7th Jul 2005 07:00
Eckoh Technologies PLC07 July 2005 For Immediate Release 7th July 2005 Eckoh Technologies plc Preliminary announcement Eckoh Technologies ("Eckoh"), one of Europe's largest speech application serviceproviders, today announced preliminary results for the year ended 31 March 2005. Highlights of the Year 6 months ended 6 months ended Year ended Year ended 31 March 2005 30 Sept 2004 31 March 2005 31 March 2004(£'000) Turnover 40,304 39,416 79,720 62,504 Adjusted profit/(loss) before taxation* 643 241 884 (226) Loss before taxation (8,441) (970) (9,411) (1,097) Cash and short-term investments 13,296 9,083 13,296 10,239 * before intangible asset amortisation and impairment and exceptional items(note 6) Financial Highlights • Turnover from continuing operations up 32% to £79.7m (2004 - £60.2m)• Adjusted profit before taxation to £0.9m (2004 - loss £0.2m)• Loss before taxation of £9.4m (2004 - loss £1.1m)• Speech turnover up 56% to £5.0m (2004 - £3.2m)• Cash and short-term investment balances up £3.1m to £13.3m (2004 - £10.2m) Operational Highlights • Acquisition of Anglia Telecom Centres Limited for up to £10.0m• New commercial contracts with ITV, IPC Magazines, Ideal Shopping Direct, NIE and Three Valleys Water• Good trading performance in key areas of operation Martin Turner, Chief Executive Officer, commented today: "Annual turnover from continuing operations increased 32% to £79.7 million,profit before taxation (excluding goodwill charges and exceptional items) was£0.9 million and year end cash balances increased by £3.1m to £13.3 million. Despite these improvements in financial and operating performance, the Boardbelieves that Eckoh's current share price does not fully reflect the value ofits constituent businesses, and is therefore committed to pursue a strategy tounlock value for Eckoh shareholders." For further enquiries, please contact Eckoh Technologies plcMartin Turner, Chief Executive OfficerNik Philpot, Chief Operating OfficerAdam Moloney, Acting Group Finance Directorwww.eckoh.com Tel: 08701 100 700 Buchanan CommunicationsMark Edwards/Jeremy Garcia Tel: 020 7466 5000 Operating and Financial Review Group Overview The Group has seen strong growth during the year ended 31 March 2005 withturnover rising 28% to £79.7m (2004 - £62.5m) and gross profit increasing to£20.0m (2004 - £17.2m). Speech Solutions turnover rose by 56% to £5.0m (2004 -£3.2m) as a number of new corporate contracts came on stream. The Group generated a profit before taxation (excluding intangible assetamortisation, impairment and exceptional items) of £0.9m (2004 - loss £0.2m).The loss before tax for the year was £9.4m, which included £10.3m of intangibleasset amortisation and impairment charges. The loss before tax for the prioryear was £1.1m. The Group currently operates four distinct business divisions - Eckoh SpeechSolutions, Eckoh Interactive Voice Response (IVR), Symphony Telecom and InternetServices. Before the allocation of central costs, all four made a positivecontribution for the first time. The Group also saw strong cash generationduring the year, with year end cash and short-term investment balancesincreasing by £3.1m to £13.3m (2004 - £10.2m). On 29 April 2005, the Symphony Telecom Division was significantly enlarged withthe completion of the acquisition of Anglia Telecom Centres Limited ("Anglia")for cash consideration of up to £10.0m. The transaction was partly financed by£6.0m of senior debt provided by the Royal Bank of Scotland. Anglia is along-established and successful distributor of mobile phones and relatedservices to the UK SME market. Anglia's turnover for the year to 31 March 2005totalled £30.5m and it generated pre-tax profits of £1.3m. Following completionof this transaction, the directors are evaluating a number of strategic optionsfor the enlarged Symphony business. Eckoh Speech Solutions Division Eckoh is a European market leader in self-service call centre solutions usingadvanced speech recognition and related technologies. The Company has anexclusive partnership with BT to provide its top corporate customers with hostedspeech recognition services. To date this alliance has delivered 17 clients andover 20 applications. Key assets of the Speech Solutions Division include: • Call processing platform with over 6,000 speech recognition lines• Highly experienced technical delivery team• Exclusive contract with BT• Management team with a long history in designing and managing interactive services• Flexible pricing model benefiting from Eckoh's group traffic volumes Eckoh's clients utilise a multi-tenanted hosting infrastructure which ensurestheir costs remain extremely competitive