3rd Quarter Results

Intec Telecom Systems PLC 03 September 2002 Intec Telecom Systems PLC Unaudited results for the nine months ended 30 June 2002 Turnover increases 28%; important new contracts signed; positive operating cash flow and EBITDA in quarter and year to date Intec Telecom Systems PLC ("Intec" or "the Company"), a leading provider of telecoms Operations Support Systems ("OSS"), is pleased to announce its unaudited results for the nine months ended 30 June 2002. Against a challenging industry background, Intec reports revenues of £34.1 million, an increase of 28% over the equivalent period in 2001. In addition, through improvements in cost management, Intec has achieved both positive cash flow and positive EBITDA. Intec won a number of important new customers in the quarter, as well as significant new projects from existing customers. Revenues for the third quarter ("Q3") were £10.9 million. Business won to date in Q4, together with current business forecasts, allow the Company, subject to the usual closure of ongoing contractual negotiations, to be cautiously confident of meeting consensus expectations for full-year results. HIGHLIGHTS • Turnover for the nine months ended 30 June 2002 increased by 28% to £34.1 million (9m 2001: £26.7 million). • Recurring revenues of £14.3 million increased by 36% over 2001 and represent 42% of total revenues (9m 2001 - 39%). • Earnings before interest, tax, depreciation, and amortisation ("EBITDA") of £800,000 (9m 2001: £1.6 million). • Goodwill impairment of £7.5 million recognised relating to 2001 Asia-Pacific and UK acquisitions; no further impairment identified on US acquisitions. • Operating cash flows improve by £3.6 million - operating cash inflow of £0.8 million for the period compared to £2.8 million outflow in 2001. • Investment in product development increases 51% to £6.0 million. • Strong operating cash inflows in Q3 2002 of £1.5 million (Q3 2001: £2.2 million outflow); cash increases to £11.8 million from £11.0 million from previous quarter end. • 13 new contracted installations in Q3, comprising 3 new InterconnecT family licences, 2 new Inter-mediatE licences, and 8 new InterconnecT CABS licences or service contracts. Major contracts won in the quarter to June 2002, including a first customer in Russia,VimpelCom, an extended installation at Maroc Telecom, and a new South American customer, Smartcom PCS. "Intec continues to defy trends of negative growth in the OSS industry, with a consistent financial performance in an exceptionally competitive market," says Intec's Executive Chairman, Mike Frayne. "Our cash reserves, sustained investment in products and marketing, improved competitive positioning and growing market share are all positive indicators for the future. Our vision now is to turn these advantages into greater shareholder value." "Winning high-value contracts, such as VimpelCom and Maroc Telecom, underlines the benefit that our technology can bring to operators in challenging markets," adds Chief Executive Kevin Adams. "We are increasingly focused on those products that deliver real return on investment, both for Intec and for our customers, and this is apparent in our continuing ability to win orders against stiff competition. We have a clear strategy for success in these difficult times." For further information: Kevin Adams, CEO Intec Telecom Systems PLC +44 (0) 1483 745800 kevin.adams@intec-telecom-systems.com Andrew Rodaway Intec Telecom Systems PLC +44 (0) 7768 808082 andrew.rodaway@intec-telecom-systems.com Cubitt Consulting Fergus Wylie +44 (0) 20 7367 5100 fergus.wylie@cubitt.com Executive Chairman's and CEO's Statement Intec Telecom Systems PLC Results for the nine months ended 30 June 2002 Overview Intec continues to focus on its core strength - delivering high-quality Operations Support Systems to major telecoms operators worldwide. It is this focus, combined with ongoing careful management of the finances of the business, that has allowed us to report another quarter of solid performance in a sector that is generally experiencing very difficult operating conditions. Several significant new wins, combined with sustained recurring revenues from our customer base, have allowed us to report positive cash flow and EBITDA, and good growth of 28% over the equivalent period last year. We view Intec as well positioned to continue to increase market share by winning major OSS contracts, despite the obvious challenges in the telecoms sector. Our business strategy is being developed on the basis of the future opportunities we see in our market. Operational highlights Our overall customer installation base has now exceeded 350, with 60 new customers in the nine months to June 2002. New contracted installations in the quarter arise from three new InterconnecT