Final Results

Intec Telecom Systems PLC 25 November 2003 Intec Telecom Systems PLC - Audited Preliminary results for the year ended 30 September 2003 Adjusted profit before tax up 150% to £5.4 million on turnover increased 7% to £50.7 million; substantial growth in customer base to over 550 installations. Intec Telecom Systems PLC (LSE:ITL, "Intec" or "the Company"), a leading global provider of Operations Support Systems software for telecoms companies, today announces its audited results for the year ended 30 September 2003. The Company is pleased to report a substantial rise in profitability, increased revenues, and a customer base that now exceeds 550 installations. During 2003 Intec has also made two important acquisitions and brought several key new products to market to address the requirements of future telecoms services. FINANCIAL AND OPERATING HIGHLIGHTS • Revenues for the year ended 30 September 2003 increased by 7% to £50.7 million (year ended 30 September 2002: £47.5 million). • Adjusted profit before tax substantially increased to £5.4 million (2002: £2.2m). • Positive operating cash inflow of £8.5 million generated during the year (2002: inflow of £2.8 million). • Operating loss of £1.9 million attributable to goodwill and intangible amortisation of £7.2 million. • Loss before tax £1.8 million (2002: £13.5 million) • Customer base increased by 44% to 551 contracted installations, with important new customer wins in the UK, US, Europe, Latin America, Asia and Eastern Europe. • Two acquisitions, Digiquant A/S, and a unit of Ericsson, concluded during the year. • Operating cost reductions, combined with gross margin improvement to 70% (2002: 67%), enhance earnings and cashflow. • Cash and cash equivalents stand at £15.3 million • Several new products introduced to complement core billing and mediation families. Commenting on the results, Mike Frayne, Executive Chairman said "Intec's strategy in 2003 has been to focus on the best possible operation of our current business combined with careful investment in new products that will meet future needs. We also continued to execute a considered strategy for acquisitions. I am pleased to report that, despite a telecoms environment that has been economically constrained, Intec has grown both revenues and earnings as well as increasing investment in new, forward-looking products. Although we see continued competitive conditions in 2004 I am cautiously optimistic that Intec can move further ahead in all areas of performance." Kevin Adams, Chief Executive, added, "Intec has set the pace in its core OSS markets in 2003, with a steady flow of high-profile customer wins, key acquisitions and forward-looking product releases. Passing the 500 installation mark is a watershed achievement that underlines the success of our policy of high-quality, profitable growth. We have also had good momentum in new customer wins with over 100 new or acquired customers." There will be an analyst meeting at 09:15 hours today (25 November 2003) at RW Baird, Mint House, 77 Mansell Street, London E1 8AF, Tel: +44 (0) 20 7488 1212. Enquiries Intec Telecom Systems PLC Mike Frayne, Executive Chairman +44 (0) 1483 745800 Kevin Adams, Chief Executive Officer +44 (0) 1483 745800 Andrew Rodaway +44 (0) 7768 808082 andrew.rodaway@intec-telecom-systems.com RW Baird +44 (0) 20 7667 8416 Shaun Dobson sdobson@rwbaird.com Cubitt Consulting +44 (0) 20 7367 5100 Fergus Wylie fergus.wylie@cubitt.com Intec Telecom Systems PLC - Full year results to 30 September 2003 Executive Chairman's Statement A year ago I noted a telecoms market that would continue to be very competitive for vendors as well as increasingly technically challenging for service providers and their suppliers. Intec's strategy in 2003 has therefore been to focus on the best possible execution of our current business combined with careful investment in new products that will meet future needs. We also continued to execute a considered strategy for acquisitions. I am pleased to report that, despite a telecoms environment that has been economically constrained overall, Intec has grown both revenues and earnings as well as increasing investment in new, forward-looking products. Through a combination of increased revenues, up 7% to £50.7 million, and careful control of operating costs Intec has delivered adjusted pre-tax profits increased by 150% to £5.4 million, despite adverse currency movements. We have also been able to generate positive operating cash flow at £8.5m. These are substantial achievements