Interim Results

Eckoh Technologies PLC 15 December 2003 15th December 2003 Embargoed until 7am Eckoh Technologies plc Half-Year Results • Acquisition of Intelliplus Group plc • BT contract extension to 2006 • £6m of new Speech contracts over 3 years 6 months 6 months Year ended ended ended 30 Sept 2003 30 Sept 2002 31 March 2003 £'000 £'000 £'000 Turnover 25,665 27,426 55,085 Continuing operations 21,788 20,981 42,332 Acquisitions 2,086 - - Total continuing operations 23,874 20,981 42,332 Discontinued operations 1,791 6,445 12,753 Gross profit 7,359 9,374 18,165 Operating loss (1,031) (7,454) (7,472) Net loss (1,323) (9,420) (9,083) Cash and short-term investments 13,075 10,523 11,985 Half-year highlights: • Turnover from continuing operations up 4% to £21.8m (H1 2002/3 - £21.0m) • Net loss reduced to £1.3m (H1 2002/3 - £9.4m) • Significant cash and short-term investment balances maintained • Administrative expenses excluding goodwill amortisation reduced to £8.2m (H1 2002/3 - £9.6m) • Acquisition of Intelliplus Group plc ("Intelliplus") in September • Mobile Wholesale closed Current developments: • Exclusive BT speech partnership extended to December 2006 • £6m of new speech business over 3 years won since 30 September • IVR integration well under way - competitive market conditions • Evaluating additional speech investment Martin Turner, Chief Executive Officer, commented today: "Over the last six months we have seen the market for speech solutions gain real momentum, which is supported by over £6m of new contracted business over the next three years since September. Sentiment has clearly moved in favour of our hosted business model, a view shared by BT which last week led to the extension of our exclusive partnership until December 2006. The future for our speech activities looks very exciting. We have also taken steps to strengthen our IVR and Network Services divisions through the acquisition of Intelliplus in September 2003. Intelliplus brings us a fully switched network environment, a growing IVR operation and a leading supplier of web services to SMEs through Freecom. We are working hard to integrate Intelliplus as quickly as possible, and expect to derive considerable benefits from this acquisition in future periods despite an increasingly competitive market." For further enquiries, please contact Eckoh Technologies plc Martin Turner, Chief Executive Officer Nik Philpot, Chief Operating Officer Brian McArthur Muscroft, Group Finance Director www.eckoh.com Tel: 01442 458 355 Buchanan Communications Mark Edwards/Jeremy Garcia Tel: 020 7466 5000 Business Review Turnover and Gross Margin Speech Solutions Our Speech Solutions division has made significant progress over the last six months, most of which is not fully reflected in these half-year financial results. During June we completed the installation of our speech-enabled call processing platform in BT's St Albans hosting facility, which signalled the effective launch of the BT/Eckoh alliance. The Eckoh speech platform, which we believe to be Europe's largest, is now capable of handling over 500,000 calls per hour, and provides sufficient overflow capacity to meet expected demand from high volume speech services. Last week we announced that the BT/Eckoh alliance had been extended to December 2006, and reflects a partnership that is starting to gain momentum and win business. This contract extension will also provide Eckoh with a greater share of future client revenues and profits. We can also report that our order pipeline for speech solutions is now growing, in terms of both quantity and quality. In September we delivered a share quote service for TD Waterhouse to give their clients faster and more efficient access to share price information. This service can be accessed by over 500,000 clients in the UK, and covers more than 1,000 UK-listed companies. We also announced an exclusive contract with Wire-e, a leading developer of business software tools, to provide hosted telephony services to Vodafone's Rapide corporate customers. The Rapide service, which currently has over 300 Vodafone corporate customers, offers a suite of mobile phone products, including personal contacts and number management, email, voice messaging and voice broadcasting. Today we announced significant contracts to deliver a speech-enabled ordering solution in the leisure sector and to supply two speech-enabled ordering services for the RNIB. Together with our October announcements, these contracts represent a minimum of £6m of new business over the next three years. Further contract wins are expected to be announced in due course. In the light of these recent successes and the clear validation of the hosted model, we are currently evaluating the investment required to meet the increasing demand for our speech products. Turnover from Speech Solutions in the first six months of F2004 grew 34% to £1.4m compared to the same period last year (H1 2002/3 - £1.0m) and generated