Interim results for the six months ended 31 Mar...

Intec Telecom Systems PLC Thursday 20 May 2010 Interim results for the six months ended 31 March 2010 Intec Telecom Systems PLC (ITL.L/ITL LN, 'Intec', the 'Company' or the 'Group'), a leading supplier of business support systems to the global telecoms industry, announces its unaudited interim results for the six months ended 31 March 2010.         H1 2009 H1 2010 H1 2009   Constant Reported Reported Change Currency Change Revenue (£m) 70.0 80.3 -13% 82.2 -15% Adjusted EBITDA (£m) 7.1 12.9 -45% 12.1 -41% Adjusted profit before 5.3 11.1 -52% 10.3 -49% tax (£m) Profit before tax (£m) 5.1 8.6 -41% 7.8 -35% Basic EPS (p) 1.26 2.25 -44% 1.91 -34% Adjusted basic EPS (p) 1.31 3.02 -57% 2.71 -52% Interim dividend per 0.40 -    - share (p) Net cash (£m) 67.4 52.9 +27% 53.1 +27% For definition of constant currency, adjusted EBITDA, adjusted profit before tax and adjusted basic EPS, please see notes on page 2. Highlights * Performance in line with most recent guidance * Strong growth in APAC and moderate decline in Americas, as expected, but a weaker performance  for EMEA * Challenging market conditions resulted in a shortfall in high margin licence revenue, which, combined with adverse exchange rate movements, directly impacted first half profitability * Net cash of £67.4m * First interim dividend of 0.4p * Restructuring plan  in response to market conditions anticipated to yield cost savings in FY11 of a minimum of £7m Commenting on today's results, Andrew Taylor, CEO, said: "We have today announced results in line with our most recent guidance.  Our end markets remain challenging as we continue to see an ongoing capital expenditure squeeze across our customer base, a trend which is now being seen across the telecoms industry.  As a result, we are responding decisively to these conditions, including the announcement today of a cost reduction and restructuring programme.  Accordingly, we are realigning our resources to focus on those areas that offer the greatest growth opportunities by product and geography.  Intec is a strong company and an industry leader, and our long-term view of our markets and the underlying growth drivers remains positive." A presentation to analysts will be held today at the offices of Financial Dynamics, please contact intec@fd.com <mailto:intec@fd.com> for further details. The presentation will be available on the website: www.intecbilling.com < http://www.intecbilling.com/> Enquiries: Intec Telecom Systems PLC www.intecbilling.com < http://www.intecbilling.com/> Andrew Taylor, Chief Executive Officer +44 (0)1483 745 800 Robin Taylor, Chief Financial Officer Financial Dynamics +44 (0)20 7831 3113 Juliet Clarke/Charles Palmer/Haya Herbert-Burns About Intec Telecom Systems PLC Intec supplies solutions to over 60 of the world's top 100 telecoms operators, with a vision to become the world's most trusted supplier of BSS (Business Support Systems) solutions. Intec's many customers include AT&T, Aircel, Antel, Bharti, Cable & Wireless, China Unicom, Deutsche Telekom, Eircom (Ireland), France Telecom, Hutchison 3G, O2, Orange, Reliance, Talk-Talk, T-Mobile, Telefonica, Vodafone, Virgin Mobile, Vivo and Verizon. Intec works closely with its customers, many of whom have been with Intec since its inception, to provide the highest standards of performance, flexibility and robustness to help operators service their customers effectively and profitably. Founded in 1997, Intec is listed on the London Stock Exchange (ITL.L) and has over 1,600 staff and a presence in 24 countries. For more information visit www.intecbilling.com < http://www.intecbilling.com/> NOTES TO THE HIGHLIGHTS Profit before tax is reconciled to adjusted profit before tax and adjusted EBITDA in the table below:     H1 2010   H1 2009   H1 2009 Reported Reported Constant     Currency £000 £000 £000 Profit before tax   5.1   8.6   7.8 Exceptional items   -   2.1   2.1 Amortisation of acquired   0.2   0.4   0.4  intangibles ------------ ------------ ----------- Adjusted profit before tax 1 5.3   11.1   10.3 Net finance income   (0.1)   (0.5)   (0.6) Depreciation   1.3   1.3   1.4 Amortisation of other intangible assets 0.6 1.0 1.0 ------------ ------------ ----------- Adjusted EBITDA 2 7.1   12.9   12.1 Profit after tax   3.9   6.8   5.8 Amortisation of acquired   0.2   0.4   0.4 intangibles After tax impact of exceptional   -   2.1   2.1 items ------------ ------------ ----------- Adjusted profit after tax 3 4.1   9.3   8.3 Throughout this report: 1 Adjusted profit before tax is stated before exceptional items and amortisation of acquired intangible assets. 2 Adjusted EBITDA is earnings before interest, tax, depreciation, amortisation (including acquired intangibles but excluding   amortisation included in cost of sales) and exceptional items. 3 Adjusted profit after tax, which excludes the amortisation of acquired intangibles and the after tax effect of exceptional items from reported profit after tax, is used as the basis for calculating adjusted earnings per share. 