Preliminary Results
Intec Telecom Systems PLC
27 November 2007
Intec Telecom Systems PLC
Preliminary results for the year ended 30 September 2007
Tuesday 27 November 2007
Intec Telecom Systems PLC (ITL.L/ITL LN), a leading supplier of billing and
operations support systems to the global telecoms industry, announces its
audited preliminary results for the year ended 30 September 2007.
Financial Highlights
• Revenue up 8% to £124.5 million (2006: Revenue before exceptionals1
£115.3 million)
• Revenue up 15% in constant currency
• EBITDA(2,5) up 119% to £14.7 million (2006: £6.7 million)
• EBITDA(2,5) margin up six percentage points year on year to 11.8% (2006:
5.8%)
• Adjusted PBT(3) of £8.7 million (2006:£2.1 million)
• Loss after tax(4) of £7.8 million (2006: £6.3 million)
• Adjusted earnings per share5 of 2.36p (2006: 0.13p)
• Basic loss per share4 of (2.55p) (2006:(2.06p))
• Net cash of £22.6 million up 21% (2006: £18.6 million)
Operational Highlights
• Cost reduction actions taking effect - margin improvements coming
through
• Strengthened leadership team with appointment of Group Finance
Director and NED during the financial year. CEO appointment imminent.
• Continuing substantial wins across all product lines underpinning
product leadership
Commenting on today's results, John Hughes, Chairman and interim CEO, said:
"2007 has been a year of improving financial performance and rebuilding the
platform for future growth. 2008 will see further efforts to progress margins,
grow the top line and improve cash conversion as we seek to drive increasing
shareholder value."
Enquiries:
Intec Telecom Systems PLC www.intecbilling.com
John Hughes, Chairman and interim CEO +44 (0)1483 745 800
Robin Taylor, Group Finance Director
Andrew Rodaway, Marketing Director
College Hill 0207 457 2020
Sara Musgrave sara.musgrave@collegehill.com
Ben Way ben.way@collegehill.com
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)In the Annual Report for the year ended 30 September 2006 Intec reported that
£5.5 million of previously recognised revenue was reversed due to uncertainty
over the timing of payments following the delay of a major project roll out with
a large US customer. Included in this revenue reversal of £5.5 million was £3.0
million that was actually recognised as revenue in 2005, and as such would have
been more appropriately disclosed separately in the audited financial statements
in 2006. Accordingly this disclosure has been made in 2007.
(2) EBITDA is reconciled to the loss before tax in note (ii) in the detailed
financial highlights below.
(3) Before exceptionals, impairment and amortisation of acquired intangible
assets
(4) After impairment charge of £13.2 million (2006: £nil)
(5) Before exceptionals and impairment
Restated
2007 2006
Detailed Financial Highlights Note £000 £000
Revenue before exceptionals (i) 124,496 115,326(1)
Profit before tax before exceptionals, impairment and
amortisation of acquired intangibles 8,742 2,145
Loss before tax (7,503) (5,301)
Operating loss (7,863) (5,907)
EBITDA before exceptional items and impairment (ii) 14,749 6,743
Cash generated from operations 10,599 14,072
Basic and diluted loss per ordinary share (2.55)p (2.06)p
Adjusted earnings per share (iii) 2.36p 0.13p
Notes to the detailed financial highlights £000 £000
(i) Revenue before exceptional items 124,496 115,326
Exceptional revenue reversal - (3,006)
124,496 112,320
(ii) Loss before tax (7,503) (5,301)
Exceptional items 1,732 6,744
Impairment 13,238 -
Amortisation of acquired intangible assets 1,275 702
Profit before tax before exceptionals, impairment and
amortisation of acquired intangibles 8,742 2,145
Interest (360) (606)
Depreciation 3,675 3,259
Amortisation of other intangible assets 2,692 1,945
EBITDA before exceptional items 14,749 6,743
(iii) Adjusted earnings per share calculation:
Loss after tax (7,781) (6,252)
After tax effect of exceptional items 1,732 6,651
Impairment 13,238 -
Earnings after tax - before exceptional items and impairment 7,189 399
Chairman and Interim CEO's statement
Year In Review
We pledged this year to improve the financial performance of the business. To
that end we made changes to the management team, continued the focus on cost
reduction and operational efficiencies and worked diligently to win new
contracts. I am pleased to report that the operational actions have begun to pay
off, enabling us to meet our objective of better financial performance in 2007.
We have delivered margin, revenue and EBITDA improvement slightly above
expectations despite the currency headwind. Although we are pleased with current
progress after an unsatisfactory 2006 there is still both the opportunity and
need to enhance the financial performance of Intec, and 2008 should see further
operational improvement alongside a continued focus on delivering top line
growth.
Financial Results
Revenue for the year was up 8% to £124.5 million with EBITDA before exceptionals
and goodwill impairment up 119% to £14.7 million, compared to £6.7 million in
2006. Revenue was up 15% in constant currency. Cash less bank loans at the
period end was up 21% to £22.6 million in 2007, from £18.6 million in 2006.
Intec is a truly global business with over 90% of revenues being generated
outside the UK. The year saw marked revenue increase across the North American,
EMEA and APAC regions, driven by new customer wins and successful cross-selling.
Whilst the performance of our Caribbean and Latin American region (CALA) was
somewhat disappointing we have been notified that we are the preferred bidder on
a large convergent billing contract which we are in the process of finalising;
assuming it is secured, it will help underpin our expectations for growth in the
CALA region in 2008.
Looking at the past year, it is clear that the second half (H2) has better
demonstrated the operational and financial progress that we targeted as
improvements have taken effect. This is reflected in our EBITDA margins, which
rose to 13.1% in H2 from 10.5% in H1.
Whilst 2007 was undoubtedly an important year in terms of our recovery, we
firmly believe that further improvement can be achieved and that some of the
additional margin improvement initiatives we have launched in the past few
months are still coming through the system.
