Final Results
Intec Telecom Systems PLC
30 November 2004
30 November 2004
Intec Telecom Systems PLC - Audited Preliminary results for the year ended
30 September 2004
Adjusted profit before tax(1) up 54% to £8.3 million on turnover increase of
36% to £68.8 million; successful acquisition of leading retail billing system.
Intec Telecom Systems PLC (LSE: ITL, "Intec" or "the Company"), a global
provider of enterprise-level software and services, today announces its audited
results for the year ended 30 September 2004. The Company is pleased to report
growth of over 35% in both profitability and revenues, positive operating
cashflow despite continued strong investment in business growth, and a total of
100 new customers won or acquired in 2004. During the year Intec also made an
important acquisition, the 'Singl.eView' retail billing business of ADC, which
is now generating substantial new business opportunities for the company.
FINANCIAL AND OPERATING HIGHLIGHTS
• Revenues for the year ended 30 September 2004 increased by 36% (30%
organic) to £68.8 million (year ended 30 September 2003: £50.7 million).
• Adjusted profit before tax(1) substantially increased to £8.3 million (2003:
£5.4 million).
• Positive operating cash inflow of £4.6 million generated during the year
(2003: inflow of £8.5 million).
• Operating loss of £1.4 million (2003: 1.9 million) attributable to
goodwill and intangible amortisation of £8.8 million.
• Loss before tax £1.2 million (2003: £1.8 million).
• Customer base increased by 27% to 465, with important new customer wins in
the UK, US, Europe, Latin America, and Asia.
• $74.5 million acquisition of 'Singl.eView' retail billing business
concluded during the year.
• Gross margin improved to 72% (2003: 70%).
• Cash and cash equivalents stand at £32.2 million (2003: £15.3 million).
• Several new products introduced to complement core billing and mediation
families.
• Strong pipeline for 2005.
Commenting on the results, Mike Frayne, Executive Chairman said: "In 2004 Intec
has become one of the top five players in the OSS/BSS market worldwide, through
both our acquisition of Singl.eView and the good organic growth we have
generated in the core business. Growth in revenues and earnings has
substantially exceeded the industry average, and we have also enhanced our cash
position, despite strong investment in all aspects of the business. Although we
see continuing competitive conditions in the telecoms market, the important
opportunities we are now engaged with for Singl.eView and other key products
give me confidence that Intec has strong prospects for 2005 and beyond."
Kevin Adams, Chief Executive, added, "Intec has won and acquired many new
customers in 2004, including a number of multi-million Pound contracts around
the world. Execution of our long-term strategy of high-quality, profitable
growth has continued, with expansion in all areas of the business. Integrating
Singl.eView, although clearly a large project, and restoring sales momentum to
its pipeline, are both progressing very well, and we are cautiously confident
that we can meet our objectives in 2005."
There will be an analyst meeting at 09:15 hours today (30 November 2004) at
Financial Dynamics, Holborn Gate, 26 Southampton Buildings, London.
1Adjusted profit before tax: A reconciliation between adjusted profit before tax
and the loss before tax is shown on the consolidated profit and loss account.
The differences relate to amortisation of goodwill and other intangible assets
of £8.8 million (2003: £7.2 million) and exceptional administrative expenses of
£0.7 million (2003: nil).
Enquiries
Intec Telecom Systems PLC
Mike Frayne, Executive Chairman +44 (0) 1483 745800
Kevin Adams, Chief Executive Officer +44 (0) 1483 745800
Andrew Rodaway, Director of Marketing +44 (0) 7768 808082
andrew.rodaway@intecbilling.com
RW Baird +44 (0) 20 7667 8416
Shaun Dobson sdobson@rwbaird.com
Financial Dynamics +44 (0) 20 7831 3113
James Melville-Ross intec@fd.com
Edward Bridges
Cass Helstrip
Executive Chairman's Statement
This year has been both challenging and rewarding for Intec, as we have made
great progress towards our objective of becoming one of the largest and most
successful Operations Support Systems /Business Support Systems software (OSS/
BSS) product players in our sector: challenging, as we have worked hard to
acquire, integrate (including extensive integration planning) and take forward
the Singl.eView business while still executing our plans for strong organic
growth within the core business; and rewarding, as with Singl.eView we have
secured a strategically important asset and seen both revenue and profitability
grow very satisfactorily despite continuing strong competition worldwide for new
contracts.
The headline figures of revenue growth of 36% to £68.8 million, adjusted pre-tax
profits up 54% and a much reduced loss after goodwill amortisation and
exceptional items, although very pleasing, do not tell the full story of another
year of substantial achievements. Intec's staff and management team, which with
Singl.eView now numbers over 1,300 people, has worked very hard to create a
larger, stronger business that is a leader in several areas, that is profitable,
cash-generative and fully-funded, and that has the best products in each of its
key operating sectors. This is a great achievement and, once again, I thank all
involved for their efforts throughout the year.
Singl.eView
The acquisition of the Singl.eView business marks a watershed for Intec. Prior
to this acquisition, we would have been considered a successful, but perhaps
niche, player in certain markets. The products, people and customers we acquired
in August with Singl.eView take Intec into the market for the most critical
systems used by our client base, retail or customer billing, and some of the
areas around it such as customer management. In the telecoms sector there is a
customer-centred strategic focus, and billing is one of the primary systems that
make the greatest impact on our customers' business performance. I am very
pleased that we have entered this space with a solution and a worldwide staff
capability that we believe is superior to anything else we see in the market.
The scale of the Singl.eView acquisition naturally required Shareholder
approval, and a detailed prospectus was therefore circulated in the summer, with
approval granted at an EGM on 24 August. A great deal of work was also completed
during this period on pre-acquisition integration planning to ensure the best
possible transition to Intec ownership.
