Second Quarter Results

Eckoh Technologies PLC 28 November 2002 28 November 2002 Eckoh Technologies plc Second Quarter and Half-Year Results Eckoh achieves break-even* Further trading improvement in current quarter Exclusive Speech Alliance with BT Quarter Quarter 6 months 6 months ended ended ended ended 30 Sept 30 Sept 2001 30 Sept 2002 30 Sept 2001 2002 restated restated £'000 £'000 £'000 £'000 Turnover from continuing operations 14,638 11,013 27,022 21,791 Operating profit/(loss)* 8 (3,453) (191) (7,368) Intangible asset charges and exceptional items (8,441) (8,461) (9,263) (11,892) Net loss (8,402) (11,737) (9,420) (18,844) Cash and bank deposits 10,523 17,891 10,523 17,891 Operating profit* of £8,000 for the second quarter (Q2 F2002 - loss of £3.5m) Turnover from continuing operations up 33% to £14.6m (Q2 F2002 - £11.0m) Cash and short-term bank deposits of £10.5m at 30 September 2002 Strong quarterly performance from Eckoh's Mobile Wholesale business Continued investment in Eckoh's Speech Solutions business - new contracts with Centrica and Hasbro Final write-down of acquired goodwill and Rivals investment to zero - no charges in future periods Exclusive 2-year alliance with BT to provide hosted Speech Solutions Appointment of David Best as Chairman and Craig Niven as Non-Executive Director *excluding intangible asset amortisation and impairment and exceptional items Martin Turner, Chief Executive Officer, commented today: "Excluding goodwill charges, Eckoh achieved a quarterly operating profit for the first time since our flotation in 1999. Quarterly turnover was up sharply to £14.6m, due in part to a particularly strong performance from our mobile wholesale business, Phones Express. Our cash flow is now stable, we have over £10m in the bank and are debt free. Two weeks ago, we announced an exclusive alliance with BT to jointly exploit the market for Speech Solutions in the UK. This is a significant and potentially transforming deal for Eckoh, giving us exclusive access to some of the largest organisations in the UK and spanning sectors such as government, finance, travel and utilities. We continue to be confident about the Company's future prospects." For further enquiries, please contact Eckoh Technologies plc Martin Turner, Chief Executive Officer Nik Philpot, Chief Operating Officer www.eckoh.com Tel: 01442 458 355 Buchanan Communications Mark Edwards/Jeremy Garcia/Fergus Mellon Tel: 020 7466 5000 Operating and Financial Review Turnover and Gross Margins Speech Solutions During the quarter, we continued to invest in our Speech Solutions business (Q2 F2003 - £0.4m) and completed the development of a number of new products. Our product portfolio now includes voice portal, voice booking, mobile e-mail, corporate auto-attendant, product ordering, voice games, postcode transcription, and caller identification. During the quarter we also announced a three-year voice portal contract with Centrica, a two-year contract providing phone-based solutions to William Hill and a contract with Hasbro to produce a voice game for their brand Cluedo. On 14 November, we announced the formation of an exclusive alliance with BT to provide its customers with hosted speech recognition services. This is a milestone agreement for Eckoh, through which BT will target major UK companies in sectors such as government, utilities, finance, retail and travel with a range of applications developed by Eckoh. The alliance, which will be funded by BT for an initial 2-year term, will provide a dedicated, managed service infrastructure installed in a BT hosting facility and operated exclusively by Eckoh. We will also be extending our own managed service infrastructure with BT in the same period, as the first phase of increasing our call processing capacity from the existing level of 4,500 ports to 8,000. This will create one of Europe's largest speech-enabled call processing platforms, and will provide both the alliance and Eckoh with sufficient overflow capacity to meet expected demand from high volume services. Turnover from Speech Solutions in the second quarter grew 8% to £0.54m (Q1 F2003 - £0.50m) and generated a gross margin of 46% (Q1 F2003 - 59%). Interactive Voice Response ("IVR") Eckoh's IVR business is one of the largest in the UK and has been profitable and cash generative for many years. We currently own and operate one of the largest call-processing platforms in Europe, with the capacity to handle over 250,000 IVR calls per hour. The IVR business will benefit from our platform expansion plans, which will see capacity double to allow up to 500,000 calls per hour. The market for IVR services continues to be competitive. Turnover fell to £4.8m from £5.1m for the previous quarter, mainly due to reduced activity by Eckoh's media clients during the summer months. As Autumn TV schedules have commenced broadcasting, IVR activity from our larger media clients (such as Granada) has recovered. Gross margin declined to 