Half Yearly Report

28 March 2013

Artilium plc

("Artilium" or the "Company")

Interim results for the six months ended 31 December 2012

Artilium Plc., the AIM quoted provider of innovative telecommunication software and solutions, shows strong positive half year results at the end of 2012 with an EBITDA of € 0.475 million up from a loss of € 1 million over the same period in fiscal 2011 led by an increase in sales of its software, cost savings and integration of United Telecom, acquired in 2012.

Artilium plc (LSE/AIM: ARTA), the AIM quoted provider of innovative telecommunication software and solutions, announces its unaudited interim results for the six months ended 31 December 2012.

Financial Highlights

§ Revenue for the six months to 31 December 2012 was € 5.7 million (2011: € 1.5 million)

§ Operating profit (before interest, tax, depreciation and amortisation) EBITDA of about€ 0.5 million (2011: Operating loss of € 1.0 million)

§ Small positive net profit after tax (2011: loss of € 1.2 million)

§ United Telecom, which was acquired at the beginning of the period, signed a new 5 year re-sale contract for mobile traffic with KPN Group Belgium

 Commenting on the results, Patrick Morley, Non-Executive Chairman of Artilium said: 

"While the current market conditions in the telecom market are very difficult because of macro-economic effects, increasing competition and price pressure, I am very pleased with Artilium's performance.

The on-going innovation of the Patented Technology that is being produced by Artilium is a unique basis for its commercial success.

In the last six months Artilium has realized a major step in the financial and operational turn-around compared to previous periods. With the structural steps now taken, the foundation has been laid to realize the next steps for further improvement and growth."

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Chief Executive's Statement

Introduction

During the past half year we focussed on operational excellence in particular in relation to the level of service delivery towards our existing managed services customers. Improvements have led to increased customer satisfaction and an increase in customer orders.

For the United Telecom retail customer base, we have focussed on negotiating improved conditions for the delivery of our voice, broadband and mobile offerings for our consumer market. The recent renewal of the mobile traffic re-sale contract with KPN Group Belgium allows United Telecom, a 100% Artilium subsidiary, to provide services to its customers on a cost efficient basis. These will mostly show their impact in the second half of the current financial year.

The internal Artilium organisation has been streamlined and strengthened. With its current customer focus it is ready to absorb an increased number of ARTA software releases. This process also led to cost-savings and further optimization is currently being implemented.

Managed services for our own MVNO* and MVNE* customers are now been delivered on the latest version of the ARTA software. Thus, the latest functionalities and bundle capabilities are available to be delivered to the United Telecom end-customers. An uptake of these enhanced services is expected in the second half of the current financial year.

The sales organisation has been extended, leading to an increased number of national and international opportunities in our sales pipeline. The number of Location Based Service ("LBS") pilots has increased and we notice an increasing interest for our LBS products.

Discussions with the payments transaction processor SmartConcepts, which were announced in November 2012, are still ongoing. While an operational co-operation has been realised for one of our customers we are extensively and carefully investigating different options to co-operate.

The recent focus of the enlarged group has been on improving customer service and service delivery. The second stage will be centred around accelerating growth and securing further efficiency improvements.

I am pleased that with a good team effort at both board and management levels we have been able to start fixing the basics and I believe that with our team we can now grow the Artilium businesses.

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*Mobile Virtual Network Operator and Mobile Virtual Network Enabler

Financial Results

Reported revenue for the six months to 31 December 2012 of €5.7 million (2011: €1.5 million) was generated primarily from maintenance and professional services rendered to existing customers and by United Telecom fixed calling, broadband services and mobile services. The Company generated a gross profit of €4.2 million or 73.8% of reported revenue (2011: €1.1 million or 69.9% of reported revenue) and generated an operating profit (before interest, tax, depreciation) of about €0.5 million (2011: operating loss of €1.0 million), inclusive of administrative expenses of €3.7 million (2011: €2.1 million).

The company generated a positive net result of €9,000 (2011: loss of € 1.2 million).

The main drivers for these improved results are, as stated earlier, the improved efficiency of the Artilium organisation combined with the full effect of the new contract conditions with KPN (as of 19 March 2012, but now for the first time in a full half year) and the effect of the acquisition of United Telecom.

Outlook

Management is now focussed on enlarging the customer base for managed services that we can deliver with the ARTA software. Although current macro-economic conditions remain difficult, we believe that the ARTA platform, with its high performance IT engine at low-cost, is a unique asset. The ARTA platform drew a lot of attention at the Mobile World Congress in Barcelona. Management is confident that current discussion with its prospects will grow the Artilium business.

With United Telecom, we have procured a range of new tariffs that will be attractive for consumers in the Belgian market.