Market
The telecoms industry, while undoubtedly performing better today than it has
over recent periods, still faces structural and technical challenges, for
example the growing innovation and competition from next-generation wireless
technologies such as 3G, or the rapid spread of Internet Protocol (IP)-based
networks. These are positive developments for Intec, and we are encouraged by
the number of substantial opportunities we see for both Singl.eView and existing
Intec products in high-value projects worldwide. Our objective is to turn these
market developments into profitable business over coming quarters.
Organic Business
Naturally, Singl.eView has not been our only area of focus in 2004, and we
continue to invest heavily in product development to ensure our continuing
success. I am pleased that all of our other major product lines have continued
to move ahead during the year. Both InterconnecT and Inter-mediatE, which
historically have generated over 90% of our revenue, have been the subject of
substantial new version releases. We believe both products are clear technical
leaders in terms of performance, functionality and robustness. The feedback we
have to date from customers who have seen or used the new products is very
positive. Both products have performed well, with Intec announcing more new
contract wins across the OSS/BSS sector than any other competitor. In addition,
the products acquired in September 2003 from Digiquant A/S of Denmark, now
developed and marketed principally as Intec DCP, have won a number of important
new orders, including a major contract in North America.
Careful investment, based on solid business cases, that generates high-quality,
marketable products with good customer demand, remains the foundation of Intec's
success. That, combined with effective sales and marketing, plus close attention
to customer care, allows us to build and retain a strong customer base that now
includes over 60% of the world's top 100 carriers, as well as a number of
companies outside the telecoms sector. We see non-telecoms customers as
potentially an interesting opportunity for Intec technology, and we are actively
investigating a number of sectors.
Outlook
In 2005 we will continue to focus on the best possible performance in a business
which has now almost doubled in size, with a particular emphasis on maximising
the opportunities created by our acquisition of Singl.eView. There is evidence
that many carriers are reviewing their systems and architectures for ways to
improve financial performance, customer satisfaction and operational
flexibility. We believe we are in a strong position to offer them the products
and services to help achieve these goals. Although the industry remains cautious
in its approach to expenditure, the need to move forward is growing and we
believe that Intec can continue to grow and develop as one of the leading
providers in our market.
Mike Frayne
Executive Chairman
29 November 2004
Chief Executive's Review
The 30% organic growth in turnover, Intec achieved in 2004, with only a 10%
staff increase, is particularly pleasing as it has been within a telecoms
industry that is cautious about capital expenditure and operating expenses.
Intec announced more new contracts in the past twelve months than any other
competitor, and continues to gain market share. An increasing number of the
deals signed have been valued at several million pounds, indicating Intec's
growing profile as one of the world's major OSS/BSS suppliers, with the
technology and capabilities to address large and sophisticated projects.
2004 has seen the emergence of a number of important trends. Firstly, a slow but
steady improvement in the fortunes of the telecoms industry, with many carriers
reporting their best results for several years. This feeds through into a better
trading environment for suppliers like Intec. That said, carriers remain
cautious about expenditure, and the focus remains on projects which clearly
deliver cost, efficiency or customer satisfaction benefits. Intec has a product
set which can help fulfil these requirements.
Secondly, many of the technical innovations developed in the last few years,
such as 3G networks, voice over Internet Protocol (VoIP), and video messaging,
are now reaching consumers in large numbers. These changes drive new technology
projects that address the complex capabilities that such services require. We
have won important and innovative projects in 2004 in all these areas.
Our growth comes from focusing on the strengths that have made Intec successful,
particularly good customer care, sound implementations and technically strong
products. It is therefore pleasing to report that both customer churn and staff
turnover remain at very low levels, and certainly a long way below industry
averages. We have over 1,000 people worldwide involved directly in the
development, implementation and support of our products, working with customers
in over 70 countries.
A pleasing feature of the year has been the mainly organic growth in new licence
sales, up 64% in 2004 following relatively difficult trading conditions in 2003
and 2002. Demand for new licences has been apparent across all markets and
product lines, although emerging markets and new technologies have seen the
strongest growth. New licences are the lifeblood of a software business, feeding
through into both short and long term revenue streams. Our other sources of
revenue, recurring revenue and professional services, have also grown very
satisfactorily, up 19% and 42% respectively, due to our growing customer base
and numerous large projects around the world. In 2005 we expect the balance of
revenues to shift somewhat, as the higher levels of professional services
associated with Singl.eView projects are reflected in the results.
Our customer base has increased in 2004 by 100 customers to a total of 465
companies representing 668 product installations, with important wins announced
at Telekom Malaysia, M-Tel (Nigeria), TelePacific, Telecom Egypt, Telenet
(Belgium), Telefonica Moviles, Nitel, VIVO (Brazil), China Unicom, Golden
Telecom (Russia), PJN (Indonesia), Safaricom, Energis, VimpelCom, Cable &
Wireless, and TA Orange (Thailand), among others. Customers have been won in all
market sectors, from major fixed line carriers to the latest IP and 3G focused
operators. Singl.eView brings us around 67 new contracted installations of which
19 are also existing Intec customers. Some of the best known new Singl.eView
customers include Deutsche Telekom, Virgin Mobile, Tele2 and AT&T. We run User
Groups and Conferences in each of our operating regions, as well as providing
various online and interactive forums and newsletters as ways to support and
communicate with clients. The quality of our customer relationships remains of
paramount importance to all staff at Intec.
