3rd Quarter Results

Intec Telecom Systems PLC 19 August 2003 Intec Telecom Systems PLC - Unaudited results for the nine months ended 30 June 2003 EBITDA up 225% to £2.6 million; operating cash inflow increased to £5.5 million Intec Telecom Systems PLC ("Intec" or "the Company"), a leading provider of telecoms Operations Support Systems ("OSS"), is pleased to announce its unaudited results for the nine months ended 30 June 2003. Substantial improvements in operating expenses compared to the equivalent period in 2002 (" 9m 2002"), combined with revenues that have proved robust in a difficult and competitive business environment, have allowed the Company to approximately triple EBITDA profitability and to deliver positive operating cashflow of £5.5 million. Adjusted earnings per share ("EPS") has also increased to earnings of 0.53p (9m 2002 - adjusted loss per share of 0.66p.) The final quarter of 2003 has begun well, with a number of important new deals already signed after the quarter end. Although we are still subject to many external factors and new business remains to be closed, current visibility allows us to be cautiously confident, as in previous years, of meeting full year expectations. HIGHLIGHTS • Nine months' revenues of £33.2 million (9m 2002: - £34.1 million) despite the impact of significant depreciation of the US Dollar affecting 46% of revenues. • 225% increase in earnings before interest, tax, depreciation, and amortisation ("EBITDA") to £2,596,000 (9m 2002: £800,000). • Positive operating cashflow of £5.5 million (9m 2002: inflow of £0.8 million) - the year to date cash inflow is twice the 2002 full year figure. • Adjusted earnings per share of 0.53 pence (9m 2002: adjusted loss per share of 0.66 pence). • Recurring revenue, up 22% compared to the same period in 2002, now represents 53% of turnover. • Loss before tax was £3.9 million (9m 2002: loss of £12.8 million), after amortisation of goodwill and intangible assets of £5.3 million (9m 2002: £12.2 million) and depreciation of £1.4 million (9m 2002: £1.3 million). • 71 new name customers, including 31 from the acquisition of the Settler business from Ericsson. • Customer installations reach 476 with important wins in Australia, China, Colombia, the Czech Republic, India, Ireland, Italy, Jamaica, South Africa, Venezuela, the UK and the US. • Intec remains fully funded with cash and cash equivalent investments increased to £14.0 million (30 June 2002: £11.8 million) after payment of £3.1 million for the Settler business. • Intec wins "Telestrategies Mediation Excellence Award" for second year running in June. "Intec has remained focused on its objective of improved operating performance in a market that remains competitive, price-sensitive and capex-constrained," says Intec's Executive Chairman, Mike Frayne. "We have been able to improve sales productivity, cut administrative costs, and increase development group efficiency while sustaining overall revenues. Another strong quarter of cash flow performance and improved earnings per share demonstrate the success of our strategy in the current market." "Intec continues to develop as a business, both in its operating performance and in its internal processes. In the current market our focus is on the best possible business performance today, combined with investment in key areas for the future," adds Chief Executive, Kevin Adams. "We have won some very important deals in the period, beating off strong competition and increasing our market share." For further information: Kevin Adams, CEO Intec Telecom Systems PLC +44 (0) 1483 745800 kevin.adams@intec-telecom-systems.com Andrew Rodaway Intec Telecom Systems PLC +44 (0) 7768 808082 andrew.rodaway@intec-telecom-systems.com Cubitt Consulting Fergus Wylie/Sarah Brydon +44 (0) 20 7367 5100 fergus.wylie@cubitt.com Chairman's and CEO's Statement Overview In the first nine months of its 2003 financial year Intec has worked hard to deliver further improvements in operating performance against the backdrop of an OSS market which remains flat, with continuing difficult and competitive market conditions. Intec has improved its operating efficiency in a number of areas, particularly the principal cost contributors of distribution, development and administration, leading to a welcome increase in