Board Changes
We are pleased to announce that we have identified a highly capable candidate to
take the role of Intec's Chief Executive Officer. We are finalising contractual
terms and expect to be able to make an announcement shortly. The candidate has
extensive knowledge of the Telecom's market and a strong track record of
delivering top-line growth and organisation improvement. The candidate is
expected to join us at the beginning of 2008.
Additionally, and in line with our previously stated aim of further
strengthening our Board, we were delighted to welcome John Allkins to the
Company as a non-executive director in August 2007. John was previously group
finance director of MyTravel Group plc, and oversaw the company's transition
from a loss-making operator into a leading brand which merged with Thomas Cook.
John has previous telecoms experience with both Equant and BT.
The previous CEO Kevin Adams, and Group Finance Director John Arbuthnott, both
stepped down from the Board in early 2007, and on behalf of the Board, I record
my thanks for their valuable contribution. During the period, we also announced
the departure of our senior non-executive Director, Roger McDowell, after a
five-year tenure.
Cost Reduction and Margin Improvement
Intec's improved financial performance was delivered through a sustained effort
to increase productivity whilst reducing operational costs. We have continued
working towards our objective of improving gross margin through ongoing cost
management, replacing expensive contractors with full time staff, and the
delivery of a greater proportion of services from lower-cost locations. The
investment in our professional services centre in Bangalore is now beginning to
deliver, as demonstrated by improving project profitability.
Structural Changes
As part of the ongoing strategy to simplify and improve Intec's global
operations we have effected a number of changes since the year end. As announced
on 19 November 2007, we sold the Denmark based Intec DCP business to VoluBill
SA for an initial consideration of £1.0 million, plus a percentage of revenues
for the next two years. Intec has retained certain commercial and technical
rights relating to this business, which recorded a loss of £1.1 million on
revenues of £3.4 million in 2006, to allow for a smooth transition of customers
to the new owners, with whom we have created a formal partnership. In 2007 the
business delivered a breakeven performance and revenues of £3.7 million. We do
not expect the disposal, the sale proceeds or subsequent revenues to have a
material impact on our results in future periods.
The performance of Intec's managed services business and the number of its
locations in North America has led us to conclude that we should consolidate the
facility in Mechanicsburg, Pennsylvania, incorporating the EUR business acquired
in 2006, into Intec's three service activities in Atlanta, Dallas and San
Antonio; which is expected to create a one-time cost of approximately £1.0
million. The customers from the Mechanicsburg facility are being transferred and
the centre will close by April 2008. This reflects management's steps to
achieve economies of scale in the North American operations against a backdrop
of a consolidating US customer base.
Whilst we are pleased with current progress, there is still more that can be
delivered and throughout 2008 we shall continue our focus on operational
simplification, cost control and organisational improvement.
Impairment charges
In our interim statement, in March 2007, we announced an impairment charge of
£8.5 million related to the Intec DCP business. In September 2007, we recorded a
further impairment charge of £4.7 million on the goodwill and intangibles
relating to the EUR Systems acquisition.
Product Development and Contract Wins
I am pleased to report a number of key contract wins with Tier 1 players in the
telecommunications industry, and a continued focus by the management team
towards improving revenue quality.
In particular, we announced key contract wins with Alfa in Lebanon, Meteor in
Ireland, R Cable in Spain, Telefonica O2 in the Czech Republic, Digicel Pacific,
China Mobile, Qualcomm, VimpelCom, Cox Communications, HT Mobile in Vietnam,
Claro in Brazil, and Polkomtel in Poland. All contracts were won against a range
of major industry competitors.
This success underlines our technology leadership as well as our capability to
deliver on a global scale. In the past year we have launched a new solution for
IMS based charging in next-generation networks; the Intec Mobile Business
Solution for new and emerging mobile operators; and a new version of Intec
Convergent Billing with important revenue management and reporting capabilities.
During the course of 2008 we will continue to invest appropriately in
development to ensure our products, services and distribution preserve their
competitive edge.
Outlook
During 2007, we demonstrated material contract wins with significant players,
bolstering our position as a technology leader within the highly competitive
telecoms solutions market. We took steps to improve the operations of the
business and met our objective of achieving better financial performance in
2007. That improvement is by no means finished, and the impending appointment of
our new Chief Executive Officer will ensure further focus on operational
measures designed to improve margins and profitability, whilst continuing the
focus on converting the current pipeline of opportunities into top line growth.
We believe that we have the products, systems and people to deliver further
results and are cautiously optimistic about the future.
John Hughes
Chairman and Interim CEO
26 November 2007
Group Finance Director's Review
I am pleased to report a marked improvement in the Group's financial results and
position with revenue, cash less bank borrowings, and operating profit before
exceptionals and impairment up year on year despite the currency headwind. We
continued to make progress in reducing operating costs and increasing gross
margins during the second half of the year and we expect to achieve further
benefits from better operational and cash management in the year to September
2008.
The financial statements include substantial non-cash charges for goodwill
impairment, the amortisation of intangibles and the notional cost of share-based
payments. A re-allocation of certain facilities and IT costs was made from
Administration expenses to Cost of Sales, Distribution and Development costs for
all reported numbers and a change made in the analysis of revenue by type.
These changes were first highlighted in the interim statement to March 2007.
In 2006 £5.5 million of revenue was reversed due to uncertainty over the timing
of payments following the delay of a major project roll out with a large US
customer. Included in this revenue reversal of £5.5 million was £3.0 million
that was recognised in 2005. These revenues would have been more appropriately
disclosed separately in the audited financial statements in 2006 and accordingly
we have made this disclosure in 2007.
