Interim Results
Netcall PLC
19 March 2008
19 March 2008
NETCALL PLC
('Netcall' or 'the Company')
Interim Results
Netcall plc (AIM:NET), a leading provider of callback, auto-messaging and
contact solutions, today announces interim results for the six months ended 31
December 2007.
Financial Highlights
• Turnover £1.69 million (H1 FY2007: £2.0 million)
• Gross profit margin 89% (H1 FY2007: 87%)
• Profit before share based charges and tax £282,900 (H1 FY2007: £429,000)
• Profit after tax up 80% to £675,700 (H1 FY2007: £375,100)
• Cash position up 37% to £2.73 million (H1 FY2007: £2.0 million)
• Recurring revenues £1.44 million (H1 FY2007: £1.39 million)
Operational Highlights
• Existing customers extended use of flagship product QueueBuster
including Lloyds Bank and Aviva
• Added new blue chip customers including Interflora and Reuters
• Signing of a new strategic partnership with Cable & Wireless
Ron Elder, Chairman of Netcall, commented, 'The demand for our products remains
strong and we continue to gain traction in the market. Netcall has an
increasingly substantial cash position and, given our robust cost management,
strength of recurring revenues and our strong business prospects we look toward
the second half with confidence.'
For further enquiries, please contact:
Netcall plc Tel. +44 (0) 1480 495300
Ron Elder, Chairman / Henrik Bang, CEO
Evolution Securities Tel. +44 (0) 20 7071 4300
Tim Redfern
ICIS Limited Tel. +44 (0) 20 7651 8688
Tom Moriarty / Caroline Evans-Jones
Chairman's Statement
During the first half of this financial year Netcall has continued to expand its
customer base. Whilst difficult market conditions meant that performance in the
first half did not deliver the financial results we had anticipated, the Board
believes the business fundamentals continue to be strong. We remain confident
that, based on current business levels together with a strong pipeline and
ongoing robust cost management, the Company will achieve a satisfactory outcome
for the year.
Financials
Turnover for the six months ended 31st December 2007 declined by 16% to £1.69
million compared to the same period in 2006. The result was affected by a
decline in licence sales with a number of customers delaying purchasing
decisions. This included delays in projects via channel partners of which
QueueBuster was an element. Service revenue showed marginal growth, with the
hosted services business continuing to see an increase in its customer base.
However, the lower activity levels principally amongst our financial services
customers, has resulted in lower service revenues from a number of existing
customers.
The underlying performance of the Company continues to strengthen. A key element
of the Company's strategy is to develop a long term, predictable and recurring
revenue stream. This resulted in a 3.2% increase in recurring Maintenance &
Support and Services revenues. We continued our focus on cost control delivering
an improved gross margin of 89% compared to 87% last year. Operating costs for
the period were reduced by 4.2% to £1.29m compared to the same period in 2006.
The proportion of sales coming through our established sales channels was
similar to that in the same period last year at 42%. New business won through
these partners included contracts with Reuters and Prudential. It is also very
encouraging to see the first revenues being generated from our third party
hosted platform implemented in Cable & Wireless' environment which commenced
operations in November 2007 following the signing of a new strategic partnership
agreement.
The decline in revenue has affected profitability with the Company reporting
profits before share based charges of £282,900 compared to £429,000 in the same
period last year.
The Company has substantial trading tax losses which are available for offset
against future taxable profits. With the Company's continuing increase in
recurring revenues we have made an initial recognition of a deferred tax asset
to reflect the recoverability of those trading tax losses in the foreseeable
future. Under accounting convention this has resulted in a significant non-cash
tax credit to the profit and loss account in this period.
Post tax profits achieved were £675,700 being an increase of 80% over the same
period last year.
The Company has fully adopted IFRS with effect from the commencement of this
financial year. Following this adoption there has been no material restatement
of previously reported results.
