1st Quarter Results
Eckoh Technologies PLC
29 August 2002
29th August 2002
Eckoh Technologies plc
First Quarter Results
"Eckoh approaches profitability -
operating losses* reduced by 95%"
Quarter Quarter ended Quarter ended
ended 31 March 2002 30 June 2001
30 June 2002 restated
£'000 £'000 £'000
Turnover 12,747 13,244 13,952
- continuing operations 12,384 12,411 10,778
- discontinued operations 363 833 3,174
Total administrative expenses, excluding intangible asset amortisation
and impairment and exceptional items 4,205 6,159 8,847
Group operating loss, before intangible asset amortisation and 199 2,144 3,915
impairment and exceptional items
Net loss 1,018 6,166 7,107
Cash and bank deposits 11,257 14,100 21,404
• Continuing turnover of £12.4m up 15% on the same quarter last year (Q1
F2002 - £10.8m)
• Group operating loss* reduced by 95% from Q1 F2002 (£3.9m) to £199,000
• Restructuring and turnaround successfully completed - administrative
expenses* reduced by 52% over the past 12 months
• Interactive Voice Response ("IVR"), Mobile Wholesale and Network
Services operations all profitable* and cash generative
• Continued investment and progress in Speech Solutions - announcement of
3 year contract with Centrica in July
• Significant move towards group profitability and positive cash flow
Martin Turner, Chief Executive Officer, commented today:
"These results were significantly ahead of our internal targets, and confirm
the success of our restructuring program and continued progress in all areas of
Eckoh's business. Operating losses* reduced from £3.9m in the first quarter of
last year to just £199,000 for this quarter, indicating we are well on our way
to achieving overall profitability for the first time as a public company.
Our three established product areas - IVR, Mobile Wholesale, and Network
Services - put in strong performances during the quarter with each one
generating profits* and positive cash flow.
We also made very good progress in our Speech Solutions activities and were
pleased to announce a three-year contract with Centrica last month. We are
generating strong gross margins in this new area of business, and remain
confident that Eckoh will continue to add new blue-chip clients as the market
for Speech Solutions develops and expands."
* before intangible asset amortisation and impairment and exceptional items
For further enquiries, please contact
Eckoh Technologies plc
Martin Turner, Chief Executive Officer
Nik Philpot, Chief Operating Officer
www.eckoh.com Tel: 01442 458 355
Buchanan Communications
Mark Edwards/Jeremy Garcia/Fergus Mellon Tel: 020 7466 5000
Operating and Financial Review
Turnover and Gross Margins
Interactive Voice Response ("IVR")
Eckoh's IVR business is one of the largest in the UK and has been profitable and
cash generative for many years. We currently own and operate one of the largest
call-processing platforms in Europe, with the capacity to handle over 250,000
IVR calls per hour. This year we plan to double this capacity to 500,000 calls
per hour by expanding our platform to 8,500 ports.
During July we renewed our contract with Granada for a further year, and will be
the exclusive supplier of IVR services for its weekday daytime TV programming.
First quarter turnover decreased to £5.1m from £5.7m for the same quarter last
year. The decrease from the previous quarter is mainly due to seasonal factors.
Although market conditions for IVR services continue to be competitive, the
Company expects to offset the impact of pricing pressure through the provision
of higher-margin Speech Solutions to its larger clients and customers. During
the quarter, overall IVR gross margin declined to 30% (Q1 F2002 - 33%).
Speech Solutions
Our Speech Solutions business delivers fully managed speech recognition and
advanced IVR services - from concept and service design through to deployment
and hosting. It targets large corporations or organisations in industry sectors
such as telecoms, banking, travel and tourism, call centre outsourcing,
entertainment and utilities. Typically these organisations are looking to
significantly reduce call centre costs, create competitive market advantages
through innovative interaction with their customers, or implement value added
applications to drive incremental revenue.
As part of the expansion of our call-processing platform and our partnership
with Philips Speech Processing, we plan to increase our Advanced Speech
Recognition ("ASR") density to 5,000 ports, which will enable us to process over
300,000 ASR calls per hour.
During the quarter, we announced a further deal with Virgin Mobile with the
addition of an email reader and travel section for Virgin Mobile's 4321 voice
portal service. Our email reader allows Virgin Mobile customers to pick up their
emails any time day or night via their mobile phone.
In July we signed a three-year voice portal contract with Centrica
Communications. The voice portal, branded as Purple Duck, is a value added
service for the mobile product launched through their One.Tel brand. We are
building, hosting and maintaining their voice portal, which includes
speech-activated news, sports and entertainment content and a mobile email
reader.