Business Performance
The Group uses a set of key performance indicators to manage the business on a
monthly basis. The key financial indicators are highlighted below and comments
are provided on material changes to facilitate a better understanding of the
financial statements. A reconciliation has been made in the table below to the
Group consolidated income statement.
Key Financial Indicators Reconciliation with Consolidated income statement
2007 2006 2007 2006
£m £m £m £m
Revenues* 124.5 115.3 Loss before tax per income statement (7.5) (5.3)
EBITDA** 14.7 6.7 Add:
% of revenues 11.8% 5.8% Exceptionals 1.7 6.7
Profit before tax*** 8.7 2.1 Impairment of goodwill and 13.2 -
intangibles
Cash less bank loan 22.6 18.6 Amortisation of acquired intangibles 1.3 0.7
Profit before tax - Key financial 8.7 2.1
indicator
* before exceptionals Add / (deduct):
** before exceptionals and impairment Depreciation and amortisation 6.4 5.2
***before exceptionals, impairment, and Interest (0.4) (0.6)
amortisation of acquired intangible assets EBITDA - Key financial indicator 14.7 6.7
In the commentary that follows, amounts are before exceptional items and
impairment unless otherwise stated.
Revenue
Revenue increased by 8% to £124.5 million (2006: £115.3 million) and included
the full year contribution of £13.7 million from EUR Systems, acquired on 1
September 2006. Revenue was impacted by the weakness of the US Dollar, but in
constant currency grew by 15%.
Gross margin rates increased steadily during the year from 51% in H2 2006 to
almost 55% in H2 2007. The average year on year change from 52% to 54% was due
to a combination of the cost reduction exercise initiated late in 2006, better
resource management through the introduction of a global professional services
organisation, and an increase in the use of India based professional services
resources. The quality of Intec's revenue (the mix of revenue and related
margin) varies each year depending on the nature and timing of products sold.
2007 2006 2006 Growth
£m £m £m Constant
Reported *Constant Reported Currency
Currency
Licence 27.3 25.6 26.8 7%
Professional Services 48.4 45.2 48.8 7%
Managed Services 16.3 7.0 7.7 133%
Support & Maintenance 32.5 30.7 32.0 6%
Total Revenue 124.5 108.5 115.3 15%
*Constant currency comparisons are made between 2007 reported revenues and those
of 2006 by applying the average exchange rates for 2007 to the 2006 local
currency numbers.
Although the majority of the revenue continues to be delivered from North
America and Europe, we are pleased to report successful growth in all of the
geographical regions, with the exception of the Caribbean and Latin America
(CALA). Whilst the performance of our Caribbean and Latin American region (CALA)
was somewhat disappointing we are in the process of finalising, and assuming it
is secured, will underpin our expectations for growth in the region in 2008. Of
note is the growth in Asia Pacific where revenue increased by 12%.
Revenue for the former EUR Systems business reduced faster than expected at the
time of the acquisition in 2006, primarily due to a consolidation of
communication service providers in North America. Action has been taken to
reduce costs, further details of which are reported later in this statement.
2007 2006 Growth
Reported Restated Reported
£m £m
EMEA 52.5 50.6 4%
North America 43.6 36.3 20%
Asia-Pacific 21.1 18.9 12%
CALA 7.3 9.5 (23%)
Total Revenue 124.5 115.3 8%
Earnings before Interest, Tax, Depreciation, and Amortisation (EBITDA)
As previously stated, it is the Board's objective to achieve a gradual year on
year increase in EBITDA as a percentage of revenues. EBITDA as a percentage of
revenues has increased from 3.3% in H2 2006 to 10.5% in H1 2007 and to 13.1% in
H2 2007. The ratio for the full year was 11.8% (2006: 5.8%).
We have separately disclosed share based payments and the employee incentive
plan to provide clarity on reductions in the annual operating costs and have
provided a reconciliation with those numbers reported in the consolidated income
statement. Share based payments include a charge for share options and the Long
Term Incentive Plan. All share based payments awarded to Directors of the
Company are subject to performance conditions.
Key components of EBITDA FY07 FY06 FY06
FY07 IP(1)/SBP(2) Reported Restated IP/SBP Restated
Gross Profit 69.3 (2.1) 67.2 60.7 (0.7) 60.0
Development (14.2) (0.9) (15.1) (16.4) (0.2) (16.6)
Distribution (19.1) (0.8) (19.9) (20.5) (0.3) (20.8)
Administrative (16.9) (1.6) (18.5) (15.1) (0.3) (15.4)
Forex 1.0 - 1.0 (0.5) - (0.5)
(1)All employee incentive plan (3.8) 3.8 - - - -
(IP)
(2)Share based payments (SBP) (1.6) 1.6 - (1.5) 1.5 -
Total overheads (54.6) (52.5) (54.0) (53.3)
EBITDA 14.7 14.7 6.7 6.7
Analysing overheads before share based payments and the employee incentive plan:
Development costs decreased by £2.2 million (13%), following a reduction of
staffing after the completion of certain major projects and the transition of
some R&D resources to lower cost locations.
Distribution costs reduced by £1.4 million (7%), following a successful
restructuring of the sales and marketing organisation earlier in the year.
Administration expenses increased by £1.8 million as a result of additional
costs related to the acquired EUR Systems business of £0.6 million, reduced
capitalised cost by £0.5 million on the SAP business system and a £0.7 million
provision for an onerous lease at the Woking headquarters. These increased costs
are partially offset by other savings including the consolidation of the North
American financial organisation which took place in the second half of 2006 and
early in 2007.
Development and Distribution costs have both reduced as a percentage of revenue
when compared to 2006.
Foreign exchange gains of approximately £1 million were reported as a result of
net intercompany payable positions in the Canadian Dollar, the Indian Rupee, the
South African Rand and the Brazilian Real. These currencies all strengthened
against Sterling and the US Dollar during the year.