a gross margin of 56% (H1 2002/3 - 52%). Interactive Voice Response ("IVR") Eckoh's IVR operation continues to generate significant cash flow for the group as a whole, and in September we acquired Intelliplus Group plc. This acquisition will give Eckoh significant competitive advantages through access to a switched network infrastructure, and positions the combined business as a UK market leader in IVR service provision for the following reasons: • Long history of high-quality IVR service provision; • Highly competitive cost structure; • One of the largest IVR call-handling platforms in the UK (7,000 ports); • Leading IVR player in the media sector, including TV and print; • Innovator in product and service design; • Complementary technologies - SMS, speech, web etc; • 12 year history in promoting own products and services; • Exclusive distribution channels, such as L!VE TV; • Significant cost and margin efficiencies to come through. During the year to 31 March 2003, Intelliplus' IVR operation generated revenues of £16.5m, and Eckoh's IVR division £20.6m for the same period. Since acquisition, we have been working hard to integrate and unify the two IVR operations as quickly as possible under the Eckoh brand, streamline management and create a business capable of achieving profitable growth in a competitive market. On 28 July 2003 we participated in the relaunch of L!VE TV on Sky digital television. Eckoh controls all editorial and advertising space on this channel, which we use to advertise our own IVR and SMS products and services. Surplus advertising space is sold to third parties. L!VE TV was historically an excellent advertising medium for many of our consumer IVR products and services. We also provided all the telephony-based voting capabilities for BBC2's " Restoration" series, which aired during August 2003 and was dedicated to saving one of 30 historic and architecturally important buildings at risk across the UK. In November we began a new 18-month contract to supply IVR and SMS services to 39 publications within the Northcliffe Newspaper group. Excluding Intelliplus, IVR turnover was £10.2m for the first half-year, a 2% increase compared to the same period last year (H1 2002/3 - £9.9m), with gross margin lower at 25% (H1 2002/3 - 28%), but an improvement over the preceding six months (H2 2002/3 - 24%). Despite the recent margin improvement the market remains highly competitive. Network Services Eckoh's Network Services division is one of the leading independent resellers of telecommunications and data services to SMEs in the UK and Ireland, and now includes both Symphony Telecom and Intelliplus' Freecom businesses. The enlarged division is profitable and cash generative, and is continuing to look for further consolidation and acquisition opportunities in order to grow its customer base and increase average revenue per customer. Following the Intelliplus acquisition, Network Services intends to sell a broader product portfolio comprising fixed-line, mobile, broadband, web-design and hosting, internet security, e-mail, e-commerce solutions and search engine registration services and thereby increase average revenue per customer. Historically, Symphony has not sold internet or data services to its customer base of approximately 6,000 and, conversely, Freecom has not sold voice services to its customer base of approximately 7,000. Cross-selling marketing campaigns are already underway. During the year to 31 March 2003, Symphony Telecom generated revenues of £19.7m, and Freecom £2.6m for approximately 9 months to 31 March 2003. During the first half-year Symphony continued to expand its fixed line and mobile distribution channels by adding new dealers and distributors, forming a new joint venture and the opening of a sales office in York during September. In addition, an agreement was signed with Energis in May through which we took ownership of a significant number of Energis customers, now billed under the Symphony brand, as they sought to rationalise their distribution channel into the business market. As part of Network Services' cross selling initiative, two additional products will be introduced in January 2004 - broadband access and wholesale line rental. Both products are expected to generate additional revenue and contribution, increase average revenue per customer and improve customer retention. Network Services' turnover was £10.5m for the first half-year, an increase of 5% from the same period last year (H1 2002/3 - £10.0m), and included £0.3m from Freecom. It generated a gross margin of 29% for the half-year, much in line with last year (H1 2002/3 - 30%) and the preceding six-month period (H2 2002/3 - 29%). Mobile Wholesale In May 2003, we stated that our Mobile Wholesale operation had entered a period of volatility as the Mobile Network Operators adjusted their distribution strategies. Despite a small improvement in conditions since then, we have since decided to exit from this