EBITDA margin and adjusted earnings per share. Operating cash inflow remains positive, and we continue to be successful in collecting cash from our growing customer base, producing a further strengthening of our cash position. A total of 40 new customer contracts have been signed in the nine months under review, in a market where new licence business is very challenging. Adding 31 customers acquired with the Settler business brings the total to 71, representing 476 installations in around 70 countries. Total revenues for the period amounted to £33.2 million (9m 2002: £34.1 million), a strong result given an adverse impact of approximately 6% due to the depreciation of the US Dollar. Despite this small revenue drop, lower operating costs produced an increase in EBITDA of 225% to £2,596,000 (9m 2002: £800,000). Operating cash inflow was £5.5 million. This is the sixth successive quarter of positive cashflow. The external market environment remains very competitive, with carriers still cautious about capital expenditure, although we believe that many customers are now reviewing investment plans and initiating new OSS projects. Intec continues to pursue high quality opportunities in all established markets, as well actively selling into the most active developing sectors, such as China and Eastern Europe. In the period Intec gained certification to the TL9000 and ISO 9001 quality management standards for its Atlanta-based mediation development processes. Ongoing investment in both new and existing products to ensure they remain true market leaders remains the cornerstone of our development process. Despite substantial growth in our product portfolio, expenditure on development has risen only moderately, as efficiencies generated through structural and technical changes in Product Operations continue to show benefit. During the period we concluded the acquisition of the 'Settler' business of Ericsson, our major competitor in the interconnect billing market. With this acquisition Intec has expanded its base of supported customers by 31 carriers, and acquired a new business partner in Ericsson. Technology acquired from Ericsson has also been used to launch new products and strengthen our product roadmap in other areas. Operational Review During the period under review new customers were signed in Australia, China, Colombia, the Czech Republic, Ireland, India, Italy, Jamaica, South Africa, Venezuela, the UK and the US. Notable recent wins included InterconnecT at Slovak Telecom, a large replacement mediation project for a major European PTT, and InterconnecT and InterconnecT ITU at a substantial fixed-line provider in Australia. Our acquisition of the 'Settler' business from Ericsson, now rebranded as InterconnecT Settler, has taken us into a number of new markets and brought valuable extra technical capabilities. In addition to the core Settler product, two additional systems, InterconnecT Automated Reconciliation and InterconnecT Optimised Routing, both based on acquired Ericsson technology, have been successfully launched and are operating in customer sites. This acquisition is also contributing in a valuable way to next-generation products. In June we announced the Intec Dynamic Charging Platform (DCP), a new solution aimed at mobile operators bringing next-generation services to their customers. Intec DCP, which is complementary to our existing mediation solution, will allow operators to connect a wide range of complex network systems with the billing and rating platforms that are essential to revenue generation from complex services such as multimedia downloads, video messaging, online gaming and entertainment. We believe Intec DCP will be of interest to any mobile operator wanting to bill for complex, next-generation services, and we are already in discussion with a number of customers about this innovative and important product. Our core products InterconnecT and Inter-mediatE are both the subject of major development programs aimed at ensuring they retain their technical leadership in the marketplace. Important new versions of both products are due in the next year. The InterconnecT family is the clear market leader worldwide, with over 275 installations. Inter-mediatE, with the award of the 'Telestrategies Mediation Award for Excellence 2003' in June