whilst catering for significantvariances in call volume. Eckoh has continued to increase the capacity andcapability of this hosting platform in response to the needs of its clientportfolio and has now consolidated the infrastructure into a BT facility in StAlbans and a carrier independent facility in Heathrow. The overall capacity isnow approaching 10,000 lines - 6,000 of which have speech recognitioncapability. This makes Eckoh's speech platform one of the largest worldwide. Eckoh's speech solutions are increasingly geared towards customer self-service.This ranges from the automation of certain routine enquiries, such as branchlocation or basic information requests, which are likely to be integrated aspart of the client's overall CRM solution (as in the case of TD Waterhouse whereEckoh provide the automated share price component in a much larger CRM system),through to a full self-service solution such as the ticket-booking service Eckohbuilt and currently hosts for UGC Cinemas. The majority of Eckoh's current clients have large and predictable inboundtraffic streams, with over 60% of current revenues recurring each month, andmost clients are signed up to long-term multi-year contracts. This enables Eckohmanagement to have good visibility of future turnover and profitability. Anumber of client wins during the latter part of the year, including the contractannouncement to provide a train tracker service for National Rail Enquiries, thepower outage service for Northern Ireland Electricity and the Age Verificationcontract with O2, have yet to reach their full revenue potential. In addition,since year end further new contracts have been won, particularly in theutilities sector, with services for Three Valleys Water and NIE going livethrough the BT alliance, and a two-year contract with Ideal Shopping Direct toprovide complex data capture services. Key contracts have also been renewed withclients such as William Hill, which is a good indication that Eckoh'sproposition remains competitive and is delivering the appropriate value. Turnover for the year grew 56% to £5.0m (2004 - £3.2m) with a gross margin of53% (2004 - 53%). Direct operating expenses were £2.2m (2004 - £1.9m). Eckohmanagement intends to continue to deliver high growth rates in this area ofoperation, and is therefore increasing its sales and marketing investment inorder to maintain high levels of growth. The division has excellent operationalgearing and, provided that 50% gross margins can be maintained, further growthwill have a material impact on the Group's overall profitability. The divisionmade a positive contribution, before allocation of central costs, for the firsttime in 2005. Eckoh IVR Division The Eckoh IVR Division operates in two quite distinct markets, as follows: Advertised Services Eckoh IVR operates a variety of consumer entertainment voice and data productssuch as dating, community chat, competitions, and mobile content ("AdvertisedServices") which are available to both fixed line and mobile users. Eckoh IVRmanagement has extensive experience running such services in over 30 countriessince 1992, and whilst these are currently offered only in the UK, managementcontinues to evaluate new opportunities particularly in the area of premium SMSservices, which could include expansion back into international markets. Themajor risks in this area revolve around advertising restrictions and regulatoryissues. Where appropriate, Eckoh IVR invests its own money promoting these services onTV, radio and in print media under a number of different product brands. SinceJuly 2003 this includes L!VE TV as a flexible and low cost environment to test,promote and showcase Eckoh IVR's services. Gross margins from individualcampaigns fluctuate with advertising efficiency, which is influenced by price,seasonality, TV programming and availability. Whilst turnover from Advertised Services remained flat at £11.6m (2004 -£11.6m), gross profit increased by 25% to £5.0m (2004 - 4.0m). This illustratesthe success of a refocusing of management effort since last summer. Althoughdirect operating expenses rose to £2.3m (2004 - £2.2m), the overall performanceof the Advertised Services operation delivered a strong contribution. Client Services Eckoh IVR is one of the UK's largest IVR and SMS operators, and works with anumber of prominent media owners such as ITV, Trinity Mirror, Channel 4, IPC,EMAP, and Northcliffe Newspapers. Eckoh delivers an end-to-end interactivesolution including creation, design, development, implementation, deployment,hosting and reporting. Highlights of the period include a very successful year handling over 28 millioncalls as