within an industry sector that remains capital expenditure-constrained and where pricing pressure and competitor activity have been intense. Intec's hard-working professional staff have made this possible and I thank them wholeheartedly for their efforts. During 2003 Intec has noted many opportunities to acquire other companies in its sector, frequently at modest valuations. However, we have a clear strategy and process only to seek acquisitions that will truly add value to the business and position us better for the future. Our acquisition criteria include the ability to enhance our financial performance, to bring useful market or technical benefits to the business, or to increase our penetration of major customers. We also seek organisations which will be a good cultural fit for Intec, where we will be able to integrate them successfully while retaining their individual strengths. We continue to track opportunities and we will not hesitate to pursue those that we feel will be beneficial to the business, as well as good value for shareholders. With these criteria in mind Intec made two important acquisitions during the 2003 financial year. In November 2002 we announced the acquisition of the ' Settler' business unit from Ericsson. This unit was formerly one of Intec's strongest competitors in the interconnect billing market. Its acquisition brought us 31 new customers around the world as well as a distribution arrangement with Ericsson for the renamed 'InterconnecT Settler' product. The agreement also covers the Settler development team in Sweden and exclusive worldwide rights to develop and market the Settler product range. Other acquired expertise and technology has allowed us to launch two new products in 2003, InterconnecT Optimised Routing and InterconnecT Automated Reconciliation. In September 2003 we announced the acquisition of Digiquant A/S of Denmark, a provider of OSS technology focused on the next-generation market space. Digiquant brings Intec two key assets - a revenue stream from new and existing customers which amounted to some €16 million in 2003, and a truly world-class product set that provides end-to-end capabilities for the management and billing of advanced services such as Voice-over-IP. Digiquant also has a good customer base of around 50 companies and a highly-experienced professional staff whose skills are complementary to those within Intec. Intec invests strongly in its products and underlying technologies. We consider the level of investment we make to be a core strength of the business and a major competitive differentiator against other vendors that have slashed development and support budgets as they strive for profitability or even survival. Yet we remain constantly aware of the need to balance investment with potential and actual returns. During 2003 we have further refined our Product Operations processes to be ever more focused on business performance with regular examination at executive management level of profit and market potential for all development projects. During the year we have launched several important new products, notably the Intec Dynamic Charging Platform (DCP) which addresses critical revenue generation requirements for operators delivering advanced services such as entertainment, mobile commerce and multimedia messaging. DCP is the first offering in a range of new products which will complement our existing technologies and extend our reach into new areas such as Voice-over-IP billing. Our core product lines of convergent mediation (Inter-mediatE), interconnect billing (InterconnecT) and service activation (Inter-activatE) have justified our view that they remain critical components of the infrastructure of a telecoms company, with key wins in high-profile customers. In 2004 we see further evidence of a slow recovery in trading conditions in the telecoms sector with many operators indicating their intentions to invest cautiously in new projects that address next-generation service requirements. We must balance this optimism with natural caution concerning ongoing competitive pressures within the OSS vendor community, capital expenditure constraints across the telecoms industry, and global concerns over political, economic and security issues. Overall we are very pleased with Intec's progress in these challenging markets and we look forward to 2004 as another year of opportunity for further progress. Mike Frayne Executive Chairman 24 November 2003 Commenting on the results, Kevin Adams, Chief Executive Officer said: In 2003 