4 The constant currency comparatives have been estimated by translating the 2009 results of overseas subsidiaries at 2010 exchange rates. This disclosure has been provided as a guide to the underlying results of the business before the effect of the change in exchange rates. BUSINESS REVIEW OVERVIEW Following a record set of results in 2009, we report a weaker revenue performance for the first half of 2010 compounded by the impact of unfavourable exchange rates on our cost base in line with the trading update announced on 31 March 2010. The relative strength of the US dollar and the Euro has benefited our revenue in both years. Market conditions are challenging and in an uncertain economic environment customers, in both developed and developing markets, have cut back or delayed investment decisions, as highlighted in our 31 March 2010 trading update. Although we have a large number of projects in our pipeline, lower customer budgets and extended sales cycles have contributed to a lower number of deal closures in the period. This cautious approach by our customers has led to fewer projects overall. We have managed our cost base tightly during the period and, as planned, we continued to invest in the development of partners and product.  However, the shortfall in higher margin licence revenue has had a direct impact on first half profitability.  Further cost reductions are now being planned as commented on later in this announcement. Our teams continue to focus on improving how we target and win projects from both new and existing customers and we are seeing opportunities across both mature and developing territories. Our global presence, competitive product portfolio and delivery capability are important features of Intec's longer-term resilience and growth. OPERATIONAL REVIEW Markets Consistent with the comments made at the time of the trading update on 31 March 2010, the Group's markets have been impacted by increased competition leading to pricing pressure and extended sales cycles as decision making is deferred; this has been especially the case in the emerging markets. In addition to what has already been a difficult trading year, operators across Europe, Middle East and Africa region are tightening their budgets, some as they approach their financial year ends. As a result of both of these factors, Intec experienced further deferrals in the closure of a number of key licence deals in the first half of 2010. Group revenue declined by 15% when compared to the prior year in constant currency. While both our APAC and Americas regions delivered performances in line with management forecasts, our EMEA region reported a substantial decline. Sales win rates remained strong in the first half across all regions but there has been a lower volume of pipeline opportunities reaching contract closure. Intec signed thirteen new licence contracts in the first half of 2010 of which six were with new name customers and seven with our existing customer base. In addition, growth among our existing licence customers meant that twenty-two of them exceeded their licence volume thresholds during the period triggering volume-based licence upgrades. In our managed services business, we signed four multi-year contract extensions and six one-year extensions in addition to a number of rolling renewals. During the second half, we expect two new customers to go-live in our managed services bureau. Notwithstanding this, competition and price pressure at renewal is an issue and to mitigate this we continue to manage costs effectively while identifying ways to cross-sell and up-sell to existing customers. Since the half-year end, we have conducted our regular review of the regional pipelines, coupled with an assessment of the market and competitive environment. Whilst the telecoms industry has fared better than most sectors in the recent global downturn, many operators have been affected albeit later in the economic cycle. Overall, there are mixed reports on the general health of the regional economies; with operator investment activities varying by country and individual customer situations. As a result of these difficult and varied market conditions, Intec is focusing resources and effort on those markets and opportunities that will deliver the best return. This includes improving our qualification process and targeting our efforts to cross-sell and up-sell to existing customers. We are working closely with our partners and increasing our own efforts to win new customer opportunities especially in emerging markets, where we see good growth opportunities. In line with our strategy to extend our market reach in both developed and developing markets, we announced on 19 April 2010 an important strategic global relationship with CSC, a global leader in providing technology-enabled solutions and services.  The partnership has already identified incremental opportunities that, if successfully converted, will contribute to our revenue in 2011 and beyond. Improving our competitiveness and optimising our operational performance have been priorities for Intec and during the first half we implemented a centralised resource management tool which will enable us to optimise the delivery of customer projects by more efficient management of resources globally, contributing to customer satisfaction and Intec's value proposition. Product Development In the first half, we launched major new releases of Singl.eView Convergent Billing (v7.0) and Optimised Routing (v5.0). The Singl.eView release includes a number of enhancements for greater performance and compliance with strict data security requirements for payment applications (PA-DSS).  This Singl.eView release is the first to be made available on low-cost commodity hardware. The Optimised Routing release introduces a number of quality assurance capabilities that allow our customers to manage their international traffic based on the optimal combination of cost and quality metrics. Our Total Service Mediation solution was also enhanced to provide PA-DSS security compliance and to provide improved support for large-scale multi-site deployments. In October 2009, we launched our Roaming Management solution which allows mobile operators to take charge of their international roaming business, driving higher revenue, improved customer satisfaction and a streamlined inter-operator settlement process. We continue to believe it is important to invest appropriately in new functionality across our product set to meet the needs of our existing customers and to address changing market requirements. FINANCIAL PERFORMANCE Income statement The following table is a presentation of the income statement incorporating non-statutory measures that the Board considers to be appropriate key performance indicators together with a constant currency restatement of the 2009 results (designated H1 09 CC).   