ITV's preferred provider of telephony services (widely regarded as thelargest contract of its type), which has resulted in a new extended contractrunning until at least August 2006; a contract to supply the Trinity Mirrorgroup of over 240 national and regional newspapers with IVR and SMS services; aone year extension from Northcliffe Newspapers for the provision of IVR and SMSservices to its southern group of titles, and an agreement with Channel 4 andCactus TV to operate the hugely successful Richard and Judy show. More recentlyEckoh IVR was awarded the highly prestigious three-year contract with theleading UK consumer publisher IPC Magazines, beginning in June 2005, to supplyIVR and SMS services to their portfolio of magazines which sell over 330 millioncopies a year. The market is highly competitive, with a handful of large, high-profile clientsperiodically putting contracts out to tender. Call handling capacity, networkresilience and responsive service support are of utmost importance to theseclients - particularly for TV-driven campaigns. However, the relative simplicityof many media and broadcast products, together with pricing transparency haveforced profit margins lower over the past year. Eckoh management has thereforefocused efforts on its most significant customers which has enabled costs to bereduced without compromising quality. The recent renewals of the ITV, Trinityand Northcliffe contracts, combined with winning IPC, suggests this strategy isalready delivering results. Eckoh is also striving to cross-sell more complex (and profitable) products andservices into this market to improve margins. For example, Eckoh provided thefirst mass use of speech recognition voting for Endemol's Music Hall of Fame onChannel 4. As an Annex II licensed telecommunications operator with its own switchednetwork, Eckoh benefits from full interconnect rates on call traffic through itsnetwork. It therefore offers wholesale network services to third parties such asnumber ranges, connectivity and hosting. While associated volumes of wholesaletraffic can be high, gross margins are typically very low with most business onshort-term or no-term contracts. While Eckoh is currently not actively pursuingwholesale business as part of a concerted marketing effort, it will continue toexploit such opportunities as and when they arise. High volumes generated by the ITV contract enabled turnover from Client Servicesto increase by 73% to £39.0m (2004 - £22.6m), with gross profit increasing to£3.4m (2004 - £2.9m). Direct operating expenses were £3.1m (2004 - £2.3m). Inresponse to falling gross margins, management undertook a review of the costbase of its IVR operation in December to ensure that the division continues togenerate a satisfactory contribution towards central costs. This review,combined with the new contract wins recently announced, should ensure that thisobjective is achieved in 2006. Looking forward, Eckoh IVR will continue toconcentrate its efforts on competing for long-term, quality media and broadcastbusiness from the major UK players. The traffic volume generated by the largemedia clients supports the buying effectiveness of the Group with major carrierssuch as BT and Cable & Wireless. Symphony Telecom Symphony Telecom occupies a mid-market position as an independenttelecommunications service provider to UK SMEs. It offers a range ofdirectly-billed voice, data and mobile products and services that can becombined into a single telecommunications solution for the end-user, and tradesunder the "Symphony" and various affiliated brands. Symphony is a reseller of both fixed line and mobile products and services aimedat corporate customers with telephony needs of approximately £3,000 annually.There are three routes to market: direct sales, seven joint ventures and adealer network of telephone system resellers located across the UK and Ireland.The fixed line business provides a range of telephony services by routingcustomer call traffic through the most efficient and cost effective network. Ithas non-exclusive supplier arrangements with a range of fixed line carriers -principally Energis, Cable & Wireless and MCI. These services include fixedvoice, data, private and ISDN circuits, wholesale line rental and non-geographicnumbers. The mobile business of Symphony is one of 9 businesses in the UK to hold ServiceProvider licenses for both Vodafone and O2, which were both secured in 2000.Under these contracts, Symphony purchases network capacity from Vodafone and O2at wholesale rates and resells a full range of retail-priced mobile services(both voice and data) to its base of around 11,000 business connections. Mobilesales