family licences, two new Inter-mediatE licences, and eight new customers in the CABS sector. During the quarter, Intec has gained eleven new customers, with notable wins in the US, Europe, Russia and Africa. In Africa, Intec signed a contract with Maroc Telecom, to install InterconnecT ITU. Valued at over €1 million, this deal demonstrated that a high-value product such as InterconnecT ITU, which can deliver important additional revenues to an international operator, remains an attractive proposition in today's capital expenditure constrained telecoms market. Also in Africa, after the quarter end, we announced an agreement to acquire our local reseller, Interconnexxion Africa (Pty) Ltd. Intec also won its first customer in Russia, announcing an agreement with VimpelCom, one of the major providers of GSM wireless telecommunications in the region, worth over US$1 million. VimpelCom selected InterconnecT to allow it to accurately bill other operators for carrying calls to VimpelCom's fast-growing GSM subscriber base. VimpelCom's mobile licence portfolio covers approximately 70% of Russia's population (100 million people), including the City of Moscow and the Moscow Region. Intec's Caribbean and Latin American region has one of the most dynamic telecoms markets in the world, with substantial growth rates and many technical developments underway. Intec has always had a strong presence, and this was underlined in the quarter with a new agreement with Hewlett-Packard's Latin American Region to jointly sell InterconnecT, Inter-mediatE and Inter-activatE, and associated professional services. We also began the process (completed after the quarter end) of moving to larger offices in Brazil, to accommodate planned expansion in our business in the region. During the quarter Intec and Logica announced the sale of an Inter-mediatE licence to mobile operator Smartcom PCS in Chile. The solution will assist Smartcom PCS with its business expansion across Chile, one of the fastest growing mobile markets in the Americas. Another important development in Europe was the completion of a highly successful project at Swisscom Mobile to implement Interconnect. Once again, this was a clear endorsement of InterconnecT's leading position, since Swisscom Mobile chose it after extensive experience of the product at the GSM operator's former parent, Swisscom. Finally, in the US our CABS business continues to thrive, with eight new customers signing contracts for licences or services in the quarter. Our Dallas-based CABS operation has also expanded its staff, facilities and operating hours to deal with this growth. After the period end we ran a very successful Americas User Conference in Orlando, Florida. Attended by over 100 mediation and CABS customers and business partners from North and South America, the conference is a valuable part of our product development and marketing processes, generating many ideas for product enhancements and allowing us to introduce new products and services to our customer base. In June, Intec was honoured to receive one of the OSS industry's most prestigious awards, the Telestrategies Award of Excellence for Mediation. Shortly after the quarter closed, Intec extended its long standing agreement with COLT Telecom Group plc, for interconnect billing systems, to include convergent mediation with Inter-mediatE. This was possibly the most significant and highly contested OSS contract awarded in Europe this year, and Intec's success was a clear demonstration of the growing acceptance of Inter-mediatE as the market's leading fully convergent mediation system. As well as the contribution this deal will make over coming quarters to Intec's revenues, it will also provide a truly pan-European reference for Intec's mediation technology in one of the industry's most innovative service providers. Post quarter end we also announced a multi-million dollar, long-term contract with a major US communications provider for Inter-mediatE. This will replace a number of other systems, with Inter-mediatE ultimately collecting over 1.5 billion network events per day. This is a substantial endorsement of our mediation system, and positions Intec as the premier provider of convergent mediation technology in the US. Products During the quarter, Intec concluded the first phase of a thorough review of its current product strategy, designed to ensure that we have best of breed products capable of being true market leaders in each operational sector. This review, which will be a continuous process, looks at the business potential of each product offering and is used to drive the investment case for each. Similarly, new product initiatives are subject to a critical, return on investment-based analysis, a process which we believe will contribute to our objective