Intec now has a substantially expanded Operations and Business Support Systems
(OSS/BSS) software product set compared to previous periods, with world class
products in retail billing (Singl.eView), multi-service mediation
(Inter-mediatE), interconnect settlements (InterconnecT), and dynamic charging/
active mediation (Intec DCP). We also have solutions with growing presence and
success in a number of other areas, including service activation
(Inter-activatE), content partner management (InterconnecT CPM) and optimised
routing (InterconnecT OR). The individual elements within our product portfolio
are complementary and we always seek to maximise customer commitment and
satisfaction through offering the most complete solution. All carriers needs a
core set of OSS/BSS technologies, and Intec's approach has always been to
acquire, develop and market the systems, such as billing, which we believe will
remain important to carriers regardless of external factors.
All regions have performed well in 2004, with the following revenue growth
rates: EMEA, up 42%; North America, up 34%; CALA, up 18%; Asia Pacific, up 37%.
These are excellent results, particularly when seen against a backdrop of a
global telecoms industry that has itself shown little growth in overall size.
Outlook
2004 has been a key period in Intec's development, both in terms of our business
performance and our future potential. We are now unarguably one of a small group
of major suppliers in the OSS/BSS sector, with a product set that we believe is
unmatched in breadth and performance. With the capabilities that we have, and
the opportunities that we see, I am confident that Intec will continue
performing strongly and I look forward to 2005 with confidence.
Kevin Adams
Chief Executive Officer
29 November 2004
FINANCIAL PERFORMANCE
I am pleased to report that in 2004 Intec has once again delivered increased
revenues and substantial profit growth against a backdrop of continued
challenging market conditions and a weakening dollar.
Revenue
In the year to 30 September 2004, our seventh year of operations and our fourth
full year as a public company, revenue increased by 36% to £68.8 million,
against £50.7 million for the equivalent period in 2003. The Singl.eView
acquisition contributed £3.1 million to revenue for the month of September. Both
revenue and costs have been impacted by the dollar which weakened against
sterling by approximately 11%. Had we not suffered this dollar impact we
estimate our revenues would have grown by approximately a further 5%.
Intec's principal sources of revenue in our core OSS business are from our two
major product families, Settlement (InterconnecT & InterconnecT CABS) and
Mediation/Activation (Inter-mediatE & Inter-activatE), which together account
for 81% of 2004 total revenues. Revenue for these products in 2004 was £55.7m
(2003 - £47.7m) giving organic growth of 17%.
As reported last year, in September 2003 we acquired the Digiquant business from
which we have developed a product range called Intec DCP. DCP deals with the
management and billing of next-generation services, and accounted for 10% of
revenues in 2004.
The Singl.eView product suite, acquired on 27 August 2004, accounted for 4% of
current year revenues.
Margins and Costs
Due to customer and market requirements approximately 45% of Group sales are
made in dollars whilst only 26% of the Group's total costs are in dollars.
Intec's principal exposure to foreign currency lies in translation risk when the
net results and net assets of overseas subsidiaries are translated into
Sterling.
The movements in average exchange rates during the period have reduced reported
costs by approximately £1.7 million. With an estimated reduction in reported
revenues of £3.4 million the net impact at the EBITDA level is estimated to be a
reduction of £1.7m.
Gross margin has improved to 72 % (2003: 70%). This has been achieved by an
increased proportion of licence sales and volume upgrades in the year, combined
with improved margins on support & maintenance and professional services.
Distribution costs of £13.1 million increased by £4.3 million compared to last
year's costs of £8.8 million. Of this £3.3 million relates to new spend arising
from the Digiquant and Single.View acquisitions. The remaining increase of £1.0
million is in line with increased sales revenue.
Development costs of £11.5 million have increased by £1.4 million compared to
last year's costs of £10.1 million. An increase of £1.6 million is directly
attributable to the acquisitions noted above. We have been able to reduce our
spend on the core Intec products by £0.2 million as a result of successful new
releases of these products early in the year. Other administrative expenses of
£16.6 million have increased by £5.2 million compared to last year's cost of
£11.4 million, with £3.7 million attributable to acquisitions. The remaining
£1.5 million has been incurred in supporting revenue growth.
Earnings
Earnings performance in 2004 has significantly improved compared to 2003. This
has been achieved through a combination of revenue growth and careful cost
management. As such, Intec has been able to deliver EBITDA before exceptional
items of £10.7 million (2003: £7.2 million), an increase of 48% despite the
impact of the weakening dollar and the 'turn around' challenge of the formerly
loss-making Digiquant business. Adjusted earnings per share were 3.57p per
ordinary share (2003: 2.17p). We are pleased to report an adjusted profit before
tax (after exceptionals) of £7.6 million compared to £5.4 million in 2003, an
increase of 41%. The FRS 3 loss after tax and amortisation is £1.7 million
(2003: Loss of £3.0 million)
Exceptional Items
During the period Intec incurred exceptional expenditure of a non operational
nature of £0.7 million; these costs are in connection with abortive acquisitions
£0.2 million and integration and restructuring costs of £0.5 million.
Taxation
The major trading companies in the Group have not incurred corporate tax
liabilities. The US operations have substantial ongoing tax benefits arising
from goodwill allowances which will continue to reduce tax charges against
profits in future periods. In addition, there are significant losses brought
forward in the US, Canada, Denmark and Ireland. However, we have incurred
corporate taxation in a number of our smaller overseas trading subsidiaries and
branches amounting to £0.4 million (2003: £0.5 million), offset by a tax credit
of £0.4 million (2003: £0.1 million charge) in respect of previous years. The
remainder of the tax charge is in respect of withholding tax, which is deducted
at source in certain jurisdictions and which we cannot recover, amounting to
£0.6 million (2003: £0.4 million). This has resulted in an overall tax charge of
£0.6million (2003: £1.3 million).
