Interim Results

RNS Number : 0275V

Intec Telecom Systems PLC

22 May 2008

 



Intec Telecom Systems PLC

Interim results for the six months ended 31 March 2008

Thursday 22 May 2008

Intec Telecom Systems PLC (ITL.L/ITL LN), a leading supplier of billing and operations support systems to the global telecoms industry, announces its unaudited interim results for the six months ended 31 March 2008. 

Operational Highlights

• Significant contract wins - record contract size with Antel

• Appointment of CEO and strengthening of management team

• Continued growth and investment in emerging markets

• Business review completed, execution underway

Financial Highlights

• Revenue from continuing operations down 7% to £57.2 million (H1 2007: £61.3 million) 

• Operational improvements ongoing - operating expenses1 down 6% to £23.1 million 

• Reported profit before tax of £2.2 million (H1 2007: loss of £7.7 million2)

• Adjusted profit before tax3 of £1.8 million (H1 2007:£3.9 million) 

• Basic and adjusted earnings per share of 0.48p (H1 2007: Basic loss per share of 2.86p2; adjusted earnings per share of 0.73p before goodwill impairment and exceptionals)

• Net cash up 9% to £24.6 million after employee incentive plan payments of £4 million (September 2007: £22.6 million, March 2007: £19.6 million)

Commenting on today's results, Andrew Taylor, CEO, said: 

"I am pleased to report my first set of financial results for Intec following my arrival as Chief Executive Officer in January 2008.

"After a thorough business review during my first three months in the post, one thing is clear; Intec is a company with significant market position, a high level of customer relevancy, and enormous potential. I feel privileged to take responsibility for ensuring that Intec fulfils this promise, of which I believe it is fully capable."

John Hughes, Non Executive Chairman, said:

"During the first half we enjoyed good growth in emerging markets but performance was impacted by the expected reduction in the managed services business and delays in the closure of contracts in both CALA and North America.

"However, a number of these deals have either closed or are at the latter stages of closure and we have a clear line of sight to achieve our objectives for the full year. We continue to look forward with cautious optimism." 

On 8 May 2008, Intec announced that it had received a very preliminary approach in relation to a potential offer for the Company. In accordance with Intec's regulatory obligations, shareholders will be updated further in due course.

A presentation to analysts will be held at 9.30am at the offices of College Hill, The Registry, Royal Mint Court, London EC3N 4QN. The presentation will be available on the website: www.intecbilling.com.

Enquiries:

Intec Telecom Systems PLC	www.intecbilling.com
Andrew Taylor, Chief Executive Officer	[phone]
Robin Taylor, Group Finance Director
College Hill	0207 457 2020
Sara Musgrave	[e-mail]
Carl Franklin	[e-mail]

About Intec Telecom Systems PLC

Intec supplies billing software solutions to over 60 of the world's top 100 telecoms carriers and is one of the world's leading BSS/OSS (business and operations support systems) vendors. Intec's customers include AT&T, Cable & Wireless, The Carphone Warehouse, China Mobile, Deutsche Telekom, Eircom, France Telecom, Hutchison 3G, Orange, T-Mobile, Telefonica, Telstra, Vodafone, Virgin Mobile, Vivo and Verizon. 

Intec has a comprehensive and expanding range of solutions and services ranging from market leading mediation and convergent billing products through to innovative IMS charging solutions. 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 carriers 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 30 offices in 24 countries. For more information visit www.intecbilling.com

Notes

1 Before foreign exchange gains, share based payments and employee incentive plan charges.

2 H1 2007 included charges for exceptional items and goodwill impairment totalling £10.9m.

3 Before exceptionals, impairment and amortisation of acquired intangible assets.

Chief Executive Officer's statement

I am pleased to report my first set of financial results for Intec since joining the Board in January 2008.

Following my arrival, I spent several weeks visiting staff and clients across our four regions listening to what they had to say. Intec is a company with significant market position, a high level of customer relevancy, and enormous potential. I feel privileged to take responsibility for ensuring that Intec fulfils this promise, of which I believe it is fully capable.

My review of the business is now complete and the resulting strategic plan is already underway. I outline my thoughts on the strategic direction for Intec later in this statement. 

Period in review 

During the first half we enjoyed good growth in emerging markets but performance was impacted by the expected reduction in the managed services business and delays in the closure of contracts in both the Caribbean and Latin America (CALA) and North America.

However, a number of these deals have either closed or are at the latter stages of closure and we have a clear line of sight to achieve our objectives for the full year. 

We invested in emerging markets with new sales offices in Dubai and China; both high growth regions that we believe have good potential. We also built two near shore centres in Sao Paolo, Brazil and Kuala Lumpur, Malaysia, to improve our service and delivery capabilities in the fast growing regions of CALA and Asia Pacific (APAC). These centres complement Intec's existing offshore centre in Bangalore.

Furthermore, we strengthened regional management, particularly in the CALA region, in order to optimise Intec's ability to both create and convert a promising pipeline of opportunities across the world. 

During the period we won and began work on three new major billing contracts, the largest of which was Antel, Uruguay's leading telecoms operator, representing the Company's largest deal in eleven years of trading. This contract win clearly demonstrates that Intec has the expertise, resource and know-how to deliver large scale complex contracts. We also closed multiple new customer contracts for solutions from our settlement and mediation portfolio in all parts of the globe.