* * * * *

ARTILIUM PLC

HALF-YEARLY FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 31 DECEMBER 2012

CONDENSED CONSOLIDATED INCOME STATEMENT

ARTILIUM PLC

HALF-YEARLY FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 31 DECEMBER 2012

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

ARTILIUM PLC

HALF-YEARLY FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 31 DECEMBER 2012

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Continued)

ARTILIUM PLC

HALF-YEARLY FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 31 DECEMBER 2012

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

ARTILIUM PLC

HALF-YEARLY FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 31 DECEMBER 2012

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

ARTILIUM PLC

HALF-YEARLY FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 31 DECEMBER 2012

NOTES TO THE CONDENSED CONSOLIDATED HALF-YEARLY FINANCIAL STATEMENTS

1. Nature of operations and general information

Artilium plc and its subsidiaries (together 'the group') operates in the business to business communications sector delivering innovative software solutions which layer seamlessly over disparate fixed, mobile and IP networks to enable the deployment of converged services and applications. Artilium plc is incorporated and domiciled in the United Kingdom. The address of its registered office is Citypoint, One Ropemaker Street, London EC2Y 9AW. The Group's principle place of business is Belgium.

Artilium's condensed consolidated interim financial statements are presented in round thousand Euro's because that is the principal currency the Group operates in. These condensed consolidated interim financial statements have been approved for issue by the directors on 28 March 2013. The financial information for the year ended 30 June 2012 set out in this interim report does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. The Group's statutory financial statements for the year ended 30 June 2012 have been filed with the Registrar of Companies.

2. Basis of preparation

These unaudited condensed consolidated interim financial statements have been prepared in accordance with IAS 34 - Interim Financial Reporting. They do not include all of the information required for full annual financial statements, and should be read in conjunction with the 30 June 2012 annual consolidated financial statements. These condensed consolidated interim financial statements have been prepared in accordance with the accounting policies adopted in the last financial statements for the year ended 30 June 2012.

Basis of consolidation

The consolidated financial statements incorporate the financial statements of Artilium plc ('the Group') and the entities controlled by the Company (together 'the Group'). Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities.

All intra-group transactions, balances, income and expenses are eliminated on consolidation.

The accounting policies have been applied consistently throughout the group for the purposes of preparation of these condensed consolidated interim financial statements. 

Going concern

The Directors have adopted the going concern basis in preparing the condensed consolidated interim financial statements, having carried out a going concern review. In carrying out the review the Directors have made assumptions about the revenue that will be generated to June 2014 based on its pipeline.

United Telecom NV

The directors have prepared and reviewed cash flow forecasts to April 2014. Due to the nature of the Company's customer base, contracted income and cost base the directors do not consider there to be a material uncertainty in relation to the amount of revenue that the company will generate, or costs that it will incur. This is supported by the historic experience of forecasting within the United Telecom NV business.

Artilium NV

The Group has now secured 75% of its expected revenue for the period to April 2014 per the worst case scenario forecast, the remaining revenue for the forecast period is a combination of expected recurring revenue included within concluded contracts and proposals to existing and new customers based on the directors' assessment of the likelihood of winning these on a project by project basis, revenue has only been included in the forecasts where the directors are at least 80% certain that the revenue will be secured. Therefore the directors would like to highlight that 25% of forecast revenue per the worst case scenario is not committed or contracted. As a result there is a material uncertainty related to revenue that the company will generate.

In preparing their forecasts the directors have also had to estimate the timing of expected cash flows for both secured and unsecured revenue. Due to the limited headroom in the worst case scenario cash flow forecasts, delays in the timing of cash flows have a significant impact on the Group's cash position. The going concern assumption is based on the forecast cash flows being achieved, therefore a delay in the timing of cash flows may require the company to raise alternative finance and manage cash outflows accordingly and therefore is considered to be a material uncertainty.

As highlighted above, there is a material uncertainty related to events or conditions, related to Artilium NV revenues, which may cast significant doubt on the entity's ability to generate sufficient cash flows to continue as a going concern, and, therefore that it may be unable to realise its assets and discharge its liabilities in the normal course of business. However the directors consider that the assumptions made are appropriate and are satisfied that the Group is a going concern. The directors monitor the cash position of the business on a regular basis and consider the various sources of finance available to the Group, the directors would seek to access these sources of finance as necessary.  

Intangibles

IAS 36 requires the Directors to consider intangible assets and goodwill for impairment on an annual basis, the last review was performed at 30 June 2012. This has not been updated at the interim date. The review of the carrying value of the Group's intangible assets and goodwill at 30 June 2012 was carried out and the assets were found to be unimpaired. The directors do not consider that any indicators of impairment exist at 31 December 2013.

Notes to the consolidated statement of cash flows

4. Earnings per share

The share options in issue do not have a dilutive effect due to the result for the period being a profit, and as a result diluted earnings per share is the same as basic earnings per share.

5. Share capital

6. Status of half-yearly financial statements

The condensed set of half-yearly financial statements for the six months ended 31 December 2012 is unaudited and does not constitute statutory accounts as defined by The Companies Act 2006. The comparative figures for the period to 31 December 2011 are also unaudited. The comparative figures for the year to 30 June 2012 are extracted from the statutory accounts to that date. A copy of those statutory accounts has been filed with the Registrar of Companies.

7. Further Copies

Copies of the half-yearly financial report are available from the Company's registered office at 7th Floor, City Point, One Ropemaker Street, London, EC2Y 9AW.