Half Yearly Report

Artilium plc

("Artilium" or the "Company")

Interim results for the six months ended 31 December 2011

Artilium plc (LSE/AIM: ARTA), the AIM quoted provider of innovative telecommunication software and solutions, announces its interim results for the six months ended 31 December 2011.

Financial Highlights

§ Revenue for the six months to 31 December 2011 was € 1.5 million (2010: € 1.8 million) reflecting the timing of delivery of our latest community platform

§ Management expects to be trading in line with market expectations for the full year to 30 June 2012

§ Underlying operating loss excluding exchange rate results of € 1.4 million (2010: € 1.6 million), an improvement of 13% *

§ Underlying Administrative expenses excluding unrealised exchange rate results were € 2.5 million (2010: € 3.0 million) *

§ Successful launch of two new MVNEs in Belgium (Interfon on Mobistar) and the Netherlands (NarrowMinds on T Mobile)

§ Sale of a renewed two year licence to KPNGB (€800.000) was secured for which cash payment has been received

§ Strengthening of Management Team is progressing well

§ Promising sales initiatives in Eastern Europe

 Commenting on the results, Adrie Reinders, Executive Chairman of Artilium said: 

"Over the past 6 months, Artilium has continued to develop its longer term vision of recurring revenues as its revenue model. In line with the necessary long term goals, it has significantly strengthened its Board and Management Team and foresees additional appointments in the upcoming periods.

Artilium's strategy to achieve recurring revenues can be classified as "Buy and Build". Through organic growth as well as acquisition, the foundations of the operation are further strengthened for future success."

* Reconciliation included in Chief Executive's Statement

For further information please contact: 

Chief Executive's Statement

Introduction

The past half-year we focussed on the delivery of two new MVNE platforms and the launch of the first MVNOs on these platforms. Both projects were successful. We also conducted an intensive pilot on our Presence and Location Based Services platform with a large operator in Europe and expect to turn this into a contract over the coming year.

Next to this we developed our new smartphone client to deliver operator independent telecommunication services. Delays in the delivery of our latest mobile community platform release resulted in lower than expected revenue for the first half-year. This issue has been solved and structural measures have been taken.

Market Dynamics

New initiatives have been developed to speed up our growth. We engaged a reliable and well-connected partner to develop the market in Eastern Europe and the first results look promising. Given that the market for MVNOs in Eastern Europe is just starting to develop, we are in a good position to be successful. Artilium will present its concept for MVNOs and mobile brands to the Russian market at a conference in Moscow in mid-April.

Our main contracts are now based on an active subscriber model, and as a consequence we benefit from the growth strategy of our customers. Also, we are intensifying our customer relationships to address their needs in the future.

The latest version of our smartphone client opens a new market. Integrations with the most well known VoIP clients for smartphone are operational. Our solution enables both consumer and business users to route mobile traffic in the most cost effective way permitting true fixed mobile convergence. After the soft launch and field-testing, this will be commercially available in the second half of this calendar year.

Financial Results

Reported Revenue for the six months to 31 December 2011 of €1.5 million (2010: €1.8 million) was generated primarily from maintenance and professional services rendered to existing customers. The Company generated a gross profit of €1.1 million or 69.9% of reported revenue (2010: €1.4 million or 79.2% of reported revenue) and incurred an operating loss of €1.2 million (2010: €1.9 million), inclusive of administrative expenses of €2.3 million (2010: €3.4 million).

The administrative expenses are impacted by favourable exchange rate fluctuations of €0.2 million while in 2010 there was a negative impact of €0.3 million. Stripping these from the administrative expenses shows that the strict plan of the Company to control its admin expenses since 2009 is still very much on track. When excluding the unrealised exchange rate results, the administrative expenses even decreased further to €2.5 million (2010: €3.0 million) despite the Company's continued investment in developing the business.

The loss before tax no longer includes fair value calculations for financial instruments while in 2010 there was a loss in relation to the embedded derivative amounting to €0.3 million. Therefore, the underlying loss before tax of the business before unrealised exchange rate results and fair value calculations is €1.0 million (2010: €1.8 million). Excluding the effect of the finance costs and other losses, this represents an improvement of approximately 44% over the same period last year in which the most important savings were realised.