activity, closing our consumer mobile distribution and support centre in Milton Keynes in September and focussing management time and attention on the development of Eckoh's core businesses. The results up until closure have been disclosed as discontinued operations with the loss on closure disclosed as an exceptional item in the profit and loss account. For the period up until closure in this half-year, Mobile Wholesale made a loss of £0.2m (excluding closure costs) compared to a profit of £1.0m for H1 2002/3. Administrative expenses Eckoh's administrative expenses reduced from £16.8m in the first half of last year to £8.4m in this year. This includes a reduction of £7.1m of intangible asset amortisation and impairment. We have continued to cut operating costs and reduce overheads through focussed cost-saving initiatives and this process is ongoing. For the first half-year, administrative expenses before intangible asset amortisation and impairment and exceptional items were £8.1m, which included £0.4m in relation to Intelliplus and £0.9m (H1 2002/3 - £2.0m) in relation to Mobile Wholesale. Excluding Intelliplus and Mobile Wholesale overheads, underlying Eckoh costs fell by 11% compared to the same period last year. Moving forward, we expect to further benefit from cost reductions During June we transferred to AIM which allows us to reduce corporate costs, as well as maximise our ability and flexibility to pursue strategic opportunities, such as the Intelliplus acquisition, as they arise. During the first half-year we also incurred £0.1m of restructure costs, disclosed as an exceptional item, relating to the streamlining of the existing IVR operation. Operating Loss and Net Loss Eckoh's operating loss of £1.0m for the first half-year is significantly less than the same period last year (H1 2002/3 - £7.5m), mainly as a result of reduced intangible asset amortisation and impairment. Before intangible asset amortisation and impairment and exceptional items, Eckoh recorded an operating loss of £0.5m from continuing operations in the first half-year (H1 2002/3 - £1.0m), which includes £0.6m (H1 2002/3 - £0.6m) of fixed asset depreciation. Excluding exceptional items, Eckoh generated EBITDA(1) of £0.2m (H1 2002/3 - loss of £0.4m) from total continuing operations. The net loss for the same period was £1.3m compared to £9.4m last year. Cash and short term bank deposits During the six months ended 30 September 2003 cash and short-term deposits increased by £1.1m to £13.1m (31 March 2003 - £12.0m). This is mainly as a result of positive cash generation by continuing operations and the effective management of working capital. Eckoh's cash reserves are expected to reduce during the second half of the year as we settle costs associated with the Intelliplus acquisition and the Mobile Wholesale closure and other restructuring costs as well as replacing expensive financing arrangements inherited from Intelliplus. Board changes Following the acquisition of Intelliplus Mike Neville, Martin Smith and Peter Reynolds have joined the Board, and Craig Niven, Nick Alexander and Neil Macdonald have resigned. Peter Reynolds has been appointed as chairman of the Remuneration Committee and Martin Smith the chairman of the Audit Committee. Share capital restructure and reorganisation In August we undertook a share consolidation and subsequent share division. This resulted in a significant reduction in Eckoh's shareholder base, which will generate cost savings going forward. In September we received court approval to cancel the balance on the share premium account. This has resulted in a transfer of £72.5m to distributable reserves. Current Trading Today we announced that, since September, we had concluded speech contracts with a minimum of £6m of revenue over the next three years. A number of these contracts are scheduled for delivery towards the end of this financial year and we continue to be in discussions with other large corporations and organisations, especially via our BT partnership. We are working to integrate Intelliplus as quickly as possible, and in particular realise the full financial benefit of switched network access over the next twelve months as we bring the two IVR businesses together and migrate suitable Eckoh IVR traffic onto the switch. Trading conditions within the IVR business remain very competitive. Management continues to focus on developing and expanding Eckoh's speech activities, and is looking forward to significant progress over the next 12 months. This is supported by the new contract wins announced today, our BT partnership extension to December 2006, announced last week, and a strengthening order pipeline. Consolidated profit and loss account for the six months ended 30 September 2003 6 months 6 months Year ended ended ended 30 Sept 30 Sept 31 Mar 2003 2002 2003 unaudited unaudited audited Note £'000 £'000 £'000 Turnover 25,665 27,426 55,085 Continuing operations 21,788 20,981 42,332 Acquisitions 