Investment in product development continues to ensure we retain market leadership and build new and ongoing revenue streams to win new clients and broaden our relationships with existing ones.

During the first half, we have successfully consolidated a number of managed services operations, including Mechanicsburg, into a single purpose built facility in our Atlanta Headquarters. This activity has and should continue to help us reduce operating costs. We continue to seek ways to maximise our ability to convert opportunities in North America.

As part of our ongoing operational improvement programme I am pleased to report that efficiencies initiated in 2007, mostly in the form of headcount reductions, have helped us to keep a tight control of costs which fell by 6% in the first half of 2008 whilst giving us an organisation that is scaled and skilled to deliver the Board's expected outturn for the year. We continue to look forward with cautious optimism.

  Regional performance 

We saw pleasing growth across CALA, Europe, Middle East and Africa (EMEA) region and APAC.

CALA

The CALA business achieved robust 16% growth in constant currency terms. Notable wins included the Antel billing contract, Intec's largest ever, as well as billing and OSS wins at Telgua, and settlement systems at Enitel, Digitel and Claro Chile.    

We have further strengthened the team and management in CALA and are building a promising business pipeline in what is an important high growth region for Intec. 

EMEA

In EMEA, Intec continued to build on a strong 2007 performance and improved sales by 8% in constant currency terms. 

Important go-live milestones were achieved at T-Mobile and Vimpelcom, while DHL Germany went live on mediation and error management. Polkomtel in Poland launched its first services on Singl.eView and Intec was selected as the preferred supplier of settlement systems for one of the world's largest mobile operators. 

North America

As highlighted at the preliminary results, the North American business was impacted by a reduction in managed services revenues and we mitigated this expected decline by centralising Intec's managed services business in Atlanta to gain greater efficiencies. 

North America was also affected by the timing of new contract closures. A number of these deals have either closed or are at the latter stages of closure providing a good level of confidence for the second half. 

During the period, Intec gained a number of significant wins with T-Mobile, Sprint and one of the leading Cable companies.

APAC

APAC revenue increased by 4% in constant-currency terms, underpinned by good demand in the growing economies as well as continued demand in the more mature economies. We won key clients in Malaysia, Australia, China and India (Bharti, BSNL and Reliance) and won prestigious industry awards for our innovative work in China. 

Product development

We continue to demonstrate leadership in the market with our world class set of OSS and BSS products and solutions. This market leadership is suitably complemented and supported by a world class global service delivery capability.

For example, our investment in the new version of the settlement product has allowed us to attract thirty-eight upgrades from existing clients since its launch almost two years ago. This investment in settlement also enabled us to win ten new licences for solutions within our settlement portfolio in the first half which demonstrates both the buoyancy of the market and our continued leadership in this sector.

Product innovation continued with the release of our Total Service Mediation portfolio which includes new versions of both our market leading mediation product and our service activation solution.

Ongoing investment in product development will continue to be an important part of our strategy as this will ensure we maintain our market leadership in mediation and settlement, and build on our very positive competitive momentum in billing and customer management. Ongoing investment in product development underpins our ability to build new revenue streams by winning new customers and secure ongoing revenue streams by upgrading existing customers. 

Review of the business and strategic plan for growth

In my evaluation of Intec during my first 100-days in the job, I have considered simplification, empowerment and accountability to be the guiding principles as I assessed the potential of Intec to compete effectively at a local, regional and global market level. In order to achieve this, I have established a number of key strategic and organisational priorities.

Strengthening our organisation to deliver increased growth

Intec has a truly global market presence supported by high levels of customer satisfaction and sales momentum which presents us with an excellent platform for future growth. The priorities for Intec during this next phase are to:

Establish a highly competitive organic business - with a focus to deliver sustainable profitable growth and increase shareholder value. 

Continue to improve overall our customer relevancy in all areas we serve. 

Deliver market leading levels of product quality with a continued focus on service delivery excellence.

Exploit opportunities to organically grow the business by increasing our focus on high growth geographical and market areas. 

New Organisational Framework:

I am in the process of establishing a new organisational framework that will: 

• act as an "enabler for growth" for our business. 

• be simple and easy to understand both internally and externally. 

• focus on the market, our customers and meeting their requirements.

• provide clearer accountability for KPI's and success criteria across Intec's business.

• deliver a leadership structure and team that is focused on "profitable growth".

I believe the creation of a simpler and more effective organisational framework will empower employees, improve accountability, deliver better return to shareholders and secure higher levels of customer satisfaction. 

Strategic Planning 

Intec's short term focus is on business stability and delivering profitable organic growth through maximising its existing assets. We are in the process of adapting and evolving our longer term plans to ensure we have the optimal strategy in place to address the fast changing market dynamics.

Intec Corporate Culture

In my first 100-days I found an organisation staffed with good and capable people many of whom have exhibited a thirst for cultural change. Our focus will be on creating one unifying Intec culture across all business areas focused on customers, employees and shareholder value creation.

Outlook

During the second half of 2008 we will continue to drive operational efficiencies through the business, focus on strategic priorities and convert the strong pipeline into profitable business. 

We have a clear line of sight to achieve our objectives for the full year by executing with a suitably skilled and scaled organisation and remain cautiously optimistic about the future.

