Interim Results
Eckoh Technologies PLC
13 December 2004
13th December 2004
Eckoh Technologies plc
Half-Year Results
6 months 6 months Year
ended ended ended
30 Sept 2004 30 Sept 2003 31 March
2004
£'000 £'000 £'000
Turnover 39,416 25,665 62,504
Continuing operations 39,416 23,874 60,189
Discontinued operations 0 1,791 2,315
Gross profit 9,486 7,359 17,171
Operating loss (1,132) (1,031) (2,453)
Loss before taxation (970) (1,294) (1,097)
Adjusted Profit/(loss) before taxation1 241 (1,085) 285
Loss for the period (1,091) (1,323) (1,048)
Cash and short-term investments 9,083 13,075 10,239
Half-year highlights:
• Turnover from continuing operations up 65% to £39.4m (H1 2003/4 - £23.9m)
• Adjusted PBT £0.2m including £0.5m for 3 months to 30 September (Loss
before taxation £1.0m (H1 2003/4 - loss £1.3m))
• £0.8m improvement in EBITDA2 to £0.7m (H1 2003/4 - negative £0.5m)
• Speech turnover up 96% to £2.7m (H1 2003/4 - £1.4m)
• Cash and short term investment balances £9.1m (excludes £1.7m operating
cash receipt on 1 October)
Current developments:
• Improved trading performance and cash generation
• New long term contract wins with O2 and Northern Ireland Electricity
• Further expansion in high margin activities planned for 2005
• Insolvency of Auctionworld and intense competition within IVR will impact
H2
Martin Turner, Chief Executive Officer, commented today:
"These results for the first half of the financial year disguise a significant
improvement in financial and operating performance since 1 July, with Eckoh
generating over £546,000 of pre-tax profits (excluding intangible asset
amortisation) in the second quarter.
Much of this improvement can be attributed to a refocusing of management effort
on our higher margin activities, including a 96% increase in business from our
Speech Solutions division, and ongoing efforts to lower our cost base.
While we expect to increase profitability in the second half of the financial
year, intense competition within particular areas of our IVR business and the
insolvency of Auctionworld will mean that we will not meet current market
expectations for the full year."
1 Profit/(loss) before taxation and intangible asset amortisation
2 Earnings before interest, taxation, depreciation and intangible asset
amortisation
For further enquiries, please contact
Eckoh Technologies plc
Martin Turner, Chief Executive Officer
Nik Philpot, Chief Operating Officer
Adam Moloney, Acting Group Finance Director
www.eckoh.com Tel: 01442 458 355
Buchanan Communications
Mark Edwards/Jeremy Garcia Tel: 020 7466 5000
Business Review
Turnover and Gross Margin
Speech Solutions
Eckoh is a European market leader in self-service call centre solutions using
advanced speech recognition and related technologies. The Company has an
exclusive partnership with BT to provide its top corporate customers with hosted
speech recognition services.
Key assets include:
• Call processing platform with over 6,000 speech recognition lines
• Highly experienced technical delivery team
• BT alliance
• Management team with long history in designing and managing interactive
services
• Flexible pricing model benefiting from Eckoh's traffic volumes
Eckoh has continued to grow its hosting platform size and capability,
particularly with the implementation of increased capacity into a BT hosting
facility. Its overall capacity is now approaching 10,000 lines - 6,000 of which
have speech recognition capability. 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 branch
location or basic information requests, which are likely to be integrated as
part of the client's overall CRM solution (as in the case of TD Waterhouse where
Eckoh 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 Eckoh
built and currently hosts for UGC Cinemas.
The majority of Eckoh's current clients have large and predictable inbound
traffic streams, with over 80% of current revenues recurring each month. A
number of new client wins, including the recent contract announcement to provide
automated arrival and departure information for ATOC, the power outage service
for Northern Ireland Electricity and the Age Verification contract with O2, are
not reflected in first half financial performance.
First half turnover from Speech Solutions grew 96% to £2.7m (H1 2003/4 - £1.4m)
with a gross margin of 50% (H1 2003/4 - 51%). Direct operating expenses were
stable at £1.1m (H1 2003/4 - £1.1m). Eckoh management intends to continue to
deliver high growth rates in this area of operation, and will therefore increase
its sales and marketing investment in 2005 . The division has excellent
operational gearing and, provided that 50% gross margins can be maintained,
further growth will have a material impact on the group's overall profitability.