of ensuring healthy margins for all product areas. We have noted severe cutbacks by some competitors in R&D expenditure, and while we remain aware of the need to manage product costs carefully, we believe that sustained investment to ensure technical leadership is a fundamental strength of Intec. Intec remains focused on its core product families of InterconnecT and Inter-mediatE, with Revenue Assurance as an important developing business area. Subsidiary products which build on the capabilities of these core streams are also available or in development. Inter-activatE, our recently announced service activation offering, is now in operation in its first customer site, and we expect further new business to flow from this area in coming quarters. As noted above, our US CABS business is contributing substantially to North American revenues. We have been able to expand our Dallas based service bureau considerably in recent months, with more space, additional facilities and staff, and extended operating hours, as a result of numerous new customer contracts. Competitive pressures in the US market mean that many carriers, large and small, are now re-examining their access revenue strategies, and we foresee even higher levels of interest in our CABS offering in future. Staff and cost initiatives Intec has continued its policy of retaining and developing internal staff expertise wherever possible. Difficulties within the telecoms sector also mean that Intec has frequent opportunities to hire very capable people in all areas, and a number of key positions have recently been filled. However, this has been combined with a drive to increase efficiency and productivity in all departments, and this is reflected in only a modest headcount increase from 495 to 504 in the quarter. All Intec staff are encouraged to be aware of cost saving opportunities and progress has been made in many departments. After the end of the quarter, Intec completed a restructuring that was initiated at the beginning of the year of the development organisation for InterconnecT, with a reduction in the number of development staff based in Malaysia. InterconnecT development now takes place exclusively in Cape Town. Acquisitions and post balance sheet events Intec completed one acquisition (ICL's OSS business) in the current nine months under review, and this business is now effectively integrated. This business unit contributed sales of £1.1 million in the period since acquisition (January 2002) and a small operating loss of £0.2 million after goodwill amortisation of £0.7 million. On 31 July 2002, Intec announced an agreement to acquire its current distribution partner in South Africa, Interconnexxion Africa (Pty) Ltd, for consideration of £0.2 million (See note 5 for further details). Intec now has three customers in Southern Africa: the PTT, Telkom South Africa, and mobile operators MTN and Cell-C.The new operation will also target customers in other key emerging markets in Africa, such as Nigeria, where MTN is also a customer Financial analysis Intec continues to have a stable business model with contributions from all regions and operating activities. Slightly lower than expected Q3 revenues are considered to be a result of normal quarter to quarter variations. Recurring revenues, at £14.3 million (42% of revenue) are the major contributor to our total turnover for the nine months under review of £34.1 million. New licence sales and professional services contributed £10.2 million (30%) and £9.6 million (28%) of revenue respectively. The increase in new licences revenues of 6% compared to the prior nine month period is particularly pleasing, given the industry wide declines in the software sector, especially in the telecoms market, and ongoing pricing pressure driven by the difficulties experienced by some competitors. Reported revenues from professional services have increased by 46%. The £3.0 million increase in professional services revenues is equally attributable to a full nine month contribution from 2001 acquisitions and revenues from our 2001 continuing operations. Recurring income has also increased significantly by 36% compared to the prior period. Of the £3.8 million increase, £1.1 million (31%) is attributed to the customers acquired with the ICL OSS products business earlier this year. Gross margin has remained almost unchanged at 66% (2001: 68%), with the slight decline largely due to increased third party payments for implementation services in major customer projects. Distribution costs rose 24% at £7.8 million (2001: £6.3 million), slightly below the revenue growth of 28%, reflecting the expansion in our global distribution capability. General administrative costs, although up 31% at £9.4 million (2001: £7.1 million) have stabilised since the half