Andrew Taylor

Chief Executive Officer

   Group Finance Director's statement

Overview

	HY 2008 £m	HY 2007 £m
Revenue	57.2	61.3
Operating profit*	1.5	3.6
Net financial income	0.3	0.3
Profit before tax**	1.8	3.9
Exceptionals	-	(2.4)
Impairment of goodwill and intangibles	-	(8.5)
Amortisation of acquired intangibles	(0.4)	(0.7)
Gain on disposal of DCP business	0.8	-
Profit/loss before tax per income statement	2.2	(7.7)
Net cash	24.6	19.6

·        * before exceptionals, impairment and amortisation of acquired intangible assets

·         **before, disposals, exceptionals, impairment, and amortisation of acquired intangible asset

In the six months to 31 March 2008, pre-tax profits improved to £2.2 million compared with losses of £7.7 million for H1 2007. The prior period reflected charges for exceptional items and goodwill impairment of £10.9 million.

Operating profit was £1.5 million (H1 2007: £3.6 million pre goodwill impairment and exceptionals), before charges of £0.4 million for the amortisation of acquired intangibles (H1 2007: £0.7 million) on revenues of £57.2 million (H1 2007: 61.3 million). Net cash increased to £24.6 million.  

Earnings per share before goodwill impairment and exceptionals was 0.48p (H1 2007: 0.73p before goodwill and exceptional items). Basic earnings per share of 0.48p in the current period compares to a loss per share of 2.86p in H1 2007. 

Regional Analysis

Revenue by region (£m)	HY 08 reported	% of revenue	HY 07 reported	HY 07 constant*	% of revenue	Growth constant
EMEA	25.7	45%	23.9	23.8	39%	8%
North America	15.4	27%	23.0	22.4	36%	-31%
Asia Pacific	10.6	18%	9.8	10.2	17%	4%
CALA	5.5	10%	4.6	4.7	8%	17%
Group Revenue	57.2	100%	61.3	61.1	100%	-6%

*Constant currency comparisons are made between 2008 reported revenues and those of 2007 by applying the average exchange rates for 2008 to the 2007 local currency amounts.

Revenues were lower than H1 2007 due to the timing of contract closures in both CALA and North America and the expected reduction in customer revenues in the managed services business. The primary factor for the decline in managed services, as disclosed in our last annual report, was due to a consolidation of communication service providers in North America.  

While delays in the closure of contracts in both North America and CALA impacted the first half results, a number of these deals have either closed or are at the latter stages of closure supporting the Board's expectations for the full year. 

Revenue by type

Revenue by type (£m)	HY 08 reported	% of revenue	HY 07 reported	HY 07 constant	% of revenue	Growth constant
Licence	9.7	17%	13.6	13.6	22%	-29%
Professional Services	22.6	40%	22.1	22.3	37%	1%
Managed Services	6.0	10%	8.7	8.3	14%	-28%
Support and Maintenance	16.5	29%	16.1	16.1	26%	2%
Hardware	2.4	4%	0.8	0.8	1%	200%
Group Revenue	57.2	100%	61.3	61.1	100%	-6%

Due to the increase in hardware revenues predominantly from the Antel contract, the analysis of revenue by type has been expanded to show revenue from hardware separately. 

Gross margins and operating expenses

Gross margin decreased from 53% in H1 2007 to 48% as a result of changing revenue mix due to reduced licence sales, an increase in lower margin hardware revenue and lower profit levels in the managed service business due to the costs associated with consolidating the facility in Mechanicsburg into our regional office in Atlanta.  

The closure costs in the first half for Mechanicsburg were £0.4 million and there will be a further cost in the second half, however the full year total is not expected to be more than the estimate of £1m reported in the 2007 full year review.

Our objective remains to improve project profitability by optimising utilisation, delivering projects to budget and reducing the blended cost rate of delivery. In support of this strategy, we have added resources in both Brazil and Malaysia to drive costs down by bringing resources closer to the customer in the CALA and APAC regions.

Despite volatility in exchange rates, there was little impact overall on the translation of our revenues into sterling. The strengthening Euro and Australian dollar denominated revenues were broadly offset by those denominated in the weaker US dollar.  

Operating expenses	HY 08 £m	*IP/ SBP £m	Reported HY 08 £m	HY 07 £m	IP/SBP £m	Reported HY 07 £m
Development	(6.6)	-	(6.6)	(6.9)	(0.1)	(7.0)
Distribution	(8.3)	(0.1)	(8.4)	(9.0)	(0.1)	(9.1)
Administrative	(8.2)	(0.4)	(8.6)	(8.8)	(1.7)	(10.5)
Sub-total	(23.1)	(0.5)	(23.6)	(24.7)	(1.9)	(26.6)
Forex	0.4	-	0.4	0.3	-	0.3
*All employee incentive plan (IP)	-	-	-	(1.5)	1.5	-
*Share based payments (SBP)	(0.5)	0.5	-	(0.4)	0.4	-
Total operating expenses	(23.2)	-	(23.2)	(26.3)	-	(26.3)

Operating expenses reduced by 6% to £23.1m (H1 2007: £24.7m), before employee incentive plans, foreign exchange gains and share based payments. £0.3 million of this reduction reflects savings in development costs following the sale of the DCP business in December. No development costs were capitalised during the period.

Distribution costs decreased by £0.7 million to £8.3 million (H1 2007: £9.0 million) partly as a result of a headcount reduction in H2 2007 and partly due to the reversal of a provision of £0.4 million no longer required. As a result of this one time H1 benefit, together with increased sales commissions, we expect costs to be higher in H2 2008.