Exceptional charges
Exceptional charges of £2.4 million were incurred in the first half of the year
resulting from a detailed business structure and operations review and an
associated Board and staff restructuring. In the second half a settlement was
reached concerning employment grants resulting in the reversal of a provision of
£0.2 million. A credit of £0.5 million was also taken against the Danish
onerous lease provisions, established in late 2006 as part of the global
restructuring. The credit results from an increase in the space rented to
sub-tenants at the Danish office facility.
Goodwill impairment and the amortisation of intangible assets
In March 2007, an impairment charge of £8.5 million was taken for the goodwill
associated with the 2003 acquisition of the Intec DCP business based on a review
of the future expected cash flows of the business. In September 2007, we
conducted a similar exercise on EUR Systems and determined that a 100%
impairment of both goodwill and intangible assets was appropriate, amounting to
a charge of £4.7 million. As stated in the Chairman's report, action has been
taken to reduce costs; further details of which are reported under post balance
sheet events.
Net finance costs
Finance costs in 2007 amounted to £0.7 million (2006: £0.3 million) and were
incurred primarily on a US dollar loan raised in September 2006 to finance the
acquisition of EUR Systems and the unwinding of discount on onerous lease
provisions. The loan was repaid in September 2007. Finance income reflects
interest received on surplus cash during the year at market rates of interest.
Taxation
The overall tax charge is £0.3 million (2006: £1.0 million). This represents a
current tax charge of £2.6 million (2006: £1.5 million) offset by a deferred tax
credit of £2.3 million (2006: credit £0.5 million).
The current tax charge comprises £1.3 million (2006: £1.5 million) of taxes on
local profits in a number of smaller overseas territories, £0.9 million (2006:
£0.4 million) of withholding taxes for which full credit relief is irrecoverable
and a prior period charge of £0.4 million (2006: prior period credit £0.4
million).
The deferred tax credit includes £1.5 million (2006: nil) for the anticipated
use in 2008 of carried forward tax losses in Canada, Ireland and the United
States for the first time. In 2008 this credit is expected to reverse and we
will reassess the recoverability of the remaining losses and recognise and
credit as appropriate.
The major trading companies in the Group have not incurred material corporate
tax liabilities. The US operations have annual goodwill allowances, based on the
original purchase price, which will continue to reduce tax charges against
future profits. In addition there are substantial tax losses in the UK, the US,
Canada, Denmark and Ireland, with a tax value of £25.2 million (2006: £27.1
million) available for future use.
Cash payments of taxes in the year amounted to £3.3 million (2006: £2.0 million)
including withholding taxes of £0.7 million (2006: £0.7 million).
The level of tax in future years will depend to a considerable extent on the
location of contracts and the rate of utilisation of the carried forward tax
losses. As an international business with customers in over 90 countries the
Group's tax affairs are necessarily complex although efforts continue to
simplify this where possible.
Earnings per share
Basic earnings per share adjusted for exceptional items and impairment increased
from 0.13p in 2006 to 2.36p per share in 2007 reflecting in part the recognition
of the deferred tax credit set out above. Basic and diluted loss per share were
(2.55p) (2006: (2.06p)), reflecting the substantial impairment of goodwill and
intangibles and the exceptional charges.
The weighted average of shares used to calculate basic earnings per share was
305,042,000 (2006: 302,952,000).
Balance sheet and Cash Management
2007 2006
£m £m
Goodwill & Intangibles 99.7 115.9
Property, Plant & Equipment 6.9 7.9
Other non current assets 5.2 2.1
Non-current assets 111.8 125.9
Trade & other receivables 48.6 46.7
Cash 22.6 26.0
Current Assets 71.2 72.7
Non-current liabilities 5.5 5.9
Trade and other payables and provisions 37.9 38.3
Bank loans and borrowings 0.5 7.6
Current liabilities 38.4 45.9
Net Assets 139.1 146.8
Key Movements in the Balance Sheet
The reduction in non-current assets comes mainly from the impairment of goodwill
and intangible assets disclosed above and a charge of £1.3 million for the
amortisation of acquired intangibles. In addition, there was an annual charge
for the amortisation of third party software. Non-current assets include
deferred project implementation costs of £1.0 million on three managed services
contracts. These costs will be charged against the service fees received over
the initial contract period. The carrying value of capitalised development at
30 September 2007 was £0.7 million (2006: £1.0 million) to be amortised over a
maximum of three years.
Trade receivables and accrued income have increased over 2006 due to a stronger
sales month in September 2007 relative to that of September 2006. Debtors' days
based on invoice date have reduced to 69 days (2006: 80 days). Although there
is a history of slow payment in some parts of Africa, South America and Asia,
the Group's customers are typically large, well financed communications
companies. Trade receivables are stated net of provisions for doubtful
receivables.
Cash
The business continues to be cash generative, facilitating the repayment of the
$13.5 million bank loan raised to fund the acquisition of EUR Systems in
September 2006. Cash less bank borrowings increased to £22.6 million (2006:
£18.6 million). The working capital increase of £3.3 million is due to a
combination of weak sales in September 2006 generating low levels of cash in the
first quarter of 2007 and a strong weighting of second half sales to September
2007. Tax payments increased to £3.3 million (2006: £2.0 million) reflecting
higher level of advance payments and a movement into taxable profits in
Australia.
The Group has no borrowings other than obligations under finance leases.
Liquidity risks are therefore associated with short-term cash deposits only. No
deposits are made with a maturity date greater than three months. All deposits
are at market rates with major banking groups. Following the repayment of the
US$ bank loan, a revolving credit facility of £6.75 million has been retained to
fund any abnormal cash requirements during 2008.