for the second year running, based on customer testimonials, continues to be the industry's most successful convergent mediation solution. Over 130 carriers worldwide rely on Inter-mediatE. InterconnecT CABS CG continues to build its market share with over 115 US operators now relying on it for access charge billing. We have consolidated our two US service bureaus into one, with all operations now centred in Dallas, Texas. Acquisition update Intec continues its long-term policy of business expansion through both organic development and carefully evaluated and managed acquisitions. Our December 2002 acquisition of Ericsson's 'Settler' business unit, a major competitor in the interconnect billing market, has helped us acquire a number of new customers in recent months as well as delivering satisfactory support revenues. With the recent move of our acquired staff to new premises in Sweden, the integration is virtually complete. Many other opportunities exist in the OSS market. Intec actively seeks out and reviews candidate companies and technologies. Our criteria for pursuing these are unchanged - high-quality companies with complementary technologies or useful market share that we believe will strengthen the Intec business and build long-term shareholder value. Corporate Developments Intec reviews its operating requirements on a continual basis to ensure we have the staff, offices, processes and resources required to meet our business objectives. In the current OSS marketplace, where pricing pressure and strong competition dominate the environment, Intec has been working to ensure it gains productivity from its asset base. All expenditure is subject to critical review, up to Board level if necessary, to eliminate any unproductive costs. We also strive to deploy or re-deploy staff to maximum effectiveness, with loss of experienced people only a very last resort. On a like for like basis, Intec staff numbers at 30 June 2003 were 490 compared to 500 at 30 September 2002. Including 31 new staff from the Settler acquisition, total staff numbers at 30 June 2003 were 521. Financial Review As previously reported Intec experiences a degree of unevenness in quarterly revenues, primarily due to long sales cycles, uncertainty in the closure dates of new contracts, and generally challenging market conditions. Total reported revenues, amounting to £33.2 million, are £0.99 million or 3% lower than the equivalent nine- month period in 2002. Both periods included a figure close to £1 million for revenues from acquired businesses. We believe that the small variation in overall revenue is consistent with normal quarterly variations, particularly in view of the depreciation of the US Dollar. Licence sales of £6.0 million (18% of turnover) are lower than the £10.2 million reported in the first nine months of 2002. New licences continue to be the most challenging area of the OSS business, although Intec has still been able to secure high value contracts based on a strong business proposition, and we continue to outperform major competitors in terms of new deal flow. Recurring revenues, which consist of support and maintenance, volume upgrades, bureau and support business, once again increased, at £17.4 million (53%) of turnover, up 22% from £14.3 million (42%) for nine months of 2002. This includes a contribution of £0.9 million from the Settler business acquisition. Customer churn remains at exceptionally low levels, with the very small number of contract terminations we experience almost exclusively within small start-up or merged businesses. Professional services income, including contracted implementation and consultancy services, has also increased slightly to £9.7 million (29%) from £9.6 million (28%) in 2002. In terms of regional contribution North America and Asia Pacific have experienced the most challenging trading conditions. Pricing pressure in the low-cost markets of Asia, and reluctance amongst US carriers to embark on major capex projects are the key factors. EMEA contributed 42% of turnover, North America 35%, CALA 13%, and Asia-Pacific 10%. Gross margin increased slightly to 68% (9 months 2002: 67%), largely reflecting more efficient use of internal and external resources for implementations. An 18% decrease in distribution costs from £7.8 million to £6.5 million reflects, in the main, reduced partner fee and commission payments due to reduced licence sales. Investment in our product portfolio remains strong at £6.9 million (9m 2002 £6.0 million). This increase reflects both the Settler development team (£0.8 million expenditure in the period), our expanded product portfolio, and next-generation product versions. Given these factors, overall efficiency of development effort has increased considerably as a result of ongoing structural and technical changes within Product Operations. For example, in a number of projects we are sharing development effort across different products in areas such as user interfaces. Administrative costs decreased by 17% to £6.7 million (9m 2002: £8.1 million) due to the depreciation of the US Dollar, continuing attention to cost control across the business and the reassignment of senior executives to product management. In addition, as mentioned in our 2002 annual report, items of non-recurring expenditure such as legal costs for the resolved BT litigation increased our costs throughout 2002. Goodwill amortisation charges have increased from £4.7 million in 2002 to £5.3 million in the current period, reflecting additional goodwill amortisation from the current year Settler acquisition (amortised over four years) and the former ICL Sims/Prospero business acquired in the second quarter of 2002. No provision for goodwill impairment has been considered necessary. Operating loss of £4.1 million is a significant improvement over the £12.7 million operating loss reported in the prior period, reflecting both lower overall costs in a number of areas and the absence of a goodwill impairment charge. Excluding the goodwill impairment charges, operating loss was 24% lower than the previous period. We are pleased to report that cash and cash investments at 30 June 2003 have increased to £14.0 million, after payment of £3.1 million (including acquisition costs) for the Ericsson Settler business. Positive operating cash inflows of £5.5 million reflect ongoing improvement in cash collections and the subsequent effect of cost control measures taken throughout the group. Intec's annualised debtor days including maintenance renewals are 100 days compared to 105 days as at 30 September 2002 and 109 days reported at 30 June 2002. Successful cash collections have continued during the fourth quarter. Collections to date are now in excess of the full year figure for 2002. Outlook In the nine months to 30 June 2003 Intec has focused on winning good quality new business, sustaining and extending revenues from existing customers, and managing costs proactively. Despite the highly competitive telecoms marketplace Intec has been able to deliver operating results that are well within the range of management expectations and normal quarterly fluctuations. Intec continues to invest in creating an expanding, world-class product portfolio through its worldwide development organisation. With several new products recently launched, and updated versions of core products in the pipeline, we believe we are very well positioned for future market improvements. The final quarter of 2003 has begun well, with a number of important new deals signed after the quarter end. Although we are still subject to many external factors and new business remains to be closed, current visibility allows us to remain cautiously confident of meeting full year expectations. Mike Frayne, Executive Chairman Kevin Adams, Chief Executive Officer 18 August 2003 FINANCIAL HIGHLIGHTS 9 months ended 30 June 2003 Unaudited Unaudited Audited 9 months ended 9 months ended Year ended 30 June 30 June 30 September Note 2003 2002 2002 £000 £000 £000 Turnover 33,161 34,147 47,474 EBITDA before exceptional items (i) 2,596 800 3,739 Operating loss (4,115) (12,675) (13,325) Basic loss per share (2.25)p (7.35)p (7.94)p Adjusted earnings/(loss) per share (ii) 0.53p (0.66)p 0.46p Notes to the financial highlights £000 £000 £000 (i) Operating loss (4,115) (12,675) (13,325) Depreciation 1,431 1,273 1,745 Amortisation of goodwill and other intangible assets 5,280 4,738 7,079 Impairment of goodwill - 7,464 7,464 Exceptional item (Poland debtor provision) - - 776 EBITDA before exceptional items 2,596 800 3,739 (ii) Adjusted earnings/(loss) per share based