year and the effect of cost saving initiatives has begun to have an impact on our normal operating costs. Development costs in the current period rose 51% compared with the first nine months of 2001, reflecting continuing investment in our core product areas, and in expanding our portfolio. New products developed in the period include Inter-activatE, our service activation solution. As highlighted in the product section, Intec is reviewing development expenditure carefully across each product line or proposed development, with a view to maximising return on each one. Cost growth in future periods will be at a lower level as a result of initiatives to restructure our development centres and from general cost saving and productivity measures. Intec incurs a proportion of its development expenditure for InterconnecT in South Africa, and we have therefore continued to benefit from lower Sterling costs through the period. Depreciation and goodwill amortisation charges have decreased from £8.2 million in Q3 2001 to £6.0 million in the current quarter. A further impairment charge on 2001 acquisitions of £7.5 million has been recorded in the period. This results from the planned discontinuation of competitive products acquired with Dataphone in the UK and i2i in Asia. No further impairment of goodwill on our other 2001 acquisitions in the US (CompGen and CHA) has been considered necessary, as each area is contributing satisfactorily to Intec's performance. Intec's annualised debtor-days ratio has improved, with the figure at 30 June 2002 standing at 109 days, compared with 127 days at 31 March 2002, our lowest figure for eight quarters. Intec has experienced the best quarter for cash collection since flotation. This has continued post quarter end and, at the time of writing, £6.1 million (46%) of cash has been collected from quarter end debtor balances. Outlook The telecoms industry remains in a depressed state, with continuing debt problems and reduced capital budgets. Nevertheless, we are of the view that the industry is fundamentally vital, albeit with further consolidation and restructuring to come. We see ongoing interest from carriers that are seeking to improve their operating performance or to update systems following corporate activity. Intec's ability to win major contracts against many other vendors is evidence of customer willingness to invest in proven, feature-rich, carrier grade solutions. Operations Support Systems are an irreplaceable necessity in telecoms, and competitive pressures encourage many prospective Intec customers to review their internal systems for operational efficiency, cost-effectiveness, and future capability. Our recent win at COLT is a good example of OSS investment designed to produce longer term savings and improved service capabilities. Looking forward it is difficult to predict the timing of any upturn, although we are confident that the communications industry will work through current issues and return to good growth. Intec has a business strategy geared to both good performance in the interim, and readiness for the future. In the present climate we also encounter numerous good value opportunities for acquisition of companies with interesting technologies and market position, and we anticipate that Intec will continue to make carefully selected moves in this area. However, our immediate focus is on delivering a sound business performance this year. Based on current forecasts, and assuming closure of current contract negotiations and projects, we are cautiously confident that we can report results for the fourth quarter and full year that are in line with expectations. Mike Frayne, Executive Chairman & Kevin Adams, CEO. 2 September 2002 Unaudited Unaudited Audited 9 months ended 9 months ended Year ended 30 June 30 June 30 September Note 2002 2001 2001 £000 £000 £000 TURNOVER 34,147 26,745 39,798 EBITDA before exceptional items (i) 800 1,647 3,414 Operating loss (12,675) (139,911) (140,046) Basic loss per share (7.35)p (81.14)p (80.21)p Adjusted (loss)/earnings per share (ii) (0.66)p 0.57p 1.14p Notes to the financial highlights £000 £000 £000 (i) Operating loss (12,675) (139,911) (140,046) Depreciation 1,273 885 1,380 Amortisation of goodwill and other 4,738 7,273 8,680 intangibles Impairment of goodwill 7,464 133,400 133,400 EBITDA before exceptional items 800 1,647 3,414 (ii) Adjusted (loss)/earnings per share based on following adjusted loss after tax Loss after tax (13,608) (139,687) (140,371) Amortisation of goodwill and other 4,738 7,273 8,680 intangibles Impairment of goodwill 7,464 133,400 133,400 Amount written off investment 175 - 283 Adjusted (loss)/earnings after tax (1,231) 986 1,992 KEY CUSTOMER DATA 30 June 30 September 30 June 2002 2001 2001 Number Number Number Cumulative: Contracted customer base 244 203 183 Contracted customers acquired from ICL 19 - - Total contracted customer base 263 203 183 Contracted installations 328 257 235 Contracted installations acquired from ICL 25 - - Total contracted installations 353 257 235 Unaudited Unaudited Audited 9 months ended 9 months ended Year ended 30 June 30 June 30 September Note 2002 2001 2001 £000 £000 £000 TURNOVER Continuing operations 33,043 26,745 39,798 Acquisitions 1,104 - - Total turnover 2 34,147 26,745 39,798 Cost of sales (11,422) (8,513) (12,675) GROSS PROFIT 22,725 18,232 27,123 Distribution costs (7,844) (6,347) (9,158) Administrative expenses: Development expenditure (6,043) (3,994) (5,869) Amortisation of goodwill and other intangible (4,738) (7,273) (8,680) assets Impairment of goodwill (7,464) (133,400) (133,400) Other administrative expenses (9,383) (7,143) (10,140) Total administrative expenses (27,628) (151,810) (158,089) OPERATING LOSS Continuing operations (12,502) (139,925) (140,124) Acquisitions (245) - - GROUP OPERATING LOSS (12,747) (139,925) (140,124) Share of operating profit in associate 72 14 78 Total operating loss (12,675) (139,911) (140,046) Amounts written off investments (175) - (283) Interest receivable and similar income 395 1,009 1,171 Interest payable and similar charges (320) (39) (73) LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION (12,775) (138,941) (139,231) Tax charge on loss on ordinary activities 3 (833) (746) (1,140) RETAINED LOSS ON ORDINARY ACTIVITIES AFTER TAXATION (13,608) (139,687) (140,371) Loss per share - basic 4 (7.35)p (81.14)p (80.21)p (Loss) / earnings per share - adjusted 4 (0.66)p 0.57p 1.14p CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES 9 months ended 30 June 2002 Unaudited Unaudited Audited 9 months ended 9 months ended Year ended 30 June 30 June 30 September 2002 2001 2001 £000 £000 £000 Loss for the period (13,608) (139,687) (140,371) Exchange translation differences arising on foreign currency net investments (502) (85) (168) Total recognised gains and losses during the period (14,110) (139,772) (140,539) Unaudited Unaudited Audited 30 June 30 June 30 September Note 2002 2001 2001 £000 £000 £000 FIXED ASSETS Intangible assets 65,127 72,413 73,181 Tangible assets 3,051 3,245 3,009 Investments 331 650 422 68,509 76,308 76,612 CURRENT ASSETS Stocks 80 41 29 Debtors 6 18,232 18,887 19,103 Investments 643 12,167 2,966 Cash at bank and in hand 11,152 7,276 14,987 30,107 38,371 37,085 CREDITORS: amounts falling due within one year 7 (6,180) (7,839) (7,759) NET CURRENT ASSETS 23,927 30,532 29,326 TOTAL ASSETS LESS CURRENT LIABILITIES 92,436 106,840 105,938 CREDITORS: amounts falling due after more than one year 7 - (74) - Deferred income (5,616) (6,478) (5,248) TOTAL NET ASSETS 86,820 100,288 100,690 CAPITAL AND RESERVES Called up share capital 8 1,881 1,836 1,836 Share premium account 8 238,058 235,066 235,366 Other reserve 8 - 1,628 2,497 Merger reserve 8 249 249 249 Foreign exchange reserve 8 (653) (68) (151) Profit and loss account 8 (152,715) (138,423) (139,107) EQUITY SHAREHOLDERS' FUNDS 86,820 100,288 100,690 RECONCILIATION OF MOVEMENT IN CONSOLIDATED SHAREHOLDERS' FUNDS 9 months ended 30 June 2002 Unaudited Unaudited Audited 30 June 30 June 30 September 2002 2001 2001 £000 £000 £000 Loss for the financial period (13,608) (139,687) (140,371) Other recognised gains and losses relating to (502) (85) (168) the period Issue of share capital net of associated 2,737 196,882 197,182 expenses (Decrease)/increase in contingent consideration (2,497) 1,628 2,497 (Decrease)/increase in shareholders' funds (13,870) 58,738 59,140 Opening shareholders' funds 100,690 41,550 41,550 Closing shareholders' funds 86,820 100,288 100,690 Unaudited Unaudited Audited 9 months ended 9 months ended Year ended 30 June 30 June 30 September Note 2002 2001 2001 £000 £000 £000 Net cash inflow/(outflow) from operating activities (i) 845 (2,783) (3,716) Returns on investments and servicing of finance Interest received 374 1,009 1,171 Interest element of finance lease rental (4) (9) (17) payments Interest paid and similar items (315) (324) (56) 55 676 1,098 Taxation Overseas taxation (paid)/received (258) (30) 5 UK corporation taxation received/(paid) 2 (689) (531) (256) (719) (526) Capital investment Payments to acquire tangible fixed assets (1,314) (1,570) (1,861) Payments to acquire Intellectual Property Rights - (176) (304) Proceeds on disposal of fixed assets 49 3 74 (1,265) (1,743) (2,091) Acquisitions Investment in subsidiaries (see note 4) (5,061) (188,440) (188,680) Net cash acquired with subsidiaries - 2,601 1,801 (5,061) (185,839) (186,879) Cash outflow before management of liquid resources and financing (5,682) (190,408) (192,114) Use of liquid resources Decrease in term deposits 2,248 6,124 