IVR
Eckoh's IVR division operates in three quite distinct markets, each with quite
different operating margins and cost structures, as follows:
Advertised Services
Eckoh operates a range of "Advertised Services" represented by a variety of
consumer entertainment products such as dating, community chat, competitions,
mobile content etc, which are available to both fixed line and mobile users.
Eckoh management has experience running entertainment services in over 30
countries around the world since 1992, which are currently entirely concentrated
in the UK. Management is evaluating new opportunities to grow these services;
particularly in the area of premium SMS services and this could include
expansion abroad. The major risks in this area revolve around advertising
restrictions and regulatory issues.
Where appropriate, Eckoh invests its own money promoting these services on TV
and in print media under a number of different product brands. Since July 2003
this includes L!VE TV as a flexible and low cost environment to test, promote
and showcase Eckoh's services. Gross margins from individual campaigns
fluctuate with advertising efficiency, which is influenced by price,
seasonality, TV programming and availability.
First half turnover from Advertised Services was £3.2m (H1 2003/4 - £3.1m) with
a gross margin of 49% (H1 2003/4 - 43%). Direct operating expenses were £0.8m
(H1 2003/4 - £0.5m). Management expects to see further improvements in
financial performance in the second half of this financial year, if its
expansion plans are successful.
Media and Broadcast
Eckoh works with a number of prominent media owners such as ITV, Trinity Mirror,
the BBC, EMAP, and Northcliffe Newspapers. In a market still dominated by simple
competitions and voting applications, Eckoh delivers an end-to-end interactive
solution including creation, design, development, implementation, deployment,
hosting and reporting.
Highlights of this calendar year include being appointed as ITV's preferred
provider of telephony services which commenced in March 2004, and the recent
contract to supply Trinity Mirror group with its IVR and SMS requirements in
both its national and regional publications.
The market is highly competitive, with a handful of large, high-profile clients
periodically putting contracts out to tender. Call handling capacity, network
resilience and responsive service support are of utmost importance to these
clients - particularly for TV-driven campaigns. However, the relative
simplicity of many media and broadcast products, together with pricing
transparency have forced profit margins lower over the past year.
Eckoh is striving to cross-sell more complex (and profitable) products and
services into this market to improve margins. For example, Eckoh provided the
first mass use of speech recognition voting for Endemol's Music Hall of Fame on
Channel 4. In addition, management is also examining ways to share or combine
the resources of its Media and Broadcast operation with those of its Speech
Solutions division to gain efficiencies and reduce costs.
First half turnover from Media and Broadcast was £12.1m (H1 2003/4 - £7.1m),
with a gross margin 13% (H1 2003/4 - 18%). The changes reflect the high volume,
low margin nature of the ITV contract. Direct operating expenses were £1.0m (H1
2003/4 - £0.9m). Looking forward, Eckoh will continue to compete for long-term,
quality media and broadcast business from the major UK players. The traffic
volume generated by Media clients supports the buying effectiveness of the Group
with major carriers such as BT and C&W.
Service Provider ("SP")
As an Annex II licensed telecommunications operator with its own switched
network, Eckoh benefits from full interconnect rates on call traffic through its
network. It therefore offers wholesale network services to third party SPs such
as number ranges, connectivity and hosting. While associated volumes of SP
traffic can be high, gross margins are typically very low (in some cases less
than 5%) with most business on short-term or no-term contracts.
SP traffic utilises spare capacity on Eckoh's network and makes a useful
contribution towards minimum commitment levels under its service contract with
BT. Due to extremely challenging market conditions, Eckoh is currently not
actively pursuing SP business as part of a concerted marketing effort, it will
continue to exploit SP opportunities as and when they arise.
First half turnover from SP was £9.5m (H1 F2004 - £1.8m) with a gross margin of
8% (H1 2003/4 - 11%).The increase in revenue reflects the acquisition of
Intelliplus Group plc in September 2003. Direct operating expenses were £0.8m
(H1 2003/4 - £0.2m), but will be reduced going forward following the completion
of a cost review exercise.