Note H1 2010 H1 2009 Change H1 09 CC Change CC Revenue KPI 70.0   80.3   -12.8% 82.2   -14.8% Cost of sales A (34.0) (38.0) -10.5% (39.3) -13.5% Amortisation of (0.5) (0.5) -  (0.5) - intangibles in cost of sales Gross profit   35.5  41.8  -15.1% 42.4  -16.3% Operating expenses A (28.7) (28.6) +0.3% (30.4) -5.3% Foreign exchange   0.3  (0.3) -200% 0.1  200% gain/(loss) Adjusted EBITDA KPI 7.1  12.9  -45.0% 12.1  -41.3% Depreciation and B (1.9) (2.3) -17.4% (2.4) -20.8% amortisation Net finance income   0.1  0.5  -80.0% 0.6  -83.3% Adjusted profit before tax   5.3  11.1 -52.3% 10.3  -48.5% Tax on adjusted profit   (1.2) (1.8) -33.3% (2.0) -40.0% before tax Adjusted profit after tax   4.1  9.3  -55.9% 8.3  -50.6% Amortisation of   (0.2) (0.4) -50.0% (0.4) -50.0% acquired intangibles Exceptional items   -  (2.1) -100.0% (2.1) -100.0% Profit for the period   3.9  6.8  -42.6% 5.8  -32.8% Adjusted diluted EPS C, KPI 1.25p 2.89p -56.7% 2.59p -51.7% Gross margin   50.7% 52.1% -1.4 points 51.5% -0.8 points Adjusted EBITDA as % of KPI 10.1% 16.1% -6.0 points 14.7% -4.6 Revenue points Notes: KPI financial metrics considered to be key performance indicators A excluding depreciation, amortisation, foreign exchange differences and exceptional items B excluding acquired intangibles C calculated with reference to adjusted profit after tax Foreign exchange translation differences account for a £1.9m increase in revenue, much of which is earned in EUR and USD, a £1.3m increase in cost of sales and a £1.8m increase in operating expenses, principally in Development as a result of the strengthening of the Australian dollar and South African Rand against Sterling. These translation differences have contributed to a net profit reduction of £1.0m. Further comments in this section are with reference to the constant currency values. REVENUE BY REGION The following table compares revenue by region with the prior year as published and at the current period's exchange rates (designated H1 09 CC). Revenue by Region (£m) H1 2010 H1 2009 Change H1 09 CC Change CC Americas 30.9 36.5 -15.3% 35.5 -13.0% Europe Middle East and 23.4 31.7 -26.2% 33.8 -30.8% Africa (EMEA) Asia-Pacific (APAC) 15.7 12.1 +29.8% 12.9 +21.7% Total revenue 70.0 80.3 -12.8% 82.2 -14.8% Americas Following a 35% increase in H1 2009, at constant exchange rates, America's revenue was £4.6m lower than the prior year.  Reduced  revenue was expected due to the stage of completion of two large projects won in prior periods and the deferral of revenue and costs during the build phase of a significant managed services contract, won in Q4 2009, to be recognised over a five-year operating period scheduled to commence in July 2010. Subsequent to the half-year-end, we have signed a $1m licence contract with an existing customer in Brazil. Europe, Middle East and Africa (EMEA) EMEA revenue was £10.4m lower than the prior year.  In that period Intec benefited from five new licence deals and a multi-million pound volume upgrade. Customers are now taking longer to reach spending decisions with the result that new prospects are taking longer to close. Some operators are also reducing their capital expenditure. The region's revenue forecast was concentrated towards the end of the half and, whilst a £1m volume upgrade deal was concluded with a non-telco customer in the UK, a number of prospects did not reach closure within the period.  Subsequent to the half-year-end, we have signed a £2m services deal in Germany for the rollout of an upgraded Singl.eView billing solution. Asia-Pacific (APAC) In contrast with the other two regions, revenue in APAC was up by 22%. This reflects strong new project order intake, principally in India, towards the end of 2009. Our installed customer base continues to grow in this region. REVENUE BY CATEGORY The following table compares revenue by category with the prior year as published and at the current period's exchange rates (designated H1 09 CC). Revenue by category (£m) H1 2010 H1 2009 Change H1 09 CC Change CC Licence 11.9 15.7 -24.2% 16.8 -29.2% Professional Services 30.4  34.4 -11.6% 35.2 -13.6% Managed Services 7.0  8.6 -18.6% 8.2 -14.6% Support and maintenance  19.8  19.6 +1.0% 20.0 -1.0% Hardware  0.9  2.0 -55.0% 2.0 -55.0% Total revenue 70.0  80.3 -12.8% 82.2 -14.8% Licence Licence revenue declined by 29% at constant currency, decreasing from 20% to 17% of total revenue. As discussed in the regional commentaries, this shortfall is largely due to delays in closing new deals in the EMEA region. Professional services Professional services remains at 43% of total revenue.  