15,377 Payments received from escrow 53 679 627 Financing Issue of ordinary share capital - 183,700 183,700 Share issue costs charged to the share premium account - (5,222) (4,922) Capital element of finance lease rental payments (156) (92) (234) (Decrease) / increase in cash in the period (ii), (3,537) (5,219) 2,434 (iii) Unaudited Unaudited Audited 9 months ended 9 months ended Year ended 30 June 30 June 30 September 2002 2001 2001 £000 £000 £000 (i) Reconciliation of operating loss to net cash inflow/(outflow) from operating activities Operating loss (12,747) (139,925) (140,124) Depreciation 1,273 885 1,380 Amortisation of goodwill and other intangible 4,738 7,273 8,680 assets Impairment of goodwill 7,464 133,400 133,400 Loss on disposal of fixed assets (21) - (10) (Increase)/decrease in stock (55) 67 79 Increase in debtors (178) (2,296) (2,948) Decrease/(increase) in creditors 371 (2,187) (4,173) Net cash inflow/(outflow) from operating 845 (2,783) (3,716) activities (ii) Reconciliation of net cash flow to movement in net funds (Decrease)/increase in cash in the period (3,537) (5,219) 2,434 Net cash outflow from decrease in finance lease 156 92 234 Net cash inflow from decrease in liquid (2,301) (6,803) (16,004) resources Change in net funds resulting from cash flows (5,682) (11,930) (13,336) Finance leases acquired with subsidiary - (185) (178) Translation differences (320) - 58 Movement in net funds (6,002) (12,115) (13,456) Net funds at 1 October 2001 17,765 31,221 31,221 Net funds at 30 June 2002 11,763 19,106 17,765 (iii) Analysis of movement in net funds ' Audited Unaudited 1 October Exchange 30 June 2001 Cash flow movement 2002 £000 £000 £000 £000 Cash in hand and at bank 14,987 (3,537) (298) 11,152 Finance leases (188) 156 - (32) Term deposits and escrow account 2,966 (2,301) (22) 643 Total 17,765 (5,682) (320) 11,763 1. BASIS OF PREPARATION The interim financial information has been prepared in accordance with accounting policies set out in, and are consistent with, the Group's 2001 financial statements except for the adoption of FRS 19 Deferred Tax and the taxation charge for the period which is based on the estimated charge for the year ending 30 September 2002. There has been no restatement of prior year figures as a result of the adoption of FRS 19. The interim financial information is neither reviewed nor audited and does not comprise statutory accounts for the purposes of Section 240 of the Companies Act 1985. The abridged information for the year ended 30 September 2001 has been extracted from the Group's statutory accounts for that period, which have been filed with the Registrar of Companies. The Auditor's report on the statutory accounts of the Group for that period was unqualified and did not contain a Statement under either Section 237(2) or Section 237(3) of the Companies Act 1985. The interim financial information was approved by the Board of Directors on 2 September 2002. 2. TURNOVER AND SEGMENTAL REPORTING Turnover by origin Unaudited Unaudited 9 months ended 30 June 2002 9 months ended 30 June 2001 Inter-segment Inter- Total turnover External Total segment External turnover turnover turnover turnover turnover £000 £000 £000 £000 £000 £000 United Kingdom 15,701 (1,297) 14,404 15,174 - 15,174 Continental Europe 155 - 155 279 - 279 Asia-Pacific 1,439 - 1,439 360 - 360 North America & Canada 17,462 (231) 17,231 10,880 - 10,880 South America 918 - 918 52 - 52 35,675 (1,528) 34,147 26,745 - 26,745 Audited Year ended 30 September 2001 Inter- Total segment External turnover turnover turnover £000 £000 £000 United Kingdom 22,919 (1,737) 21,182 Continental Europe 400 - 400 Asia-Pacific 1,072 (64) 1,008 North America & Canada 17,224 (215) 17,009 South America 205 (6) 199 41,820 (2,022) 39,798 2. TURNOVER AND SEGMENTAL REPORTING (continued) Turnover by destination Unaudited Unaudited Audited 9 months ended 9 months ended Year ended 30 June 30 June 30 September 2002 2001 2001 £000 £000 £000 United Kingdom 2,709 3,801 6,105 Continental Europe 7,428 8,081 10,528 Eastern Europe 1,051 1,041 1,562 Middle East 93 53 680 Africa 1,519 456 814 Asia-Pacific 4,883 3,495 4,977 North America & Canada 13,219 8,218 12,576 South America 3,245 1,600 2,556 34,147 26,745 39,798 Turnover by activity Unaudited Unaudited Audited 9 months ended 9 months ended Year ended 30 June 30 June 30 September 2002 2001 2001 £000 £000 £000 Licence sales 10,214 9,638 14,165 Professional services income: Implementation and migrations 5,937 3,230 4,752 Consulting and training income 1,287 1,342 1,904 Hardware 165 369 502 Non-telecom custom network solutions 2,243 1,665 2,493 9,632 6,606 9,651 Recurring Income: ASP Service 2,012 1,084 1,675 Volume upgrade licences 1,226 2,107 3,598 Support and maintenance fees 11,063 7,310 10,709 14,301 10,501 