now represent the fastest growing component of Symphony's productoffering, with annual turnover growth of around 23% over the last two years. Symphony's turnover was £21.0m (2004 - £20.8m) with gross profit increasing to£6.8m as a result of improved wholesale rates from network suppliers and anincreased mobile base (2004 - £6.1m). Direct operating costs increased to £5.3mfrom £4.3m reflecting the costs involved in expanding the distribution networkand strengthening the sales and management teams within Symphony. Symphonygenerated a contribution of £1.5m (2004 - £1.8m). On 29 April 2005, Symphony Telecom Holdings plc completed the acquisition ofAnglia Telecom Centres Limited from TTG Europe plc for a cash consideration ofup to £10.0m. Anglia was founded in 1984 and specialises in mobile distributionfor all five UK mobile network operators (Orange, Vodafone, O2, T-Mobile andThree). It is a registered cellular distributor for the mobile network operatorsin the UK and has national coverage through a network of approximately 280dealers. Anglia also offers fixed line telecommunication services to UK SMEs asa reseller for Energis and Opal. Anglia's turnover for the year ended 31 March2005 was £30.5m, generating a profit before tax of £1.3m. The enlarged Symphony business will occupy a unique and influential position inthe growing UK business telecommunications market by offering mobiledistribution, mobile service provision and fixed line resale. The Directors arealso of the opinion that there are significant cost savings and additionalbenefits to be realised by the integration of Anglia. These cost savings arelargely based on eliminating duplicate activities such as billing, customerservices, information technology, facilities and distribution. Additionalbenefits are expected to include complementary product lines, geographicalcoverage and a good management fit. Internet Services (Freecom.net) Freecom.net has built a successful business selling a full range ofcomplementary internet products and data services, including web-site design,e-commerce solutions, e-mail services, connectivity (dial-up and broadband),search engine submission and directory services, and hosting to SMEs. Eckohacquired Freecom.net as part of the acquisition of Intelliplus Group inSeptember 2003. Freecom.net has two routes into a fragmented SME market: direct sales, primarilytargeting second generation websites from the 10+ employee SME sector, andtelesales targeting the 1-5 employee, entry-level website sector. The headoffice (including outbound telesales) is based in Warrington, with a secondoffice in Birmingham providing all support functions. Turnover from Freecom.net was £3.2m (2004 (7 months) - £2.0m) with a grossprofit of £2.2m (2004 (7 months) - £1.4m). Direct operating expenses were £2.1m(2004 (7 months) - £1.2m). Net Operating Expenses Operating expenses include direct operating costs, amortisation and impairmentof intangible fixed assets (predominantly goodwill) and Eckoh's central costs. Direct operating costs of the four divisions increased to £15.0m (2004 - £11.9mexcluding discontinued operations) due to increased business activity across theentire Group, and the first full year impact following the acquisition ofIntelliplus in September 2003. During the year an impairment review of the goodwill relating to the acquisitionof Intelliplus was carried out. The impairment review assessed whether thecarrying value of goodwill was supported by the net present value of future cashflows derived from the business. The discounted cash flow did not support thecarrying value of goodwill and as such the goodwill has been impaired. Theimpairment charge is £7.8m. Intangible asset amortisation totalled £2.5m for theyear (2004 - £1.4m). Central costs are largely fixed in nature, and include indirect operating costs,depreciation and corporate costs. • Indirect operating expenses include the cost of Eckoh's central support functions such as finance, IT and its Hemel Hempstead head office occupation costs. These costs totalled £1.3m for the year (2004 - £1.4m). • The depreciation charge on tangible fixed assets was £1.3m (2004 - £1.3m). • Corporate costs include the Board of Directors, legal, secretarial, audit, registrar, professional advisors, insurance and other plc-related costs. These totalled £1.9m for the year (2004 - £2.0m), and were reduced in the second half of the financial year following a cost review and management changes during the summer. • Restructuring costs of £0.5m in the prior year relate to the integration of Intelliplus. Balance sheet Following the write-off of goodwill relating to Intelliplus, Eckoh'sshareholders' funds