Intec has become a stronger, more profitable, more capable business. Against a backdrop of competitive market conditions we have improved our financial performance, market share, customer base and product capabilities. We have concluded two important acquisitions and brought key, next-generation products to market. A particular highlight of the year was winning certification to the TL9000/ISO9001 quality standard for our Atlanta Centre of Excellence. We have had good momentum in new customer wins with 114 new or acquired customers. We also won two of the industry's most prestigious product awards, for both our interconnect and mediation product lines. One trend we have noted in 2003 is a growing focus by customers on financial performance of vendors. Many OSS suppliers remain financially fragile or with high levels of cash expenditure, and their long-term viability is clearly a cause for customer concern. Intec continues to pursue its policy of tight financial management, improved profitability and good cash flow. The high-profile customers we have been able to secure in 2003 are evidence not only of our good product and support capabilities but also that our stability and long-term investment plans are seen as a benefit of doing business with us. The balance of business in 2003 has reflected general market trends as well as Intec's growing maturity as a software and services company. New licence sales, while down on 2002 figures, still represent 23% of turnover, a very robust result in present markets. Both recurring revenue and professional services have grown with our recurring revenue reaching a very satisfactory 50% of turnover, up from 42% in 2002. Our growing customer base, and high levels of customer satisfaction, are the key factors in this good result. Intec has had a strong focus on operating costs in 2003 as part of our drive to enhance profitability and cash flow. The telecoms industry has been an environment where margins and discretionary expenditure have been under constant pressure. Intec has therefore adjusted its own business model appropriately. By eliminating low-return expenditure, re-organising for greater productivity, adopting more cost-efficient processes, and seeking better value in our own purchases we have been able to trim many cost areas substantially without any material impact on business performance. Cost of sales, distribution and general administration are all lower in 2003 compared to 2002. The only area with a material increase has been development, reflecting our expanded portfolio of products as well as important new investment to meet the needs of new markets. Staff numbers, before the acquisition of Digiquant, have remained essentially static, indicating increased productivity. Our core products, InterconnecT and Inter-mediatE, retain their market leadership with over 200 and 130 installed sites respectively. New customer wins announced in 2003 include Belgacom Mobile, Ukrainian Mobile Communications, Slovak Telekom, VimpelCom, US Cellular, Taiwan's first 3G operator APBW, Telikom Papua New Guinea, Eircom, ChinaSat, Swisscom Mobile, Mobilkom Austria and many others. These cover all areas of the telecoms industry, from major fixed-line providers through to next-generation mobile carriers, underlining the truly convergent capabilities of Intec's products. The acquisitions we have made, plus good growth in our existing customer base, have allowed us to report the milestone figure of over 550 active customer installations at the end of our business year, representing almost 400 separate companies as Intec customers. Intec now counts over half of the world's top 100 telecoms companies as customers, including all of the top five by market capitalisation. This quality of customer base gives us very solid recurring revenue streams and good cross-selling opportunities. Intec also has, I believe, one of the lowest rates of customer churn in the OSS industry as a result of dedicated efforts to achieve high levels of customer satisfaction. It is a source of pride to Intec that almost all of the customers won in the early years of our existence remain with us. 2003 has been another good year of progress at Intec towards our long term objective of building a stronger, more successful business within the OSS sector. Market conditions have continued to be competitive, but Intec has responded with good growth and substantially improved operating results. Our acquisitions of Digiquant and the Ericsson Settler business have been two highlights of the year