15,982 Total turnover by activity 34,147 26,745 39,798 2. TURNOVER AND SEGMENTAL REPORTING (continued) Loss before taxation Unaudited 9 months ended 30 June 2002 Before After amortisation of amortisation of goodwill, goodwill, impairment and impairment and investment Amortisation of Goodwill Investment investment writedown goodwill impairment writedown writedown £000 £000 £000 £000 £000 United Kingdom 524 (1,154) (1,684) (175) (2,489) Continental Europe 470 (7) - - 463 Asia-Pacific (1) (330) (5,780) - (6,111) North America & Canada (1,535) (3,247) - - (4,782) South America 144 - - - 144 (398) (4,738) (7,464) (175) (12,775) The segmental analysis of loss before taxation for the nine months ended 30 June 2002 includes intercompany interest charge from the UK to North America & Canada of £3,114,000 (30 June 2001 - £nil). Unaudited 9 months ended 30 June 2001 Before After amortisation of amortisation of goodwill and goodwill and impairment Amortisation of Goodwill impairment goodwill impairment £000 £000 £000 £000 United Kingdom (915) (158) - (1,073) Continental Europe (227) (7) - (234) Asia-Pacific (108) (567) (16,000) (16,675) North America & Canada 2,886 (6,541) (117,400) (121,055) South America 96 - - 96 1,732 (7,273) (133,400) (138,941) Audited Year ended 30 September 2001 Before After amortisation of amortisation of goodwill, goodwill, impairment and impairment and investment Amortisation of Goodwill Investment investment writedown goodwill impairment writedown writedown £000 £000 £000 £000 £000 United Kingdom 1,077 (329) - (283) 465 Continental Europe 221 (9) - - 212 Asia-Pacific (84) (681) (16,000) - (16,765) North America & Canada 2,576 (7,661) (117,400) - (122,485) South America (658) - - - (658) 3,132 (8,680) (133,400) (283) (139,231) 2. TURNOVER AND SEGMENTAL REPORTING (continued) Net assets/(liabilities) by origin Unaudited Unaudited Unaudited Unaudited Audited 30 June 30 June 30 June 30 June 30 September 2002 2002 2002 2001 2001 Excluding Including Including Including unamortised Unamortised unamortised unamortised unamortised goodwill goodwill goodwill goodwill goodwill £000 £000 £000 £000 £000 United Kingdom 16,194 2,773 18,967 31,266 26,995 Continental Europe (174) 67 (107) (38) 258 Asia-Pacific 885 - 885 6,542 7,782 North America & Canada 5,709 60,732 66,441 62,470 65,657 South America 634 - 634 48 (2) 23,248 63,572 86,820 100,288 100,690 3. TAX CHARGE ON LOSS ON ORDINARY ACTIVITIES Unaudited Unaudited Audited 30 June 30 June 30 September 2002 2001 2001 £000 £000 £000 UK Corporation tax at 30% (2001: 30%) - 279 454 Overseas tax 749 458 753 Adjustments in respect of prior period 76 (19) (105) Share of tax in associate 8 28 38 833 746 1,140 The charge for the period is high owing to overseas tax suffered, largely withholding tax levied on overseas sales that cannot be fully relieved against UK corporation tax. 4. (LOSS)/EARNINGS PER ORDINARY SHARE Unaudited Unaudited Audited 9 months ended 9 months ended Year ended 30 June 30 June 30 September 2002 2001 2001 £000 £000 £000 Basic loss (13,608) (139,687) (140,371) Amortisation of goodwill and intangible assets 4,738 7,273 8,680 Impairment of goodwill 7,464 133,400 133,400 Amount written off investment 175 - 283 Adjusted (loss)/earnings (1,231) 986 1,992 Number Number Number Weighted average number of shares 185,241,561 172,163,172 175,007,925 Pence Pence Pence Basic loss per ordinary share (7.35) (81.14) (80.21) Amortisation of goodwill and intangible assets 2.56 4.22 4.96 Impairment of goodwill 4.03 77.49 76.23 Amount written off investment 0.10 - 0.16 Adjusted (loss)/earnings per ordinary share (0.66) 0.57 1.14 Diluted loss/earnings per share is not presented in respect of outstanding share options since none of the options are dilutive. 5. ACQUISITIONS a) Current year acquisitions On 25 January 2002, the group acquired the operational support systems ("OSS") business of ICL, a Fujitsu company ("the vendor"). The OSS business acquired comprises certain tangible fixed assets, intellectual property rights, and customers. The net initial consideration for the acquisition was £2,550,000 paid in cash. In addition, deferred cash consideration is payable on a quarterly basis, calculated by reference to support contract revenues over the two year period from the acquisition date. As at 30 June 2002, £220,000 of the deferred consideration has been paid leaving an estimated £818,000 over the remainder of the two year period. Goodwill arising on acquisition has been capitalised and is being amortised over two years from the date of acquisition. b) Prior year acquisitions Contingent consideration of £5,009,000 was settled in respect of the acquisition of CHA Systems, Inc. £2,272,000 was paid in cash and the balance of £2,737,000 was settled through the issue of ordinary shares of