make appropriate adjustments if necessary.
In Israel, like-for-like sales growth was 19% enabling us to replace nearly all
the revenue previously generated by the Project Management Division, disposed
of in September 2006. Overall, there was still a small revenue drop of 5% but
the quarterly run rate now exceeds that of before the disposal and full year
profits were maintained despite increased marketing spend. During the year and
in January 2008, we made three small but important acquisitions in Israel to
boost the range of our consulting capability and provide some counter cyclical
business lines.
"Nekudat-Mifnea" or "Turning-Point" joined Pilat Israel in July 2007.
Turning-Point is mainly concerned with outplacement and career counselling and
represents Right Management Consulting (a subsidiary of Manpower Inc.) for
business in Israel. During January 2008, after the year end, we purchased the
operations of Atzmon Advanced Remuneration Solutions Ltd and Kartash
Information Systems. Both companies are leading Israeli salary survey companies
operating in the "reward and remuneration" area.
Atzmon is also involved in general consulting in the benefits and compensation
field whilst Kartash has been focused until now on the Pharmaceutical sector.
These two businesses complement Pilat's existing business in the area. We are
also in negotiations to become the representative of a leading international
benefits survey provider for the Israeli market.
Overall HR and general consulting sales in Israel grew by more than 50% during
the year. Our assessment services in Israel also reported steady growth in
2007, reflecting the strong economic conditions. To date, we have not seen any
indication of an economic slowdown affecting our business but clearly it is
unlikely that the Israeli economy will escape a global downturn without any
ill-effects. We continue to work hard to increase the flexibility of our
assessment model and to differentiate ourselves from the competition by
offering a better quality product.
In Pilat Europe, sales grew by over 15% compared with 2006 with an especially
strong showing by our HR consulting team where sales doubled. Consulting
projects are usually the first sale to new clients and their introduction to
Pilat and provide an opportunity for further potential sales. We continue to
strongly differentiate ourselves in the market though our combination of HR
process expertise and software and systems solutions to deliver this expertise.
We plan to deliver more of our solutions via the internet in 2008, on a
"Software as a Service (SaaS)" basis, as this method of delivery becomes
increasingly more acceptable to our customers.
In North America, 2007 was a more difficult year as sales fell by 20% in
sterling terms, or 13% in dollar terms, after a poor start to the year. Our
cooperation with the American Hospital Association in the healthcare market has
not developed as quickly as we had planned and competition in the core
Performance Management and Talent Management sectors remains very strong.
Nevertheless, the North American business remained profitable and is core to
our ability to support multinational clients. We are now building up our
consulting capability in North America and focusing more on specific markets
where we already have a strong presence. We believe that the launch of PULSE
8.0 will have a positive impact on our business in North America and continue
to seek additional channel partners to increase our sales reach in this market.
During 2008 we plan to re-establish our presence in the Asia-Pacific market
through a local partner. This will again enable us to provide global 24 hour
support as well as better local support for our clients in the region. There
will also be the opportunity to share more fully in the region's high rates of
growth.
Our increased spending on Research and Development has enabled us to set up an
outsourced software development team in India that gives us the capability of
adding (or subtracting) resources more quickly than in the past. The new
release of our premier Human Capital Management - web based platform PULSE 8.0
is progressing to plan and the first new product lines for Talent Management
and Succession are currently being configured for the lead client. PULSE 8.0
incorporates Microsoft .NET technology and AJAX functionality to revolutionise
the interface to our systems and thus the user experience. This work will form
the foundation for a whole raft of new product releases over the next couple of
years.
Revenues and profitability
The Group's revenues decreased by 4% from �8,162,000 in 2006 to �7,837,000 in
2007.
As in 2006, the 2007 revenues originated from a large number of client
organisations in Europe, Israel and North America. There was no substantial
dependency on a single client.
The decrease in revenue was accompanied by a decrease in cost of sales leading
gross margins to increase slightly to 41% (2006: 40%).
R&D expenses increased by 77% from �283,000 in 2006 to �500,000 in 2007, in
line with management's strategic goal to significantly increase our investment
in R&D.
In 2007 the Group's financial expenses were �26,000 compared with income of �
13,000 in 2006. This expense consisted of net interest of �63,000 (2006: �
30,000) and translation of foreign exchange balances expenses, net, of �89,000
(2006: �17,000).
Selling and marketing expenses remained stable at �880,000 compared to �868,000
in 2006, which was in line with expectations.
General and administrative expenses have increased by �73,000 from �1,553,000
in 2006 to �1,626,000.
Overall, the Group's operating income stood at �218,000 compared with �547,000
in 2006.
The Group's net income from continuing operations was �174,000 compared with �
651,000 in 2006, a decrease of 73%. The operating income in 2006 includes a
one-off gain of �267,000 from the sale of the Project Management unit of Pilat
Israel.