Administrative expenses decreased by 7% to £8.2 million (H1 2007: £8.8 million) following reduced headcount and a reversal of a specific bad debt provision of £0.25 million against a South American customer. No provision has been made for employee incentive payments in this period due to the significant weighting of activity in favour of the second half of the year. 

Taxation

The overall tax charge of £0.8 million compares to £1.0 million in H1 2007. This represents a current tax charge of £0.9 million (H1 2007: £1.4 million) offset by a deferred tax credit of £0.1 million (H1 2007: £0.4 million). The total charge is affected by a number of factors which include the jurisdiction in which contracts are signed and the availability of significant accumulated tax losses brought forward.  We expect the tax charge to increase, except for deferred tax where the charge or credit depends on the expected use in 2009 of the brought forward tax losses.  Intec has substantial existing net operating losses to carry forward.

Cash generation

Net cash generated by operating activity was £3.5 million (H1 2007: £3.4 million). Net cash reported is £24.6 million (H1 2007: £19.6 million). Payments of approximately £4.0 million were made in the period relating to the 2007 employee incentive plan awards. There was no comparable payment in the prior year. In addition, we incurred net costs for the build of a customer bureau solution for which cash will be recovered over the initial service period of five years starting in May 2008.

Historically, Intec's results have been skewed towards the second half of the fiscal year.  In accordance with the disclosure and transparency rule DTR 4.2.7R, the key risk in the second half is the uncertainty associated with the uneven impact of licence only sales on revenue and margins, and the timing of contract closure for anticipated new business deals. Wider risks to Intec are summarised in the notes to the unaudited interim condensed financial information which are extracted from pages 14-17 of our 2007 Annual Report available on our website at www.intecbilling.com.

Any future income from sales of the DCP product line, the rights for which were sold to Volubill, will be reflected as additional purchase price consideration and therefore an increase to the currently reported gain on disposal of the DCP business of £0.8 million. Operating costs will continue to be tightly managed and we expect the business to remain cash generative.

In summary, revenues were lower than H1 2007 due to the timing of contract closures in both CALA and North America and the expected reduction in customer revenues in the managed services business. A number of these deals have either closed or are at the latter stages of closure supporting the Board's estimates for the full year results. The hardware component in the Antel contract and the actions taken to close our Mechanicsburg facility will lead to lower gross margins when compared to 2007, but these margins are consistent with our expectations for 2008.  

Robin Taylor

Group Finance Director

  FINANCIAL HIGHLIGHTS

Six months ended 31 March 2008

		Unaudited Six months ended  31 March  2008	Unaudited Six months ended  31 March  2007	Restated1 Audited  Year ended  30 September 2007
		£000	£000	£000
Revenue		57,191	61,299	124,496
Profit/ (loss) before tax		2,250	(7,692)	(7,503)
Operating profit*	(i)	1,524	3,599	8,382
Profit before tax**	(ii)	1,832	3,861	8,742
Cash generated from operations		4,410	5,033	11,340
Earnings/ (loss) per ordinary share		0.48p	(2.86)p	(2.55)p
Diluted earnings/ (loss) per ordinary share		0.46p	(2.86)p	(2.55)p
Earnings per ordinary share before exceptional items and impairment	(iii)	0.48p	0.73p	2.36p

*before exceptionals, impairment and amortisation of acquired intangible assets

**before, disposals, exceptionals, impairment, and amortisation of acquired intangible assets

Notes to the financial highlights
	£000	£000	£000
(i)    Operating profit before exceptional items, impairment and amortisation of acquired intangibles	1,524	3,599	8,382
Exceptional items	-	(2,393)	(1,732)
Impairment	-	(8,521)	(13,238)
Amortisation of acquired intangibles	(386)	(639)	(1,275)
Operating profit/ (loss)	1,138	(7,954)	(7,863)
(ii)    Profit before tax before disposals, exceptional items, impairment and amortisation of acquired intangibles	1,832	3,861	8,742
Gain on disposal of business	804	-	-
Exceptional items	-	(2,393)	(1,732)
Impairment	-	(8,521)	(13,238)
Amortisation of acquired intangibles	(386)	(639)	(1,275)
Profit/(loss) before tax	2,250	(7,692)	(7,503)
(iii)    Basic earnings per share before exceptional items and impairment
Profit/ (loss) after tax	1,458	(8,716)	(7,781)
After tax impact of exceptional items	-	2,393	1,732
Impairment	-	8,521	13,238
Profit after tax before exceptional items and impairment	1,458	2,198	7,189

1 - see note 1 to the unaudited condensed interim financial information.