These deals continue to validate our technical expertise in Speech Solutions,
and our position as a market leader. Turnover from Speech Solutions was £0.5m
in the first quarter (Q1 F2002 - nil), generating a gross margin of 59%.
During the quarter IVR and Speech Solutions generated 17.4m minutes of voice
traffic (Q1 F2002 - 17.3m).
Mobile Wholesale
Phones Express was acquired in September 2000 and markets mobile telephone
handsets and airtime packages directly to consumers in specialist print media
and more recently on digital television. First quarter turnover, represented by
connection commissions and the sale of handsets and accessories, increased to
£1.8m (Q1 F2002 - £0.5m). A gross margin of 33% was achieved (Q1 F2002 - 55%)
which reflected higher volume/lower margin distribution deals during the
quarter.
Network Services
Network Services was established in 1997 and is a reseller of fixed-line, mobile
and data services to small and medium-sized businesses in the UK and Ireland
under the "Symphony Telecom" brand. Its distribution strategy focuses on
resellers of telephone systems and includes direct sales staff, telesales,
50%-owned joint ventures and telephone systems dealers
On 28 April 2002 Eckoh sold its loss-making Hardware Services business to
complete its restructuring, and during the quarter Network Services moved into
profitability as a result of a significant reduction in its cost base. Network
Services now shares common premises with IVR and Speech Solutions at Telford
House, Hemel Hempstead.
Network Services generated £5.0m turnover (Q1 F2002 - £4.5m) and a 28% gross
margin (Q1 F2002 - 32%) during the first quarter. Customers increased by 5% to
6,307 as at 30 June 2002 (31 March 2002 - 6,035).
Administrative expenses, intangible asset amortisation and impairment and
exceptional items
Administrative expenses (before intangible asset amortisation and impairment and
exceptional items) of £4.2m for the quarter were 32% lower than for the previous
quarter (Q4 F2002 £6.2m) and 52% lower than the same quarter last year (Q1 F2002
- £8.8m). Following the exit from internet content and Hardware Services and
completion of our restructuring, the operating cost base of the ongoing business
has been significantly reduced. Based on current business activity we have set
a target of £15m per annum (excluding intangible asset amortisation and
impairment) and costs are expected to continue to fall during this financial
year as we streamline our operations.
Intangible asset amortisation totalled £0.8m for the quarter (Q1 F2002 - £2.9m).
The remaining unamortised goodwill on the balance sheet relates to IVR and
Network Services businesses acquired in previous years.
Operating loss
Eckoh incurred a group operating loss of £0.2m during the quarter, before
intangible asset amortisation and impairment and exceptional items. This
compares to £3.9m for the same period last year and represents a significant
move towards group profitability and positive cash flow.
Discontinued operations
During the quarter we completed the exit from our Hardware Services businesses
in the UK. Residual turnover of £0.4m and an operating loss of £73,000 arose in
that period.
We also successfully exited from two properties, Park Lane in Hemel Hempstead,
where we were able to reassign our lease, and Uckfield in Sussex. Eckoh's
continuing operations are now managed and run from a single site in Hemel
Hempstead, with satellite offices in Cranfield, Dublin and Montpelier in France.
Part of the exit from the Hardware Services business included the successful
disposal of various customer bases to three former branch managers and a third
party. In return for these assets the purchasers have entered into agreements
to drive Network Services business to Eckoh. Should sufficient Network Services
business be generated then consideration of up to £0.6m will not become payable
to Eckoh. Due to the uncertainty regarding the future performance against these
targets we have valued the contingent consideration at nil.
Cash and short term bank deposits
As expected, cash reserves reduced by £2.8m in the quarter following payment of
restructuring costs provided for at 31 March 2002, payment of costs relating to
the aborted Convergent deal and settlement of Hardware Services business
suppliers. At 30 June 2002 cash and short term deposits totalled £11.3m (31
March 2002 - £14.1m). Net current assets less long-term liabilities and
provisions increased from £9.0m to £9.1m during the quarter, which reflects an
improvement for the first time since flotation.
Current Trading
The Directors believe that the Company is close to achieving a break-even
trading position before amortisation of intangible assets, following its
successful restructuring. We have a balanced business model, with three of our
four product areas now generating operating profits* and positive cash flow.
The focus is now turning to ensuring that Eckoh successfully (and profitably)
exploits its position as a leader in the Speech Solutions market, and we are
pleased with the recent addition of the new contracts with Virgin and Centrica.
Both provide us with valuable reference sites and further validate our managed
service strategy. We are also in discussions with several other large
businesses and organisations for a number of our portfolio products
incorporating speech recognition.