At constant exchange rates revenue has declined by £4.8m, principally in the EMEA region where fewer new projects commenced in the half and where some of those secured in earlier years reached the final stages. Managed services The reduction in managed services revenue was anticipated following the expiry of some agreements in 2009 and which, in one case, resulted in a customer choosing to purchase a licence to bring the solution in-house. The commencement of the operating phases of the major new contracts secured towards the end of 2009 is scheduled for H2 2010. Support and maintenance The share of total revenue derived from ongoing support and maintenance has increased to 28%, from 24% in H1 2009 although in absolute terms revenue is broadly in line with the prior year. Hardware Hardware revenue is considered incidental and the reduction was expected, in line with the comparative stages of the Group's major implementation projects. GROSS MARGIN % Gross margin has declined from 51.6%, at constant exchange rates, to 50.7%. However, as can be seen from the following table, this is after a significant reduction in the incentive plan and share-based payments (SBP/IP) charge and a change in the treatment of pre-sales costs, as described in note 1 to the unaudited condensed interim financial information. The decline in underlying gross margin, at constant exchange rates, amounts to 3.0% points. £m 2010 2009 2009 CC Revenue 70.0 80.3 82.2 Gross Profit 35.5 41.8 42.4 SBP/IP 0.3 1.4 1.4 Change in pre-sales treatment -  0.7 0.7 Comparable gross profit 35.8 43.9 44.5 Gross margin 50.7% 52.1% 51.6% Comparable gross margin 51.1% 54.7% 54.1% In addition to the expected reduction arising from the change in revenue mix, and associated reduction in high-margin licence revenue, there has also been a reduction in the margin earned on our Professional Services revenue.  This was, to some extent, expected following the higher-than-usual utilisation levels (i.e. the proportion of time chargeable to customer projects) in the prior period but has also been impacted by the extension of project time scales on some fixed-price contracts. OPERATING EXPENSES The table below compares the major cost headings, before and after incentive plan (IP) and share based payments (SBP), against the prior year at 2010 exchange rates (designated H1 09 CC).   H1 2010   H1 09 CC   Before SBP/IP Reported   Before SBP/IP Reported   £m £m £m £m £m £m Cost of sales 34.2 0.3 34.5   38.4 1.4 39.8 Development 8.9 0.1 9.0   8.4 0.6 9.0 Distribution 11.8 0.2 12.0   11.7 0.6 12.3 Administration 7.5 0.2 7.7   8.2 0.9 9.1 (exc. Forex) Operating expenses 28.2 0.5 28.7   28.3 2.1 30.4 A reduction in the provision for bonuses in view of the below-target performance in the period has resulted in a decrease of £2.7m in the bonus and share based payments charge to £0.8m (2009: £3.5m). Development costs increased by £0.5m reflecting the planned investment initiated towards the end of 2009. The small net increase in Distribution to £11.8m reflects the cost of our partner programme, commenced in 2009 and increased pre-sales cost, largely offset by lower than anticipated sales and partner commissions due to the reduction in revenue. Administration expenses reduced by a further 8.5% to £7.5m, reflecting the ongoing cost reduction programme. TAXATION The estimated tax charge for the half amounted to £1.2m, giving an effective tax rate of 23.5% (H1 2009: 20.9%).  The increase in effective tax rate was anticipated following the one-time recognition of deferred tax assets in the year ended 30 September 2009. DIVIDEND We recently initiated an annual dividend by paying a full year dividend of 1.0p in respect of the year ended 30 September 2009. We will be paying a maiden interim dividend of 0.4p (2009: nil) to those shareholders on the register on 18 June 2010 payable on 12 July 2010.  The Board expects to pay annual dividends with the approximate split of one third / two third between interim and final. CASH FLOW Net cash at 31 March 2010 amounted to £67.4m.  Compared to the 30 September 2009 year-end balance there has been an outflow of £9.4m, including the dividend of £3.1m and the anticipated outflow on the settlement of the incentive plan, VAT and other expenses accrued at the year-end.  Following a very strong in-flow from receivables in 2009, there has been a slight outflow in the first half of 2010 as some customer payments have been deferred pending the achievement of payment milestones and others pending regulatory approval. Over £18m has been collected subsequent to 31 March. The Board will review the appropriateness of the extent of the Company's net cash balance following the financial year-end and the implementation of the restructuring programme announced today. RISKS Principal risks and uncertainties facing the Group generally and, for the remaining six months of the financial year, are discussed on page 15 of the Group's 2009 Annual Report. The identified risks are: changes within the customer base, exposure to rapidly changing technology, industry standards and customer needs, exposure to economic downturn, retention of highly skilled people, increasing complexity and variability of customer contracts, regulatory compliance risks, foreign exchange and credit and liquidity risk. A copy of the Group's 2009 annual report is available on our website at www.intecbilling.com < http://www.intecbilling.com/>. The directors' decision to continue to adopt the going concern basis of preparation in the interim financial statements is explained in Note 1 to the condensed financial statements. SUMMARY AND OUTLOOK Intec is a strong and mature business but in the current challenging market environment it is important that we focus rigorously on our key strategic priorities, which include the ongoing development and competitiveness of our products, improving our market reach through partnerships and a continued focus on optimising our business and operational performance. We continue to identify and win business with both existing and new customers and our long -term view of the global telecommunications market and the underlying growth drivers remains positive. Our