The Company's cash position has improved significantly and remains strong with a
cash balance at the half year-end of £2.7m, an increase of £0.8m compared to the
same period in 2006. The cash position continues to grow since the end of the
period, emphasising the cash generative nature of the business.
Operations
During the year, the Company broadened its customer base with the addition of
several prestigious organisations including Interflora and Newcastle Building
Society. We received additional orders from a number of our existing customers
including Lloyds Bank and Aviva. This demonstrates the continued demand for our
solution from major organisations that wish to enhance customer service whilst
at the same time improve levels of efficiency within their call centre
operations. Additionally our products continue to show very strong performance
metrics, with customers continuing to endorse our solutions as shown in the
increasing number of case studies available from Netcall and our partners.
We are pleased to report that across our market sectors the business pipeline is
healthy and given expected conversion rates, we are confident of a strong second
half.
We continue to invest in our sales operation and, whilst this has led to an
increase in fixed costs we believe this is a necessary and strategically
important investment for the future benefit of the business.
Product development
To support sales, the main focus of product development during the period has
been on making Netcall's product portfolio easier to use and integrate. We have
achieved full Avaya compliance status during the period which is important given
the predominance of Avaya technology in the call centre market. Additionally our
platform has been successfully integrated into complex IP infrastructures
supplied by CISCO and Alcatel-Lucent.
Outlook
The demand for our products remains strong and we continue to gain traction in
the market. Whilst we have seen a general broadening of the customer base,
difficult macro-economic conditions have had a negative effect on business
levels in the first half. It is possible that these conditions will also affect
the current trading period.
Netcall has an increasingly substantial cash position and, given its robust cost
management, strength of recurring revenues and its strong business prospects we
look toward the second half with confidence. Accordingly, at this stage we
expect profits will be in line with market expectations, with the Company
remaining on track to achieve its goals and focused on the delivery of
shareholder value.
Condensed Consolidated Interim Income Statement
6 months to 6 months to Year to
31 December 31 December 30 June
2007 2006 2007
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Continuing operations
Revenue 1,690.7 2,006.5 4,112.3
Products 779.3 1,097.1 2,107.3
Services 911.4 909.4 2,005.0
Cost of sales (185.7) (265.0) (535.2)
------------------ ------------------ ------------------
Gross profit 1,505.0 1,741.5 3,577.1
------------------ ------------------ ------------------
Administrative costs before share based payment (1,293.4) (1,350.1) (2,765.4)
charges
Share based payment charges (150.0) (53.9) (131.4)
------------------ ------------------ ------------------
Total administrative expenses (1443.4) (1,404.0) (2,896.8)
------------------ ------------------ ------------------
61.6 337.5 680.3
Profit before interest and tax
Finance costs receivable 71.3 41.2 92.0
Finance costs payable - (3.6) (5.3)
------------------ ------------------ ------------------
Profit before tax 132.9 375.1 767.0
Income tax expense (note 5) 542.8 - -
------------------ ------------------ ------------------
Profit for the period 675.7 375.1 767.0
============ ============ ============
Profit before share based charges, interest and tax 211.6 391.4 811.7
Profit before share based charges and tax 282.9 429.0 898.4
Earnings per share total and continuing:
Basic earnings per share 1.02 0.6 1.16
============ ============ ============
Diluted earnings per share 0.96 0.6 1.12
============ ============ ============
Condensed Consolidated Interim Balance Sheet
31 December 31 December 30 June
2007 2006 2007
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Fixed assets
Property, plant and equipment 123.0 139.9 157.9
Intangible assets 5.2 19.7 0.6
Deferred tax asset 542.8 - -
------------------ ------------------ ------------------
671.0 159.6 158.5
------------------ ------------------ ------------------
Current assets
Inventories 116.5 45.9 38.1