Cash Flows and Financial Position
We are pleased to report a positive operating cash inflow of £4.6 million.
Whilst this is lower than the 2003 cash inflow of £8.5 million it is not
unexpected due to the increased working capital requirements arising from larger
long term projects. We have continued our focus on improving our trade debtors'
collections and as a result have achieved an improvement in the annualised
debtor-days ratio of 88 days compared to 92 days at 30 September 2003.
Overall our cash resources increased by £16.9 million from £15.3 million at the
start of the year to £32.2 million at 30 September 2004. A large proportion of
this increase arose from a net inflow of £13.9 million raised through the
Placing and Open Offer associated with the Singl.eView transaction.
Our cash and cash equivalents of £32.2 million are more than sufficient to meet
the Group's current operating requirements. A significant proportion of our
liquid funds are invested in a cash fund to spread risk and improve yields.
Acquisitions
Intec has a well-developed strategy and process for business expansion through
both organic development and carefully-evaluated and managed acquisitions. The
following progress review considers acquisitions made during the 2004 financial
year and provides an update on the 2003 acquisition of Digiquant A/S.
Digiquant A/S
As previously reported, on 17 September 2003, Intec acquired Danish company
Digiquant A/S.
During 2004 the provisional fair values disclosed in the prior year financial
statements have been finalised and are detailed in Note 3 to the Financial
Statements.
Singl.eView
On 27 August 2004, Intec acquired the 'Singl.eView' retail billing software
division from ADC Telecommunications Inc. The total consideration, settled in
cash, amounted to US$74.5 million (£40.6 million) plus acquisition costs of £1.9
million. Of the $74.5 million, $71 million was raised through a vendor placing
of 60.4 million Intec shares to an existing shareholder, General Atlantic
Partners, and its related entities. The remaining $3.5 million was funded from
Intec's own cash reserves. As part of the acquisition process, Intec also
conducted a Placing and Open Offer of 31.2 million shares, raising net proceeds
of £17.1 million after issue costs.
In the post acquisition period, Singl.eView contributed £3 million to revenue
and an operating loss of £0.9 million after goodwill amortisation of £0.7
million. Singl.eView currently has 610 staff based primarily in Australia,
Canada and Ireland. Intec has a detailed integration plan in respect of
Singl.eView and has made significant progress in implementing this plan in the
period since acquisition.
Accounting policy adjustments and provisional fair values have been made in
respect of this acquisition as detailed in Note 3 to the accounts. We expect
that there will be adjustments to these provisional fair values in the future as
we work through the contracts inherited at the time of acquisition.
John Arbuthnott FCMA
Finance Director
29 November 2004
INTEC TELECOM SYSTEMS PLC
FINANCIAL HIGHLIGHTS
For the year ended 30 September 2004
2004 2003 %
Note £000 £000 change
Revenue 68,828 50,673 36%
Adjusted profit before tax (i) 8,277 5,390 54%
Loss before tax (i) (1,187) (1,780) (33%)
EBITDA before exceptional items (ii) 10,667 7,222 48%
Operating loss (1,369) (1,914)
Basic loss per share (0.80p) (1.59p)
Adjusted earnings per share (iii) 3.57p 2.17p 65%
Notes to the Financial Highlights £000 £000
(i) Loss before tax (1,187) (1,780)
Amortisation of goodwill and other intangibles 8,762 7,170
Exceptional administrative expenses 702 -
Adjusted profit before tax 8,277 5,390
(ii) Adjusted profit before tax 8,277 5,390
Net interest income (182) (134)
Depreciation 2,572 1,966
EBITDA before exceptional items 10,667 7,222
(iii) Adjusted earnings per share calculation based on
the following adjusted earnings after tax:
Loss after tax (1,737) (3,042)
Amortisation of goodwill and other intangible assets 8,762 7,170
Exceptional administrative expenses 702 -
Adjusted earnings after tax 7,727 4,128
KEY CUSTOMER DATA 2004 2003*
No. No.
Cumulative:
Contracted customer base 417 365 14%
Contracted customers from current year acquisitions 48 -
Total contracted customer base 465 365 27%
Cumulative:
Contracted installations 601 526 14%
Contracted installations from current year acquisitions 67 -
Total contracted installation base 668 526 27%
* Prior year information is shown net of adjustments following a redefinition of
the criteria for recognising a new customer/installation and in recognition of
customer consolidations in the market place.