on following adjusted loss after tax Loss after tax (4,281) (13,608) (14,782) Amortisation of goodwill and other intangible assets 5,280 4,738 7,079 Impairment of goodwill - 7,464 7,464 Write down of investments - 175 321 Exceptional item (Poland debtor provision) - - 776 Adjusted earnings/(loss) after tax 999 (1,231) 858 KEY CUSTOMER DATA 30 June 30 September 30 June 2003 2002 2002 Number Number Number Cumulative: Contracted customer base 306 272 263 Contracted customers acquired 31 - - Total contracted customer base 337 272 263 Contracted installations 427 383 353 Contracted installations acquired 49 - - Total contracted installations 476 383 353 CONSOLIDATED PROFIT AND LOSS ACCOUNT 9 months ended 30 June 2003 Unaudited Unaudited Audited 9 months ended 9 months ended Year ended 30 June 30 June 30 September 2002 Note 2003 2002 £000 £000 £000 TURNOVER Continuing operations 32,230 34,147 47,474 Acquisitions 5 931 - - Total turnover 2 33,161 34,147 47,474 Cost of sales (10,556) (11,422) (15,430) GROSS PROFIT 22,605 22,725 32,044 Distribution costs (6,462) (7,844) (9,945) Administrative expenses: Development expenditure (6,900) (6,043) (8,026) Amortisation of goodwill and other intangible assets (5,280) (4,738) (7,079) Impairment of goodwill - (7,464) (7,464) Exceptional item - - (776) Other administrative expenses (8,078) (9,383) (12,079) Total administrative expenses (20,258) (27,628) (35,424) OPERATING LOSS Continuing operations (3,654) (12,747) (13,325) Acquisitions (461) - - GROUP OPERATING LOSS (4,115) (12,747) (13,325) Share of operating loss in associate - 72 - Total operating loss (4,115) (12,675) (13,325) Amounts written off investments - (175) (321) Interest receivable and similar income 296 395 494 Interest payable and similar charges (51) (320) (331) LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION (3,870) (12,775) (13,483) Tax charge on loss on ordinary activities 3 (411) (833) (1,299) LOSS ON ORDINARY ACTIVITIES AFTER TAXATION AND RETAINED FOR THE FINANCIAL PERIOD (4,281) (13,608) (14,782) Loss per share - basic 4 (2.25)p (7.35)p (7.94)p CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES 9 months ended 30 June 2003 Unaudited Unaudited Audited 9 months ended 9 months ended Year ended 30 June 30 June 30 September 2002 2003 2002 £000 £000 £000 Loss for the financial period (4,281) (13,608) (14,782) Exchange translation differences arising on Foreign currency net investments (206) (502) (557) Total recognised gains and losses in the period (4,487) (14,110) (15,339) CONSOLIDATED BALANCE SHEET 30 June 2003 Unaudited Unaudited Audited 30 June 30 June 30 September 2002 Note 2003 2002 £000 £000 £000 FIXED ASSETS Intangible assets 61,430 65,127 63,422 Tangible assets 2,761 3,051 2,910 Investments 101 331 101 64,292 68,509 66,433 CURRENT ASSETS Stocks 29 80 64 Debtors 6 16,912 18,232 17,965 Investments 5,412 643 5,151 Cash at bank and in hand 8,633 11,152 8,156 30,986 30,107 31,336 CREDITORS: falling due within one year 7 (6,981) (6,180) (5,796) NET CURRENT ASSETS 24,005 23,927 25,540 TOTAL ASSETS LESS CURRENT LIABILITIES 88,297 92,436 91,973 Deferred income (6,523) (5,616) (5,766) NET ASSETS 81,774 86,820 86,207 CAPITAL AND RESERVES Called up share capital 8 1,906 1,881 1,903 Share premium account 8 238,703 238,058 238,652 Merger reserve 8 249 249 249 Foreign exchange reserve 8 (914) (653) (708) Profit and loss account 8 (158,170) (152,715) (153,889) EQUITY SHAREHOLDERS' FUNDS 81,774 86,820 86,207 RECONCILIATION OF MOVEMENT IN CONSOLIDATED SHAREHOLDERS' FUNDS 9 months ended 30 June 2003 Unaudited Unaudited Audited 30 June 30 June 30 September 2002 2003 2002 £000 £000 £000 Loss for the financial period (4,281) (13,608) (14,782) Other recognised gains and losses relating to the period (206) (502) (557) Issue of share capital net of associated expenses 54 2,737 3,353 Movement on contingent consideration on acquisitions - (2,497) (2,497) Decrease in shareholders' funds (4,433) (13,870) (14,483) Opening shareholders' funds 86,207 100,690 100,690 Closing shareholders' funds 81,774 86,820 86,207 CONSOLIDATED CASH FLOW STATEMENT 9 months ended 30 June 2003 Unaudited Unaudited Audited 9 months ended 9 months ended Year ended 30 June 30 June 30 September 2002 Note 2003 2002 £000 £000 £000 Net cash inflow from operating activities (i) 5,512 