Trade and other receivables 1,205.4 1,443.8 1,622.8
Cash and cash equivalents 2,731.7 2,001.0 2,360.5
------------------ ------------------ ------------------
Total current assets 4,053.6 3,490.7 4,021.4
------------------ ------------------ -----------------
Total assets 4,724.6 3,650.3 4,179.9
============ ============ ============
LIABILITIES
Current liabilities
Trade and other payables 1,221.0 1,346.9 1,502.0
Current portion of long term borrowings - 30.0 -
------------------ ------------------ ------------------
1,221.0 1,376.9 1,502.0
Non-current liabilities
Long-term borrowings - 42.5 -
------------------ ------------------ ------------------
Total liabilities 1221.0 1,419.4 1,502.0
------------------ ------------------ ------------------
Net assets 3,503.6 2,230.9 2,677.9
============ ============ ============
EQUITY
Equity attributable to equity holders of the parent
Share capital 3,302.5 3,299.9 3,302.5
Share premium account 2.4 15,126.4 2.4
Special and capital reserve - 245.1 -
Employee share schemes reserve 440.9 213.4 290.9
Profit and loss account (242.2) (16,653.9) (917.9)
------------------ ------------------ ------------------
Total equity 3,503.6 2,230.9 2,677.9
============ ============ ============
Condensed Consolidated Interim Cash Flow Statement
6 months to 6 months to
31 December 31 December Year to 30
2007 2006 June 2007
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Cash generated from operations 304.9 197.7 642.3
Interest paid - (3.6) (5.3)
------------------ ------------------- -------------------
Net cash from operating activities 304.9 194.1 637.0
------------------ ------------------ ------------------
Cash flows from investing activities
Purchase of property, plant and equipment (3.3) (9.0) (48.3)
Purchase of intangible assets (1.7) (33.8) (33.8)
Interest received 71.3 41.2 92.0
------------------ ------------------ ------------------
Net cash used in investing activities 66.3 (1.6) 9.9
------------------ ------------------ ------------------
Cash flows from financing activities
Proceeds from issue of share capital - 4.0 (18.4)
Repayment of long-term borrowings - (15.0) (87.5)
------------------ ------------------ ------------------
Net cash used in financing activities - (11.0) (105.9)
------------------ ------------------ ------------------
Net increase in cash and cash equivalents 371.2 181.5 541.0
Cash and cash equivalents at beginning of period 2,360.5 1,819.5 1,819.5
------------------ ------------------ ------------------
Cash and cash equivalents at end of period 2,731.7 2,001.0 2,360.5
============ ============ ============
Notes to the Condensed Consolidated Interim Financial Statements
1. Nature of operations and general information
Netcall plc and subsidiaries' ('the Group') principal activities include the
design, development and marketing of advanced technologies that enable
businesses to integrate and manage telephony efficiently.
Netcall plc is the Group's ultimate parent company. It is incorporated and
domiciled in Great Britain. The address of Netcall plc's registered office,
which is also its principal place of business, is 10 Harding Way, St Ives,
Cambridgeshire, United Kingdom, PE27 3WR. Netcall plc's shares are listed on
the Alternative Investment Market of the London Stock Exchange.
These consolidated condensed interim financial statements have been approved for
issue by the Board of Directors 19th March 2008.
The financial information set out in this interim report does not constitute
statutory accounts as defined in Section 240 of the Companies Act 1985. The
Group's statutory financial statements for the year ended 30 June 2007,
prepared under UK GAAP, have been filed with the Registrar of Companies. The
auditor's report on those financial statements was unqualified and did not
contain a statement under s237(2) or s237(3) of the Companies Act 1985.
2. Dividend
The Board has not declared an interim dividend to shareholders (2006: 0 pence
per share).
3. Accounting policies
Basis of preparation
These interim condensed consolidated financial statements (the interim financial
statements) are for the six months ended 31 December 2007. They have been
prepared in accordance with the accounting policies set out below which are
based on the recognition and measurement principles of IFRS as adopted by the
European Union (EU) and are effective at 30 June 2008 or are expected to be
adopted and effective at 30 June 2008, our first annual reporting date at which
we are required to use IFRS adopted by the EU.