Intec Telecom Systems PLC. c) Reconciliation to cash flow statement £000 Net initial consideration for ICL OSS business (2,569) Deferred consideration payments on ICL (220) Contingent cash consideration paid on prior year acquisition (2,272) (5,061) d) Post balance sheet event On 31 July 2002, Independent Technology Systems Limited, a wholly owned subsidiary company of Intec Telecom Systems PLC ("Intec") agreed to acquire its distribution partner in South Africa, Interconnexxion Africa (Pty) Ltd (" Interconnexxion"). The consideration amounted to £209,000, which has been satisfied by the issue of 822,835 new ordinary shares of 1p each. Pursuant to the agreement, Intec has acquired all assets of Interconnexxion, including customer licensing and support contracts and equipment. Interconnexxion has an outstanding loan of £351,000 which Intec has agreed to satisfy by the issue of 1,381,890 new ordinary shares of 1p each . 6. DEBTORS Unaudited Unaudited Audited 30 June 30 June 30 September 2002 2001 2001 £000 £000 £000 Trade debtors 13,467 14,058 13,535 Corporation tax recoverable 196 - 216 Withholding tax recoverable - - 82 Other debtors 746 1,956 1,139 Accrued income 2,334 925 2,027 Prepayments: Due within one year 1,489 927 1,642 Due after more than one year - 1,021 462 18,232 18,887 19,103 7. CREDITORS Unaudited Unaudited Audited 30 June 30 June 30 September 2002 2001 2001 £000 £000 £000 Amounts falling due within one year Obligations under finance leases 32 263 188 Trade creditors 1,852 1,585 2,007 Corporation tax 454 32 454 Overseas tax 76 621 356 Other creditors including taxation and social 779 1,712 601 security Accruals 2,169 2,476 2,235 Contingent consideration 818 1,150 1,918 6,180 7,839 7,759 Amounts falling due after more than one year Obligations under finance leases - 74 - Long term note payable - stockholders - - - - 74 - 8. STATEMENT OF MOVEMENTS ON RESERVES Called Share Foreign Profit up share premium exchange and loss capital account Other Merger reserve account reserve reserve Total £000 £000 £000 £000 £000 £000 £000 At 1 October 2001 1,836 235,366 2,497 249 (151) (139,107) 100,690 Adjustment to fair value of shares issued as part of contingent consideration - - 340 - - - 340 Issue of shares to settle contingent consideration for CHA Systems, Inc. 45 2,692 (2,737) - - - - Decrease in contingent consideration (100) (100) Retained loss - - - - - (13,608) (13,608) Foreign exchange translation - - - - (502) - (502) At 30 June 2002 1,881 238,058 - 249 (653) (152,715) 86,820 9. CONTINGENT LIABILITY As noted in the 2001 Report & Accounts, on 7 December 2000 a claim was brought by British Telecommunications plc ("BT") against Intec Telecom Systems PLC ("the Company") for infringement of UK patent 0 692 172 (the "Patent in Suit"), and leave to add the Company's subsidiary, Independent Technology Systems Ltd, was later granted by the Court. BT's claim is for an injunction to restrain the Company and Independent Technology Systems Ltd from infringing the Patent in Suit and also includes a claim for damages or an account of profits, delivery up of any infringing goods and its legal costs. The Patent in Suit relates to data analysers used in telecommunications systems. The allegation set out in BT's particulars of claim is that the Company's interconnect settlement system infringes the Patent in Suit. At this stage of the proceedings, no evidence (expert or witness) has been exchanged. On the basis of the information received to date from the Company, BT, and from the results of searches conducted by the Company's patent attorneys, the Company has been advised by its legal advisers that BT's analysis of the scope of the Patent in Suit is flawed and that upon a sensible reading of the claims of the Patent in Suit the Company's system should be held not to infringe the Patent in Suit. Alternatively, the Patent in Suit should be found to be invalid. As the issues of liability and quantum are tried separately before the UK Courts, BT has yet to plead any claim as to quantum. Should BT succeed on liability at trial, it will only then plead its claim to damages and/or account of profits. At this stage, therefore, the Company is not able to provide an estimate as to the level of damages which BT may claim. The Group is making provision for all the likely legal costs the Company may incur up to trial on liability, and put in place contingency plans in the event of a successful or partially successful claim, which the Directors believe would be cost effective and avoid any such future claims. Accordingly no provision has been made in these financial statements for such potential liability. This information is provided by RNS The company news service from the London Stock Exchange

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