845 2,770 Returns on investments and servicing of finance Interest received 291 374 494 Interest element of finance lease rental payments - (4) (4) Interest paid and similar items (46) (315) (327) 245 55 163 Taxation Overseas taxation paid (452) (258) (378) UK corporation taxation received/(paid) - 2 (10) (452) (256) (388) Capital investment Payments to acquire tangible fixed assets (1,176) (1,314) (1,651) Proceeds on disposal of fixed assets 2 49 59 (1,174) (1,265) (1,592) Acquisitions Investment in subsidiaries (see note 5) (3,400) (5,061) (5,222) Net cash acquired with subsidiaries - 6 (3,400) (5,061) (5,216) Cash inflow/(outflow) before management of liquid resources and financing 731 (5,682) (4,263) Use of liquid resources (Increase)/decrease in cash investments/term deposits (250) 2,248 (2,252) Payments received from escrow - 53 52 Financing Issue of ordinary share capital 54 - - New bank loan 219 - - Repayment of bank loan (219) - - Capital element of finance lease rental payments - (156) (188) Increase/(decrease) in cash in the period (ii), (iii) 535 (3,537) (6,651) NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT 9 months ended 30 June 2003 Unaudited Unaudited Audited 9 months ended 9 months ended Year ended 30 June 30 June 30 September 2002 2003 2002 £000 £000 £000 (i) Reconciliation of operating loss to net cash inflow/(outflow) from operating activities Operating loss (4,115) (12,747) (13,325) Depreciation 1,431 1,273 1,745 Amortisation of goodwill and other intangible assets 5,280 4,738 7,079 Impairment of goodwill - 7,464 7,464 Loss/(profit) on disposal of fixed assets 36 (21) (25) Decrease/(increase) in stocks 33 (55) (39) Decrease/(increase) in debtors 590 (178) (172) Increase/(decrease) in creditors 2,257 371 43 Net cash inflow from operating activities 5,512 845 2,770 (ii) Reconciliation of net cash flow to movement in net funds Increase/(decrease) in cash in the period 535 (3,537) (6,651) Net cash outflow from decrease in debt and lease financing - 156 188 Net cash (inflow)/outflow from (decrease)/ increase in liquid resources 250 (2,301) 2,200 Change in net funds resulting from cash flows 785 (5,682) (4,263) Translation differences (47) (320) (195) Movement in net funds in the period 738 (6,002) (4,458) Net funds at 1 October 13,307 17,765 17,765 Net funds at 30 June / 30 September 14,045 11,763 13,307 (iii) Analysis of movement in net funds ' Audited Unaudited 1 October Exchange 30 June 2002 Cash flow movement 2003 £000 £000 £000 £000 Cash in hand and at bank 8,156 535 (58) 8,633 Cash investments and term deposits 5,151 250 11 5,412 13,307 785 (47) 14,045 Notes to the unaudited interim financial information 9 months ended 30 June 2003 1. BASIS OF PREPARATION The interim financial information has been prepared in accordance with accounting policies set out in, and is consistent with, the Group's 2002 financial statements except for the taxation charge for the period, which is based on the estimated charge for the year ending 30 September 2003. The interim financial information is neither reviewed nor audited and does not comprise statutory accounts for the purposes of Section 240 of the Companies Act 1985. The abridged information for the year ended 30 September 2002 has been extracted from the Group's statutory accounts for that period, which have been filed with the Registrar of Companies following the 2002 Annual General Meeting. The auditors' report on the statutory accounts of the Group for that period was unqualified and did not contain a Statement under either Section 237(2) or Section 237(3) of the Companies Act 1985. The interim financial information was approved by the Board of Directors on 18 August 2003. 