short-to-mid-term view is that our markets will continue to demonstrate fragility over the next 12-18 months as our customers in both developed and developing markets squeeze their capital expenditure. Focusing our resources and our investments will ensure that Intec responds decisively to these conditions, providing future business stability and longer-term growth potential. Accordingly, during the second-half of 2010 we will focus on those areas that will deliver maximum benefit for our customers, our business and our shareholders, recognising that a greater proportion of opportunities in our pipeline are with newer customers, particularly in emerging markets, and these tend to have longer sales cycles and lower contract visibility. We are taking decisive action to reduce costs which we expect to result in savings in FY11 of approximately £7m and a one off charge in FY10 of around £4m. These actions will include restructuring and reducing our workforce to ensure we have the right number of employees in the right locations to meet current challenges and be well positioned to respond to future growth opportunities. Despite a disappointing set of results in the first half of 2010, the Board continue to believe that the fundamentals supporting our business are in good shape, including our financial strength, our people, our products, our delivery capability, and our global presence across both developed and developing regions. Andrew Taylor Robin Taylor Chief Executive Officer Chief Financial Officer 19 May 2010 19 May 2010 CONDENSED CONSOLIDATED INCOME STATEMENT Six months ended 31 March 2010     Unaudited Unaudited Audited   Note Six months ended Six months ended Year ended 31 March 2010 31 March 2009 30 September 2009     Before     Before     Before Excep- Excep-   excep- Excep-   Excep- Excep- tional tional   tional tional   tional tional items items Total items items Total items items Total     £m £m £m £m £m £m £m £m £m Continuing operations REVENUE 2 70.0  - 70.0  80.3  - 80.3  167.9  - 167.9 Cost of sales   (34.5) - (34.5) (38.5) (0.9) (39.4) (76.9) (0.9) (77.8) GROSS   35.5  - 35.5  41.8  (0.9) 40.9  91.0  (0.9) 90.1 PROFIT Distribution   (12.0) - (12.0) (11.9) (0.2) (12.1) (23.9) (0.2) (24.1) costs Development   (9.0) - (9.0) (8.0) (0.4) (8.4) (16.5) (0.4) (16.9) expenditure Depreciation   (2.1) - (2.1) (2.7) - (2.7) (5.5) - (5.5) And amortisation Other   (7.4) - (7.4) (9.0) (0.7) (9.7) (19.4) (0.7) (20.1) Administrative expenses Total   (9.5) - (9.5) (11.7) (0.7) (12.4) (24.9) (0.7) (25.6) Administrative expenses OPERATING   5.0  - 5.0  10.2  (2.2) 8.0  25.7  (2.2) 23.5 PROFIT/ (LOSS) Other gains   - - - - 0.1  0.1  - 0.6  0.6  and losses Finance   0.2  - 0.2  0.6  - 0.6  0.7  - 0.7 income Finance costs   (0.1) - (0.1) (0.1) - (0.1) (0.1) - (0.1) PROFIT/   5.1  - 5.1  10.7  (2.1) 8.6  26.3  (1.6) 24.7 (LOSS) BEFORE TAX Income tax 3 (1.2) - (1.2) (1.8) - (1.8) (3.0) 16.7  13.7 (expense)/ credit PROFIT/ (LOSS) FOR THE PERIOD 3.9 - 3.9  8.9  (2.1) 6.8  23.3  15.1  38.4 ATTRIBUTABLE TO EQUITY SHAREHOLDERS EARNINGS PER SHARE (PENCE) Pence Pence Pence -          4     1.26     2.25      12.53 basic -          4     1.20     2.15      11.97 diluted CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Six months ended 31 March 2010 Unaudited Unaudited Audited  31 March  31 March 30 September  2010 2009 2009     £m   £m   £m Profit for the period   3.9   6.8   38.4 Exchange differences on   3.2   12.7   10.1 translation of foreign operations Deferred taxation on share-based   (1.4)   -   1.8 payments Other comprehensive income for   1.8   12.7   11.9 the period Total comprehensive income   5.7   19.5   50.3 for the period CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Six months ended 31 March 2010     Share   Share Premium Other Own Translation Retained   capital account reserves shares reserve earnings Total   £m £m £m £m £m £m £m Balance at 1 October 3.1 162.0 0.2 (0.1) (2.2) (10.2) 152.8 2008 Profit for the period - - - - - 6.8 6.8 Other comprehensive income for the period - - - - 12.7 - 12.7 Total comprehensive income for the period - - - - 12.7 6.8 19.5 Recognition of - - - - - 1.0 1.0 share-based payments Balance at 31 March 3.1 162.0 0.2 (0.1) 10.5 (2.4) 173.3 2009 - Unaudited Profit for the period - - - - - 31.6 31.6 Other comprehensive (loss)/ income for - - - - (2.6) 1.8 (0.8) the period Total comprehensive (loss)/ income for - - - - (2.6) 33.4 30.8 the period Issue of share capital net - 0.1 - - - - 0.1 of share issue expenses Cancellation of share - (162.0) 135.1 - - 26.9 - premium account Recognition of - - - - - 0.4 0.4 share-based payments Balance at 30 3.1 0.1 135.3 (0.1) 7.9 58.3 204.6 September 2009 - Audited Profit for the period - - - - - 3.9 3.9 Other comprehensive income/ (loss) for - - - - 3.2 (1.4) 1.8 the period Total comprehensive income for the period - - - - 3.2 2.5 5.7 Issue of share capital net of - 0.2 - - - - 0.2 share issue expenses Recognition of - - - - - 0.7 0.7 share-based payments Dividends paid - - - - - (3.1) (3.1) Balance at 31 March 3.1 0.3 135.3 (0.1) 11.1 58.4 208.1 2010 - Unaudited CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION 31 March 2010 Note Unaudited Unaudited  Audited  31 March  31 March  30 September  2010 2009 2009     £m   £m   £m NON-CURRENT ASSETS Goodwill   93.0   93.0   93.0 Other intangible assets   6.7   6.7   5.7 Property, plant and equipment   6.6   7.5   6.5 Trade and other receivables 5 2.8   2.6   2.7 Deferred tax asset   20.1   2.2   21.8     129.2   112.0   129.7 CURRENT ASSETS Trade and other receivables 5 65.3   61.2   61.2 Cash and cash equivalents   67.4   52.9   74.8     132.7   114.1   136.0 TOTAL ASSETS   261.9   