26% for the quarter (Q1 F2003 - 30%), although cost of sales included expenses totaling £0.2m relating to the unsuccessful trial of a scratch card competition. Excluding the impact of this activity, IVR gross margin was 28%. IVR and Speech Solutions generated 32.8m minutes of voice traffic for the half-year (H1 F2002 - 34.2m). Mobile Wholesale Through our Phones Express business, Eckoh sells telephone handsets, accessories and airtime packages directly to consumers, through exclusive distribution arrangements with satellite channels broadcasting on digital television and in specialist print media. Eckoh does not itself provide the continuing airtime services, but instead receives one-time connection commissions from third-party service providers, plus a share of the ongoing call spend from the underlying customer base. In order to increase the level of recurring revenue, we are planning to introduce new value-added services, such as mobile phone insurance which will be launched in January next year. Second quarter turnover more than doubled to £4.0m compared to the previous quarter (Q1 F2003 - £1.8m), generating a gross margin of 51% (Q1 F2003 - 39%). This growth has been achieved primarily through the success of our digital television strategy, which started in the first quarter. A percentage of the connection commissions received is paid to the digital television channels, which totalled £1.0m during the quarter (Q1 F2003 - £0.1m) and has been included in net operating expenses as a sales and marketing expense. Network Services Through its network of dealers, joint ventures, telesales and direct sales staff, Network Services (branded as 'Symphony Telecom') resells fixed line and mobile services to businesses in the UK and Ireland. Symphony Telecom continued to grow during the quarter, despite the traditionally slower summer period. Second quarter turnover increased to £5.3m (Q1 - £5.0m), with gross margin improving from 28% to 31% compared to the prior quarter - mainly due to one-off carrier rebates and the introduction of carrier pre-selection. Half-year turnover was £10.3m (H1 F2002 - £9.2m). The customer base increased to 6,450 as at 30 September (30 June - 6,307). We plan to continue to grow our Network Services business, increase profitability and deepen our relationships with the network operators who are looking to rationalise their distribution channels into the business market. Net operating expenses, intangible asset amortisation and impairment and exceptional items There has been very little increase in our underlying fixed cost base as a result of the increased turnover during the quarter. Excluding goodwill charges, net operating expenses for the quarter were £5.4m, which included £1.0m (Q1 F2003 - £0.1m) of commissions paid to digital television channels in relation to our Mobile Wholesale business. We also incurred £0.2m of costs related to our restructuring, which completed in the first quarter of this year. Excluding these items, net operating costs were £4.2m for the quarter - no change from the previous quarter. We are still working to reduce our fixed cost base (net operating expenses excluding digital television commissions) to £15m per annum, and expect to see reductions during the second half of this financial year as we continue to streamline our operations. We have conducted a review of the carrying value of our remaining intangible fixed assets and, taking into consideration the fundamental changes that have taken place within those acquired businesses over the past eighteen months, have considered it appropriate to write down the remaining balances to zero. This has resulted in a one-off and final £5.7m goodwill impairment charge in the quarter. Furthermore, we have decided to make a full provision against our 40% investment in Rivals Digital Media Limited due to uncertainty over the realisability of this investment. These charges have no impact on our cash flow, or the performance of Eckoh's business going forward. Operating profit Before intangible asset amortisation and impairment and exceptional items, Eckoh recorded an operating profit of £8,000 during the quarter ended 30 September 2002 and a £0.2m loss for the half year. This compares to a £1.1m loss for the second quarter, and £1.8m loss for the first half of the previous financial year from continuing operations. Cash and short term bank deposits At 30 September 2002 cash and short term deposits totalled £10.5m (30 June 2002 - £11.3m). Most of the reduction in cash during the quarter related to an increase of £0.7m in stocks of mobile handsets at Phones Express and repayments of creditors and provisions totalling £1.3m, offset by a £0.9m reduction in debtors and receipt of a £0.5m warranty claim in respect of a prior year acquisition. Excluding working capital movements, Eckoh's trading activities generated £0.4m of cash during the first half of the financial year. Net current assets less long-term liabilities