Interim Results

Interim Results LONDON--(BUSINESS WIRE)--July 25, 2002-- ARC International plc Interim Results for the Six Months Ended 30 June 2002 ARC International plc (LSE: ARK), a world leader in configurable System-On-Chip (SoC) platform technologies, announces its unaudited financial results for the second quarter and the six months ended 30 June 2002. Financial and Operational Highlights: Second Quarter ended 30 June 2002 - Turnover up 10% to £3.0 million (Q1 2002: £2.7 million) - Operating expenses down 4% to £7.2 million from Q1 and down 27% from Q2 2001 - Net loss reduced by 9% to £4.9 million (Q1 2002: £5.4 million) - Cash burn reduced 25% to £3.8 million (Q12002: £5.2 million) - 8 design licences and 6 additional customers won for ARCtangent(TM) processor - Software and development tools products shipped to more than 50 customers in Q2 - Launched new product - USB Now(TM) - Signed an agreement with Metrowerks (an independently operating subsidiary of Motorola) which allows Metrowerks to market ARC software. - Completed integration of ARC's three subsidiary companies into one single unified business Six months ended 30 June 2002 - Turnover down 21% to £5.7 million (2001: £7.2 million) - Significant cost reductions implemented, operating expenses down 24% to £14.7 million (2001: £19.3 million) - Net loss reduced by 25% to £10.3 million (2001: £13.8 million) - Strong cash position; £111.7 million on balance sheet - 16 design licences and 12 additional customers won in the first half 2002 for the ARCtangent processor - New management team in place Commenting on the results, Mike Gulett, Chief Executive Officer, said: "We have made significant improvements to the business during the first half of the year and continue to work hard to drive the company towards profitability. As a result of the new initiatives announced in February this year, we have increased sales through new license and customer agreements and reduced operating expenses and headcount. Despite the continuing turbulence in our markets, we expect to continue to achieve sequential growth in turnover. We also believe that we can support significantly higher levels of turnover with our current infrastructure. As a result, we believe we will continue to make meaningful progress towards achieving EBITDA breakeven." For further information, please contact: ARC International plc Mike Gulett CEO, +44 (0) 20 8236 2800 Monica Johnson CFO, +44 (0) 20 8236 2800 David Whitaker Director, Corporate Communications, +44 (0) 20 8236 2800 Natalie Godfrey Senior Communications Executive, +44 (0) 20 8236 2838 Tulchan Communications Julie Foster Consultant, +44 (0) 20 7353 4200 *T ARC will host an analyst briefing meeting at 9.30 a.m. on 25 July. The slides in the briefing presentation may be accessed on the presentations page of the Investor Relations section of ARC's website: www.ARC.com from 9.25 a.m. on 25 July. An audio replay of the briefing will be available on ARC's website on the 25th July until 24th August. Chief Executive's Review Overview Despite challenging operating conditions during the first half, ARC has continued to grow turnover quarter-over-quarter, with strong new products, new customers and new strategic partnerships with leading edge companies. In February this year, I announced the results of a strategic review and pledged a number of initiatives to give ARC a clearer strategic direction and increased focus. We have made good progress in the first half of this year and we continue to work hard to achieve our objectives of growth and profitability. Senior Management It has been a priority to ensure that the management team was re-shaped to provide the leadership required to lead ARC through the next steps of growth and profitability. We most recently announced the appointment of Monica Johnson as SVP and Chief Financial Officer, which now completes our senior management team. During the first half, we appointed Haig Yaghoobian, SVP of Corporate Development; Tom Huppuch, SVP and General Counsel; Bernard Glasauer, SVP of Worldwide Engineering; Dennis McDonald, SVP of Human Resources; and Farzad Zarrinfar, SVP of Marketing. I believe that we now have the right mix of skills and experience to take the Company through to profitability and beyond. Integration In June, we announced that we had completed the integration of ARC's subsidiary companies; VAutomation, Precise Software and MetaWare, into one business under the ARC International brand name. Product Strategy and Customer Focus One of our initial challenges was to redefine the business model. Our