226.1   265.7 EQUITY Share capital   3.1   3.1   3.1 Share premium account   0.3   162.0   0.1 Other reserves   135.3   0.2   135.3 Own shares   (0.1)   (0.1)   (0.1) Translation reserve   11.1   10.5   7.9 Retained earnings   58.4   (2.4)   58.3 TOTAL EQUITY   208.1   173.3   204.6 NON-CURRENT LIABILITIES Other payables 6 3.3   3.3   3.0 Deferred tax liabilities   -   0.5   0.1 Bank loan and   0.3   0.2   0.3 other borrowings Provisions 8 3.7   3.0   2.3     7.3   7.0   5.7 CURRENT LIABILITIES Trade and other payables 7 44.9   43.6   53.1 Current tax liabilities   0.9   1.3   1.0 Bank loan and   0.2   0.2   0.2 other borrowings Provisions 8 0.5   0.7   1.1     46.5   45.8   55.4 TOTAL LIABILITIES   53.8   52.8   61.1 TOTAL EQUITY   261.9   226.1   265.7 AND LIABILITIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS Six months ended 31 March 2010     Unaudited   Unaudited   Audited   Six Six  Year   months months  ended    ended  ended  30  31 March  31 March September  2010  2009 2009     £m   £m   £m Operating profit   5.0   8.0   23.5 Adjustments for: Depreciation of property, plant and   1.3   1.3   3.0 equipment Amortisation of intangible a   0.7   1.2   2.2 ssets Amortisation of capitalised   0.1   0.2   0.3 development expenditure Amortisation of capitalised project   0.5   0.5   0.9 costs Share-based payment expense   0.8   0.9   2.1 Increase in provisions   0.8   0.1   0.1 Operating cash flows before movements in working capital 9.2 12.2 32.1 (Increase)/ decrease in receivables   (0.9)   13.3   10.0 (Decrease)/increase in payables   (10.4)   (5.3)   4.3 Cash (utilised)/ generated by   (2.1)   20.2   46.4 operations Income taxes paid (net)   (2.0)   (1.0)   (2.9) Net cash (utilised)/ generated   (4.1)   19.2   43.5 by operating activities Investing activities Interest received   0.2   0.4                 0.7 Purchase of property, plant and   (0.9)   (2.1)   (3.2) equipment Purchase of intangible assets   (0.5)   (0.1)   (0.1) Expenditure on capitalised project   (1.3)   -   (0.7) costs Net proceeds on disposal of   0.2   0.4   0.6 business Net cash used in investing   (2.3)   (1.4)   (2.7) activities Financing activities Interest paid   (0.1)   -   - Proceeds on issue of shares   0.3   -   0.1 Repayments of obligations under   (0.1)   (0.2)   (0.3) finance leases Dividends paid to shareholders   (3.1)   -   - Net cash used in financing   (3.0)   (0.2)   (0.2) activities Net (decrease)/ increase in   (9.4)   17.6   40.6 cash and cash equivalents Cash and cash equivalents at 74.8 28.9 28.9 beginning of period Effect of foreign exchange rates   2.0   6.4   5.3 Cash and cash equivalents at end   67.4   52.9   74.8 of period NOTES TO THE UNAUDITED CONDENSED INTERIM FINANCIAL INFORMATION Six months ended 31 March 2010 1.         ACCOUNTING POLICIES Basis of preparation The interim condensed consolidated financial statements for the six months ended 31 March 2010 have been prepared in accordance with the requirements of the Listing Rules and International Accounting Standard 34, Interim Financial Reporting. The annual financial statements of Intec Telecom Systems PLC are prepared in accordance with International Financial Reporting Standards (IFRS) as adopted for use in the European Union. The financial information in this report is neither reviewed nor audited and does not comprise statutory accounts for the purposes of Section 435 of the Companies Act 2006.   No consolidated statutory accounts for the period have been delivered to the Registrar of Companies. The condensed information for the year ended 30 September 2009 is based upon the Group's audited accounts. The statutory accounts for the year ended 30 September 2009 have been delivered to the Registrar of Companies.  The auditor's report on those was not qualified, did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying the report and did not contain a Statement under either Section 498(2) or Section 498(3) of the Companies Act 2006. Going concern The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the business review. The financial position of the Group, including working capital and cash management, is also described in the business review. The Directors believe that the Group is well placed to manage its business risks successfully despite the current uncertain economic outlook. After making enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue to operate for the foreseeable future. Accordingly, they continue to adopt the going concern basis in the interim financial statements Changes in accounting policies The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in preparation of the Group's annual financial statements for the year ended 30 September 2009, except as described below: The Group has adopted IFRS 8 "Operating Segments" and IAS 1 (revised 2007) "Presentation of Financial Statements" during the period. The impact of the change in accounting policies is explained below: The Group has adopted IFRS 8 "Operating Segments" during the period. IFRS 8 requires operating segments to be identified on the basis of internal reports that are regularly reviewed by the Chief Operating Decision Maker ("CODM"). In contrast, IAS 14 "Segment Reporting" required the Group to identify two sets of segments using a risks and returns approach. As a result of the adoption of IFRS 8, the Group's reportable operating segments have changed. The Group has four reportable operating segments, three regional segments: Americas; Europe, Middle East and Africa (EMEA); Asia-Pacific (APAC); and a fourth segment: Development and Corporate. In order to align the classification of costs with the Group's internal management reporting, the cost of pre-sales activities undertaken by people normally charged to professional services cost of sales is now classified under distribution costs. The impact on the Group's results is a decrease in cost of sales expense and an increase in distribution expense of £0.7m with no impact on net profit. Management consider the change to be immaterial and as such, the comparative numbers have not been restated. The reporting disclosure requirements of IFRS 8 are shown in Note 2. IAS 1 (revised 2007) "Presentation of Financial Statements" has introduced a number of changes in the format and content of the financial statements. The Group now presents a separate Consolidated Statement of Comprehensive Income as a primary statement. This had previously been presented as part of the Consolidated Statement of Changes in Equity. 