INTEC TELECOM SYSTEMS PLC
CONSOLIDATED PROFIT AND LOSS ACCOUNT
For the year ended 30 September 2004
Before Exceptionals
exceptionals and
and Intangible
intangible amortisation
amortisation (note 2) Total Total
2004 2004 2004 2003
Note £000 £000 £000 £000
TURNOVER
Continuing operations 65,774 65,774 50,673
Acquisitions 3,054 3,054 -
Total turnover 2,4 68,828 68,828 50,673
Cost of sales 4 (19,550) (19,550) (15,172)
Gross profit 49,278 49,278 35,501
Distribution costs 4 (13,068) (13,068) (8,784)
Administrative expenses:
Development expenditure (11,494) - (11,494) (10,073)
Amortisation of goodwill and other intangible assets 7 - (8,762) (8,762) (7,170)
Exceptional administrative expenses - (702) (702) -
Other administrative expenses 4 (16,621) - (16,621) (11,388)
Total administrative expenses 4 (28,115) (9,464) (37,579) (28,631)
OPERATING LOSS
Continuing operations 8,059 (8,480) (421) (1,914)
Acquisitions 36 (984) (948) -
Group operating loss 4,5 8,095 (9,464) (1,369) (1,914)
Interest receivable and similar income 287 - 287 340
Interest payable and similar charges (105) - (105) (206)
LOSS ON ORDINARY ACTIVITIES
BEFORE TAXATION 2 8,277 (9,464) (1,187) (1,780)
Tax charge on loss on ordinary activities 5 (550) - (550) (1,262)
LOSS ON ORDINARY ACTIVITIES AFTER
TAXATION AND RETAINED LOSS FOR THE
FINANCIAL YEAR TRANSFERRED FROM
RESERVES 13 7,727 (9,464) (1,737) (3,042)
Adjusted Basic Basic
Earnings/(loss) per share - diluted 6 3.57p (4.37p) (0.80p) (1.59p)
INTEC TELECOM SYSTEMS PLC
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
For the year ended 30 September 2004
2004 2003
£000 £000
LOSS FOR THE FINANCIAL YEAR (1,737) (3,042)
Exchange translation differences arising on foreign currency net investments (868) (278)
TOTAL RECOGNISED GAINS AND LOSSES IN THE YEAR (2,605) (3,320)
RECONCILIATION OF MOVEMENTS IN CONSOLIDATED SHAREHOLDERS'
FUNDS
For the year ended 30 September 2004
Restated
(see note 1)
2004 2003
£000 £000
Loss for the financial year (1,737) (3,042)
Other recognised gains and losses relating to the year (868) (278)
Issue of share capital net of associated expenses 55,316 6,727
Other reserve (236) 236
Increase in shareholders' funds 52,475 3,643
Opening shareholders' funds 89,755 86,112
Closing shareholders' funds 142,230 89,755
INTEC TELECOM SYSTEMS PLC
CONSOLIDATED BALANCE SHEET
30 September 2004
Restated
(see note 1)
2004 2003
Note £000 £000
FIXED ASSETS
Intangible assets 7 103,459 69,106
Tangible assets 7,530 4,400
Investments 6 6
110,995 73,512
CURRENT ASSETS
Stocks - 3
Debtors 8 40,634 22,648
Investments 3,966 5,616
Cash at bank and in hand 28,216 9,724
72,816 37,991
CREDITORS: amounts falling due within one year 9 (8,962) (6,996)
NET CURRENT ASSETS 63,854 30,995
TOTAL ASSETS LESS CURRENT LIABILITIES 174,849 104,507
CREDITORS: amounts falling due after more than one year 10 (2,817) (69)
PROVISIONS FOR LIABILITIES AND CHARGES 11 (3,403) (2,050)
ACCRUALS AND DEFERRED INCOME 12 (26,399) (12,633)
TOTAL NET ASSETS 142,230 89,755
CAPITAL AND RESERVES
Called up share capital 13 2,998 2,066
Share premium account 13 160,462 238,697
Own shares 13 (95) (95)
Merger reserve 13 6,768 6,768
Other reserve 13 - 236
Foreign exchange reserve 13 (1,854) (986)
Profit and loss account 13 (26,049) (156,931)
EQUITY SHAREHOLDERS' FUNDS 142,230 89,755
INTEC TELECOM SYSTEMS PLC
CONSOLIDATED CASH FLOW STATEMENT
Year ended 30 September 2004
2004 2003
Note £000 £000
Net cash inflow from operating activities (i) 4,595 8,537
Returns on investments and servicing of finance
Interest received 288 340
Interest paid and similar items (83) (79)
Interest element of finance lease rental payments (23) -
182 261
Taxation
Overseas taxation paid (1,123) (898)
Capital expenditure and financial investment
Payments to acquire tangible fixed assets (2,367) (2,056)
Proceeds on disposal of fixed assets - 49
(2,367) (2,007)
Acquisitions
Investment in subsidiaries 3(c) (42,567) (3,694)
Net cash acquired with subsidiaries 1,354 505
(41,213) (3,189)
Cash (outflow)/inflow before management of liquid resources
and financing (39,926) 2,704
Management of liquid resources
Decrease/(increase) in cash investments/term deposits 1,652 (459)
Financing
Issue of ordinary share capital 56,840 59
Share issue costs charged to the share premium account (1,760) (11)
Loan (note 16) 2,223 (720)
Capital element of finance lease payments (152) -
Increase in cash in the year (ii),(iii) 18,877 1,573
INTEC TELECOM SYSTEMS PLC
NOTES TO THE CASH FLOW STATEMENT
Year ended 30 September 2004
(i) RECONCILIATION OF OPERATING LOSS TO NET CASH IN FLOW FROM OPERATING ACTIVITIES
2004 2003
£000 £000
Operating loss (1,369) (1,914)
Depreciation 2,572 1,966
Amortisation of goodwill and other intangible assets 8,762 7,170
Loss/(gain) on disposal of fixed assets 45 (5)
Decrease in stock - 61
Increase in debtors (6,300) (894)
Increase in creditors 885 2,153
Net cash inflow from operating activities 4,595 8,537
(ii) RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS
2004 2003
£000 £000
Increase in cash in the year 18,877 1,573
Net cash outflow from increase in net debt and finance lease (2,071) -
Net cash inflow from decrease in debt acquired with subsidiary - 720
Net cash (outflow)/inflow from increase in liquid resources (1,652) 459
Change in net funds resulting from cash flows 15,154 2,752
New finance leases (201) -
Finance leases acquired with subsidiary - (210)
Debt acquired with subsidiary - (720)
Translation differences (383) 1
Movement in net funds 14,570 1,823
Net funds at 1 October 15,130 13,307
Net funds at 30 September 29,700 15,130
(iii) ANALYSIS OF MOVEMENT IN NET FUNDS
30 September Other non Foreign
2003 cash Exchange 30 September
£000 Cash flow transactions translation 2004
£000 £000 £000 £000
Cash in hand and at bank 9,724 18,877 - (385) 28,216
Finance leases (210) 152 (201) - (259)
Debt due after one year - (2,223) - - (2,223)
Current asset investments 5,616 (1,652) - 2 3,966
Total 15,130 15,154 (201) (383) 29,700
(iv) ACQUISITION CASH FLOWS
The Singl.eView acquisition contributed £818,000 to the Group's net operating
cash flow, paid £2,000 in respect of net returns on investment and servicing of
finance, £16,000 in respect of taxation and paid £192,000 in respect of capital
investment in fixed assets.