In the six months period to 31 December 2011 reported revenues were temporarily impacted by the development of a new platform release and software update. At the same time and without any negative impact on client service levels, significant cost savings have proven to be sustainable. This indicates the Company is still on track to successfully complete its transition to an OPEX model as set out in its business plan.

Outlook

Management is focussed on delivering enhanced functionality to our customers to enable growth of the active subscriber base and therefore the steady growth of our revenues and profitability. From March 2012 onwards the monthly fees receivable for our largest platform (KPNGB) will deliver a sound financial basis for this.

More than 50 per cent. of our expected revenues for the period to December 2012 have been already secured.

Artilium is focusing on accessing new markets for its mobile community platform and will consider acquisition opportunities that can accelerate its growth.

As our latest version of our smartphone client is launched for field-testing, we expect this to contribute to our revenues in the second half of this calendar year.

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ARTILIUM PLC

HALF-YEARLY FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 31 DECEMBER 2011

CONDENSED CONSOLIDATED INCOME STATEMENT

ARTILIUM PLC

HALF-YEARLY FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 31 DECEMBER 2011

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

ARTILIUM PLC

HALF-YEARLY FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 31 DECEMBER 2011

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

ARTILIUM PLC

HALF-YEARLY FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 31 DECEMBER 2011

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Continued)

ARTILIUM PLC

HALF-YEARLY FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 31 DECEMBER 2011

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

ARTILIUM PLC

HALF-YEARLY FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 31 DECEMBER 2011

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

ARTILIUM PLC

HALF-YEARLY FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 31 DECEMBER 2011

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 29 March 2012. The financial information for the year ended 30 June 2011 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 2011 have been filed with the Registrar of Companies. The auditor's report on those financial statements was qualified and did contain statements under Section 498(2) or Section 498(3) of the Companies Act 2006.

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 2011 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 2011.

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.

Segmental reporting

The Group has determined, based on its business model and organisation structure, which contains one trading entity supported by an R&D function, which is deemed to be an overhead, that it contains one operating segment. This drives the information presented internally to the Board of directors, which is considered to be the Group's chief operating decision maker. As there is only one operating segment within the Group the revenue from external customers is equal to the group revenue shown in the condensed consolidated income statement. The loss for the segment is equal to the loss shown in the condensed consolidated income statement.

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 December 2012 based on its pipeline.

The Group has focussed on its existing customers and home markets, mainly with KPN GB but has also delivered the new projects in Belgium (Interfon on Mobistar) and The Netherlands (Narrowminds on T Mobile). The Group has now already secured more than 50 % of its expected revenue for the period to December 2012, the expected revenue being a combination of recurring revenue included within concluded contracts and proposals to existing and new customers for their estimate of the likelihood of winning these on a project by project basis. This is the result of the Group's strategy to move to a recurring revenue based business model. The incoming cash flows will as such be spread over the total life as opposed to licence sales where the cash is paid up front. This is giving the Group greater visibility and predictability of its revenues. The extension of the KPN contract has contributed significantly in bringing the Group such stable prediction of its revenue pattern. However, as this future revenue is not fully supported by sales contracts or confirmed orders yet, there is material uncertainty as to the amount of revenue that the Group will generate.

As highlighted above, there is a material uncertainty related to 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.

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 2011. 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 2011 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 2011.

In arriving at this conclusion the Directors used a value-in-use calculation and made assumptions about revenue in the near and longer term, which, due to the nature of the Group sales and the time-scales involved are not supported by sales contracts. There is thus material uncertainty as to the amount of revenue that will be generated, which may cast significant doubt as to the carrying value of these assets. A detailed description of the methods used in calculating value in used at 30 June 2011 is included in the Group accounts for the year then ended.

As a consequence of the material uncertainty on revenue highlighted above the auditors has issued in their independent review report an emphasis of matter paragraph related to this uncertainty which may cast significant doubt on the Group's ability to continue as a going concern and the carrying value of the Group's non-current assets. However the Directors consider that the assumptions made are appropriate and are satisfied that the Group's non-current assets are not impaired.