Foreign exchange management
Intec is a global business and as such, has exposure to foreign currency risk on
transactions denominated in a currency other than the functional currency and on
the translation of the balance sheet and income statement into the Group's
reporting currency, sterling. The currencies that give rise to this risk are
primarily US Dollars, Euros, Indian Rupees and Australian Dollars. During 2007
the mix of and movement in the billing currencies, together with the
geographical location of the cost base, created a natural hedge, resulting in
foreign exchange transaction gains. However, over 50% of the Group's revenues
are in US dollar denominated companies and as the US dollar weakened
considerably over the reporting period, Intec experienced translation losses
when converting the results into Sterling. We estimate that a movement of one
percentage point in the value of Sterling against other currencies would have
impacted the Group's profit before tax by approximately £0.3 million for the
year ended 30 September 2007.
During 2007, the Group did not enter into hedging contracts for either cash or
net investment positions denominated in foreign currencies but has plans to
introduce a more detailed foreign exchange management process during the first
half of 2008.
Post Balance Sheet events
Consolidation of North American facilities
On 24 October 2007 employees at the Mechanicsburg, Pennsylvania facility were
advised that with effect from 28 April 2008 the site would be closed and all
activities moved to other sites within North America. The cost of closure is
expected to have a cash and income statement charge in the first half of FY2008
of around £1.0 million but with savings in future years of the order of £0.5
million per annum.
Sale of the primary assets of Intec Denmark
On 19 November 2007, an asset sale and purchase agreement was announced with
VoluBill SA to sell certain of the assets and liabilities of Intec Denmark for
an initial consideration of £1.0 million in cash plus a royalty on some parts of
the revenue stream over the next three years. As part of the agreement,
approximately 40 staff will transfer to VoluBill SA. The transaction is
expected to close on 30 November 2007 with an estimated book gain of £0.5
million.
Robin Taylor
Group Finance Director
26 November 2007
Consolidated income statement for the year ended 30 September 2007
Restated Restated Restated
(Note 1) (Note 1) (Note 1)
Note Before Exceptional Total Before Exceptional Total
exceptional items 2007 exceptional items 2006
items and £'000 items Total £'000
and impairment Total 2006
impairment 2007 2006 £000
2007 £000 £000
£000
Revenue
Continuing 2,3 124,496 - 124,496 115,326 (3,006) 112,320
operations
Cost of sales (57,251) - (57,251) (55,319) - (55,319)
Gross profit 67,245 - 67,245 60,007 (3,006) 57,001
Distribution costs (19,937) - (19,937) (20,832) - (20,832)
Development (15,133) - (15,133) (16,549) - (16,549)
expenditure
Administrative
expenses:
Depreciation and (7,642) - (7,642) (5,906) - (5,906)
amortisation
Impairment of - (8,875) (8,875) - - -
goodwill
Impairment of - (4,363) (4,363) - - -
intangible assets
Exceptional items 2 - (1,732) (1,732) - (3,738) (3,738)
Other administrative (17,426) - (17,426) (15,883) - (15,883)
expenses
Total administrative (25,068) (14,970) (40,038) (21,789) (3,738) (25,527)
expenses
Operating profit/
(loss)
Continuing 7,107 (14,970) (7,863) 837 (6,744) (5,907)
operations
Finance income 1,012 - 1,012 894 - 894
Finance costs (652) - (652) (288) - (288)
Profit/ (loss) 7,467 (14,970) (7,503) 1,443 (6,744) (5,301)
before tax
Income tax expense 4 (278) - (278) (1,044) 93 (951)
Profit/ (loss) for 7,189 (14,970) (7,781) 399 (6,651) (6,252)
the year
attributable to
equity shareholders
2007 2007 2007 2006 2006 2006
Earnings/(loss) per Pence Pence Pence Pence Pence Pence
share (pence)
Basic and diluted 5 2.36 (4.91) (2.55) 0.13 (2.19) (2.06)
Consolidated statement of recognised income and expense 2007 2006
£'000 £'000
Exchange differences arising on translation of foreign (2,053) (2,889)
operations
Loss for the year (7,781) (6,252)
Total recognised income and expense for the year attributable
to equity holders of the parent (9,834) (9,141)
Consolidated balance sheet 30 September 2007 Restated
(Note 1)
2007 2006
Note £000 £000
Non-current assets
Goodwill 93,022 101,924
Other intangible assets 6,643 14,006
Property, plant and equipment 6,881 7,946
Trade and other receivables 6 2,184 1,076
Deferred tax asset 3,107 1,011
111,837 125,963
Current assets
Trade and other receivables 6 48,629 46,687
Cash and cash equivalents 22,580 25,960
71,209 72,647
Total assets 183,046 198,610
Equity and liabilities
Equity attributable to equity holders of the parent
Share capital 10 3,057 3,043
Share premium account 10 161,989 161,500
Merger reserve 10 249 6,768
Own shares 10 (95) (95)
Translation and other reserves 10 (4,020) (1,967)
Retained earnings 10 (22,102) (22,463)
Total equity 139,078 146,786
Non-current liabilities
Other payables 7 2,614 2,287
Deferred tax liabilities 576 821
Bank loan and other borrowings 8 256 235
Provisions 9 2,083 2,570
5,529 5,913
Current liabilities
Trade and other payables 7 36,825 36,881
Current tax liabilities 603 1,139
Bank loan and other borrowings 8 488 7,655
Provisions 9 523 236
38,439 45,911
Total liabilities 43,968 51,824
Total equity and liabilities 183,046 198,610
Consolidated cash flow statement Restated
Year ended 30 September 2007 (Note 1)
2007 2006
£000 £000
Operating loss (7,863) (5,907)
Adjustments for:
Depreciation of property, plant and equipment 3,675 3,259
Amortisation of intangible assets 3,598 2,488
Amortisation of capitalised development expenditure 369 159
Impairment of goodwill 8,875 -
Impairment of intangible assets 4,363 -
(Gain) / loss on disposal of property, plant and equipment (10) 30
Shared-based payment expense 1,623 1,501
Exchange gain on non operating items (351) -
(Decrease)/ increase in provisions (345) 343
Operating cash flows before movements in working capital 13,934 1,873
(Increase)/decrease in receivables (4,602) 10,205
Increase in payables 1,267 1,994
Cash generated by operations 10,599 14,072
Income taxes paid (net) (3,279) (1,994)
Net cash generated by operating activities 7,320 12,078
Investing activities
Interest received 1,012 933
Purchase of plant, property and equipment (2,336) (3,480)
Purchase of intangible assets (1,101) (4,356)
Proceeds on disposal of property, plant and equipment 69 28
Expenditure on capitalised product development (123) (490)
Acquisition of subsidiaries - (7,380)
Net cash used in investing activities (2,479) (14,745)
Financing activities
Interest paid (411) (83)
Interest element of finance lease rental payments (120) (16)
Repayment of VAT on acquisition costs 205 261
Proceeds on issue of shares 255 521
(Repayment of)/proceeds from bank loan (6,751) 7,101
Repayment of other borrowings - (2,173)
Repayments of obligations under finance leases (661) (62)
Net cash (used in)/generated from financing activities (7,483) 5,549
Net (decrease)/ increase in cash and cash equivalents (2,642) 2,882
Cash and cash equivalents at beginning of year 25,960 23,770
Effect of foreign exchange rates (738) (692)
Cash and cash equivalents at end of year 22,580 25,960
Cash and cash equivalents (which are presented as a single class of assets on
the face of the balance sheet) comprise cash at bank and other short-term
highly-liquid investments with a maturity of three months or less.