reduced to £9.0m as at 31 March 2005 (2004 - £18.4m). Netcurrent assets increased to £7.0m (2004 - £6.8m), with year end cash and shortterm investment balances increasing by £3.1m to £13.3m (2004 - £10.2m) due tocash generation from operating activities and improvements in the Group's cashcycle. Cash Flow Statement Eckoh's cash and short-term investment balances increased from £10.2m to £13.3mduring the year. The Group generated cash from its operating activities of£4.5m (2004 - £0.1m). Net capital expenditure during the year totalled £1.7m(2004 - £0.1m income), which included further development of the speech-enabledcall-processing platform, and expenditure on a new billing and customer caresystem for Symphony. Short-term investments generated £0.4m of interest (2004 -£0.4m). Cash reserves are placed on fixed term deposits in accordance with theGroup's strict treasury policy. International Financial Reporting Standards The Group expects to implement IFRS in its March 2007 financial statements. Thetransition project has commenced. Operating Loss and Net Loss The Group incurred an operating loss for the year of £9.8m (2004 - £2.5m) aftercharging £10.3m (2004 - £1.4m) of intangible asset amortisation and impairment,predominantly in relation to the Intelliplus acquisition in 2003. Excludingintangible asset amortisation and impairment and exceptional items, Eckohrecorded an operating profit of £0.5m for the year compared to an operating lossof £0.6m in 2004. The Group recorded a loss after tax of £9.4m for the year ended 31 March 2005(2004 - £1.0m), or 3.5p per share (2004 - 0.4p per share). The adjustedearnings per share was 0.3p (2004 - 0.1p loss per share). Due to the uncertaintysurrounding the future benefits of net tax losses carried forward, the Group hasnot recognised a deferred tax asset. Board changes On 25 June 2004, Brian McArthur Muscroft, Group Finance Director, resigned fromthe Board in order to take up a position elsewhere. Pending the appointment of apermanent candidate, the Group Financial Controller, Adam Moloney, has beenappointed Acting Finance Director. Peter Reynolds, a Non-Executive director, was appointed Non-Executive Chairmanfollowing the resignation of David Best on 5 July 2004. Outlook Since the start of the new financial year Eckoh has traded in line withexpectations. The Directors are confident of the financial and tradingprospects for the Group in the current financial year. They are also evaluatinga number of strategic options, and will make further announcements in duecourse. Consolidated profit and loss accountfor the year ended 31 March 2005 Year Year ended ended 31 March 31 March 2005 2004 Note unaudited audited £'000 £'000 Turnover 79,720 62,504 Continuing operations 79,720 60,189 Discontinued operations - 2,315 Cost of sales (59,675) (45,333) Gross profit 20,045 17,171Net operating expenses before intangible asset amortisation and impairment (19,533) (17,754)and restructuring costsAmortisation of intangible assets (2,539) (1,381)Impairment of intangible assets (7,756) -Restructuring costs - (489)Net operating expenses (29,828) (19,624) Operating profit/(loss) before intangible asset amortisation and 512 (583)impairment and restructuring costsContinuing operations 512 (565) Discontinued operations - (18) Operating loss (9,783) (2,453)Continuing operations (9,783) (2,435) Discontinued operations - (18) Gain on disposal of trade investment - 662Loss on closure of discontinued operation - (424)Gain on disposal of hardware services operation - 208Net interest receivable 372 357Discount on loan redemption - 553Loss on ordinary activities before taxation (9,411) (1,097) Taxation (6) 73Loss on ordinary activities after taxation (9,417) (1,024) Minority interests (23) (24)Loss for the year (9,440) (1,048) (Loss)/earnings per ordinary share 2 Basic and diluted loss per share (3.5p) (0.4p) Basic and diluted earnings/(loss) per share before intangible asset 0.3p (0.1p)amortisation and impairment and exceptional items Statement of total recognised gains and lossesfor the year ended 31 March 2005 Year Year ended ended 31 March 31 March 2005 2004 unaudited audited £'000 £'000 Loss for the year (9,440) (1,048)Exchange adjustments offset in reserves (8) 37Total recognised losses for the year (9,448) (1,011) Consolidated balance sheetas at 31 March 2005 31 March 31 March 2005 2004 unaudited audited Note £'000 £'000 Fixed assets Intangible fixed assets 918 10,422Tangible fixed assets 1,571 1,729 2,489 12,151 Current assets Stock 22 62Debtors 11,021 10,873Short term investments 7,000 6,500Cash at bank and in hand 6,296 3,739 24,339 21,174 Creditors: amounts