objective is to make it easy for our customers to create embedded systems, usually a SoC. We do this by simplifying the complexity of designing, testing and producing integrated circuits and the software that runs on these integrated circuits, with a proprietary system that results from the integration of ARC's RISC/DSP processors, MetaWare tools, VAutomation peripherals and the Precise software. ARC's integrated products allow users to create new SoC solutions in less time, at a lower cost and lower risk than alternatives. The recently introduced USB Now is an example of this new approach, where we deliver the silicon design, software, tools and the processor needed to build a USB product to our customers. As a result of this shift in emphasis, we are pleased to announce six new customers in the second quarter and 8 design license agreements for the ARCtangent processor. Adding these to the six new licensees in Q1 gives a total of 12 new customers and 16 design license agreements in the first half of 2002. This compares to 15 new customers in the whole of 2001. We also shipped software and development tool products to more than 50 customers during the quarter - an indication of the strength of our product lines in these areas. These customers use our software and tools for the ARM, MIPS and Motorola processors as well as the ARCtangent processor. We also released the results of the Embedded Microprocessor Benchmark Consortium (EEMBC) telecom benchmark tests on the ARCtangent(TM)-A4 processor. The results show that the optimized ARCtangent-A4 was more than 9% faster than its nearest competitor. In early June, we announced a new product, USB Now, the world's first integrated and optimized Universal Serial Bus for SoC IP platforms. USB Now includes On-The-Go (OTG) functionality for Hi-Speed USB 2.0 peer-to-peer communications between mobile and consumer electronics devices. OTG is a supplement to the USB 2.0 specification that features limited host capability for portable devices, low power requirements, and the transfer of information between USB-enabled products without requiring a PC. USB Now provides a fully integrated platform consisting of the ARCtangent(TM)-A5 synthesizable CPU core, USB 2.0 host/device core with OTG technology, and embedded software stack. As announced in June, USB Now will be available to customers in August. Strategic Alliances We also announced the importance of strategic alliances and acquisitions for ARC to achieve the goal of building a long-term sustainable business. We have evaluated a number of acquisition candidates in the last six months, and negotiated several alliances and partnerships. These partnerships and alliances include: - A collaboration with Synopsys, the technology leader for complex integrated circuit design tools that speeds development and verification of (SoC) devices, enabling faster time-to-volume production for ARCtangent processor-based designs. - ARC and Standard Microsystems Corporation announced the availability of a complete USB 2.0 solution that can reduce product cost and power consumption while accelerating time-to-market for products with 480-Mbps-USB connectivity. - Hynix Semiconductor and e-MDT; Hynix is expanding its design services IP portfolio by offering to its customers ARC's ARCtangent microprocessor core architecture in hard macro IP form. e-MDT will provide complete design services, back-end testing and verification for products based on ARC's industry leading communications and consumer SoC IP portfolio. Full turnkey services will also include wafer fabrication and device assembly via their foundry partner, Hynix Semiconductor. - Denali Software will integrate their high-performance memory controller core with the ARCtangent microprocessor cores. This is especially important to us, as Denali's Databahn(TM) is the industry's first configurable memory controller core solution. - And today, I am happy to announce a partnership with Metrowerks, an independently operating subsidiary of Motorola, Inc. (NYSE:MOT). This agreement allows Metrowerks to market licenses and support services in conjunction with its own products. Bundling ARC's MQX RTOS and the networking stacks with the Metrowerks products will expose these products to new customers and potentially open some new sales channels into those markets. Outlook Despite the continuing turbulence in our markets, we expect to continue to achieve sequential growth in turnover. We also believe that we can support significantly higher levels of turnover with our current infrastructure. As a result, we