The next stage of our technical and commercial plans for the Speech Solutions
business involves the careful selection of a major carrier into whose
infrastructure we can deploy the next phase of our planned platform development
and who will also become a strategic partner for the distribution of our Speech
products. We are in advanced negotiations with a preferred party and will
announce the details of this contract in due course.
Today we announced a 2 year contract with William Hill to provide a phone-based
solution for its live horse racing commentary service. The service will enable
callers to dial one number to listen to odds then simultaneously place a bet by
connecting to a live call centre agent and then return directly to the action to
hear the live race commentary.
* before intangible asset amortisation and impairment and exceptional items
Consolidated profit and loss account
for the quarter ended 30 June 2002
Quarter Quarter Year
ended ended ended
30 June 30 June 31 March
2002 2001 2002
unaudited unaudited & audited
Note restated
£'000 £'000 £'000
Turnover 12,747 13,952 54,920
Continuing operations 12,384 10,778 45,499
Discontinued operations 363 3,174 9,421
Cost of sales (8,741) (9,020) (37,322)
Gross profit 4,006 4,932 17,598
Administrative expenses before intangible asset amortisation (4,205) (8,847) (29,355)
and impairment and exceptional items
Amortisation of intangible assets (822) (2,891) (7,847)
Impairment of intangible assets - - (8,643)
Exceptional items - (540) (6,495)
Total administrative expenses (5,027) (12,278) (52,340)
Operating loss before intangible asset amortisation and (199) (3,915) (11,757)
impairment and exceptional items
Continuing operations (126) (633) (3,035)
Discontinued operations (73) (3,282) (8,722)
Operating loss (1,021) (7,346) (34,742)
Continuing operations (948) (1,810) (12,151)
Discontinued operations (73) (5,536) (22,591)
Profit on disposal of internet operations - - 490
Net interest receivable 104 278 792
Loss on ordinary activities before taxation (917) (7,068) (33,460)
Taxation - 9 60
Loss on ordinary activities after taxation (917) (7,059) (33,400)
Minority interests (101) (48) (163)
Loss for the period (1,018) (7,107) (33,563)
Loss per ordinary share 3
Basic and diluted loss per share (0.5p) (3.5p) (16.5p)
Basic and diluted loss per share before intangible asset (0.1p) (1.8p) (5.5p)
amortisation and impairment, exceptional items and profit on
disposal of internet operations
Statement of total recognised gains and losses
for the quarter ended 30 June 2002
Quarter Quarter Year
ended ended ended
30 June 30 June 31 March
2002 2001 2002
unaudited unaudited audited
£'000 £'000 £'000
Loss for the period (1,018) (7,107) (33,563)
Exchange adjustments offset in reserves - 73 74
Total recognised losses for the period (1,018) (7,034) (33,489)
Consolidated balance sheet
as at 30 June 2002
30 June 2002 30 June 31 March
2001 2002
unaudited unaudited audited
Note £'000 £'000 £'000
Fixed assets
Intangible fixed assets 6,591 21,877 7,376
Tangible fixed assets 2,128 3,144 2,316
Investment 2,000 - 2,000
10,719 25,021 11,692
Current assets
Stock 395 1,156 501
Debtors 8,723 14,368 9,554
Bank - short term deposits 8,500 16,500 10,500
Cash at bank and in hand 2,757 4,904 3,600
20,375 36,928 24,155
Creditors: amounts falling due within one year (10,390) (12,629) (12,613)
Net current assets 9,985 24,299 11,542
Total assets less current liabilities 20,704 49,320 23,234
Creditors: amounts falling due after more than one year (40) (255) (57)
Provisions for liabilities and charges (873) (2,057) (2,472)
Net assets 19,791 47,008 20,705
Capital and reserves 4
Called up share capital 518 505 515
Shares to be issued 150 508 253
Share premium account 72,432 72,425 72,429
Merger reserve 2,741 8,244 2,973
Profit and loss account (56,180) (34,588) (55,494)
Total equity shareholders' funds 5 19,661 47,094 20,676
Minority interests 130 (86) 29
Capital employed 19,791 47,008 20,705
Consolidated cash flow statement
for the quarter ended 30 June 2002
Quarter Quarter Year
ended ended ended
30 June 30 June 31 March
2002 2001 2002
unaudited unaudited audited
£'000 £'000 £'000
Note
Net cash outflow from operating activities 6 (1,862) (3,835) (9,203)
Return on investments and servicing of finance
Net interest 104 321 916
Taxation - - (217)
Capital expenditure and financial investment
Purchase of tangible fixed assets (470) (288) (1,160)
Proceeds from sale of tangible fixed assets - - 54
Purchase of trade investment - - (670)
(470) (288) (1,776)
Acquisitions and disposals
Consideration paid in respect of prior period acquisitions (600) (722) (1,120)
Net cash disposed of with subsidiary undertakings - - (71)
Costs relating to the disposal of internet operations - - (212)
(600) (722) (1,403)
Cash outflow before use of liquid resources and financing (2,828) (4,524) (11,683)
Management of liquid resources
Decrease in short-term investments 2,000 7,750 13,750
Financing
Issue of shares 5 - 6
Capital element of finance lease payments (20) (24) (175)
(15) (24) (169)
(Decrease)/increase in cash in the period (843) 3,202 1,898
Notes to the first quarter results
1. Basis of preparation
The financial statements for the quarter ended 30 June 2002 have been prepared
using accounting policies consistent with those set out in the Company's
consolidated 2002 statutory accounts except as described below. These statements
do not constitute statutory accounts within the meaning of section 240 of the
Companies Act 1985 and are unaudited.