These interim financial statements have been prepared under the historical cost
convention.
Netcall plc's consolidated financial statements were prepared in accordance with
United Kingdom Accounting Standards (UK GAAP) until 30 June 2007. The date of
transition to IFRS was 1 July 2006. The comparative figures have been
reclassified as a result of adoption of IFRS. The disclosures required by IFRS
1 concerning the transition from UK GAAP to IFRS are given in the reconciliation
schedules, presented and explained in note 6.
The accounting policies have been applied consistently throughout the Group for
the purposes of preparation of these interim financial statements.
4. Earnings per share
The calculation of the basic earnings per share is based on the earnings
attributable to ordinary shareholders divided by the weighted average number of
shares in issue during the year. For the six months ended 31 December 2007 this
was 66,050,937 (31 December 2006: 65,996,699 and 30 June 2007: 66,014,672).
The calculation of diluted earnings per share is based on the basic earnings per
share, on the assumed conversion of all dilutive options and other dilutive
potential ordinary shares. This is based on a dilutive weighted average number
of shares of 70,719,528 at 31 December 2007 (31 December 2006: 68,482,553 and 30
June 2007: 68,500,526).
5. Income tax expense
6 months to 6 months to Year to
31 December 31 December 30 June
2007 2006 2007
£'000 £'000 £'000
Current tax charge - - -
Deferred tax
Deferred tax credit - initial recognition 560.0 - -
Movement in period (17.2) - -
------------------ ------------------ ------------------
Deferred tax credit 542.8 - -
---------------- ---------------- ----------------
Total tax charge 542.8 - -
=========== ========== ===========
The tax charge on underlying business performance is calculated by reference to
the estimated effective tax rate for the full year. No tax liability or tax
charge is expected to arise due to trading losses brought forward which can be
utilised in the period for which no deferred tax asset has previously been
recognised.
1. Explanation of transition to IFRS
As stated in the Basis of Preparation, these are the Group's first interim
financial statements for part of the period covered by the first annual
consolidated financial statements prepared in accordance with IFRS.
An explanation of how the transition from UK GAAP to IFRS has affected the
Group's financial position, financial performance and cash flows is set out
below. The transition to IFRS has not resulted in any remeasurement adjustments
and a reconciliation of profit and equity is therefore not included.
Reclassification of intangible assets
Under UK GAAP domain names and software costs were recognised within tangible
fixed assets. Under IFRS this asset category relates specifically to property,
plant and equipment. The domain names and software costs have therefore been
reclassified in these IFRS interim financial statements and recognised within
non current intangible assets.
UK GAAP Reclassification IFRS
£'000 £'000 £'000
At 1 July 2006
Non-current assets
Property, plant and equipment 154.3 (9.4) 144.9
Intangible assets - 9.4 9.4
At 31 December 2006
Non-current assets
Property, plant and equipment 159.6 (19.7) 139.9
Intangible assets - 19.7 19.7
At 30 June 2007
Non-current assets
Property, plant and equipment 158.5 (0.6) 157.9
Intangible assets - 0.6 0.6
Explanation of adjustments to the cash flow statement
The definition of cash is narrower under UK GAAP than under IAS 7 'Cash Flow
Statements'. Under IFRS highly liquid investments, readily convertible to a
known amount of cash and with an insignificant risk of changes in value, are
regarded as cash equivalents. The cash flow statement in the last UK GAAP
financial statements reported movements in cash. The cash flow statement in
these IFRS interim financial statements report movements in cash and cash
equivalents.
Cash and cash equivalents under IFRS include some investments that were recorded
as liquid investments under UK GAAP. Cash and cash equivalents includes
£2,000,000 at 30 June 2007 which was accounted for as liquid resources under UK
GAAP.
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