CONSOLIDATED INCOME STATEMENT

Six months ended 31 March 2008

	Note	Unaudited Six months ended  31 March  2008	Unaudited  Six months ended  31 March  2007	Audited  Year ended  30 Sept 2007
		£000	£000	£000
Continuing operations
REVENUE	2	57,191	61,299	124,496
Cost of sales		(29,516)	(28,517)	(57,251)
GROSS PROFIT		27,675	32,782	67,245
Distribution costs		(8,419)	(9,089)	(19,937)
Development expenditure		(6,588)	(7,020)	(15,133)
Depreciation		(1,681)	(1,718)	(3,675)
Amortisation		(1,618)	(1,777)	(3,967)
Goodwill impairment		-	(8,521)	(8,875)
Impairment of intangible assets		-	-	(4,363)
Exceptional items		-	(2,393)	(1,732)
Other administrative expenses		(8,231)	(10,218)	(17,426)
Total administrative expenses		(11,530)	(24,627)	(40,038)
OPERATING PROFIT/ (LOSS)		1,138	(7,954)	(7,863)
Other gains and losses	3	804	-	-
Finance income		359	480	1,012
Finance costs		(51)	(218)	(652)
PROFIT/ (LOSS) ON ORDINARY ACTIVITIES BEFORE TAX		2,250	(7,692)	(7,503)
Income tax expense	4	(792)	(1,024)	(278)
PROFIT/ (LOSS) FOR THE PERIOD ATTRIBUTABLE TO EQUITY SHAREHOLDERS		1,458	(8,716)	(7,781)
Earnings/(loss) per share - basic	5	0.48p	(2.86)p	(2.55)p
Earnings/(loss) per share - diluted	5	0.46p	(2.86)p	(2.55)p

  CONSOLIDATED BALANCE SHEET

31 March 2008

	Note	Unaudited  31 March  2008	Unaudited Restated (Note 1)  31 March  2007	Audited Restated  (Note 1)  30 September 2007
		£000	£000	£000
NON-CURRENT ASSETS
Goodwill		93,022	93,385	93,022
Other intangible assets		7,915	12,869	7,371
Property, plant and equipment		5,874	7,497	6,881
Trade and other receivables	6	1,238	1,077	1,456
Deferred tax asset		3,141	1,317	3,107
		111,190	116,145	111,837
CURRENT ASSETS
Trade and other receivables	6	44,817	45,142	48,629
Cash and cash equivalents		24,598	26,513	22,580
		69,415	71,655	71,209
TOTAL ASSETS		180,605	187,800	183,046
EQUITY
Share capital		3,059	3,049	3,057
Share premium account		162,014	161,813	161,989
Merger reserve		249	249	249
Own shares		(95)	(95)	(95)
Translation and other reserves		(3,087)	(2,668)	(4,020)
Retained earnings		(20,064)	(24,010)	(22,102)
TOTAL EQUITY		142,076	138,338	139,078
NON-CURRENT LIABILITIES
Other payables	7	2,855	2,458	2,614
Deferred tax liabilities		428	706	576
Bank loan and other borrowings		145	266	256
Provisions	9	2,131	2,663	2,083
		5,559	6,093	5,529
CURRENT LIABILITIES
Trade and other payables	8	31,626	35,113	36,825
Current tax liabilities		474	1,027	603
Bank loan and other borrowings		265	7,047	488
Provisions	9	605	182	523
		32,970	43,369	38,439
TOTAL LIABILITIES		38,529	49,462	43,968
TOTAL EQUITY AND LIABILITIES		180,605	187,800	183,046

  CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Six months ended 31 March 2008

	Share Capital	Share premium account	Merger reserve	Own shares	Translation reserves	Retained earnings	Total
	£000	£000	£000	£000	£000	£000	£000
Six months ended 31 March 2008
Balance at 1 October 2007	3,057	161,989	249	(95)	(4,020)	(22,102)	139,078
Exchange differences arising on translation of foreign operations	-	-	-	-	933	-	933
Net income recognised directly in equity	-	-	-	-	933	-	933
Profit for the period	-	-	-	-	-	1,458	1,458
Total recognised income and expense for the period	-	-	-	-	933	1,458	2,391
Issue of share capital net of share issue expenses	2	25	-	-	-	-	27
Recognition of share-based payments	-	-	-	-	-	580	580
Transfer to merger reserve	-	-	-	-	-	-	-
Balance at 31 March 2008	3,059	162,014	249	(95)	(3,087)	(20,064)	142,076
Six months ended 31 March 2007
Balance at 1 October 2006	3,043	161,500	6,768	(95)	(1,967)	(22,463)	146,786
Exchange differences arising on translation of foreign operations	-	-	-	-	(701)	-	(701)
Net expense recognised directly in equity	-	-	-	-	(701)	-	(701)
Loss for the period	-	-	-	-	-	(8,716)	(8,716)
Total recognised income and expense for the period	-	-	-	-	(701)	(8,716)	(9,417)
Issue of share capital net of share issue expenses	6	107	-	-	-	-	113
VAT recovered on previous share issue expenses	-	206	-	-	-	-	206
Recognition of share-based payments	-	-	-	-	-	650	650
Transfer from merger reserve	-	-	(6,519)	-	-	6,519	-
Balance at 31 March 2007	3,049	161,813	249	(95)	(2,668)	(24,010)	138,338
Year ended 30 September 2007
Balance at 1 October 2006	3,043	161,500	6,768	(95)	(1,967)	(22,463)	146,786
Exchange differences arising on translation of foreign operations	-	-	-	-	(2,053)	-	(2,053)
Net expense recognised directly in equity	-	-	-	-	(2,053)	-	(2,053)
Loss for the period	-	-	-	-	-	(7,781)	(7,781)
Total recognised income and expense for the year	-	-	-	-	(2,053)	(7,781)	(9,834)
Issue of share capital net of share issue expenses	14	284	-	-	-	-	298
VAT recovered on previous share issue expenses	-	205	-	-	-	-	205
Recognition of share-based payments	-	-	-	-	-	1,623	1,623
Transfer from merger reserve	-	-	(6,519)	-	-	6,519	-
Balance at 30 September 2007	3,057	161,989	249	(95)	(4,020)	(22,102)	139,078