Financial information for the quarter ended 30 June 2001 has been extracted from
the accounting records of the Group. As disclosed in the third quarter results
ended 31 December 2001, the results for the quarter ended 30 June 2001 were
restated following reclassification of profit and loss items. In addition the
merger reserve and profit and loss account balances have been restated to
reflect the first quarter's portion of the release of the merger reserve for the
year ended 31 March 2002.
The balances and results as at 31 March 2002 have been extracted from the
statutory accounts, which have been filed with the Registrar of Companies. The
auditors' report on those accounts was unqualified and did not contain any
statement under section 237 of the Companies Act 1985.
The results for the quarter ended 30 June 2002 were approved by the Board on 28
August 2002 and will be posted on the Company's web site, www.eckoh.com, on 29
August 2002.
2. Segmental analysis - for the quarter ended 30 June 2002
Following the completion of the restructure of continuing operations the Company
now operates as a single integrated business. No segmental information is thus
presented. In addition, following the closure or disposal of overseas entities
during the previous financial year there are no material foreign entities and
segmental information by geographical area is therefore not presented.
3. Loss per ordinary share of 0.25p each
Quarter Quarter Year
ended ended ended
30 June 30 June 31 March
2002 2001 2002
restated
£'000 £'000 £'000
Loss for the period before the following: (196) (3,676) (11,068)
Intangible asset amortisation and impairment (822) (2,891) (16,490)
Exceptional items - (540) (6,495)
Profit on disposal of internet operations - - 490
Loss for the period (1,018) (7,107) (33,563)
Weighted average number of shares in the period:
Basic and diluted 206,608,837 201,818,385 203,041,315
Basic and diluted loss per share before intangible asset (0.1p) (1.8p) (5.5p)
amortisation and impairment and exceptional items
Intangible asset amortisation and impairment (0.4p) (1.4p) (8.1p)
Exceptional items - (0.3p) (3.2p)
Profit on disposal of internet operations - - 0.3p
Basic and diluted loss per share (0.5p) (3.5p) (16.5p)
None of the contingently issuable shares or share options gives rise to a
dilution in the loss per share due to the losses made in the period.
4. Share capital and reserves
Ordinary Shares to Share Merger Profit
share be issued premium reserve and loss
capital account account
£'000 £'000 £'000 £'000 £'000
At 1 April 2002 515 253 72,429 2,973 (55,494)
Loss for the quarter - - - - (1,018)
Shares issued in respect of share options 2 - 3 - -
exercised
Contingent and deferred share consideration for 1 (101) - 100 -
acquisitions in prior years
Movement in fair value of contingent share - (2) - - -
consideration for acquisitions in prior years
Realisation of merger reserve - - - (332) 332
At 30 June 2002 518 150 72,432 2,741 (56,180)
5. Reconciliation of movement in shareholders' funds
Quarter Quarter Year
ended ended ended
30 June 30 June 31 March
2002 2001 2002
£'000 £'000 £'000
Opening shareholders' funds 20,676 54,362 54,362
Loss for the period (1,018) (7,107) (33,563)
Net movement in contingent share consideration (2) (234) (203)
Employee share options exercised 5 - 6
Exchange adjustments offset in reserves - 73 74
Closing shareholders' funds 19,661 47,094 20,676
6. Net cash outflow from operating activities
Quarter Quarter Year
ended ended ended
30 June 30 June 31 March
2002 2001 2002
restated
£'000 £'000 £'000
Operating loss (1,021) (7,346) (34,742)
Depreciation and impairment of tangible fixed assets 304 323 1,769
Amortisation and impairment of intangible fixed assets 822 2,891 16,490
Decrease in stock 106 245 677
Decrease in debtors 832 138 4,591
(Decrease)/increase in creditors/provisions (2,905) (86) 1,835
Loss on disposal of tangible fixed assets - - 177
(1,862) (3,835) (9,203)
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