3. Notes to the consolidated statement of cash flows

4. Loss per share

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

5. Share capital

6. Secured loan notes

On 23 November 2011, the group issued non-convertible secured loan notes of €700.000 to Hoving & Partners S.A. at 31 December 2011 the secured loan notes were repayable on 30 May 2012. The rate of interest on the loan notes is 3 month LIBOR plus 1200 basis point. € 6.219 interest in relation to the secured loan notes were charged in the period, of which € 6.219 was outstanding at 31 December 2011.Subsequent to initial measurement, the group has designated the secured loan notes as a financial liability at amortised cost.On 9 March 2012 the repayment terms of the secured loan notes were extended to 31 January 2013, no change was made to the interest rate. On 22 March 2012 the group issued additional loan notes to NeuroControl- Europe Ltd. Inc. totalling €350,000, €200,000 has been received in March, the rest will be drawn down in April 2012. The additional loan notes are repayable on 31 December 2012. The rate of interest on the new loan notes is 3 month LIBOR plus 1200 basis point.By virtue of the fact that Jean-Paul Menke is a common director of both Artilium plc and NeuroControl-Europe Ltd. Inc., NeuroControl-Europe Ltd. Inc. is considered to be a related party to the Group under IAS 24.

7. Status of half-yearly financial statements

The condensed set of half-yearly financial statements for the six months ended 31 December 2011 is unaudited and does not constitute statutory accounts as defined by The Companies Act 2006. The comparative figures for the period to 31 December 2010 are also unaudited. The comparative figures for the year to 30 June 2011 are extracted from the statutory accounts to that date. A copy of those statutory accounts has been filed with the Registrar of Companies.

8. 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.

Independent review report to the members of Artilium plc

Introduction

We have reviewed the condensed consolidated interim financial statements ('interim financial statements) in the half-yearly financial report of Artilium plc for the six months ended 31 December 2011 which comprises the Condensed Consolidated Income Statement, Condensed Consolidated Statement of Comprehensive Income, Condensed Consolidated Statement of Financial Position, Condensed Consolidated Statement of Changes in Equity, Condensed Consolidated Statement of Cash Flows and related notes. We have read the other information contained in the half yearly financial report, which comprises only Financial Highlights and the Chief Executive's Statement, and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

This report is made solely to the company's members as a body, in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information performed by the Independent Auditor of the Entity'. Our review work has been undertaken so that we might state to the company's members those matters we are required to state to them in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our review work, for this report, or for the conclusion we have formed.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors.

As disclosed in Note 2, the annual financial statements of the group are prepared in accordance with International Financial Reporting Standards as adopted by the European Union. The interim financial statements included in this half-yearly financial report have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union.

Our responsibility

Our responsibility is to express a conclusion on the interim financial statements in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity'. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Basis for qualified conclusion

We were unable to ascertain, for a material contract of the group, whether management's estimate of the fair value of both the delivered and undelivered elements of the contract were reasonable. Accordingly, we were unable to complete our review of the €0.234 million revenue recognised in the current period, the €0.079 million included in long term provisions at 31 December 2011 and the €nil deferred income at 31 December 2011 in respect of this individual contract. Had we been able to complete our review, matters might have come to our attention indicating that adjustments might be necessary to the interim financial statements.

Qualified conclusion

Except for the adjustments to the interim financial statements that we might have become aware of had it not been for the situation described above, based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material aspects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union.

Emphasis of matter - Going concern

In forming our conclusion on the interim financial statements we have considered the adequacy of the disclosures made in note 2 concerning the group's ability to continue as a going concern. The group incurred a net loss of €1.223 million during the six months ended 31 December 2011.

As explained in Note 2, the directors' assessment as to the appropriateness of the going concern basis includes an expectation of future revenues which is only partially supported by sales contracts or confirmed sales orders, and as such is inherently uncertain. If future revenue does not meet expectations, the group may not be able to generate sufficient cash flows to pay debts as they fall due or continue as a going concern.

We also draw attention to the disclosures made in note 2 concerning the carrying value of non-current assets of €10.727 million included in the condensed consolidated statement of financial position. The assessment that these assets are not impaired includes an expectation of future revenues which is only partially supported by sales contracts or confirmed sales orders, and as such is inherently uncertain. These conditions, as set forth in note 2, indicate the existence of material uncertainties, which may cast significant doubt about the group's ability to continue as a going concern. The interim financial statements do not include the adjustments that would result if the group were unable to continue as a going concern.

GRANT THORNTON UK LLPAUDITOROXFORD

29 MARCH 2012