INTEC TELECOM SYSTEMS PLC
NOTES TO THE FINANCIAL INFORMATION
1. 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
2004 or 2003, but is derived from those accounts. Statutory accounts for 2003
have been delivered to the Registrar of Companies and those for 2004 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.
In accordance with UITF Abstract 38, own shares held through the ESOT (Employee
Share Option Trust) have been deducted in arriving at shareholders' funds. The
change is retrospective and the comparative consolidated balance sheet has been
restated to reflect a reclassification of the investment in own shares from
Fixed Asset Investments to Equity Shareholders' Funds. This resulted in a
reduction of net assets and equity shareholders' funds of £95,000.
The preliminary announcement was approved by the Board of Directors on 29
November 2004.
2. TURNOVER AND SEGMENTAL REPORTING
Geographic areas - analysis by origin
Gross turnover Inter-segment turnover Total turnover
2004 2003 2004 2003 2004 2003
£000 £000 £000 £000 £000 £000
Turnover
United Kingdom 32,670 25,965 (1,849) (576) 30,821 25,389
Continental Europe 5,889 612 - - 5,889 612
Africa 266 765 - - 266 765
Asia-Pacific 2,126 549 - - 2,126 549
North America and Canada 29,600 23,528 (1,964) (1,857) 27,636 21,671
South America 2,090 1,687 - - 2,090 1,687
72,641 53,106 (3,813) (2,433) 68,828 50,673
Geographic markets - analysis by destination
Turnover by destination
2004 2003
£000 £000
United Kingdom 7,280 5,135
Continental Europe 11,030 10,979
Eastern Europe 4,599 2,902
Middle East 633 1,077
Africa 7,451 1,670
Europe, Middle East and Africa (EMEA) 30,993 21,763
Asia-Pacific 9,090 6,621
North America and Canada 20,756 15,538
Caribbean and Latin America 7,989 6,751
68,828 50,673
Turnover by type
Turnover by activity is set out below.
Turnover by activity
2004 2003
£000 £000
Licence Sales 19,123 11,635
Professional services income:
Implementation, migration, consulting and training 17,499 11,620
Hardware 466 113
Non-Telecom - custom network solutions 1,651 2,052
19,616 13,785
Recurring income:
ASP Service 4,337 3,532
Volume upgrade licences 4,320 3,442
Support and maintenance fees 21,432 18,279
30,089 25,253
68,828 50,673
Loss before taxation
Before After
amortisation Amortisation of Exceptional amortisation of
of goodwill and administrative goodwill and
goodwill and other expenses exceptional items
exceptional intangibles £000 £000
Year ended 30 September 2004 items £000
£000
United Kingdom 1,263 (1,402) (455) (594)
Continental Europe (363) (2,849) (247) (3,459)
Africa 240 - - 240
Asia-Pacific 55 - - 55
North America & Canada 7,216 (4,511) - 2,705
Caribbean and Latin America (134) - - (134)
Profit/(loss) before taxation 8,277 (8,762) (702) (1,187)
Exceptional administrative expenses comprise abortive acquisition costs of
£173,000 and integration costs incurred during the period of £529,000.
Before After
amortisation of Amortisation of Exceptional amortisation of
goodwill and goodwill and Administrative goodwill and
exceptional other expenses exceptional
items intangibles £000 items
Year ended 30 September 2003 £000 £000 £000
United Kingdom 2,528 (2,574) - (46)
Rest of Europe 384 (69) - 315
Asia-Pacific 660 - - 660
Africa 594 - - 594
North America & Canada 710 (4,527) - (3,817)
Caribbean and Latin America 514 - - 514
Profit/(loss) before taxation 5,390 (7,170) - (1,780)
Excluding Including
unamortised Unamortised unamortised
goodwill goodwill goodwill
2004 2004 2004 2003
Net assets £000 £000 £000 £000
United Kingdom 22,470 1,823 24,293 13,283
Rest of Europe 4,814 49,979 54,793 11,107
Africa 208 - 208 (219)
Asia-Pacific (5) - (5) (16)
North America and Canada 11,796 50,599 62,395 65,186
Caribbean and Latin America 546 - 546 414
Net assets 39,829 102,401 142,230 89,755
It is neither practicable nor meaningful to allocate either profit before
taxation or net assets by client location or activity.
3. ACQUISITIONS
a) Current year acquisitions -Singl.eView
On 27 August 2004, the Group acquired the 'Singl.eView'' retail billing software
division from ADC Telecommunications, Inc.. The total consideration, settled in
cash, amounted to US$74.5 million (£40.6 million) plus acquisition costs of £1.9
million.
Goodwill arising on acquisition has been capitalised and is being amortised over
five years from the date of acquisition. Goodwill charged in the period amounts
to £702,000.