Notes to the accounts
1. Accounting policies
Basis of preparation The financial information set out in this preliminary
announcement does not constitute the company's statutory accounts for the years
ended 30 September 2007 or 2006, but is derived from those accounts. Statutory
accounts for 2006 have been delivered to the Registrar of Companies and those
for 2007 will be delivered following the company's annual general meeting. The
auditors have reported on those accounts; their report was unqualified and did
not contain statements under Section 237(2) or 237(3) of the Companies Act 1985.
The preliminary announcement was approved by the Board of Directors on 26
November 2007.
The financial information has been prepared on a basis consistent with the
accounting policies set out in the 2006 annual accounts, with the exceptions
disclosed below.
Restated income statement
Revenue
As reported in the Chief Executive Officer's Statement and Review in the 2006
Annual report, £5.5million of previously recognised revenue was reversed due to
uncertainty over the timing of payments following the delay of a major project
roll out with a large US customer. Included in this revenue reversal of
£5.5million was £3.0 million that was actually recognised as revenue in 2005,
and as such would have been more appropriately disclosed separately in the
audited financial statements in 2006. Accordingly, this disclosure has been
made in 2007.
Expenses
In the prior year, facilities and IT costs were shown as a component of other
administrative expenses. These costs are now allocated to the functions of cost
of sales, distribution costs and development expenditure. This allocation has
been based on the average headcount per key function. In addition, the unwinding
of the discount on onerous lease provisions was not separately disclosed as part
of finance costs, but included within other administrative expenses. This
charge is now disclosed separately as part of finance costs. The balances for
30 September 2006 have been restated to reflect these allocations. The effect of
this classification on the year ended 30 September 2006 is to reduce the other
administrative expenses by £6,873,000 and to increase cost of sales,
distribution costs, development expenditure and finance costs by £4,597,000,
£790,000, £1,375,000 and £111,000 respectively. This decreases previously
reported gross margin on revenue before exceptionals at 30 September 2006 from
55% to 52%. Depreciation charges for plant, property and equipment are now
disclosed seperately together with the amortisation charge for intangible
assets. The effect of this classification on the year ended 30 September 2006
is to reduce other administrative expenses by £3,259,000.
Restated balance sheet
In the prior year, finance lease liabilities were disclosed as part of trade and
other payables. These are now shown as part of bank and other borrowings. The
effect of this classisification on the year ended 30 September 2006 is to reduce
non-current other payables and current trade and other payables by £235,000 and
£339,000, and to increase non-current bank loan and other borrowings, and
current bank loan and other borrowings by the same amounts. Furthermore, long
term rental deposits were disclosed 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 £490,000.
In the prior year, lease incentives were classified as provisions. These are now
shown as part of accruals in trade and other payables. This has the effect of
reducing non-current and current provisions and increasing non-current and
current accruals by £1,632,000 and £90,000 respectively.
Restated cash flow statement
The effect on the consolidated cash flow statement of the income statement
restatements is to reduce the 2006 operating loss by £111,000 to £5,907,000, and
to reduce the movement in provisions by £111,000.
The effect on the consolidated cash flow statement of the balance sheet
restatements is to reduce the movement in provisions and to increase the
movement in payables by £814,000.
The Directors consider that the revised income statement, balance sheet and
cashflow provide a clearer presentation of the group's activities and financial
position.
2. Exceptional items
In 2007, exceptional costs comprise £2.4 million resulting from a detailed
business model and operations review and an associated Board and staff
restructuring, offset by the reversal of a provision of £0.2 million relating to
the settlement of employment grants and a reversal of £0.5 million of the Danish
onerous lease provisions recorded as exceptional cost in 2006. In 2006,
exceptional expenses of £3.7 million comprise costs in respect of the Group
re-organisation and integration costs, including redundancy costs of £3.1
million and vacant property provision of £1.1 million offset by the successful
recovery of £0.4 million related to debts previously written off in 2002. In
2006, exceptional revenue related to revenue reversed in repect of a major US
customer previously recognised in 2005.
3. Segmental analysis
The Directors consider that the Group operates in one continuing class of
business, namely that of the development, sale, implementation and support of
business/operations support software solutions.