2.    SEGMENTAL INFORMATION The Group has adopted IFRS 8 during the period. IFRS 8 requires segmental information to be disclosed based on the segmental information presented to the Chief Operating Decision Maker ("CODM") to enable that person to allocate resources and assess financial performance. In the Group's case, the CODM is the Senior Leadership Team ("SLT"). Accordingly our operating segments are Americas; Europe, Middle East and Africa (EMEA); Asia-Pacific (APAC); and Development and Corporate based upon the regional reporting lines to the members of the CODM. The segment results relate to transactions with customers in the region rather than the location of the contracting Intec legal entity.  There are no inter-segment transactions reported to the CODM.  The prior year comparatives have been restated in accordance with our new segment determination. Continuing operations Six months ended       Development 31 March 2010       And Unaudited Americas EMEA APAC  Corporate Total   2010 2010 2010 2010 2010   £m £m £m £m £m  Revenue 30.9 23.4 15.7 - 70.0 Depreciation and (1.0) (0.3) (0.2) (1.1) (2.6) amortisation Share-based payment (0.1) (0.1) (0.1) (0.5) (0.8) expense Other operating expenses (23.2) (13.6) (9.1) (15.7) (61.6) Segment profit / (loss) 6.6 9.4 6.3 (17.3) 5.0 before exceptional items Exceptional costs -  -  -  -  - Segment profit/ (loss) 6.6 9.4 6.3 (17.3) 5.0 Finance income         0.2 Finance costs         (0.1) Profit on ordinary activities         5.1 before tax Taxation         (1.2) Profit for the period         3.9 Continuing operations Six months ended       Development 31 March 2009        And Unaudited Americas EMEA APAC  Corporate Total   2009 2009 2009 2009 2009   £m £m £m £m £m Revenue 36.5 31.7 12.1 - 80.3 Depreciation and amortisation (1.2) (0.6) (0.1) (1.3) (3.2) Share-based payment (0.1) (0.1) (0.1) (0.7) (1.0) expense Other operating expenses (27.3) (17.4) (8.0) (13.2) (65.9) Segment profit / (loss) 7.9  13.6  3.9  (15.2) 10.2 before exceptional items Exceptional costs (1.1) (0.2) (0.2) (0.7) (2.2) Segment profit/ (loss) 6.8 13.4 3.7 (15.9) 8.0 Other gains and losses         0.1 Finance income         0.6 Finance costs         (0.1) Profit on ordinary activities         8.6 before tax Taxation         (1.8) Profit for the period         6.8 2.    SEGMENTAL INFORMATION (continued) Continuing operations Year ended 30 September 2009       Development       And Unaudited Americas EMEA APAC Corporate Total   2009 2009 2009 2009 2009   £m £m £m £m £m  Revenue 73.3  64.4  30.2  - 167.9 Depreciation and amortisation (2.3) (1.0) (0.2) (2.9) (6.4) Share-based payment expense (0.3) (0.3) (0.2) (1.2) (2.0) Other operating expenses (52.2) (35.0) (17.1) (29.5) (133.8) Segment profit / (loss) before 18.5  28.1  12.7  (33.6) 25.7 exceptional items Exceptional costs (1.1) (0.2) (0.2) (0.7) (2.2) Segment profit/ (loss) 17.4  27.9  12.5  (34.3) 23.5 Other gains and losses         0.6 Finance income         0.7 Finance costs         (0.1) Profit on ordinary activities         24.7 before tax Taxation         13.7 Profit for the year         38.4 Other information       Development       And Unaudited Americas EMEA APAC Corporate Total   £m £m £m £m £m 31 March 2010 Segment assets 33.6 21.0 15.5 191.8 261.9 Capital additions: Intangible 1.3 0.1 - 0.4 1.8 assets Capital additions: Property, 0.3 0.2 0.2 0.3 1.0 plant and equipment 31 March 2009 Segment assets 30.6 25.4 9.9 160.2 226.1 Capital additions: Intangible 0.1 - - - 0.1 assets Capital additions: Property, 1.9 0.4 0.1 0.3 2.7 plant and equipment 30 September 2009 Segment assets 28.3 24.0 13.1 200.3 265.7 Capital additions: Intangible 0.7 - - 0.2 0.9 assets Capital additions: Property, 1.2 0.9 0.4 1.1 3.6 plant and equipment Unaudited   Unaudited   Audited Revenue by category  Six months  Six months  Year ended ended  ended  30 September  31 March  31 March  2009  2010  2009   £m   £m   £m Licence 11.9   15.7   32.1 Professional services 30.4   34.4   76.4 Managed services 7.0   8.6   16.1 Support and maintenance 19.8   19.6   39.8 Hardware 0.9   2.0   3.5 Total revenue by activity 70.0   80.3   167.9 2.    SEGMENTAL INFORMATION (continued) Unaudited   Unaudited   Audited Revenue by country  Six months ended  Six months ended  Year ended  31 March  31 March  30 September  2010  2009  2009   £m   £m   £m USA 28.1   34.7   67.5 United Kingdom 16.8   16.6   37.1 Ireland 7.5   10.1   22.4 Australia 4.2   3.1   7.6 Malaysia 3.7   2.2   5.3 South Africa 3.6   7.5   11.9 Brazil 2.9   3.1   5.5 Other 3.2   3.0   10.6 Total revenue 70.0   80.3   167.9 Revenue presented in the table above represents revenue by contracting entity and not customer country. 3.    