believe we will continue to make meaningful progress towards achieving EBITDA breakeven. Financial Review Second Quarter ended 30th June 2002 Turnover Total turnover for the second quarter was £3.0 million, up 10% from the first quarter revenue of £2.7million (Q201: £3.5million). Prior to currency translation, with virtually all sales in US$, underlying turnover was up 13% over Q102. License income was 9% higher than the previous quarter at £2.4 million (Q1 02: £2.1 million). Maintenance and service income was similar to that in the previous quarter at £0.5 million (Q1 2002: £0.5 million). The number of designs being shipped by our customers and contributing to royalties was unchanged from the previous quarter with 11 customers shipping 14 products with total royalties at £0.1 million (Q1 2002: £0.1 million) Costs Cost of sales decreased 15% to £0.3 million (Q1 2002: £0.4 million), which combined with the turnover increase, resulted in an increased gross margin of 89% (Q1 2002: 85%). Total operating expenses (excluding exceptional costs, amortisation of goodwill and depreciation) decreased by 4% to £7.2 million (Q1 2002: £7.5 million). The Company had 212 employees at 30 June 2002 compared with 227 at 31 March 2002. Research and development costs were slightly higher at £3.1 million (Q1 2002: £3.0 million). Research and development activities are being focused on the key short and longer-term development projects that will contribute to future growth. Sales and marketing costs decreased 6% to £2.6 million (Q1 2002: £2.7 million) and general and administration costs were down 11% at £1.2 million (Q1 2002: £1.4 million) due to reductions in program and staff related costs. Interest Interest income was unchanged at £1.1 million (Q1 2002: £1.1 million). Net loss The net loss decreased 9% to £ 4.9 million (Q1 2002: £5.4 million) as a result of the 10% increase in turnover combined with the 4% decrease in operating expenses. Loss per share improved to (1.7)p from (1.9)p in Q1 2002. Cash flow and balance sheet The net cash outflow from operations was £4.8 million (Q1 2002 an outflow of £6.0 million). Capital expenditure was £0.2 million. The movement in net funds during the quarter was an outflow of £3.8 million. Net assets at 30 June 2002 were £126.6 million, including net cash of £111.7 million. Six months ended 30 June 2002 Total turnover at £5.7 million was down 20% from the previous year but up 34% sequentially (H1 2001: £7.2 million, H2 2001: £4.3 million). Licence income was £4.5million (2001: £5.9 million). Maintenance and service income was £1.0 million (2001: £1.1 million) and royalties were £0.2 million (2001: £0.2 million). Costs Cost of sales was £0.7 million (2001: £0.9 million), resulting in a gross margin of 87% (2001: 88%). Total operating expenses (excluding exceptional costs, amortisation of goodwill and depreciation) decreased 24% to £14.7 million (2001: £19.3 million). Total headcount in the business at 30 June 2002 was 212 employees compared with 292 at 30 June 2001. Research and development costs were down 9% to £6.1 million (2001: £6.8 million), sales and marketing costs were down 34% to £5.3 million (2001: £8.0 million) and general and administration costs were down 29% to £2.5 million (2001: £3.6 million). Interest Interest income was £2.2 million (2001: £3.7 million). Net loss The net loss before exceptional costs was £10.3 million (2001: £11.4 million). Cash flow and balance sheet The net cash outflow from operations was £10.8 million (2001: £14.2 million). Capital expenditure was £1.5 million (2001: £3.6 million). The movement in net funds during the half year was a £9.1 million outflow. Net assets at 30 June 2002 were £126.6 million (30 June 2001: £151.8 million), including net cash of £111.7 million. Dividend No interim dividend payment will be made in respect of the six months ended 30 June 2002. In the long-term interest of its shareholders, the board believes that any future earnings should be retained to fund the development and growth of the business. ARC International plc Consolidated profit and loss account for the six months ended 30 June 2002 -------------------- Note 3 months 3 months 6 months 6 months Year ended ended ended ended ended 30 June 30 June 30 June 30 June 31 December 2002 2001 2002 2001 2001 (unaudited) (unaudited) (unaudited) (unaudited) (audited) £'000 £'000 £'000 £'000 £'000 Turnover 3,011 3,489 5,742 7,162 11,450 Operating costs -------------------------------------------------------------------- ----------------------------------- Goodwill amortisation (1,024) (1,020) (2,046) (2,039) (4,075) Exceptional costs - (3,170) - (2,390) (5,526) Other operating costs (8,002) (10,443) (16,217) (20,234) (38,277) -------------------------------------------------------------------- ----------------------------------- (9,026) (14,633) (18,263) (24,663) (47,878) Loss before interest and tax (6,015) (11,144) (12,521) (17, 501) (36,428) Interest receivable and similar income 1,117 1,745 2,242 3,721 6,586 Interest payable and similar charges - - - - (2) ---------------------- ---------------------------------- Loss on ordinary activities before tax (4,898) (9,399) (10,279) (13,780) (29,844) Tax on loss on ordinary activities - (3) (2) (3) (81) ---------------------- ---------------------------------- Retained loss for the period (4,898) (9,402) (10,281) (13,783) (29,925) ====================== ================================== Basic loss per share (1.67)p (3.40)p (3.51)p (4.98)p (10.83)p Diluted loss per share (1.67)p (3.40)p (3.51)p (4.98)p (10.83)p ---------------------- Summary of operating expenses -------------------- Operating costs Cost of sales (338) (515) (735) (891) (1,683) Research and development (3,104) (3,263) (6,147) (6,774) (13,291) Sales and marketing (2,572) (4,361) (5,306) (8,043) (14,294) General and administration (1,221) (1,792) (2,520) (3,632) (6,583) Depreciation of fixed assets (767) (512) (1,509) (894) (2,426) Amortisation of goodwill (1,024) (1,020) (2,046) (2,039) (4,075) Exceptional costs - NIC on share options - 120 - 900 1,026 Exceptional costs - restructuring - (3,290) - (3,290) (6,552) ---------------------- ---------------------------------- Total operating expenses (9,026) (14,633) (18,263) (24,663) (47,878) ---------------------- ---------------------------------- ARC International plc Consolidated statement of total recognised gains and losses for the six months ended 30 June 2002 -------------------- 3 months 3 months 6 months 6 months Year ended ended ended ended ended 30 June 30 June 30 June 30 June 31 December 2002 2001 2002 2001 2001 (unaudited) (unaudited) (unaudited) (unaudited) (audited) £'000 £'000 £'000 £'000 £'000 Loss for the period (4,898) (9,402) (10,281) (13,783) (29,925) Currency translation difference (640) (39) (178) 247 71 ---------------------- ---------------------------------- Total loss for the period (5,538) (9,441) (10,459) (13,536) (29,854) ---------------------- ================================== ARC International plc Consolidated balance sheet as at 30 June 2002 30 June 30 June 31 December 2002 2001 2001 (unaudited) (unaudited) (audited) £'000 £'000 £'000 Fixed assets Intangible assets 10,312 14,316 12,280 Tangible assets 6,600 6,989 6,702 ------------------------------------------- 16,912 21,305 18,982 ------------------------------------------- Current assets Stock 156 380 156 Debtors 4,067 7,954 3,710 Investments - bank deposits 109,979 130,890 119,401 Cash at bank and in hand 1,744 1,195 1,449 ------------------------------------------- 115,946 140,419 124,716 Creditors - amounts fully due within one year (4,304) (6,966) (5,198) ------------------------------------------- Net current assets 111,642 133,453 119,518 Total assets less current liabilities 128,554 154,758 138,500 Creditors - amounts fully due after more than one year (3) (5) (2) Provisions for liabilities and charges (1,949) (3,000) (2,433) ------------------------------------------- Net assets 126,602 151,753 136,065 =========================================== Capital and reserves Called up share capital 293 277 283 Share premium account 152,248 149,693 151,033 Exchangeable shares 4,040 5,025 4,286 Merger reserve 107 107 107 Other reserves 24,719 24,679 24,702 Profit and loss account (54,805) (28,028) (44,346) ------------------------------------------- Total shareholders' funds 126,602 151,753 136,065 =========================================== ARC International plc Consolidated cash flow statement for the six months ended 30 June 2002 -------------------- Note 3 months 3 months 6 months 6 months Year ended ended ended ended ended 30 June 30 June 30 June 30 June 31 December 2002 2001 2002 2001 2001 (unaudited) (unaudited) (unaudited) (unaudited) (audited) £'000 £'000 £'000 £'000 £'000 Net cash outflow from operating activities 2 (4,829) (8,177) (10,792) (14,186) (27,304) Returns on investments and servicing of finance Interest received 927 1,577 2,244 3,300 6,365 Bank interest paid - - - - - Interest element on finance lease rentals - - - - (2) ---------------------- ---------------------------------- 927 1,577 2,244 3,300 6,363 ---------------------- ---------------------------------- Capital