CONSOLIDATED CASH FLOW STATEMENT

Six months ended 31 March 2008

	Unaudited Six months ended  31 March  2008	Unaudited Six months ended  31 March  2007	Audited Restated (Note 1)  Year ended  30 September 2007
	£000	£000	£000
Operating profit/(loss)	1,138	(7,954)	(7,863)
Adjustments for:
Depreciation of property, plant and equipment	1,681	1,718	3,675
Amortisation of intangible assets	1,408	1,618	3,598
Amortisation of capitalised development expenditure	210	159	369
Goodwill impairment	-	8,521	8,875
Impairment of intangible assets	-	-	4,363
Loss/(gain) on disposal of property, plant and equipment	5	(64)	(10)
Share-based payment expense	580	650	1,623
Exchange gain on non-operating items	-	-	(351)
(Decrease)/increase in provisions	(252)	170	(345)
Operating cash flows before movements in working capital	4,770	4,818	13,934
Decrease/(increase) in receivables	4,463	974	(3,874)
(Decrease)/increase in payables	(4,823)	(759)	1,267
Cash generated by operations	4,410	5,033	11,327
Income taxes paid (net)	(937)	(1,608)	(3,279)
Net cash generated by operating activities	3,473	3,425	8,048
Investing activities
Interest received	359	479	1,012
Purchase of property, plant and equipment	(842)	(1,531)	(2,336)
Purchase of intangible assets	(174)	(1,467)	(1,101)
Expenditure on other intangible assets	(1,947)	-	(728)
Proceeds on disposal of property, plant and equipment	122	67	69
Expenditure on capitalised product development	-	(123)	(123)
Net proceeds on disposal of business	428	-	-
Net cash used in investing activities	(2,054)	(2,575)	(3,207)
Financing activities
Interest paid	(3)	(190)	(411)
Interest element of finance lease rental payments	(11)	(10)	(120)
VAT recovered on acquisition costs	-	207	205
Proceeds on issue of shares	27	115	255
Repayment of bank loan	-	-	(6,751)
Repayments of obligations under finance leases	(311)	(126)	(661)
Net cash used in financing activities	(298)	(4)	(7,483)
Net increase/(decrease) in cash and cash equivalents	1,121	846	(2,642)
Cash and cash equivalents at beginning of period	22,580	25,960	25,960
Effect of foreign exchange rates	897	(293)	(738)
Cash and cash equivalents at end of period	24,598	26,513	22,580

  NOTES TO THE UNAUDITED CONDENSED INTERIM FINANCIAL INFORMATION          

Six months ended 31 March 2008

1. BASIS OF PREPARATION

The condensed consolidated financial statements for the six months ended 31 March 2008 have been prepared in accordance with the requirements of the Listing Rules and International Accounting Standard 34, Interim Financial Reporting.

The financial information in this report is neither reviewed nor audited and does not comprise statutory accounts for the purposes of Section 240 of the Companies Act 1985. No statutory accounts for the period have been delivered to the Registrar of Companies.

With the exception of those items noted below as restatements, the abridged information for the year ended 30 September 2007 is based upon the Group's audited accounts. The statutory accounts for the year ended 30 September 2007 have been delivered to the Registrar of Companies. The auditor's report on those was unqualified and did not contain a Statement under either Section 237(2) or Section 237(3) of the Companies Act 1985.

Accounting policies

The accounting policies adopted in the preparation of the interim consolidated financial statements are consistent with those followed in preparation of the Group's annual financial statements for the year ended 30 September.  

In the current financial year, the Group will adopt IFRS 7 "Financial Instruments: Disclosures" for the first time. As IFRS 7 is a disclosure statement, there is no impact of this change in accounting policy on the interim financial statements.

Restatements

The balance sheet at 31 March 2007 has been restated to show finance lease liabilities as bank and other borrowings rather than trade and other payables, as was previously disclosed. This is consistent with the classification at 30 September 2007. The effect of this classification on the balance sheet at 31 March 2007 is to reduce non-current other payables and current trade and other payables by £266,000 and £169,000, and to increase non-current bank loan and other borrowings, and current bank loan and other borrowings by the same amounts.

The balance sheet at 31 March 2007 classified long term rental deposits as current prepayments. These are now shown as part of non-current prepayments. The effect of this classification is to increase non-current prepayments and reduce current prepayments by £485,000. 

The balance sheet at 31 March 2007 has been restated to classify lease incentives as accruals in trade and other payables rather than as provisions, as was previously disclosed. This is consistent with the classification at 30 September 2007. This has the effect of reducing non-current and current provisions and increasing non-current and current accruals by £1,658,000 and £119,000 respectively.

The balance sheet at 30 September 2007 has been restated to reclassify project costs incurred on a long term project from long term trade and other receivables to other intangible assets. The effect of this reclassification is to reduce long term trade and other receivables and increase other intangible assets by £728,000. The effect of this reclassification on the cash flow statement is to reduce movements in receivables and increase expenditure on other intangible assets by £728,000.

This interim financial report was approved for issue by the Board of Directors on 21 May 2008.

2. SEGMENTAL INFORMATION

The directors consider that the Group operates in one continuing class of business, namely that of development, sale, implementation and support of business/ operations support software solutions.

The Group is organised into four key geographical segments comprising Europe, Middle East and Africa (EMEA), North America, Caribbean and Latin America (CALA) and Asia-Pacific (APAC) and product operations. The geographical segments are based on customer location. Product operations comprise our development, product management and offshore operations. 