2,086 - - Total continuing operations 23,874 20,981 42,332 Discontinued operations 1,791 6,445 12,753 Cost of sales (18,306) (18,052) (36,920) Gross profit 7,359 9,374 18,165 Administrative expenses before intangible asset amortisation and (8,067) (9,565) (18,324) impairment and exceptional items Amortisation of intangible assets (209) (1,607) (1,657) Impairment of intangible assets - (5,656) (5,656) Exceptional items (114) - - Total administrative expenses (8,390) (16,828) (25,637) Operating (loss)/profit before intangible asset amortisation and (708) (191) (159) impairment and exceptional items Continuing operations (415) (955) (1,885) Acquisitions (65) - - Total continuing operations (480) (955) (1,885) Discontinued operations (228) 764 1,726 Operating (loss)/profit (1,031) (7,454) (7,472) Continuing operations (579) (8,218) (9,198) Acquisitions (224) - - Total continuing operations (803) (8,218) (9,198) Discontinued operations (228) 764 1,726 Loss on closure of subsidiary operation (424) - - Provision against fixed asset investment - (2,000) (2,000) Net interest receivable 161 177 390 Loss on ordinary activities before taxation (1,294) (9,277) (9,082) Taxation 89 - (20) Loss on ordinary activities after taxation (1,205) (9,277) (9,102) Minority interests (118) (143) 19 Loss for the period (1,323) (9,420) (9,083) Loss per ordinary share 3 Basic and diluted loss per share (0.6p) (4.6p) (4.4p) Basic and diluted (loss)/profit per share before intangible asset (0.3p) (0.1p) 0.1p amortisation and impairment and exceptional items Statement of total recognised gains and losses for the six months ended 30 September 2003 6 months 6 months Year ended ended ended 30 Sept 30 Sept 31 Mar 2003 2002 2003 unaudited unaudited audited £'000 £'000 £'000 Loss for the period (1,323) (9,420) (9,083) Exchange adjustments offset in reserves 21 - 75 Total recognised losses for the period (1,302) (9,420) (9,008) Consolidated balance sheet as at 30 September 2003 30 Sept 2003 30 Sept 31 Mar 2002 2003 unaudited unaudited audited Note £'000 £'000 £'000 Fixed assets Intangible fixed assets 9,462 - 100 Tangible fixed assets 2,358 2,053 1,980 Investment 1,099 - - 12,919 2,053 2,080 Current assets Stock 172 1,295 687 Debtors 11,112 7,868 6,526 Bank - short term investments 10,210 7,500 9,510 Cash at bank and in hand 2,865 3,023 2,475 24,359 19,686 19,198 Creditors: amounts falling due within one year (18,187) (9,797) (9,333) Net current assets 6,172 9,889 9,865 Total assets less current liabilities 19,091 11,942 11,945 Creditors: amounts falling due after more than one year (2,345) (44) (4) Provisions for liabilities and charges (617) (617) (342) Net assets 16,129 11,281 11,599 Capital and reserves 4 Called up share capital 646 518 519 Shares to be issued 268 - 38 Share premium account 11 72,432 72,461 Merger reserve 5,735 - - Profit and loss account 9,827 (61,841) (61,429) Total equity shareholders' funds 5 16,487 11,109 11,589 Minority interests (358) 172 10 Capital employed 16,129 11,281 11,599 Consolidated cash flow statement for the six months ended 30 September 2003 6 months 6 months Year ended ended ended 30 Sept 2003 30 Sept 31 Mar 2002 2003 unaudited unaudited audited £'000 £'000 £'000 Note Net cash inflow/(outflow) from operating activities 6 1,110 (2,910) (1,109) Return on investments and servicing of finance Net interest 161 177 411 Taxation 89 - 121 Capital expenditure and financial investment Purchase of tangible fixed assets (288) (714) (1,350) Proceeds for sale of tangible fixed assets - - 10 (288) (714) (1,340) Acquisitions and disposals Costs of purchase of subsidiary undertaking (126) - - Net cash acquired with subsidiary undertaking 149 - - Consideration paid in respect of prior period acquisitions - (100) (637) Refund of consideration paid in respect of prior year - - 500 acquisitions 23 (100) (137) Cash inflow/(outflow) before use of liquid resources and 1,095 (3,547) (2,054) financing Management of liquid resources (Increase)/decrease in short-term investments (700) 3,000 990 Financing Issue of shares 11 5 5 Share issue costs - - (7) Capital element of finance lease payments (16) (35) (59) (5) (30) (61) Increase/(decrease) in cash in the period 390 (577) (1,125) Notes to the half-year results 1. Basis of preparation The financial statements for the six months ended 30 September 2003 have been prepared using accounting policies consistent with those set out in the Company's consolidated 2003 statutory accounts. 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 six months ended 30 September 2002 has been extracted from the accounting records of the Group. The balances as at 31 March 2003 and the results for the year then ended 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 six months ended 30 September 2003 were approved by the Board on 12 December 2003 and will be posted on the Company's web site, www.eckoh.com, on 15 December 2003. 