During the year, the Group reassessed its segmental reporting based both on IFRS
in practice and the the way the group is managed and determined that product
operations should be shown as a separate segment. Comparative amounts have been
restated accordingly. 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:
Continuing operations North Product
EMEA America APAC CALA operations Total
2007 2007 2007 2007 2007 2007
£000 £000 £000 £000 £000 £000
Gross revenue 52,486 44,997 21,066 7,307 7,843 133,699
Inter-segment revenue - (1,360) - - (7,843) (9,203)
Revenue 52,486 43,637 21,066 7,307 - 124,496
Segment profit before exceptional items
and impairment 24,780 12,007 10,506 1,744 (30,434) 18,603
- impairment of goodwill - - - - (8,875) (8,875)
- impairment of intangible assets - (4,363) - - - (4,363)
- exceptional credits 197 - - - 487 684
Segment profit 24,977 7,644 10,506 1,744 (38,822) 6,049
Unallocated costs:
- corporate costs (11,496)
- exceptional expenses (2,416)
Operating loss (7,863)
Finance income 1,012
Finance costs (652)
Loss on ordinary activities before tax (7,503)
Taxation (278)
Loss for the period (7,781)
EMEA North APAC CALA Product Unallocated Total
2007 America 2007 2007 operations 2007 2007
£000 2007 £000 £000 2007 £000 £000
£000 £000
Other information
Capital additions 524 818 162 58 1,244 1,218 4,024
Depreciation and 1,370 2,030 277 37 1,453 2,475 7,642
amortisation
Share based payment 305 315 198 97 428 280 1,623
expense
Assets
Segment assets 33,819 29,369 9,650 4,092 99,989 6,127 183,046
Liabilities
Segment liabilities 16,421 12,050 5,217 1,771 7,090 1,419 43,968
Unallocated segment assets principally comprise computer software fixed assets
used throughout the group and other intangible assets. Unallocated segmental
liabilities principally comprise group accruals.
Restated EMEA North APAC CALA Product Total
2006 America 2006 2006 operations 2006
£000 2006 £000 £000 2006 £000
£000 £000
Continuing operations
Revenue 50,646 36,281 18,854 9,545 - 115,326
Exceptional revenues - (3,006) - - - (3,006)
Revenue 50,646 33,275 18,854 9,545 - 112,320
Segmental profit before 16,128 4,408 8,214 3,676 (25,678) 6,748
exceptional items
Exceptional costs (1,051) (1,468) - - (1,659) (4,178)
Segment profit 15,077 2,940 8,214 3,676 (27,337) 2,570
Unallocated costs:
- corporate costs (8,917)
- exceptional items 440
Operating loss (5,907)
Finance income 894
Finance costs (288)
Loss on ordinary activities (5,301)
before tax
Taxation (951)
Loss for the period (6,252)
The year ended 30 September 2007 was the first year in which all group companies
were accounted for in the same group wide enterprise financial reporting system.
Prior to this period, the different accounting systems used did not provide the
necessary information to disclose on a consistent basis inter-segment revenues
and accordingly this disclosure cannot be made for the year ended 30 September
2006.
EMEA North APAC CALA Product Unallocated Total
2006 America 2006 2006 operations 2006 2006
£000 2006 £000 £000 2006 £000 £000
£000 £000
Other information
Capital additions 1,499 846 293 9 1,527 3,834 8,008
Depreciation and 1,550 1,558 363 95 1,157 1,183 5,906
amortisation
Share Based Payments 314 349 144 72 518 104 1,501
Assets
Segment assets 33,540 32,997 6,729 4,838 110,788 9,718 198,610
Liabilities
Segment liabilities 16,922 20,532 3,652 2,444 7,172 1,102 51,824
Revenue by activity
Additional disclosures on revenue by activity is set out below.
Restated (note one)
2007 Revenue Exceptional Revenue
£000 before revenue after
exceptionals 2006 exceptionals
2006 £000 2006
£000 £000
Licence 27,318 26,817 (3,006) 23,811
Professional services income 48,369 48,838 - 48,838
Managed services 16,286 7,675 - 7,675
Support and maintenance fees 32,523 31,996 - 31,996
124,496 115,326 (3,006) 112,320
Licence revenue now includes volume licence upgrades, which has been
reclassified from recurring revenue. Previously £7,309,000 was disclosed as
volume licence upgrades. Managed services revenue is a new category which we
have established covering the provision of various outsourced services,
primarily billing, to our customers and includes the ASP revenues previously
disclosed under recurring revenues.
4. Income tax expense
The charge for the year comprises
2007 2006
£000 £000
Current taxation:
UK Corporation tax at 30% (2006: 30%) - -
Foreign tax 2,186 1,935
2,186 1,935
Adjustments in respect of prior years:
UK Corporation tax 280 (859)
Foreign tax 85 385
365 (474)
Total current tax expense 2,551 1,461
Deferred taxation:
UK - -
Foreign (2,273) (510)
Total deferred taxation (2,273) (510)
Total income tax expense 278 951
UK Corporation tax is calculated at 30% (2006: 30%) of the estimated assessable
profit for the year. Taxation for other jurisdictions is calculated at the rates
prevailing in the respective jurisdictions.
5. (Loss)/earnings per share
Continuing operations 2007 Restated
(Note 1)
2006
£000 £000
Loss for the year - basic and diluted (7,781) (6,252)
Reconciliation:
Loss for the year - basic and diluted (7,781) (6,252)
After tax effect of exceptional items and 14,970 6,651
impairment
Profit for the year - before exceptional items and 7,189 399
impairment
Number Number
'000 '000
Weighted average number of shares - basic and 305,042 302,952
diluted
Pence Pence
Loss per share - basic and diluted (2.55) (2.06)
Loss per share - basic (2.55) (2.06)
Exceptional items 0.57 2.19
Impairment of goodwill and intangible assets 4.34 -
Earnings per share before exceptional items and 2.36 0.13
impairment - basic
Effect of dilutive potential ordinary shares - -
Earnings per share before exceptional items and 2.36 0.13
impairment - diluted
Basic earnings per share is calculated by dividing the earnings attributable to
ordinary shareholders by the weighted average number of ordinary shares
outstanding during the year.