INCOME TAX EXPENSE /(CREDIT)   Unaudited   Unaudited   Audited 31 March 31 March 30  2010  2009 September 2009   £m   £m   £m Current taxation: UK corporation tax at 28% -   -   - Foreign tax 0.8   2.1   4.8   0.8   2.1   4.8 Adjustments in respect of prior years UK corporation tax -   -   - Foreign tax -   0.1   -   -   0.1   - Total current tax expense 0.8   2.2   4.8 Deferred taxation: UK 0.3   (0.5)   (3.8) Foreign 0.1   0.1   (14.7) Total deferred taxation 0.4   (0.4)   (18.5) Total income tax expense / (credit) 1.2   1.8   (13.7) Tax for the six-month period represents the best estimate of the average annual effective tax rate expected for the full year, applied to pre-tax income of the six-month period. 4.   EARNINGS PER SHARE   Unaudited   Unaudited Six months  Six months ended Audited ended  31 March  Year ended 31 March  2009 30 September 2010 2009   £m   £m   £m Profit for the period 3.9   6.8   38.4 Reconciliation: Profit for the period 3.9   6.8   38.4 Recognition of deferred tax asset -   -   (16.7) shown in exceptional items After tax effect of exceptional -   2.1   1.6 items Amortisation of acquired 0.2   0.4   0.7 intangibles Adjusted profit for the period 4.1   9.3   24.0   Number   Number   Number   m   m   m Weighted average number of shares 311.0   306.0   306.1 - basic Effect of dilutive potential 16.1   13.1   14.3 ordinary shares Weighted average number of shares 327.1   319.1   320.4 - diluted   Pence   Pence   Pence Basic earnings per share 1.26   2.25   12.53 Recognition of deferred tax asset -   -   (5.46) shown in exceptional items After tax effect of exceptional -   0.67   0.52 items Amortisation of acquired 0.05   0.10   0.25 intangibles Adjusted basic earnings per share 1.31   3.02   7.84 Basic earnings per share 1.26   2.25   12.53 Effect of dilutive potential (0.06)   (0.10)   (0.56) ordinary shares Diluted earnings per share 1.20   2.15   11.97 Recognition of deferred tax asset -   -   (5.21) shown in exceptional items After tax effect of exceptional -   0.65   0.49 items Amortisation of acquired 0.05   0.09   0.24 intangibles Adjusted diluted earnings per 1.25   2.89   7.49 ordinary share 5.   TRADE AND OTHER RECEIVABLES     Unaudited   Unaudited   Audited  31 March 31 March  30 September  2010  2009  2009     £m   £m   £m Non-current: Taxation receivable   -   0.4   - Other receivables   0.4   0.4   0.5 Prepayments   2.4   1.8   2.2     2.8   2.6   2.7 Current: Trade debtors (net)   39.9   35.6   36.0 Current tax assets   1.0   0.7   0.4 Other receivables   1.2   1.2   1.3 Prepayments   4.5   4.9   4.5 Accrued income   18.7   18.8   19.0     65.3   61.2   61.2 6.    NON-CURRENT LIABILITIES - OTHER PAYABLES         Restated Unaudited Unaudited Audited 31 March  31 March 30 September  2010  2009  2009     £m   £m   £m Other payables   1.8   1.6   1.6 Accruals   1.5   1.7   1.4     3.3   3.3   3.0 7.    TRADE AND OTHER PAYABLES     Unaudited   Unaudited   Audited 31 March 31 March 30 September 2010 2009 2009     £m   £m   £m Trade payables   3.8   4.7   4.2 Other payables   2.7   2.2   4.1 Accruals   10.7   12.2   19.0 Deferred revenue   27.7   24.5   25.8     44.9   43.6   53.1 8.    PROVISIONS   Onerous lease   Other   Unaudited commitments provisions Total   £m   £m   £m At 1 October 2009 2.4   1.0   3.4 Established during the period 0.9   0.2   1.1 Utilised/paid during the period (0.3)   -   (0.3) Unwinding of discount -   -   - At 31 March 2010 3.0   1.2   4.2 Analysed as: Current liabilities 0.5   -   0.5 Non-current liabilities 2.5   1.2   3.7   3.0   1.2   4.2 Onerous lease commitments disclosed above relate to future estimated losses on sub-let or vacant lease commitments on a number of properties within the Group where the lease commitment is expected to be greater than any sub-lease income (where applicable). Amounts provided brought forward are for the period up to the first option to break in 2011 on a property lease in Denmark and for part of the office space at the Group's UK headquarters up to September 2012. As a result of the change in the economic outlook related to sub-letting of properties, an additional provision of £0.7m was established during the period which now covers the period to June 2015. As a result of a tenant vacating the property in Denmark, an additional provision of £0.2m was established during the period. Other provisions disclosed above mainly relate to the estimated restoration costs of properties primarily in North America, and is expected to be incurred in the years up to 2013. 9.    DIVIDENDS The Directors are proposing an interim dividend in respect of the period ended 31 March 2010 of 0.4p per share, which would reduce shareholders' funds by approximately £1.3m. CAUTIONARY STATEMENT This Interim Management Report ('IMR') has been prepared solely to provide additional information to shareholders to assess the Group's strategies and the potential for those strategies to succeed. The IMR should not be relied on by any other party or for any other purpose. The IMR contains certain forward looking statements. These statements are made by the Directors in good faith based on the information available to them up to the time of their approval of this report and such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward looking financial information. STATEMENT OF DIRECTORS' RESPONSIBILITIES We confirm that to the best of our knowledge: * the condensed set of financial statements has been presented in accordance with IAS 34 "Interim Financial Reporting"; * the interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and * the interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties' transactions and changes therein). By order of the Board Robin Taylor Andrew Taylor Group Finance Director Chief Executive Officer 19 May 2010 19 May 2010 [HUG#1417410]

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