and provisions increased to £9.2m at the half-year, up from £9.0m at 31 March 2002, reflecting a continuing improvement in Eckoh's overall financial position over the past six months. Current Trading This quarter has started well, and current trading indicates further improvement in the second half of this financial year. We are continuing to invest in our Speech Solutions operation, and believe that the new alliance with BT validates the progress that we have made to date in this area. Although we do not expect to see material revenues from this deal in the current financial year, we do believe that the potential for Eckoh through this relationship is significant. We also intend to continue to successfully develop our other areas of business, and can point to the remarkable success of our management team at Phones Express in reinventing their business model and dramatically increasing both turnover and operating profit. Consolidated profit and loss account for the quarter and six months ended 30 September 2002 Quarter Quarter 6 months 6 months ended ended ended ended 30 September 30 September 30 September 30 September 2002 2001 2002 2001 Note unaudited unaudited & unaudited unaudited restated & restated £'000 £'000 £'000 £'000 Turnover 14,679 14,063 27,426 28,015 Continuing operations 14,638 11,013 27,022 21,791 Discontinued operations 41 3,050 404 6,224 Cost of sales (9,311) (9,653) (18,052) (18,673) Gross profit 5,368 4,410 9,374 9,342 Net operating expenses before intangible asset 5,360 7,863 9,565 16,710 amortisation and impairment and exceptional items Amortisation of intangible assets 785 2,552 1,607 5,443 Impairment of intangible assets 5,656 4,129 5,656 4,129 Exceptional items - 1,780 - 2,320 Total administrative expenses 11,801 16,324 16,828 28,602 Operating profit/(loss) before intangible asset 8 (3,453) (191) (7,368) amortisation and impairment and exceptional items Continuing operations 8 (1,140) (118) (1,773) Discontinued operations - (2,313) (73) (5,595) Operating loss (6,433) (11,914) (7,454) (19,260) Continuing operations (6,433) (3,389) (7,381) (5,199) Discontinued operations - (8,525) (73) (14,061) Provision against fixed asset investment (2,000) - (2,000) - Net interest receivable 73 233 177 511 Loss on ordinary activities before taxation (8,360) (11,681) (9,277) (18,749) Taxation - - - 9 Loss on ordinary activities after taxation (8,360) (11,681) (9,277) (18,740) Minority interests (42) (56) (143) (104) Loss for the period (8,402) (11,737) (9,420) (18,844) Loss per ordinary share 3 Basic and diluted loss per share (4.1p) (5.8p) (4.6p) (9.3p) Basic and diluted profit/(loss) per share 0.0p (1.6p) (0.1p) (3.4p) before intangible asset amortisation and impairment, and exceptional items Statement of total recognised gains and losses for the quarter and six months ended 30 September 2002 Quarter Quarter 6 months 6 months ended ended ended ended 30 Sept 30 Sept 30 Sept 30 Sept 2002 2001 2002 2001 unaudited unaudited unaudited audited £'000 £'000 £'000 £'000 Loss for the period (8,402) (11,737) (9,420) (18,844) Exchange adjustments offset in reserves - 202 - 275 Total recognised losses for the period (8,402) (11,535) (9,420) (18,569) Consolidated balance sheet as at 30 September 2002 30 Sept 2002 30 Sept 31 March 2001 2002 unaudited unaudited & audited restated Note £'000 £'000 £'000 Fixed assets Intangible fixed assets - 15,099 7,376 Tangible fixed assets 2,053 2,849 2,316 Investment - - 2,000 2,053 17,948 11,692 Current assets Stock 1,295 1,182 501 Debtors 7,868 13,862 9,554 Bank - short term deposits 7,500 16,026 10,500 Cash at bank and in hand 3,023 1,865 3,600 19,686 32,935 24,155 Creditors: amounts falling due within one year (9,797) (12,603) (12,613) Net current assets 9,889 20,332 11,542 Total assets less current liabilities 11,942 38,280 23,234 Creditors: amounts falling due after more than one year (44) (244) (57) Provisions for liabilities and charges (617) (2,543) (2,472) Net assets 11,281 35,493 20,705 Capital and reserves 4 Called up share capital 518 506 515 Shares to be issued - 384 253 Share premium account 72,432 72,425 72,429 Merger reserve - 5,630 2,973 Profit and loss account (61,841) (43,422) (55,494) Total equity shareholders' funds 5 11,109 35,523 20,676 Minority interests 172 (30) 29 Capital employed 11,281 35,493 20,705 Consolidated cash flow statement for the quarter and six months ended 30 September 2002 Quarter Quarter 6 months 6 months ended ended ended ended 30 Sept 30 Sept 30 Sept 30 Sept 2002 2001 2002 2001 unaudited unaudited unaudited unaudited £'000 £'000 £'000 £'000 Note Net cash outflow from operating activities 6 (1,048) (3,568) (2,910) (7,403) Return on investments and servicing of finance Net interest 73 230 177 551 Capital expenditure and financial investment Purchase of tangible fixed assets (244) (164) (714) (452) Acquisitions and disposals Consideration received/(paid) in respect of prior 500 - (100) (722) period acquisitions Cash outflow