and we are pleased with their progress and future potential. Our investment in new products and the development of existing systems positions us very well as a supplier to the world's telecommunications market, particularly for advanced services. Kevin Adams, Chief Executive Officer 24 November 2003 INTEC TELECOM SYSTEMS PLC FINANCIAL HIGHLIGHTS Year ended 30 September 2003 Note 2003 2002 % £'000 £'000 change Revenue 50,673 47,474 7% Adjusted profit before tax (i) 5,390 2,157 150% EBITDA before exceptional items (ii) 7,222 3,739 93% Operating loss (1,914) (13,325) Basic loss per share (1.59p) (7.94p) Adjusted earnings per share (iii) 2.17p 0.46p Notes to the Financial Highlights £'000 £'000 (i) Loss before tax (1,780) (13,483) Amortisation of goodwill and other intangibles 7,170 7,079 Impairment of goodwill - 7,464 Writedown of investments - 321 Exceptional item (Poland debtor provision) - 776 Adjusted profit before tax 5,390 2,157 (ii) Adjusted profit before tax 5,390 2,157 Net interest income (134) (163) Depreciation 1,966 1,745 EBITDA before exceptional items 7,222 3,739 (iii) Adjusted earnings per share calculation based on the following adjusted earnings after tax: Loss after tax (3,042) (14,782) Amortisation of goodwill and other intangible assets 7,170 7,079 Impairment of goodwill - 7,464 Writedown of investments - 321 Exceptional item (Poland debtor provision) - 776 Adjusted earnings after tax 4,128 858 KEY CUSTOMER DATA 2003 2002 No. No. Cumulative: Contracted customer base 314 254 Contracted customers from current year acquisitions 72 18 Total contracted customer base 386 272 42% Cumulative: Contracted installations 442 359 Contracted installations from current year acquisitions 108 24 Total contracted installation base 551 383 44% CONSOLIDATED PROFIT AND LOSS ACCOUNT For the year ended 30 September 2003 Before Intangible intangible amortisation amortisation (note 6) Total Total Note 2003 2003 2003 2002 £'000 £'000 £'000 £'000 TURNOVER Continuing operations 48,079 48,079 45,853 Acquisitions 2,594 2,594 1,621 Total turnover 2 50,673 50,673 47,474 Cost of sales (15,172) (15,172) (15,430) Gross profit 35,501 35,501 32,044 Distribution costs (8,784) (8,784) (9,945) Administrative expenses: Development expenditure (10,073) - (10,073) (8,026) Amortisation of goodwill and other intangible 6 - (7,170) (7,170) (7,079) assets Impairment of goodwill - - - (7,464) Exceptional item - - - (776) Other administrative expenses (11,388) - (11,388) (12,079) Total administrative expenses (21,461) (7,170) (28,631) (35,424) OPERATING LOSS Continuing operations 4,913 (6,455) (1,542) (12,294) Acquisitions 343 (715) (372) (1,031) Group operating loss 5,256 (7,170) (1,914) (13,325) Amount written off investments - - - (321) Interest receivable and similar income 340 - 340 494 Interest payable and similar charges (206) - (206) (331) LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION 5,390 (7,170) (1,780) (13,483) Tax charge on loss on ordinary activities 4 (1,262) - (1,262) (1,299) LOSS ON ORDINARY ACTIVITIES AFTER TAXATION AND RETAINED LOSS FOR THE FINANCIAL YEAR TRANSFERRED TO RESERVES 4,128 (7,170) (3,042) (14,782) (Loss)/earnings per share - adjusted/basic and 5 2.17p (3.76)p (1.59)p (7.94p) diluted Adjusted earnings per ordinary share has been calculated and disclosed above as the directors consider it gives a more comparable indication of underlying trading performance. CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES For the year ended 30 September 2003 2003 2002 £'000 £'000 LOSS FOR THE FINANCIAL YEAR (3,042) (14,782) Exchange translation differences arising on foreign currency net (278) (557) investments TOTAL RECOGNISED GAINS AND LOSSES IN THE YEAR (3,320) (15,339) RECONCILIATION OF MOVEMENTS IN CONSOLIDATED SHAREHOLDERS' FUNDS 30 September 2003 2003 2002 £'000 £'000 Loss for the financial year (3,042) (14,782) Other recognised gains and losses relating to the year (278) (557) Issue of share capital net of associated expenses 6,727 3,353 Other reserve 236 (2,497) Increase/(decrease) in shareholders' funds 3,643 (14,483) Opening shareholders' funds 86,207 100,690 Closing shareholders' funds 89,850 86,207 CONSOLIDATED BALANCE SHEET 30 September 2003 Note 2003 2002 £'000 £'000 FIXED ASSETS Intangible assets 6 69,106 63,422 Tangible assets 4,400 2,910 Investments 101 101 73,607 66,433 CURRENT ASSETS Stocks 3 64 Debtors 7 22,648 17,965 Investments 5,616 5,151 Cash at bank and in hand 9,724 8,156 37,991 31,336 CREDITORS: amounts falling due within one year 8 (6,996) (4,126) NET