Symphony
Symphony is an established reseller of fixed and mobile services to the SME
market in the UK since 1997, with a small satellite operation in Ireland.
Symphony has three distribution channels: direct sales, seven 50%-owned equity
joint ventures and a dealer network of telephone system resellers located across
the UK and Ireland. It continues to expand its distribution capabilities to
attract new business by increasing its dealer base and direct sales force,
particularly in the area of mobile, which now represents around 25% of turnover.
The Company's primary fixed line suppliers are Energis, Worldcom and Cable &
Wireless; its mobile suppliers are Vodafone and O2.
In early 2004, Symphony expanded its product set to include a range of broadband
products (from 0.512mbs to 155mbs capacity) and a BT Wholesale service which
allows Symphony to transfer existing lines and provide new analogue and ISDN
lines to its customers.
First half turnover from Symphony was £10.2m (H1 2003/4 - £10.2m) with a gross
margin of 30% (H1 2003/4 - 29%). Direct operating expenses were £2.3m (H1 2003
/4 - £2.2m).
Freecom
Freecom has built a successful business selling a full range of complementary
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. Eckoh acquired Freecom
through the acquisition of Intelliplus in September 2003.
Freecom has two routes into a fragmented SME market: direct sales, primarily
targeting second generation websites from the 10+ employee SME sector, and
telesales targeting the 1-5 employee, entry-level website sector. The head
office (including outbound telesales) is based in Warrington, with a second
office in Birmingham providing all support functions.
First half turnover from Freecom was £1.7m (H1 2003/4 - £0.3m) with a gross
margin of 71% (H1 2003/4 - 74%). Direct operating expenses were £1.0m (H1 2003/
4 - £0.2m).
Administrative expenses
Following the acquisition of Intelliplus Group last September, Eckoh's
administrative expenses increased from £8.4m in the first half of last year to
£10.6m in this year. This includes an increase of £1.0m of intangible asset
amortisation.
Administrative expenses include the direct operating costs of the various
divisions (discussed above), amortisation of intangible fixed assets
(predominantly goodwill) and Eckoh's central costs. These 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. Such costs totalled £0.8m in the first half (H1 2003/4 - £0.9m).
The depreciation charge on tangible fixed assets was £0.6m (H1 2003/4 - £0.7m).
Corporate costs include the Board of Directors, legal, secretarial, audit,
registrar, professional advisors, insurance and other plc-related costs. These
totalled £1.0m in the first half (H1 2003/4 - £0.9m), and are expected to reduce
in the second half of the financial year following a recent cost review and
management changes.
Operating Loss and Net Loss
Excluding intangible asset amortisation and exceptional items, Eckoh generated
an operating profit of £0.1m for the half-year compared to a loss of £0.7m for
the same period last year. The operating loss for the period was £1.1m (H1 2003/
4 - £1.3m).
Cash and short term investments
Cash and short-term investments as at 31 September 2004 was reduced to £9.1m (31
March 2004 - £10.2m) despite a cash inflow from operating activities, before
working capital movements, of £0.7m for the half year (H1 2003/4 - cash outflow
£0.1m). The adverse movement resulted in a cash outflow from operating
activities of £0.6m (H1 2003/4 - inflow £0.1m). However, these were largely
reversed on 1 October with a cash receipt of £1.7m from one of Eckoh's major
carrier partners.
Board changes
On 25 June, Brian McArthur Muscroft, Group Finance Director, resigned from the
Board in order to take up a position as Group Finance Director elsewhere.
Pending the appointment of a permanent candidate, the Group Financial
Controller, Adam Moloney, has been appointed Acting Finance Director.
Peter Reynolds, a Non-Executive director has assumed the role of Non-Executive
Chairman following the resignation of David Best on 5 July.
Current Trading
Excluding intangible asset amortisation, the profit before tax ("adjusted PBT")
was £241,000 in the first six months of the financial year (H1 2003/4 - loss of
£1.1m). The loss before tax for the first half was £1.0m (H1 2003/4 - loss of
£1.3m). However, this masks a significant improvement in financial performance
since 1 July.
Eckoh generated £546,000 of adjusted profit before tax during the three-month
period from 1 July to 30 September, compared to a loss of £305,000 in the prior
three months.