before use of liquid resources and (719) (3,502) (3,547) (8,026) financing Management of liquid resources Decrease in short-term investments 1,000 474 3,000 8,224 Financing Issue of shares - - 5 - Capital element of finance lease payments (15) (11) (35) (35) (15) (11) (30) (35) Increase/(decrease) in cash in the period 266 (3,039) (577) 163 Notes to the second quarter and half-year results Basis of preparation The financial statements for the quarter and six months ended 30 September 2002 have been prepared using accounting policies consistent with those set out in the Company's consolidated 2002 statutory accounts. These statements do not constitute statutory accounts within the meaning of section 240 of the Companies Act 1985 and are unaudited. Financial information for the quarter and six months ended 30 September 2001 has been extracted from the accounting records of the Group. The merger reserve and profit and loss account balances have been restated to reflect the half-year's release of the merger reserve for the year ended 31 March 2002. The balances as at 31 March 2002 have been extracted from the statutory accounts, which have been filed with the Registrar of Companies. The auditors' report on those accounts was unqualified and did not contain any statement under section 237 of the Companies Act 1985. The results for the quarter and six months ended 30 September 2002 were approved by the Board on 27 November 2002 and will be posted on the Company's web site, www.eckoh.com, on 28 November 2002. Segmental analysis - for the quarter and six months ended 30 September 2002 Following the completion of the restructure of continuing operations the Company now operates as a single integrated business. No segmental information is thus presented. In addition, following the closure or disposal of overseas entities during the previous financial year there are no material foreign entities and segmental information by geographical area is therefore not presented. Earnings/(loss) per ordinary share of 0.25p each Quarter Quarter 6 months 6 months ended ended ended ended 30 Sept 30 Sept 30 Sept 30 Sept 2002 2001 2002 2001 restated restated £'000 £'000 £'000 £'000 Profit/(loss) for the period before the 39 (3,276) (157) (6,952) following: Intangible asset amortisation and impairment (6,441) (6,681) (7,263) (9,572) Exceptional items - (1,780) - (2,320) Provision against fixed asset investment (2,000) - (2,000) - Loss for the period (8,402) (11,737) (9,420) (18,844) Weighted average number of shares in the period: Basic and diluted 207,292,024 202,000,355 206,952,297 201,909,867 Basic earnings/(loss) per share before (0.0p) (1.6p) (0.1p) (3.4p) intangible asset amortisation and impairment, exceptional items and provision against fixed asset investment Intangible asset amortisation and impairment (3.1p) (3.3p) (3.5p) (4.7p) Exceptional items - (0.9p) - (1.2p) Provision against fixed asset investment (1.0p) - (1.0p) - Basic and diluted loss per share (4.1p) (5.8p) (4.6p) (9.3p) None of the share options in issue give rise to a dilution in the loss per share due to the losses made in the period. Share capital and reserves Ordinary Shares to Share Merger Profit share be issued premium reserve and loss capital account account £'000 £'000 £'000 £'000 £'000 At 1 April 2002 515 253 72,429 2,973 (55,494) Loss for the period - - - - (9,420) Shares issued in respect of share options 2 - 3 - - exercised Contingent and deferred share consideration for 1 (101) - 100 - acquisitions in prior years Movement in fair value of contingent share - (152) - - - consideration for acquisitions in prior years Realisation of merger reserve - - - (3,073) 3,073 At 30 September 2002 518 - 72,432 - (61,841) Reconciliation of movement in shareholders' funds Quarter Quarter 6 months 6 months ended ended ended ended 30 Sept 30 Sept 30 Sept 30 Sept 2002 2001 2002 2001 £'000 £'000 £'000 £'000 Opening shareholders' funds 19,661 47,094 20,676 54,362 Loss for the period (8,402) (11,737) (9,420) (18,844) Net movement in contingent share consideration (150) (36) (152) (270) Employee share options exercised - - 5 - Exchange adjustments offset in reserves - 202 - 275 Closing shareholders' funds 11,109 35,523 11,109 35,523 Net cash outflow from operating activities Quarter Quarter 6 months 6 months ended ended ended ended 30 Sept 30 Sept 30 Sept 30 Sept 2002 2001 2002 2001 restated restated £'000 £'000 £'000 £'000 Operating loss (6,433) (11,914) (7,454) (19,260) Depreciation and impairment of tangible fixed assets 319 459 623 782 Amortisation and impairment of intangible fixed assets 6,441 6,683 7,263 10,357 (Increase)/decrease in stock (900) (26) (794) 219 Decrease/(increase) in debtors 855 509 1,686 (136) (Decrease)/increase in creditors/provisions (1,330) 721 (4,234) 635 (1,048) (3,568) (2,910) (7,403) This information is provided by RNS The company news service from the London Stock Exchange

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