Alignment of
Net assets at date of acquisition Net book accounting Fair value Provisional
and provisional fair value value policies adjustments fair value
£000 £000 £000 £000
Intangible fixed assets 2,724 (2,724) - -
Tangible fixed assets 2,562 - - 2,562
Debtors 6,372 6,096 - 12,468
Cash 1,354 - - 1,354
Deferred tax 125 (125) - -
Deferred income (5,519) (4,653) - (10,172)
Creditors due within one year (2,876) (1,132) - (4,008)
Provisions due within one year (1,223) - (681) (1,904)
Net assets acquired 3,519 (2,538) (681) 300
Goodwill arising on acquisition 42,160
42,460
Consideration paid in cash 40,559
Acquisition costs 1,901
42,460
The accounting policy alignments principally represent:
a) adjustments in respect of revenue recognition on contracts in progress
so that amounts previously recognised or deferred under US GAAP are now
recognised under a percentage of completion basis, subject to appropriate
deferrals of revenue where significant contractual performance obligations have
yet to be met;
b) treatment of deferred tax and balance sheet presentation with the
requirements of UK generally accepted accounting principles.
The fair value adjustments represent:
a) the estimated cost of completing certain onerous fixed price contracts;
A number of long term contracts acquired are in progress, and where appropriate,
provisional fair value adjustments have been made.
b) estimated costs to complete certain ongoing legal matters;
c) estimated provisions for losses on onerous leases.
The provisional fair value adjustments will be reviewed regularly during the
forthcoming financial year.
The results of Singl.eView for the period from 1 November 2003 up to the
acquisition date and the prior financial year are disclosed on the following
page.
Period from
1 November
2003 Year ended
to 31 October
27 August 2003
2004
£000 £000
Turnover 30,989 53,847
'Exceptional' items:
Restructuring costs 4,576 2,414
Termination of operation 1,979 -
Loss on sale of asset 122 -
Onerous leases - 2,196
Fixed asset write-down - 275
Other - 10
Operating loss (14,942) (18,138)
Amounts written off investments - (8,744)
Interest (316) 311
Loss before taxation (15,258) (26,571)
Taxation (137) 1,883
Loss after taxation (15,395) (24,688)
b) Prior year acquisitions
Digiquant A/S
As disclosed in the 2003 annual report, the Group acquired Digiquant A/S in
September 2003. Following a review of the fair value of the recorded assets and
liabilities a number of fair value adjustments were identified. The fair value
adjustments on the acquisition of Digiquant A/S relate to the recovery of bad
debts, the cost of completing certain fixed price contracts and the reversal of
accruals no longer required. Accordingly a revised fair value table is
disclosed below:
Fair value table
Alignment
Net book of
Net liabilities at date of acquisition value at Accounting Fair value Fair value
and provisional fair value acquisition policies adjustments to Group
£000 £000 £000 £000
Tangible fixed assets 1,076 - - 1,076
Debtors 3,172 - (192) 2,980
Long term deposits 595 - - 595
Cash 505 - - 505
Creditors (amounts falling due within one year) (3,482) - - (3,482)
Creditors (amounts falling due after one year) (141) - - (141)
Provisions for liabilities and charges (2,074) - (1,129) (3,203)
Accruals and deferred income (2,596) - 370 (2,226)
Net liabilities acquired (2,945) - (951) (3,896)
Goodwill arising on acquisition 10,738
6,842
Consideration paid in shares 6,679
Acquisition costs 163
6,842
c) Reconciliation to cash flow statement
£000
Consideration for Singl.eView 40,559
Acquisition costs 1,901
Deferred consideration payments on prior period acquisition 107
42,567
4. ANALYSIS OF CONTINUING OPERATIONS AND ACQUISITIONS
Year ended 30 September 2004
Continuing Acquisitions Total
£000 £000 £000
TURNOVER 65,774 3,054 68,828
Cost of sales (17,960) (1,590) (19,550)
GROSS PROFIT 47,814 1,464 49,278
Distribution costs (12,771) (297) (13,068)
Development expenditure (11,239) (255) (11,494)
Amortisation of goodwill and other intangibles (8,060) (702) (8,762)
Exceptional items (420) (282) (702)
Other administrative expenses (15,745) (876) (16,621)
Total administrative expenses (35,464) (2,115) (37,579)
Operating profit before goodwill and other 8,059 36 8,095
intangibles
Exceptional items (420) (282) (702)
Amortisation of goodwill and other intangibles (8,060) (702) (8,762)
Total operating loss after goodwill (421) (948) (1,369)
5. TAX ON LOSS ON ORDINARY ACTIVITIES
2004 2003
£000 £000
Current taxation:
UK corporation tax at 30% (2003: 30%) - 555
Overseas taxation 875 974
Prior year adjustment (305) (127)
Total current tax 570 1,402
Deferred taxation:
Origination and reversal of timing differences (20) (140)
Tax on loss on ordinary activities 550 1,262
The standard rate of current tax for the year is 30% (2003: 30%), based on the
UK Corporation tax rate, since the largest source of the Group's revenues is in
the UK.
6. (LOSS)/EARNINGS PER ORDINARY SHARE
2004 2003
£000 £000
Basic and diluted loss (1,737) (3,042)
Amortisation of goodwill and other intangible assets 8,762 7,170
Exceptional items 702 -
Adjusted earnings after tax 7,727 4,128
Number Number
Basic and diluted weighted average number of shares 216,147,912 190,889,194
Pence Pence
Basic and diluted loss per ordinary share (0.80) (1.59)
Amortisation of goodwill and other intangible assets 4.05 3.76
Exceptional items 0.32 -
Adjusted earnings per ordinary share 3.57 2.17
For the year ended 30 September 2004 and the year ended 30 September 2003, none
of the potential ordinary shares (including Company share options) are dilutive
and therefore they are excluded from the calculation of diluted loss per share.