CURRENT ASSETS 30,995 27,210 TOTAL ASSETS LESS CURRENT LIABILITIES 104,602 93,643 CREDITORS: amounts falling due after more than one year 9 (69) - PROVISIONS FOR LIABILITIES AND CHARGES 10 (2,050) - ACCRUALS AND DEFERRED INCOME 11 (12,633) (7,436) TOTAL NET ASSETS 89,850 86,207 CAPITAL AND RESERVES Called up share capital 12 2,066 1,903 Share premium account 12 238,697 238,652 Merger reserve 12 6,768 249 Other reserve 12 236 - Foreign exchange reserve 12 (986) (708) Profit and loss account 12 (156,931) (153,889) EQUITY SHAREHOLDERS' FUNDS 89,850 86,207 CONSOLIDATED CASH FLOW STATEMENT 30 September 2003 Note 2003 2002 £'000 £'000 Net cash inflow from operating activities (i) 8,537 2,770 Returns on investments and servicing of finance Interest received 340 494 Interest paid and similar items (79) (327) Interest element of finance lease rental payments - (4) 261 163 Taxation UK Corporation taxation paid - (10) Overseas taxation paid (898) (378) (898) (388) Capital expenditure and financial investment Payments to acquire tangible fixed assets (2,056) (1,651) Proceeds on disposal of fixed assets 49 59 (2,007) (1,592) Acquisitions Investment in subsidiaries (3,694) (5,222) Net cash acquired with subsidiaries 505 6 (3,189) (5,216) Cash inflow/(outflow) before management of liquid resources and financing 2,704 (4,263) Management of liquid resources Increase in cash investments/term deposits (459) (2,252) Payments received from escrow - 52 Financing Issue of ordinary share capital 59 - Share issue costs charged to the share premium account (11) - Repayment of loan acquired with subsidiaries (720) - Capital element of finance lease payments - (188) Increase/(decrease) in cash in the year (ii),(iii) 1,573 (6,651) NOTES TO THE CASH FLOW STATEMENT Year ended 30 September 2003 (i) Reconciliation of operating LOSS to net cash IN FLOW from operating activities 2003 2002 £'000 £'000 Operating loss (1,914) (13,325) Depreciation 1,966 1,745 Amortisation of goodwill and other intangible assets 7,170 7,079 Impairment of goodwill - 7,464 Gain on disposal of fixed assets (5) (25) Decrease/(increase) in stock 61 (39) Increase in debtors (894) (172) Increase in creditors 2,153 43 Net cash inflow from operating activities 8,537 2,770 (ii) Reconciliation of net cash flow to movement in net FUNDS 2003 2002 £'000 £'000 Increase/(decrease) in cash in the year 1,573 (6,651) Net cash outflow from decrease in finance lease - 188 Net cash outflow from decrease in debt acquired with subsidiary 720 - Net cash outflow from increase in liquid resources 459 2,200 Change in net funds resulting from cashflows 2,752 (4,263) Finance leases acquired with subsidiary (210) - Debt acquired with subsidiary (720) - Translation differences 1 (195) Movement in net funds 1,823 (4,458) Net funds at 1 October 13,307 17,765 Net funds at 30 September 15,130 13,307 (iii) Analysis of movement in net FUNDS 30 September Acquisitions Foreign 2002 excluding cash exchange 30 September £'000 and overdraft Cash flow translation 2003 £000 £'000 £'000 £'000 Cash in hand and at bank 8,156 - 1,573 (5) 9,724 Finance leases - (210) - - (210) Debt due within one year - (720) 720 - - Cash investments/term deposits 5,151 - 459 6 5,616 Total 13,307 (930) 2,752 1 15,130 NOTES TO THE FINANCIAL INFORMATION 1. BASIS OF PREPARATION The financial information set out in this preliminary announcement does not constitute the company's statutory accounts for the years ended 30 September 2003 or 2002, but is derived from those accounts. Statutory accounts for 2002 have been delivered to the Registrar of Companies and those for 2003 will be delivered following the company's annual general meeting. The auditors have reported on those accounts; their report was unqualified and did not contain statements under Section 237(2) or 237(3) of the Companies Act 1985. The preliminary announcement was approved by the Board of Directors on 24 November 2003. The 2002 balance sheet has been restated to reflect a reclassification of accruals. In the balance sheet, accruals of £3,080,000 which were included in creditors due within one year at 30 September 2002 are now included in accruals and deferred income on the face of the balance sheet. 