Segment results include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise corporate assets and liabilities and expenses.  Segment information under the primary reporting format is as disclosed in the table below:

Inter-segmental revenue and expenses comprise amounts charged to other regions for resources used on projects outside their home region. The revenue and expenses are determined on an arms-length basis.

Continuing operations Six months ended 31 March 2008	EMEA	North America	Asia-Pacific	CALA	Product operations	Unaudited Total
	2008	2008	2008	2008	2008	2008
	£000	£000	£000	£000	£000	£000
Gross revenue	25,730	16,285	10,550	5,462	4,345	62,372
Inter-segment revenue	-	(836)	-	-	(4,345)	(5,181)
Revenue	25,730	15,449	10,550	5,462	-	57,191
Gross expenses	17,361	16,328	7,125	3,371	12,294	56,479
Inter-segment expenses	(2,835)	(531)	(1,636)	(179)	-	(5,181)
Expenses	14,526	15,797	5,489	3,192	12,294	51,298
Segment profit/ (loss)	11,204	(348)	5,061	2,270	(12,294)	5,893
Unallocated costs:
- corporate costs						(4,755)
Operating profit						1,138
Other gains and losses						804
Finance income						359
Finance costs						(51)
Profit on ordinary activities before tax						2,250
Taxation						(792)
Profit for the period						1,458

  2. SEGMENTAL INFORMATION (continued)

Continuing operations Six months ended 31 March 2007	EMEA	North America	Asia-Pacific	CALA	Product  operations	Unaudited Total
	2007	2007	2007	2007	2007	2007
	£000	£000	£000	£000	£000	£000
Gross revenue	23,936	23,638	9,802	4,547	3,426	65,349
Inter-segment revenue	-	(624)	-	-	(3,426)	(4,050)
Revenue	23,936	23,014	9,802	4,547	-	61,299
Gross expenses	15,341	17,003	7,378	2,294	14,019	56,035
Inter-segment expenses	(1,655)	(307)	(2,079)	(9)	-	(4,050)
Expenses	13,686	16,696	5,299	2,285	14,019	51,985
Segment profit/ (loss) before impairment of goodwill	10,250	6,318	4,503	2,262	(14,019)	9,314
Impairment of goodwill	-	-	-	-	(8,521)	(8,521)
Segment profit /(loss)	10,250	6,318	4,503	2,262	(22,540)	793
Unallocated costs:
- corporate costs						(6,354)
- exceptional expenses						(2,393)
Operating loss						(7,954)
Finance income						480
Finance costs						(218)
Loss on ordinary activities before tax						(7,692)
Taxation						(1,024)
Loss for the period						(8,716)

The comparative information shown in the above table provides additional relevant information regarding the product operations segment and inter-segmental revenues and expenses that were not previously disclosed. This is consistent with the current period disclosures.

Revenue by type	Unaudited  Six months ended  31 March  2008	Unaudited  Six months ended  31 March  2007	Audited  Year ended  30 September 2007
	£000	£000	£000
Licence	9,645	13,614	27,318
Professional services income	22,584	22,060	47,367
Managed services	6,026	8,719	16,286
Support and maintenance fees	16,530	16,107	32,523
Hardware	2,406	799	1,002
Total revenue by activity	57,191	61,299	124,496

Due to the increase in hardware revenue in the current period the hardware revenue has been disclosed separately in the table above. This revenue was previously included within professional services income.

  3. DISPOSED BUSINESS

On 19 November 2007, an asset sale and purchase agreement was announced with Volubill SA to sell certain assets and liabilities of Intec Denmark for an initial consideration of £1 million in cash plus additional consideration based on support and maintenance revenues and new licence sales recognized by Volubill for a period of two years from completion. Within the agreement there are working capital adjustments the majority of which were settled in the period. These amounts have been included in the calculation of the gain on disposal disclosed in the table below.

In the opinion of the Directors, the assets and liabilities of Intec Denmark that were disposed did not meet the criteria to be classified as discontinued operations under IFRS 5 "Non-current assets held for sale and discontinued operations" as it did not represent a separate major line of business or withdrawal from a major geographical market within the Group.

The disposal costs are charges incurred as a direct result of the disposal.

Net assets disposed of and the calculated profit on disposal were as follows:

	31 March 2008
	£000
Intangible assets	105
Property, plant and equipment	63
Net assets	168
Net consideration
Cash consideration	1,000
Additional estimated consideration	165
Disposal costs	(193)
	972
Gain on disposal	804
Reconciliation to cash flow statement
Net cash flows in respect of the disposal the assets and liabilities are as follows:
Cash received	1,000
Amounts paid to Volubill as working capital adjustments	(572)
	428

  4. INCOME TAX EXPENSE

	Unaudited 31 March 2008	Unaudited 31 March 2007	Audited 30 September 2007
	£000	£000	£000
Current taxation:
UK corporation tax at 30% (2007: 30%)	-	-	-
Foreign tax	846	1,074	2,186
	846	1,074	2,186
Adjustments in respect of prior years
UK corporation tax	-	280	280
Foreign tax	34	62	85
	34	342	365
Total current tax expense	880	1,416	2,551
Deferred taxation:
UK	(328)	-	-
Foreign	240	(392)	(2,273)
Total deferred taxation	(88)	(392)	(2,273)
Total income tax	792	1,024	278