Fourth Quarter Trading
Overall sales in the fourth quarter 2007 were �2,217,000, an increase of 21%
over the sales in the same quarter in 2006 (�1,839,000). This was due to strong
increases in sales in Israel (31%) and Europe (46%). Sales in North America
fell by 15% compared with the fourth quarter of 2006.
The gross margin for the quarter was �898,000 (41%), compared to a gross margin
of �707,000 (38%) in the equivalent quarter of 2006. This increase is due to
the growth in sales during the quarter.
Research and development costs increased 94% to �130,000 in line with
management policy.
Sales and marketing expenditure remained stable at �204,000 (Q4 2006- �
213,000).
General and administrative costs for Q4 2007 were �304,000, a reduction by 8%
compared to Q4 2006, mainly due to a reduction in provisions towards the end of
2007.
Operating income for the quarter was �260,000 compared with �95,000 in Q4 2006.
Due to the weakness of the US dollar in the quarter and the reduction of the
value of assets and balances denominated in US dollars, the Group had net
financing costs of �32,000.
Net income for Q4 2007 was �168,000 compared with �125,000 net income from
continuing operations in Q4 2006. Total net income for the fourth quarter of
2006 was �197,000 including a one-off �72,000 profit for the sale of the
Project Management unit of Pilat Israel.
Balance Sheet
The Group's current assets as at 31 December 2007 were �4,869,000 (2006: �
4,224,000) representing 94% of total assets (2006: 92%). Cash and short term
deposits were �2,558,000 compared with �2,188,000 at 31 December 2006.
Trade accounts receivable at year end stood at �2,013,000, an increase of �
185,000 over the previous year end. This was mainly due to strong sales in the
last quarter of 2007 which had not yet been collected at year end.
Current liabilities as at 31 December 2007 were �1,903,000 (2006: �1,618,000).
Long term liabilities were �22,000 at 31 December 2007, compared to �27,000 at
the end of 2006.
Shareholders' equity increased by �336,000 to �3,269,000 in the period,
reflecting the profit of �174,000, a conversion of options by employees (�
14,000) and cumulative foreign exchange translation gain of �148,000.
Liquidity
The Group had a positive cash flow from continuing operations of �376,000,
resulting from the operating profit after adjustments.
The total increase in cash and equivalents during 2007 was �367,000.
PTI enjoys a healthy current ratio of 2.56 (2006: 2.61).
Michael Zukerman, Chairman
David Sapiro, Chief Executive Officer
Jonathan Berger, Chief Financial Officer
CONSOLIDATED BALANCE SHEETS
British pounds in thousands
December 31,
2007 2006
ASSETS
CURRENT ASSETS
Cash and cash equivalents 2,411 2,044
Short term investments 147 144
Trade receivables 2,013 1,828
Other accounts receivable 298 208
4,869 4,224
LONG-TERM LOANS AND RECEIVABLES:
Long-term loans and receivables 25 14
FIXED ASSETS, NET
Cost 1,292 1,324
Less - accumulated depreciation 995 974
297 350
DEFERRED TAXES 2 2
OTHER ASSETS 14 -
5,207 4,590
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term bank loans 10 18
Trade payable 359 334
Other accounts payable 1,534 1,266
1,903 1,618
LONG-TERM LIABILITIES:
Liabilities to banks 6 15
Accrued severance pay, net 16 12
22 27
LIABILITIES RELATED TO DISCONTINUED 13 12
OPERATIONS
CONTINGENT LIABILITIES AND COMMITMENTS
SHAREHOLDERS' EQUITY 3,269 2,933
5,207 4,590
CONSOLIDATED STATEMENTS OF OPERATIONS
British pounds in thousands (Except for net earnings (loss) per share amounts)
Year ended December 31,
Note 2007 2006 2005
Revenues 7,873 8,162 7,460
Cost of revenues 4,649 4,911 4,624
Gross profit 3,224 3,251 2,836
Research and development costs 500 283 272
Selling and marketing expenses 880 868 664
General and administrative expenses 1,626 1,553 1,490
Operating income 218 547 410
Financial income (expenses) , net (26) 13 18
Other income (expenses), net 1 271 -
Net income before taxes on income 193 831 428
Taxes on income 19 180 20
Net income from continuing 174 651 408
operations
Income (loss) from discontinued - 269 (91)
operations, net
Net income 174 920 317
Net earnings (loss) per share (in 1
British pence):
Basic earnings (loss)
Net earnings from continuing 0.67 2.50 1.57
operations
Earnings (loss) from discontinued - 1.04 (0.35)
operations, net
Net income 0.67 3.54 1.22
Diluted earnings (loss)
Net earnings from continuing 0.65 2.47 1.55
operations
Earning (Loss) from discontinued - 1.02 (0.35)
operations, net
Net income 0.65 3.49 1.20
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
British pounds in thousands