2. TURNOVER AND SEGMENTAL REPORTING Geographic areas - analysis by origin Total turnover Inter-segment turnover External turnover 2003 2002 2003 2002 2003 2002 £'000 £'000 £'000 £'000 £'000 £'000 Turnover United Kingdom 25,965 21,059 (576) (1,509) 25,389 19,550 Continental Europe 612 166 - - 612 166 Asia-Pacific 549 1,758 - - 549 1,758 Africa 765 89 - - 765 89 North America and Canada 23,528 25,566 (1,857) (600) 21,671 24,966 South America 1,687 945 - - 1,687 945 53,106 49,583 (2,433) (2,109) 50,673 47,474 Geographic markets - analysis by destination Turnover by destination 2003 2002 £'000 £'000 United Kingdom 5,135 3,519 Continental Europe 10,979 9,753 Eastern Europe 2,902 1,235 Middle East 1,077 728 Africa 1,670 1,687 Europe, Middle East and Africa (EMEA) Sub total 21,763 16,922 Asia-Pacific 6,621 5,521 North America and Canada 15,538 21,058 Caribbean and Latin America 6,751 3,973 50,673 47,474 Turnover by type Turnover by activity is set out below. Turnover by activity 2003 2002 £'000 £'000 Licence Sales 11,635 15,481 Professional services income: Implementation, migration, consulting and training 11,620 8,730 Hardware 113 576 Non-Telecom - custom network solutions 2,052 2,957 Sub-total 13,785 12,263 Recurring income: ASP Service 3,532 2,761 Volume upgrade licences 3,442 1,928 Support and maintenance fees 18,279 15,041 Sub-total 25,253 19,730 50,673 47,474 Loss before taxation Year ended 30 September 2003 Before After amortisation amortisation of goodwill and of goodwill and exceptional Amortisation Goodwill Exceptional exceptional items of goodwill impairment items items £'000 £'000 £'000 £'000 £'000 United Kingdom 2,528 (2,574) - - (46) Continental Europe 384 (69) - - 315 Asia-Pacific 660 - - - 660 Africa 594 - - - 594 North America & Canada 710 (4,527) - - (3,817) Caribbean and Latin America 514 - - - 514 Loss before taxation 5,390 (7,170) - - (1,780) Year ended 30 September 2002 Before After amortisation amortisation of goodwill and of goodwill and exceptional Amortisation Goodwill Exceptional exceptional items of goodwill impairment items items £'000 £'000 £'000 £'000 £'000 United Kingdom 613 (1,652) (1,684) (1,097) (3,820) Continental Europe 185 (74) - - 111 Asia-Pacific 187 (420) (5,780) - (6,013) Africa 64 (548) - - (484) North America & Canada 948 (4,385) - - (3,437) South America 160 - - - 160 Loss before taxation 2,157 (7,079) (7,464) (1,097) (13,483) In 2002, exceptional items comprised the write down of own shares £175,000, a write down of the Polish associate investment of £146,000 and provision against debtor balance with the Polish associate of £776,000. Excluding Including unamortised Unamortised unamortised goodwill goodwill goodwill 2003 2003 2003 2002 £'000 £'000 £'000 £'000 Net assets United Kingdom 10,348 3,030 13,378 17,125 Continental Europe 1,389 9,718 11,107 (58) Africa (219) - (219) (464) Asia-Pacific (16) - (16) 494 North America and Canada 10,095 55,091 65,186 68,902 Caribbean and Latin America 414 - 414 208 Net assets 22,011 67,839 89,850 86,207 It is neither practicable nor meaningful to allocate either profit before taxation or net assets by client location or activity. 3. ACQUISITIONS a) Current year acquisitions Settler 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 £646,000. The 'Settler' business contributed £2,014,000 to revenue in the period from 18 December 2002 to 30 September 2003. Net liabilities at date of acquisition Provisional 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 Digiquant A/S On 17 September 2003, the Group acquired Digiquant A/S. The total consideration amounted to €9.5 million (£6.7 million) and has been satisfied through the issue of 15,958,510 ordinary shares. 635,152 ordinary shares remain to be allotted in exchange for shares held by present and former employees. Acquisition costs were £0.2 million. Goodwill arising on acquisition has been capitalised and is being amortised over five years from the date of acquisition. Goodwill charged in the period amounts to £69,000. Digiquant contributed £580,000 to revenue in the period from 17 September 2003 to 30 September 2003. Net assets at date of acquisition Provisional And provisional fair value fair value £'000 Tangible fixed assets 1,076 Debtors 3,172 Long term deposits 606 Cash 505 Creditors(falling due within one year) (3,493) Creditors(falling due after one year) (141) Provisions for liabilities and charges (2,074) Accruals and deferred income (2,596) Goodwill arising on acquisition 9,787 6,842 Consideration paid in shares 6,679 Acquisition costs 163 6,842 b) Reconciliation to cash flow statement £'000 Consideration for Settler business 2,990 Acquisition costs - Digiquant 163 Acquisition costs - Settler 133 Deferred consideration payments on prior year acquisition. 