expenditure and financial investment Purchase of tangible fixed assets (183) (2,080) (1,505) (3,645) (5,315) Sale of tangible fixed assets - - - - 8 ---------------------- ---------------------------------- (183) (2,080) (1,505) (3,645) (5,307) ---------------------- ---------------------------------- Net cash outflow before management of liquid resources and financing (4,085) (8,680) (10,053) (14,531) (26,248) ---------------------- ---------------------------------- Management of liquid resources Movement on term deposits 4 3,561 6,114 9,422 12,399 23,888 ---------------------- ---------------------------------- Financing Financing - issue of ordinary share capital - IPO and options 429 291 1,021 636 1,243 Capital element of finance lease rentals (3) (11) (4) (14) (20) Decrease in borrowings - (10) - (18) (17) ---------------------- ---------------------------------- Net cash inflow from financing 426 270 1,017 604 1,206 ---------------------- ---------------------------------- Increase in cash during the period 4 (98) (2,296) 386 (1,528) (1,154) ---------------------- ---------------------------------- 1. Basis of preparation The interim financial statements comprise the unaudited consolidated accounts of ARC International plc group at 30 June 2002 and for the six months then ended. The interim financial statements of ARC International plc have been prepared on the basis of the accounting policies set in the Annual Report of ARC International plc dated 31 December 2001 except for a change in the accounting policy in respect of deferred taxation to comply with "FRS19 - Deferred Tax". FRS 19 requires full provision to be made for deferred tax, and therefore the company's previous policy of making a partial provision for deferred taxation in accordance with SSAP 15 has been revised. This change of accounting policy has had no effect on the current period or prior year figures. The prior year comparatives are derived from audited financial information for ARC International plc as set out in the Annual Report for the year ended 31 December 2001. The interim financial statements for the 6 months ended 30 June 2002 are unaudited but have been reviewed by the auditors. The report of the auditors to the directors is set out on page 13. The interim financial statements for the six months ended 30 June 2002 were approved by the directors on 23 July 2002. 2. Reconciliation of operating profit to net cash flow from operating activities -------------------- Note 3 months 3 months 6 months 6 months Year ended ended ended ended ended 30 June 30 June 30 June 30 June 31 December 2002 2001 2002 2001 2001 (unaudited) (unaudited) (unaudited) (unaudited) (audited) £'000 £'000 £'000 £'000 £'000 Operating loss (6,015) (11,144) (12,521) (17,501) (36,428) Depreciation 767 512 1,509 894 2,426 Amortisation of goodwill 1,024 1,020 2,046 2,039 4,075 Loss on disposal of fixed assets - - 44 - 237 Share option grant credit 28 (11) 17 16 39 (Increase) in stocks (1) (87) (3) (383) (159) (Increase) in debtors (263) (335) (661) (1,232) 2,911 Increase/(decrease) in creditors (80) (1,132) (739) (1,019) (2,838) (Decrease)/increase in provisions (289) 3,000 (484) 3,000 2,433 ---------------------- ---------------------------------- Net cash flow from operating activities (4,829) (8,177) (10,792) (14,186) (27,304) ---------------------- ---------------------------------- 3. Analysis of net funds (unaudited) Cash at bank Investments - Finance Total bank deposits leases £000 £000 £000 £000 At 31 December 2001 1,449 119,401 (7) 120,843 Exchange (91) - - (91) Cash flow 386 (9,422) 4 (9,032) --------------------------------------------------------- At 30 June 2002 1,744 109,979 (3) 111,720 --------------------------------------------------------- 4. Reconciliation of net cash flow to movement in net funds -------------------- 3 months 3 months 6 months 6 months Year ended ended ended ended ended 30 June 30 June 30 June 30 June 31 December 2002 2001 2002 2001 2001 (unaudited) (unaudited) (unaudited) (unaudited) (audited) £'000 £'000 £'000 £'000 £'000 (Decrease)/increase in cash in the period (98) (2,296) 386 (1,528) (1,154) Cash (inflow)/outflow from increase in liquid resources (3,561) (6,114) (9,422) (12,399) (23,888) ---------------------- ---------------------------------- (3,659) (8,410) (9,036) (13,927) (25,042) Movement in borrowings 3 21 4 32 37 Exchange movements (184) 64 (91) 151 32 ---------------------- ---------------------------------- Movement in funds (3,840) (8,325) (9,123) (13,744) (24,973) Net funds at beginning