Despite the anticipated slow start to the financial year, the Directors believe
that the improvement in profitability experienced since 1 July is encouraging,
and remain confident about the Group's prospects for 2005. One disappointment,
however, is the recent insolvency of Auctionworld, which will have an adverse
impact on second half results.
While we expect to increase profitability in the second half of the financial
year, intense competition within particular areas of our IVR business and the
insolvency of Auctionworld will mean that we will not meet current market
expectations for the full year.
Consolidated profit and loss account
for the six months ended 30 September 2004
6 months 6 months Year
ended ended ended
30 Sept 30 Sept 31 Mar
2004 2003 2004
unaudited unaudited audited
Note £'000 £'000 £'000
Turnover 39,416 25,665 62,504
Continuing operations 39,416 23,874 60,189
Discontinued operations - 1,791 2,315
Cost of sales (29,930) (18,306) (45,333)
Gross profit 9,486 7,359 17,171
Administrative expenses before intangible asset amortisation and (9,407) (8,067) (17,753)
exceptional items
Amortisation of intangible assets (1,211) (209) (1,382)
Exceptional items - (114) (489)
Total administrative expenses (10,618) (8,390) (19,624)
Operating profit/(loss) before intangible asset amortisation and 79 (708) (583)
exceptional items
Continuing operations 79 (480) (565)
Discontinued operations - (228) (18)
Operating (loss)/profit (1,132) (1,031) (2,453)
Continuing operations (1,132) (803) (2,435)
Discontinued operations - (228) (18)
Exceptional items - (424) (216)
Gain on disposal of fixed asset investment - - 662
Net interest receivable and other similar items 162 161 910
Loss on ordinary activities before taxation (970) (1,294) (1,097)
Taxation - 89 73
Loss on ordinary activities after taxation (970) (1,205) (1,024)
Minority interests (121) (118) (24)
Loss for the period (1,091) (1,323) (1,048)
Earnings/(loss) per ordinary share 2
Basic and diluted loss per share (0.4p) (0.6p) (0.4p)
Basic and diluted earnings/(loss) per share before intangible 0.0p (0.3p) (0.1p)
asset amortisation and exceptional items
Statement of total recognised gains and losses
for the six months ended 30 September 2004
6 months 6 months Year
ended ended ended
30 Sept 30 Sept 31 Mar
2004 2003 2004
unaudited unaudited audited
£'000 £'000 £'000
Loss for the period (1,091) (1,323) (1,048)
Exchange adjustments offset in reserves (17) 21 37
Total recognised losses for the period (1,108) (1,302) (1,011)
Consolidated balance sheet
as at 30 September 2004
30 Sept 2004 30 Sept 31 Mar
2003 2004
unaudited unaudited audited
Note £'000 £'000 £'000
Fixed assets
Intangible fixed assets 9,398 9,462 10,422
Tangible fixed assets 1,627 2,358 1,729
Investment - 1,099 -
11,025 12,919 12,151
Current assets
Stock 105 172 62
Debtors 11,725 11,112 10,873
Short term investments 6,500 10,210 6,500
Cash at bank and in hand 2,583 2,865 3,739
20,913 24,359 21,174
Creditors: amounts falling due within one year (14,236) (18,187) (14,405)
Net current assets 6,677 6,172 6,769
Total assets less current liabilities 17,702 19,091 18,920
Creditors: amounts falling due after more than one year (56) (2,345) (59)
Provisions for liabilities and charges (216) (617) (454)
Net assets 17,430 16,129 18,407
Capital and reserves 3
Called up share capital 678 646 678
Shares to be issued - 268 -
Share premium account 132 11 122
Merger reserve 5,979 5,735 6,734
Profit and loss account 10,486 9,827 10,839
Total equity shareholders' funds 4 17,275 16,487 18,373
Minority interests 155 (358) 34
Capital employed 17,430 16,129 18,407
Consolidated cash flow statement
for the six months ended 30 September 2004
6 months 6 months Year
ended ended ended
30 Sept 2004 30 Sept 31 Mar
2003 2004
unaudited unaudited audited
£'000 £'000 £'000
Note
Net cash (outflow)/inflow from operating activities 5 (560) 1,110 138
Return on investments and servicing of finance
Net interest 162 161 357
Taxation (8) 89 87
Capital expenditure and financial investment
Purchase of tangible fixed assets (544) (288) (482)
Expenditure on intangible fixed assets (190) - (57)
Disposal of trade investment - - 662
(734) (288) 123
Acquisitions and disposals
Purchase of subsidiary undertaking - (126) (616)
Net cash acquired with subsidiary undertaking - 149 149
- 23 (467)
Cash (outflow)/inflow before use of liquid resources and (1,140) 1,095 238
financing
Management of liquid resources
(Increase)/decrease in short-term investments - (700) 3,010
Financing
Issue of shares 10 11 126
Loan repayments - - (2,071)
Capital element of finance lease payments (26) (16) (39)
(16) (5) (1,984)
(Decrease)/increase in cash in the period (1,156) 390 1,264
Notes to the half-year results
1. Basis of preparation
The financial statements for the six months ended 30 September 2004 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.