2. Segmental analysis - for the six months ended 30 September 2003 The Company operates as a single integrated business. No segmental information is thus presented. In addition, there are no material foreign entities and segmental information by geographical area is therefore not presented. 3. Earnings/(loss) per ordinary share of 0.25p each 6 months 6 months Year ended ended ended 30 Sept 30 Sept 31 March 2003 2002 2003 £'000 £'000 £'000 (Loss)/profit for the period before the following: (576) (157) 230 Intangible asset amortisation and impairment (209) (7,263) (7,313) Exceptional items (114) - - Loss on closure of subsidiary undertaking (424) - - Provision against fixed asset investment - (2,000) (2,000) Loss for the period (1,323) (9,420) (9,083) Weighted average number of shares in the period: Basic and diluted 209,279,809 206,952,297 207,188,362 Basic (loss)/earnings per share before intangible asset amortisation (0.3p) (0.1p) 0.1p and impairment and exceptional items Intangible asset amortisation and impairment (0.1p) (3.5p) (3.5p) Exceptional items - - - Loss on closure of subsidiary undertaking (0.2p) - - Provision against fixed asset investment - (1.0p) (1.0p) Basic and diluted loss per share (0.6p) (4.6p) (4.4p) None of the share options in issue give rise to a dilution in the loss per share. 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 2003 519 38 72,461 - (61,429) Loss for the period - - - - (1,323) Exchange adjustments offset in reserves - - - - 21 Cancellation of share premium account - - (72,461) - 72,461 Shares issued in respect of share options - - 11 - - exercised Shares issued and to be issued in connection 127 268 - 5,832 - with the acquisition of a subsidiary undertaking Movement in fair value of contingent share - (38) - - consideration for acquisitions in prior years Realisation of merger reserve - - - (97) 97 At 30 September 2003 646 268 11 5,735 9,827 On 24 September 2003, following a successful court application, the balance on the share premium account at 31 March 2003 was cancelled, resulting in a credit to distributable reserves. 5. Reconciliation of movement in equity shareholders' funds 6 months 6 months Year ended ended ended 31 30 Sept 30 Sept March 2003 2002 2003 £'000 £'000 £'000 Opening equity shareholders' funds 11,589 20,676 20,676 Loss for the period (1,323) (9,420) (9,083) Share consideration for acquisition of subsidiary undcertaking 6,227 - - Net movement in contingent share consideration for acquisition in a prior (38) (152) (77) year Employee share options exercised 11 5 5 Share issue costs - - (7) Exchange adjustments offset in reserves 21 - 75 Closing equity shareholders' funds 16,487 11,109 11,589 6. Net cash inflow/(outflow) from operating activities 6 months 6 months Year ended ended ended 31 30 Sept 30 Sept March 2003 2002 2003 £'000 £'000 £'000 Operating loss (1,031) (7,454) (7,472) Depreciation and impairment of tangible fixed assets 723 623 1,327 Amortisation and impairment of intangible fixed assets 209 7,263 7,313 Decrease/(increase) in stock 515 (794) (186) Decrease/(increase) in debtors 422 1,686 2,866 Increase/(decrease) in creditors/provisions 696 (4,234) (4,952) Loss on disposal of tangible fixed assets - - (5) Loss on closure of subsidiary operation (424) - - 1,110 (2,910) (1,109) 7. Acquisition of Intelliplus Group plc Accounting policy Book alignment Provisional value of fair value net Revaluations assets £'000 £'000 £'000 £'000 Net liabilities acquired: Intangible fixed assets 10,621 (10,621) - - Tangible fixed assets 1,357 (544) - 813 Investments 1,099 - - 1,099 Debtors 5,134 - (126) 5,008 Cash at bank 149 - - 149 Creditors (9,891) - (442) (10,333) Fair value of net liabilites 8,469 (11,165) (568) (3,264) Add: minority interest in net liabilities 486 Fair value of net liabilities acquired (2,778) Goodwill 9,572 Consideration 6,794 Consideration satisfied by: Shares 6,227 Acquisition costs 567 6,794 On 3 September 2003, following the passing of resolutions at an Extraordinary General Meeting approving the issue of shares in consideration of the acquisition of Intelliplus Group plc ("Intellplus"), Eckoh had acquired more than 50% acceptances to the Offer for Intelliplus. The directors consider that 3 September 2003 is therefore the date control was transferred to Eckoh for consolidation purposes. The Offer was declared unconditional in all aspects on 10 September 2003. From the date of acquisition Intelliplus contributed £2.1m to group turnover and £0.1m of losses to group operating loss. In its last financial year to 31 March 2003, Intellipus made a loss after tax of £1.2m. For the period since that date to the date of acquisition, Intelliplus' unaudited management accounts show it had generated £11.0m of turnover and incurred a £0.9m loss after tax. -------------------------- (1) Earnings before interest, taxation, depreciation and amortisation This information is provided by RNS The company news service from the London Stock Exchange

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