of period 115,560 140,397 120,843 145,816 145,816 ---------------------- ---------------------------------- Net funds at end of period 111,720 132,072 111,720 132,072 120,843 ---------------------- ---------------------------------- 5. Copies of this report are being sent to shareholders and are available to the public at the Company's Registered Office; ARC House, Waterfront Business Park, Elstree Road, Elstree, Hertfordshire WD6 3BS. *T Independent review report to ARC International plc Introduction We have been instructed by the company to review the financial information which comprises consolidated profit and loss, consolidated statement of total recognised gains and losses, consolidated balance sheet, consolidated cash flow statement and the notes supporting these primary statements. We have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the financial information. Directors' responsibilities The interim report, including the financial information contained therein, is the responsibility of, and has been approved by the directors. The directors are responsible for preparing the interim report in accordance with the Listing Rules of The Financial Services Authority which require that the accounting policies and presentation applied to the interim figures should be consistent with those applied in preparing the preceding annual accounts except where any changes, and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4 issued by the Auditing Practices Board for use in the United Kingdom. A review consists principally of making enquiries of group management and applying analytical procedures to the financial information and underlying financial data and, based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit performed in accordance with United Kingdom Auditing Standards and therefore provides a lower level of assurance than an audit. Accordingly we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the six months ended 30 June 2002. PricewaterhouseCoopers Chartered Accountants West London 25 July 2002 Notes ARC International is an industry-leading developer of embedded user-customizable, high-performance 32-bit RISC/DSP processor cores, with integrated development tools, peripherals, RTOS and software. These integrated products and solutions are a result of the acquisitions of MetaWare, VAutomation and Precise Software Technologies. ARC's integrated intellectual property solutions assist customers in rapidly developing next generation wireless, networking and consumer electronics products, reducing the number of IP suppliers, reducing time to market, reducing their cost, and reducing their risk for System-on-Chip product development. Products based on ARC's technology include digital still cameras, set-top boxes, and network processors. ARC International employs more than 200 people in research and development, sales, and marketing offices across North America, Europe and Israel. Full details of the company's locations and other information are on the company's web site, www.ARC.com. ARC International is listed on the London Stock Exchange as ARC International plc (LSE:ARK). Statements made in this report that are not historical facts include forward-looking statements that involve risks and uncertainties. Important factors that could cause actual results to differ from those indicated by such forward-looking statements include, among others, market acceptance of the ARC technology; fluctuations in and unpredictability of the Company's quarterly results; general economic and business conditions; regulatory policies adopted by governmental authorities; assumptions regarding the Company's future business strategy; changes in technology; competition; ability to attract and retain qualified personnel; risks associated with the Company's international operations; and other uncertainties that are discussed in the "Investment Considerations" section of the Company's listing particulars dated 28 September 2000 filed with the United Kingdom Listing Authority and the Registrar of Companies in England and Wales. The Company disclaims any intention or obligation to update any forward-looking statements as a result of developments occurring after the date such statement was first made ARC, the ARC logo, USB Now and ARCtangent are trademarks of ARC International. All other brands or product names are the property of their respective holders. Short Name: Arc Intl PLC Category Code: IR Sequence Number: 00000506 Time of Receipt (offset from UTC): 20020724T190130+0100
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