408 3,694 4 TAX ON LOSS ON ORDINARY ACTIVITIES 2003 2002 £'000 £'000 Current taxation: UK corporation tax at 30% (2002: 30%) 555 - Overseas taxation 974 1,098 Prior year adjustment (127) 273 Total current tax 1,402 1,371 Deferred taxation: Origination and reversal of timing differences (140) (72) Tax on loss on ordinary activities 1,262 1,299 The standard rate of current tax for the year is 30% (2002: 34%), based on the UK Corporation tax rate, since the largest source of the Group's revenues is in the UK. It is expected that the tax charges will continue to be reduced by the benefit of tax deductions for goodwill in the USA. 5 (LOSS)/EARNINGS PER ORDINARY SHARE 2003 2002 £'000 £'000 Basic and diluted loss (3,042) (14,782) Amortisation of goodwill and other intangible assets 7,170 7,079 Impairment of goodwill - 7,464 Amounts written off investments - 321 Exceptional Poland debtor provision - 776 Adjusted earnings after tax 4,128 858 Number Number Basic and diluted weighted average number of shares 190,889,194 186,219,551 Pence Pence Basic and diluted loss per ordinary share (1.59) (7.94) Amortisation of goodwill and other intangible assets 3.76 3.80 Impairment of goodwill - 4.01 Amounts written off investments - 0.17 Exceptional Poland debtor provision - 0.42 Adjusted earnings per ordinary share 2.17 0.46 For the year ended 30 September 2003 and the year ended 30 September 2002, none of the potential ordinary shares (including company share options) are dilutive and therefore they are excluded from the calculation of diluted loss per share. 6. INTANGIBLE ASSETS IPR Goodwill Total £'000 £'000 £'000 Cost At 1 October 2002 2,032 218,111 220,143 Additions - 13,078 13,078 Disposal - (220) (220) Translation differences (10) - (10) At 30 September 2003 2,022 230,969 232,991 Accumulated amortisation At 1 October 2002 538 156,183 156,721 Amortisation 222 6,948 7,170 Translation differences (6) - (6) At 30 September 2003 754 163,131 163,885 Net book value At 30 September 2003 1,268 67,838 69,106 At 30 September 2002 1,494 61,928 63,422 The disposal relates to a reduction in estimated deferred consideration to be paid on the prior year acquisition of the operational support systems business from ICL. 7. DEBTORS 2003 2002 £'000 £'000 Trade debtors 13,815 13,676 Amounts owed by subsidiary undertakings - - Corporation tax recoverable 196 196 Overseas tax recoverable 85 63 Deferred tax 240 72 Other debtors 438 238 Prepayments and accrued income Due within one year 7,285 3,720 Due after more than one year 589 - 22,648 17,965 The prepayments and accrued income due after more than one year relate to deposits on leased properties due after more than five years. 8. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR 2003 2002 £'000 £'000 Bank loans and overdrafts 125 - Obligations under finance leases 141 - Trade creditors 2,233 1,767 Corporation tax 1,169 454 Overseas tax 625 516 Other creditors including taxation and social security 2,604 686 Deferred/contingent consideration 99 703 6,996 4,126 9. CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR 2003 2002 £'000 £'000 Obligations under finance leases 69 - Maturity of obligations under finance leases Within one year 141 - More than one year but less than five years 69 - 210 - 10. PROVISIONS FOR LIABILITIES AND CHARGES 2003 2002 £'000 £'000 Onerous lease commitments 2,050 - The amounts disclosed above relate to future estimated losses on sub-let lease commitments acquired with the Digiquant Group. Amounts provided relate to the period up to the first option to break on two properties in Denmark and Atlanta, USA. The first option to break on the Denmark lease is in 2011 and accordingly the provision above includes the discounted fair value of the future losses up to this point. 11. ACCRUALS AND DEFERRED INCOME 2003 2002 £'000 £'000 Amounts falling due within one year Accruals 5,924 1,670 Deferred income 6,709 5,766 12,633 7,436 12. STATEMENT OF MOVEMENTS ON SHARE CAPITAL AND RESERVES Called Share Foreign Profit up share premium Merger Other exchange and loss capital account reserve reserve reserve account Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 As at 1 October 2002 1,903 238,652 249 - (708) (153,889) 86,207 Issues of ordinary shares 163 56 6,519 - - - 6,738 Share issue expenses - (11) - - - - (11) Shares to be issued - - - 236 - - 236 Loss for the year - - - - - (3,042) (3,042) Foreign exchange translation - - - - (278) - (278) At 30 September 2003 2,066 238,697 6,768 236 (986) (156,931) 89,850 END This information is provided by RNS The company news service from the London Stock Exchange

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