2. TURNOVER AND SEGMENTAL REPORTING Turnover by origin Unaudited Unaudited 9 months ended 30 June 2003 9 months ended 30 June 2002 Inter- Inter- Total segment External Total segment External turnover turnover turnover turnover turnover turnover £000 £000 £000 £000 £000 £000 United Kingdom 16,795 (250) 16,545 15,701 (1,297) 14,404 Continental Europe 20 - 20 155 - 155 Asia-Pacific 308 - 308 1,439 - 1,439 North America & Canada 16,524 (1,256) 15,268 17,462 (231) 17,231 South America 1,020 - 1,020 918 - 918 34,667 (1,506) 33,161 35,675 (1,528) 34,147 Audited Year ended 30 September 2002 Inter- Total segment External turnover turnover turnover £000 £000 £000 United Kingdom 21,148 (1,509) 19,639 Continental Europe 166 - 166 Asia-Pacific 1,758 - 1,758 North America & Canada 25,566 (600) 24,966 South America 945 - 945 49,583 (2,109) 47,474 2. TURNOVER AND SEGMENTAL REPORTING (continued) Turnover by destination Unaudited Unaudited Audited 9 months ended 9 months ended Year ended 30 June 30 June 30 September 2003 2002 2002 £000 £000 £000 United Kingdom 3,562 2,709 3,519 Continental Europe 7,023 7,428 9,753 Eastern Europe 2,174 1,051 1,235 Middle East 387 93 728 Africa 736 1,519 1,687 Asia-Pacific 3,354 4,883 5,521 North America & Canada 11,638 13,219 21,058 South America 4,287 3,245 3,973 33,161 34,147 47,474 Turnover by activity Unaudited Unaudited Audited 9 months ended 9 months ended Year ended 30 June 30 June 30 September 2003 2002 2002 £000 £000 £000 Licence sales 6,029 10,214 15,481 Professional services income: Implementation, migrations, consulting and training 7,986 7,224 8,730 Hardware 84 165 576 Non-telecom custom network solutions 1,644 2,243 2,957 9,714 9,632 12,263 Recurring income: ASP Service 2,509 2,012 2,761 Volume upgrade licences 1,555 1,226 1,928 Support and maintenance fees 13,354 11,063 15,041 17,418 14,301 19,730 33,161 34,147 47,474 2. TURNOVER AND SEGMENTAL REPORTING (continued) Loss before taxation Unaudited 9 months ended 30 June 2003 Before After amortisation of amortisation of goodwill Amortisation of goodwill goodwill £000 £000 £000 United Kingdom 632 (1,885) (1,253) Continental Europe 132 - 132 Asia-Pacific 49 - 49 North America & Canada 135 (3,395) (3,260) South America 462 - 462 1,410 (5,280) (3,870) The segmental analysis of loss before taxation for the nine months ended 30 June 2003 includes intercompany interest charged from the UK to North America & Canada of £2,510,088 (30 June 2002 - £3,114,000). Unaudited 9 months ended 30 June 2002 Before After amortisation of amortisation of goodwill, goodwill, impairment and impairment and exceptional Amortisation of Goodwill Exceptional exceptional items goodwill impairment items items £000 £000 £000 £000 £000 United Kingdom 524 (1,154) (1,684) (175) (2,489) Continental Europe 470 (7) - - 463 Asia-Pacific (1) (330) (5,780) - (6,111) North America & Canada (1,535) (3,247) - - (4,782) South America 144 - - - 144 (398) (4,738) (7,464) (175) (12,775) Audited Year ended 30 September 2002 Before After amortisation of amortisation of goodwill, goodwill, impairment and impairment and exceptional Amortisation of Goodwill Exceptional exceptional items goodwill impairment items items £000 £000 £000 £000 £000 United Kingdom 677 (2,200) (1,684) (1,097) (4,304) Continental Europe 185 (74) - - 111 Asia-Pacific 187 (420) (5,780) - (6,013) North America & Canada 948 (4,385) - - (3,437) South America 160 - - - 160 2,157 (7,079) (7,464) (1,097) (13,483) Exceptional items in the year ended 30 September 2002 comprise amounts written off investments of £321,000 and a £776,000 provision against the debtor balance due from the associate company in Poland. 2. TURNOVER AND SEGMENTAL REPORTING (continued) Net assets/ (liabilities) by origin Unaudited Unaudited Unaudited Unaudited Audited 30 June 30 June 30 June 30 June 30 September 2003 2003 2003 2002 2002 Excluding Including Including Including unamortised Unamortised Unamortised Unamortised Unamortised goodwill goodwill goodwill goodwill goodwill £000 £000 £000 £000 £000 United Kingdom 12,352 3,867 16,219 18,967 17,125 Continental Europe (145) - (145) (107) (58) Africa (227) - (227) - (464) Asia-Pacific 28 - 28 885 494 North America & Canada 9,245 56,241 65,486 66,441 68,902 South America 413 - 413 634 208 21,666 60,108 81,774 86,820 86,207 3. TAX CHARGE ON LOSS ON ORDINARY ACTIVITIES Unaudited Unaudited Audited 30 June 30 June 30 September 2003 2002 2002 £000 £000 £000 Current taxation: UK corporation tax at 30% (2002: 30%) - - - Overseas taxation 381 749 1,098 Prior year 30 76 273 Share of tax in associate - 8 - Total current tax 411 833 1,371 Deferred taxation: Origination and reversal of timing differences - - (72) Tax on loss on ordinary activities 411 833 1,299 i) The major trading companies in the UK and the US have not incurred corporate tax liabilities. However, the group has suffered corporate taxation in a number of its overseas trading subsidiaries