Financial information for the six months ended 30 September 2003 has been
extracted from the accounting records of the Group.
The balances as at 31 March 2004 and the results for the year then ended 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 results for the six months ended 30 September 2004 were approved by the
Board on 10 December 2004 and will be posted on the Company's web site,
www.eckoh.com, on 13 December 2004.
2. Earnings/(loss) per ordinary share of 0.25p each
6 months 6 months Year
ended ended ended
30 Sept 30 Sept 31 March
2004 2003 2004
£'000 £'000 £'000
Profit/(loss) for the period before the following: 120 (576) (176)
Intangible asset amortisation (1,211) (209) (1,382)
Restructuring costs - (114) (489)
Exceptional items - (424) (216)
Gain on disposal of fixed asset investment - - 662
Gain on loan note cancellation - - 553
Loss for the period (1,091) (1,323) (1,048)
Weighted average number of shares in the period:
Basic and diluted 271,175,818 209,279,809 237,801,055
Basic (loss)/earnings per share before intangible asset amortisation 0.0p (0.3p) (0.1p)
and exceptional items
Intangible asset amortisation (0.4p) (0.1p) (0.5p)
Restructuring costs - - (0.2p)
Exceptional items - (0.2p) (0.1p)
Gain on disposal of fixed asset investment - - 0.3p
Gain on loan note cancellation - - 0.2p
Basic and diluted loss per share (0.4p) (0.6p) (0.4p)
None of the share options in issue give rise to a dilution in the loss per
share.
3. Share capital and reserves
Ordinary Share Merger Profit and
share premium reserve loss
capital account account
£'000 £'000 £'000 £'000
At 1 April 2004 678 122 6,734 10,839
Loss for the period - - - (1,091)
Exchange adjustments offset in reserves - - - (17)
Shares issued in respect of share options exercised - 10 - -
Realisation of merger reserve - - (755) 755
At 30 September 2004 678 132 5,979 10,486
4. Reconciliation of movement in equity shareholders' funds
6 months 6 months Year
ended ended ended 31
30 Sept 30 Sept March
2004 2003 2004
£'000 £'000 £'000
Opening equity shareholders' funds 18,373 11,589 11,589
Loss for the period (1,091) (1,323) (1,048)
Share consideration for acquisition of subsidiary undcertaking - 6,227 7,707
Net movement in contingent share consideration for acquisition in a prior - (38) (38)
year
Employee share options exercised 10 11 126
Exchange adjustments offset in reserves (17) 21 37
Closing equity shareholders' funds 17,275 16,487 18,373
5. Net cash (outflow)/inflow from operating activities
6 months 6 months Year
ended ended ended 31
March
30 Sept 30 Sept 2004
2004 2003
£'000 £'000 £'000
Operating loss (1,132) (1,031) (2,453)
Depreciation and impairment of tangible fixed assets 638 723 1,339
Amortisation and impairment of intangible fixed assets 1,211 209 1,382
(Increase)/decrease in stock (43) 515 625
(Increase)/decrease in debtors (852) 422 598
(Decrease)/increase in creditors/provisions (382) 696 (1,413)
Loss on disposal of tangible fixed assets - - 60
Loss on closure of subsidiary operation - (424) -
(560) 1,110 138
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