Share Additional Capital Cumulative Accumulated Less - Total
capital paid in reserve foreign deficit shares
capital currency held by
translation subsidiaries
adjustments
Balance at January 48 7,065 - (221) (5,084) (96) 1,712
1, 2005
Net income - - - - 317 - 317
Cumulative foreign - - - 84 - - 84
currency
translation
adjustments
Balance at December 48 7,065 - (137) (4,767) (96) 2,113
31, 2005
Net income - - - - 920 - 920
Options exercise 1 13 - - - - 14
into shares
Cumulative foreign - - - (114) - - (114)
currency
translation
adjustments
Balance at December 49 7,078 - (251) (3,847) (96) 2,933
31, 2006
Net income - - - - 174 - 174
Options exercise 1 5 - - - - 6
into shares
Amounts assigned to - - 8 - - - 8
employees and
director stock-
based compensation
Cumulative foreign - - - 148 - - 148
currency
translation
adjustments
Balance at December 50 7,083 8 (103) (3,673) (96) 3,269
31, 2007
CONSOLIDATED STATEMENTS OF CASH FLOWS
British pounds in thousands
Year ended December 31,
2007 2006 2005
Cash flows from operating activities:
Net income 174 920 317
Adjustments to reconcile net income to net 202 155 183
cash provided by continuing operating income
(a)
Net cash provided by continuing operating 376 1,075 500
activities
Net cash used in discontinued operating - - (258)
activities
Net cash provided by operating activities 376 1,075 242
Cash flows from investing activities:
Purchase of fixed assets (102) (84) (168)
Proceeds from sale of fixed assets 21 26 33
Short-term investments, net 6 242 17
Purchase of other assets (16) - -
Net cash provided by (used in) continuing (91) 184 (118)
investing activities
Net cash used in discontinued investing - (64) (3)
activities
Net cash provided by (used in) investing (91) 120 (121)
activities
Cash flows from financing activities:
Repayment of long-term loans from banks (18) (29) (37)
Short-term bank credit, net - - (126)
Shares issue 6 14 -
Net cash used in continuing financing (12) (15) (163)
activities
Net cash provided by discontinued financing - - 137
activities
Net cash used in financing activities (12) (15) (26)
Effect of exchange rate changes on cash and 94 (74) 47
cash equivalents
Increase in cash and cash equivalents 367 1,106 142
Cash and cash equivalents at the beginning 2,044 938 796
of the year
Cash and cash equivalents at the end of the 2,411 2,044 938
year
Year ended December 31,
2007 2006 2005
(a) Adjustments to reconcile net income
(loss) to net cash provided by (used in)
continuing operating income:
Income and expenses not involving cash
flows:
Loss (income) from discontinued - (269) 91
operations, net
Depreciation and amortization 145 146 148
Deferred taxes, net (37) 53 (19)
Increase (decrease) in accrued severance 3 28 (60)
pay, net
Capital gain from sale of fixed assets (3) (4) (4)
Erosion of long-term loans - - 1
Stock-based compensation 8 - -
Changes in operating assets and
liability items:
Decrease (increase) in trade (183) 158 364
receivables, other accounts receivable
and long-term loans and receivables
Increase (decrease) in trade payables 269 43 (338)
and other accounts payable
202 155 183
(b) Noncash investing and financing
activities
Property and equipment acquired Under - 21 20
capital leases
Non-cash sale of fixed assets (7) - -
NOTE 1: NET EARNINGS (LOSS) PER SHARE
Below is the share amount and the net earning (loss) data for the computation
of net earnings (loss) per share.
Basic earnings (loss)
Year ended December 31,
2007 2006 2005
a. Number of shares used in the
computation of earnings (loss)
per share (in thousands):
Weighted average of nominal 26,510 26,354 26,279
outstanding share capital
Treasury shares (386) (386) (386)
Total 26,124 25,968 25,893
b. Net income (loss) used in the
computation of net income (loss)
per share:
Net income for the year, 174 651 408
according to the statement of
operations from continuing
operations
Income (loss) according to - 269 (91)
statement of operations from
discontinued operations
Net income 174 920 317
Diluted earnings (loss)
Year ended December 31,
2006 2005 2005
a. Number of shares used in the
computation of earnings (loss)
per share (in thousands):
Weighted average of nominal 27,085 26,785 26,654
outstanding share capital
Treasury shares (386) (386) (386)
Total 26,699 26,399 26,268
b. Net income (loss) used in the
computation of net income (loss)
per share:
Net income for the year, 174 651 408
according to the statement of
operations from continuing
operations
Income (loss) according to - 269 (91)
statement of operations from
discontinued operations
Net income 174 920 317
END
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