falling due within one year (17,353) (14,405)Net current assets 6,986 6,769 Total assets less current liabilities 9,475 18,920 Creditors: amounts falling due after more than one year (65) (59) Provisions for liabilities and charges (152) (454) Net assets 9,258 18,407 Capital and reserves 3Called up share capital 679 678Share premium account 147 122Merger reserve - 6,734Profit and loss account 8,125 10,839Total equity shareholders' funds 4 8,951 18,373 Minority interests 307 34 Capital employed 9,258 18,407 Consolidated cash flow statementfor the year ended 31 March 2005 Year Year ended ended 31 March 31 March 2005 2004 unaudited audited Note £'000 £'000 Net cash inflow from operating activities 5 4,475 138 Return on investments and servicing of financeNet interest 372 357 Taxation - 87 Capital expenditure and financial investmentPurchase of tangible fixed assets (1,167) (482)Expenditure on intangible fixed assets (540) (57)Disposal of trade investment - 662 (1,707) 123 Acquisitions and disposals Purchase of subsidiary undertaking - (616)Net cash acquired with subsidiary undertakings - 149 - (467) Cash inflow before use of liquid resources and financing 3,140 238 Management of liquid resources(Increase)/decrease in short-term investments (500) 3,010 FinancingIssue of shares 26 126Loan repayments (80) (2,071)Capital element of finance lease payments (29) (39) (83) (1,984) Increase in cash in the year 2,557 1,264 Notes to the preliminary results 1. Basis of preparation The financial statements for the year ended 31 March 2005 have been prepared using accounting policies consistent with those set out in the Company's consolidated 2004 statutory accounts. These statements do not constitute statutory accounts within the meaning of section 240 of the Companies Act 1985 and are unaudited. The balances and results as at 31 March 2004 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 preliminary results for the year ended 31 March 2005 were approved by the Board on 6 July 2005 and will be posted on the Company's web site, www.eckoh.com, on 7 July 2005. 2. (Loss)/earnings per ordinary share of 0.25p each Year Year ended ended 31 March 31 March 2005 2004 £'000 £'000 Profit/(loss) for the year before the following: 855 (177)Intangible asset amortisation and impairment (10,295) (1,381)Restructuring costs - (489)Loss on closure of discontinued operation - (424)Gain on disposal of hardware services operation - 208Discount on loan redemption - 553Gain on disposal of trade investment - 662Loss for the year (9,440) (1,048) Weighted average number of shares in the year:Basic and diluted 271,226,435 237,801,055 The dilutive effect of share options in issue and shares to be issued is notmaterial enough to impact on the disclosed earnings per share for the year ended31 March 2005. In addition no dilution of losses per share will arise due tolosses in the year. 3. Share capital and reserves Ordinary Share Profit share premium Merger and loss capital account reserve account £'000 £'000 £'000 £'000 At 1 April 2004 678 122 6,734 10,839Loss for the year - - - (9,440)Net exchange adjustments - - - (8)Shares issued under the share option schemes 1 25 - -Realisation of merger reserve - - (6,734) 6,734At 31 March 2005 679 147 - 8,125 4. Reconciliation of movement in equity shareholders' funds Year Year ended ended 31 March 31 March 2005 2004 £'000 £'000Opening equity shareholders' funds 18,373 11,589Loss for the year (9,440) (1,048)Share consideration for acquisition of subsidiary undertaking - 7,707Net movement in contingent share consideration - (38)Employee share options exercised 26 126Exchange adjustments offset in reserves (8) 37Closing equity shareholders' funds 8,951 18,373 5. Net cash inflow from operating activities Year Year ended ended 31 March 31 March 2005 2004 Operating loss (9,783) (2,453)Depreciation of tangible fixed assets 1,319 1,339Amortisation and impairment of intangible fixed assets 10,295 1,381Decrease in stock 40 625(Increase)/decrease in debtors (148) 598Increase/(decrease) in creditors/provisions 2,745 (1,412)Loss on disposal of tangible fixed assets 7 60 4,475 138 6. Adjusted profit/(loss) before taxation Year Year ended ended 31 March 31 March 2005 2004 Loss before taxation (9,411) (1,097) Adjust for:Amortisation of intangible fixed assets 2,539 1,381Impairment of intangible fixed assets 7,756 -Restructuring costs - 489Gain on disposal of trade investment - (662)Loss on closure of discontinued operation - 424Gain on disposal of hardware services operation - (208)Adjusted profit/(loss) before taxation - (553) 884 (226) This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Eckoh Technologies