Adjusted earnings per ordinary share has been calculated and disclosed above as
the Directors consider it gives a more comparable indication of underlying
trading performance.
7. INTANGIBLE ASSETS
Intellectual
Property
Rights Goodwill Total
£000 £000 £000
Cost
At 1 October 2003 2,022 230,969 232,991
Additions - 43,119 43,119
Translation differences (11) - (11)
At 30 September 2004 2,011 274,088 276,099
Accumulated amortisation
At 1 October 2003 754 163,131 163,885
Amortisation 206 8,556 8,762
Translation differences (7) - (7)
At 30 September 2004 953 171,687 172,640
Net book value
At 30 September 2004 1,058 102,401 103,459
At 30 September 2003 1,268 67,838 69,106
Additions relates to the goodwill arising upon acquisition of the Singl.eView
business (£42,160,000), fair value adjustments arising on the prior year
acquisition of Digiquant (£951,000 - see note 3(b)) and a minor increase in the
final deferred consideration paid on the 2002 acquisition of the operational
support systems business from ICL (£8,000).
8. DEBTORS
Group Company
2004 2003 2004 2003
£000 £000 £000 £000
Trade debtors 22,532 13,815 - -
Amounts owed by subsidiary undertakings - - 44,744 28,660
Corporation tax recoverable 349 196 - -
Overseas tax recoverable 42 85 - -
Deferred tax (see Note 20) 266 240 - -
Other debtors 1,308 438 98 15
Prepayments and accrued income:
Due within one year 15,554 7,285 24 153
Due after more than one year (see note below) 583 589 - -
40,634 22,648 44,866 28,828
Accrued income is £11.5 million (2003 £5.8 million). The prepayments and accrued
income due after more than one year relate to deposits on leased properties due
after more than five years.
9. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
Group Company
2004 2003 2004 2003
£000 £000 £000 £000
Bank loans and overdrafts - 125 - -
Obligations under finance leases 128 141 - -
Trade creditors 4,946 2,233 695 163
Corporation tax 915 1,169 155 155
Overseas tax 103 625 - -
Other creditors including other taxation
and social security 2,870 2,604 70 -
Deferred/contingent consideration - 99 - -
8,962 6,996 920 318
10. CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
Group Company
2004 2003 2004 2003
£000 £000 £000 £000
Loan 2,223 - 2,223 -
Obligations under finance leases 131 69 - -
Other creditors 463 - - -
Total 2,817 69 2,223 -
Loan
On 27 August 2004, the Company completed a credit agreement between the Company
and ADC Telecommunications, Inc. upon acquisition of the Singl.eView business.
Under the credit agreement, there is a credit facility of up to $6 million,
maturing 18 months from the date of the credit agreement. $4 million was
borrowed upon completion of the acquisition. The loan attracts interest at a
variable annual rate of interest equal to the rate as published from time to
time in the Wall Street Journal, New York edition as the 'prime rate', currently
4.75%
Group Company
2004 2003 2004 2003
£000 £000 £000 £000
Maturity of obligations under finance leases
Within one year (note 15) 128 141 - -
More than one year but less than five years 131 69 - -
259 210 - -
11. PROVISIONS FOR LIABILITIES AND CHARGES
Onerous lease Other
commitments Provisions Total
Group £'000 £'000 £'000
At 1 October 2003 2,050 - 2,050
Additions 1,223 - 1,223
Fair value adjustment - 1,810 1,810
Released to profit and loss (413) (1,237) (1,650)
Exchange differences (30) - (30)
At 30 September 2004 2,830 573 3,403
Onerous lease commitments disclosed above relate to future estimated losses on
sub-let or vacant lease commitments acquired with the Digiquant and Singl.eView
businesses. Amounts provided relate to the period up to the first option to
break on a property in Denmark and properties acquired with the Singl.eView
acquisition. The first option to break for the Denmark property is in 2011 and
accordingly the provision above includes the discounted fair value of the future
losses up to this point.
Other provisions disclosed above relate to future estimated costs to complete
certain ongoing legal matters in respect of Singl.eView, a potential repayment
of a grant previously received by Singl.eView and the costs of completing
certain onerous fixed price implementation contracts. These provisions are
expected to be utilised within one year.
12. ACCRUALS AND DEFERRED INCOME
Group Company
2004 2003 2004 2003
£000 £000 £000 £000
Amounts falling due within one year
Accruals 8,939 5,924 366 294
Deferred income 17,460 6,709 - -
26,399 12,633 366 294
13. STATEMENT OF MOVEMENTS ON SHARE CAPITAL AND RESERVES
Called Share Foreign Profit
up share premium Merger Other Own exchange and loss
Group capital account reserve reserve shares reserve account Total
£000 £000 £000 £000 £000 £000 £000 £000
As at 1 October 2003 2,066 238,697 6,768 236 (95) (986) (156,931) 89,755
Issues of ordinary 932 56,144 - (236) - - - 56,840
shares
Share issue expenses - (1,760) - - - - - (1,760)
Reduction in share
premium account - (132,619) - - - - 132,619 -
Loss for the year - - - - - - (1,737) (1,737)
Foreign exchange
translation - - - - - (868) - (868)
At 30 September 2004 2,998 160,462 6,768 - (95) (1,854) (26,049) 142,230
The other reserve relates to the shares that were issued subsequent to the year
end.
Own shares are held by the Intec Employee Share Trust. The trust currently holds
270,000 shares in the Company at a cost of £2.05 each.
By special resolution, the Company reduced its share premium account from
£239,342,514.72 to £106,723,863.44 and this was confirmed by an order of the
High Court of Justice on 5 May 2004. The order was registered pursuant to
section 138 of the Act on 6 May 2004.
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