  5. EARNINGS/ (LOSS) PER ORDINARY SHARE

	Unaudited  Six months ended  31 March  2008	Unaudited  Six months ended  31 March  2007	Audited  Year ended  30 September  2007
	£000	£000	£000
Profit/(loss) for the period - basic and diluted	1,458	(8,716)	(7,781)
Profit/(loss) for the period - basic and diluted	1,458	(8,716)	(7,781)
Impairment of goodwill	-	8,521	13,238
After tax effect of exceptional items	-	2,393	1,732
Adjusted profit for the period - basic and diluted	1,458	2,198	7,189
	Number	Number	Number
	'000	'000	'000
Weighted average number of ordinary shares - basic	305,443	304,502	305,042
Effect of dilutive potential ordinary shares options	8,602	270	-
Weighted average number of ordinary shares - diluted	314,045	304,772	305,042
	Pence	Pence	Pence
Basic earnings/ (loss) per ordinary share	0.48	(2.86)	(2.55)
Effect of dilutive potential ordinary shares options	(0.02)	-	-
Diluted earnings/ (loss) per ordinary share	0.46	(2.86)	(2.55)
Basic earnings/ (loss) per ordinary share	0.48	(2.86)	(2.55)
After tax effect of exceptional items	-	3.59	4.91
Adjusted earnings per ordinary share	0.48	0.73	2.36
Effect of dilutive potential ordinary shares options	(0.02)	-	-
Adjusted diluted earnings per ordinary share	0.46	0.73	2.36

6. TRADE AND OTHER RECEIVABLES

	Unaudited  31 March  2008	Restated Unaudited  31 March  2007	Restated Audited  30 Sept 2007
	£000	£000	£000
Non-current:
Prepayments	1,238	1,077	1,456
Current:
Trade debtors	29,005	26,705	33,480
Overseas tax	872	563	836
Other receivables	1,701	1,760	1,433
Prepayments	2,363	3,502	3,035
Accrued income	10,876	12,612	9,845
	44,817	45,142	48,629

7.    NON-CURRENT LIABILITIES – OTHER PAYABLES

	Unaudited  31 March  2008	Restated Unaudited  31 March  2007	Audited  30 September 2007
	£000	£000	£000
Other payables	968	800	908
Accruals	1,887	1,658	1,706
	2,855	2,458	2,614

8. TRADE AND OTHER PAYABLES

	Unaudited  31 March  2008	Restated Unaudited  31 March  2007	Audited  30 September 2007
	£000	£000	£000
Trade payables	3,206	2,401	2,742
Other payables	2,427	4,954	4,878
Accruals	7,245	11,743	12,406
Deferred revenue	18,748	16,015	16,799
	31,626	35,113	36,825

9. PROVISIONS

	Onerous lease commitments	Other provisions	Unaudited Total
	£000	£000	£000
At 1 October 2007	2,168	438	2,606
Established during the period	193	3	196
Utilised/paid during the period	(278)	(5)	(283)
Unwinding of discount	49	-	49
Translation differences	173	(5)	168
At 31 March 2008	2,305	431	2,736
Analysed as:
Current liabilities	564	41	605
Non-current liabilities	1,741	390	2,131
	2,305	431	2,736

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 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 2010. As a result of a change in tenancy due to the sale of certain assets and liabilities of Intec Denmark to VoluBill SA, an additional provision of £193,000 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 2010.

  KEY RISKS AND UNCERTAINTIES AND STATEMENT OF DIRECTORS' RESPONSIBILITIES

Principal risks

Intec is a high-technology business operating in dynamic, global markets, and like all businesses we are exposed to a number of risks and uncertainties. The principal risks set out below are based on the risks identified on pages 14-17 of our 2007 Annual Report which can be found on our website www.intecbilling.com. This can never be an exhaustive list, although regular review of risk is an established management task at Intec. We have not identified generic risks such as fire or terrorism.

Competitors - Intec competes in a dynamic market against a range of large and small vendors, many of whom claim to have similar products and services. We may fail to be competitive with these companies or to offer products and services for which there is poor demand due to changes in market requirements. 

Customers - Intec sells primarily to a defined range of companies in the global communications market. Changes within this customer base, for example due to consolidation, may impact our ability to sell to them.

Technology - Intec uses and supplies sophisticated software technology in its day to day operations. It is possible that we may fail to identify problems or shortcomings with key technologies we rely on.

Staff - Intec relies on the abilities and competence of its staff to develop and deliver complex systems of high quality to customers in a timely fashion. We may fail to have adequate skills or oversight in this area, leading to project delays, customer dissatisfaction, or lack of market competitiveness.

Resources - We require an adequate level of staff and other resources to be able to operate the business properly, and to meet customer commitments. A lack of, or oversupply of, suitable resources will jeopardise financial, technical and operating performance.

Timing of contract closure - Intec's utilisation of global resources is planned and reviewed on a regular basis and takes into consideration both contracted and uncontracted forecast business for the foreseeable future. A significant change in the actual closure of new business and/or mix of products sold could have a short-term impact on our ability to fulfil all orders of a timely basis.

Legal - Intec contracts with its customers and partners to deliver products and services to agreed timetables and specifications. It is possible that one or both sides may fail to meet their contractual obligations, and we may become involved in potentially damaging litigation. Additionally, it is possible that we may breach other companies' rights in terms of intellectual property.

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
21 May 2008	21 May 2008

 

END

 

 

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