Diluted earnings per share is calculated on the same basis as the basic earnings
per share with a further adjustment to the weighted average number of ordinary
shares outstanding to reflect the effect of all dilutive potential ordinary
shares. The number of dilutive potential ordinary shares is derived from the
number of share options granted to employees where the exercise price is less
than the average market price of the Company's ordinary shares during the year.
As the Group made a loss for the year, none of the share options are included in
the calculation of diluted earnings per share for 2007 and 2006.
Earnings per share before exceptional items has been calculated and disclosed
above as the directors consider it provides an additional indication of
underlying trading performance. Exceptional items in 2007 do not have a tax
impact (2006: £93,000 credit).
The 2006 adjusted profit for the year includes an additional £3,006,000 as a
result of the exceptional revenue relating to 2005 reversed in 2006.
6. Trade and other receivables
Non-current Current
2007 Restated 2007 Restated
£000 (Note 1) £000 (Note 1)
2006 2006
£000 £000
Trade receivables - - 33,480 30,211
Corporation tax - - - 329
Overseas tax - - 836 104
Other receivables - - 1,433 1,560
Prepayments 2,184 1,076 3,035 3,950
Accrued income - - 9,845 10,533
2,184 1,076 48,629 46,687
The directors consider that the carrying amount of trade and other receivables
approximates to their fair value. The Group's credit risk on trade and other
receivables is primarily attributable to trade receivables and accrued income.
The amounts presented in the table above are net of allowances of £2,799,000
(2006: £2,676,000) for doubtful recoverability and foreseeable losses and a
charge for the year of £1,057,000 (2006: £550,000). The Group has no significant
concentration of credit risk since the risk is spread over a large number of
unrelated customers and counterparties. Debtor days were 69 days (2006: 80 days)
based on invoice date. In the prior year debtors days were calculated using
revenue as a basis for the calculation. Management believe that invoice date is
a more reliable measure, and the debtors days has now been calculated on this
basis.
Non-current prepayments comprise £1,150,000 (2006: £1,076,000) for deposits on
leased properties currently due between 2 and 5 years and £1,034,000 (2006:
£nil) for project costs incurred but deferred until revenue is recognised on the
contract.
7. Trade and other payables
Non-current Current
2007 Restated 2007 Restated
£000 (Note 1) £000 (Note 1)
2006 2006
£000 £000
Trade payables - - 2,742 3,767
Other payables 908 655 4,878 6,227
Accruals 1,706 1,632 12,406 10,072
Deferred revenue - - 16,799 16,815
2,614 2,287 36,825 36,881
Trade and other payables comprise trade purchases and ongoing costs and are
predominantly interest free. The directors consider that the carrying amount of
trade and other payables approximates to their fair value. Creditors days were
20 (2006: 20).
8. Bank loan and other borrowings
Non-current Current
2007 Restated 2007 Restated
£000 (Note 1) £000 (Note 1)
2006 2006
£000 £000
Bank loan - 7,209
Obligations under finance leases 256 235 488 339
Other borrowings - - - 107
Total 256 235 488 7,655
In 2006 the Group raised a bank loan of $13.5 million (£7.2 million) to fund the
acquisition of the EUR systems business under a rolling twelve month facility.
The loan, secured over the fixed and floating assets of the Group, attracted
interest at a variable rate based on LIBOR plus 0.75%. Interest rates charged
during the year ranged from 4.74% to 7.08%. The loan was repaid in full in
September 2007.
9. Provisions
Group Onerous Other Restated
lease Provisions (Note 1)
commitments £000 Total
£000 £000
At 1 October 2006 2,010 796 2,806
Established during the year 867 11 878
Utilised/paid (359) (69) (428)
Reversed during the year - to exceptional items (487) (197) (684)
Reversed during the year - other (36) (103) (139)
Unwinding of discount 122 - 122
Translation differences 51 - 51
At 30 September 2007 2,168 438 2,606
Analysed as:
Current liabilities 485 38 523
Non-current liabilities 1,683 400 2,083
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 a three year period up
September 2010 for part of the office space at the Group's UK headquarters. As a
result of additional sub-lets at the property in Denmark, £487,000 was reversed
as an exceptional credit.
In 2006, other provisions disclosed above included the future estimated costs to
complete certain ongoing legal matters in respect of previous acquisitions , and
a provision for potential repayment of a government grant. In April 2007,
settlement was reached in respect of the grant and therefore the unutilised
provision was released to the income statement. The remaining provision relates
to the estimated restoration costs of properties primarily within North America,
and is expected to be incurred in the years up to 2010.
10. Consolidated statement of changes in equity
Group Issued Share Merger Own Foreign Profit Total
share premium reserve shares exchange and equity
capital £000 £000 £000 reserve loss £000
£000 £000 account
£000
Balance at 1 October 2006 3,043 161,500 6,768 (95) (1,967) (22,463) 146,786
Exchange differences - - - - (2,053) - (2,053)
arising on translation of
foreign operations
Loss for the year - - - - - (7,781) (7,781)
Total recognised income - - - - (2,053) (7,781) (9,834)
and expense for the period
Issue of share capital net 14 284 - - - - 298
of share issue expenses
VAT recovered on previous - 205 - - - - 205
share issue expenses
Transfer to merger reserve - - (6,519) - - 6,519 -
Recognition of share-based - - - - - 1,623 1,623
payments
Balance at 30 Sept 2007 3,057 161,989 249 (95) (4,020) (22,102) 139,078
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