and branches amounting to £0.2 million. The remainder of the tax charge is in respect of withholding tax, which is deducted at source in certain jurisdictions and which the group does not expect to recover, amounting to £0.2 million. ii) The US operations have substantial ongoing tax benefits arising from goodwill allowances that will continue to ameliorate tax charges against profits in future periods. In addition, there are significant losses brought forward in the US. 4. (LOSS)/EARNINGS PER ORDINARY SHARE Unaudited Unaudited Audited 9 months ended 9 months ended Year ended 30 June 30 June 30 September 2003 2002 2002 £000 £000 £000 Basic loss (4,281) (13,608) (14,782) Amortisation of goodwill and intangible assets 5,280 4,738 7,079 Impairment of goodwill - 7,464 7,464 Amounts written off investments - 175 321 Exceptional item (Poland debtor provision) - - 776 Adjusted earnings/(loss) 999 (1,231) 858 Number Number Number Weighted average number of shares 190,522,730 185,241,561 186,219,551 Pence Pence Pence Basic loss per ordinary share (2.25) (7.35) (7.94) Amortisation of goodwill and other intangible assets 2.78 2.56 3.80 Impairment of goodwill - 4.03 4.01 Amounts written off investments - 0.10 0.17 Exceptional item (Poland debtor provision) - - 0.42 Adjusted earnings/(loss) per ordinary share 0.53 (0.66) 0.46 Diluted earnings/(loss) per share is not presented in respect of outstanding share options since none of the options are dilutive. 5. ACQUISITIONS a) Current period acquisitions On 18 December 2002, the group acquired Ericsson AB's 'Settler' interconnect billing product unit, including the Settler development team and worldwide rights to develop and market the Settler product range. The total consideration, settled in cash, amounted to US$5.1 million (£3.0 million plus acquisition costs of £0.1 million) as disclosed below. Goodwill arising on acquisition has been capitalised and is being amortised over four years from the date of acquisition. Goodwill charged in the period amounts to £440,000. Turnover from acquisitions of £931,000 is for the period from 18 December to 30 June 2003. Provisional Net liabilities at date of acquisition and provisional fair value fair value £'000 Creditors (176) Goodwill arising on acquisition 3,299 3,123 Consideration paid in cash 2,990 Acquisition costs 133 3,123 In addition to the above, a share option was granted to the advisers to the acquisition. This option vested on successful closure of the acquisition and was exercisable immediately. 293,121 ordinary shares were issued at 20.2 pence per share. b) Prior year acquisitions Deferred consideration of £277,000 was paid in respect of the operational support systems business acquired from ICL, a Fujitsu company. c) Reconciliation to cash flow statement £000 Consideration for Settler business 2,990 Acquisition costs 133 Deferred consideration payments on prior year acquisition 277 3,400 6. DEBTORS Unaudited Unaudited Audited 30 June 30 June 30 September 2003 2002 2002 £000 £000 £000 Trade debtors 12,807 13,467 13,676 Corporation tax recoverable 196 196 196 Deferred tax 96 - 72 Withholding tax recoverable 19 - - Other debtors 87 746 301 Accrued income 2,582 2,334 2,571 Prepayments due within one year 1,125 1,489 1,149 16,912 18,232 17,965 7. CREDITORS Unaudited Unaudited Audited 30 June 30 June 30 September 2003 2002 2002 £000 £000 £000 Falling due within one year: Obligations under finance leases - 32 - Trade creditors 1,438 1,852 1,767 Corporation tax 454 454 454 Overseas tax 308 76 516 Other creditors including taxation and social security 1,275 779 686 Accruals 3,080 2,169 1,670 Deferred/contingent consideration 426 818 703 6,981 6,180 5,796 8. STATEMENT OF MOVEMENTS ON SHARE CAPITAL AND RESERVES Called Share Foreign Profit premium exchange and loss up share account Merger reserve account reserve capital Total £000 £000 £000 £000 £000 £000 At 1 October 2002 1,903 238,652 249 (708) (153,889) 86,207 Issue of ordinary shares net of expenses 3 51 - - - 54 Loss for the period - - - - (4,281) (4,281) Foreign exchange translation - - - (206) - (206) At 30 June 2003 1,906 238,703 249 (914) (158,170) 81,774 END This information is provided by RNS The company news service from the London Stock Exchange ILUBGGXI

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