Final Results

Intec Telecom Systems PLC 03 December 2002 Intec Telecom Systems PLC Audited Preliminary results for the year ended 30 September 2002 Turnover increases 19% to £47.5 million, EBITDA up 9% to £3.7 million, despite telecom sector conditions Intec Telecom Systems PLC (LSE:ITL, "Intec" or "the Company"), a leading global provider of Operations Support Systems software for telecoms companies, today announces its audited results for the year ended 30 September 2002. The Company is pleased to report turnover growth of almost 20%, despite very competitive market conditions, and increased EBITDA profitability ahead of market consensus. FINANCIAL AND OPERATING HIGHLIGHTS • Revenues for the year ended 30 September 2002 increased by 19% to £47.5 million (year ended 30 September 2001: £39.8 million). • Earnings before interest, tax, depreciation, and amortisation and exceptional items ("EBITDA") increased 9% to £3.7m (year ended 30 September 2001: £3.4m). • Positive operating cash inflow of £2.8 million generated during the year (2001: outflow of £3.7 million). • Operating loss of £13.3 million attributable to goodwill impairment and writedown of £14.5 million. • Customer base increased by 49% to 383 contracted installations, with important new customer wins in the UK, US, Europe, Latin America, Asia and Eastern Europe. • Successful conclusion to two year BT patent litigation against Intec, with no IPR payments or product impacts, and ongoing freedom from further action. • Two competitor acquisitions concluded during and after the year end. • Several new products introduced to complement core billing and mediation families. Commenting on the results, Mike Frayne, Executive Chairman said "At the start of the year we predicted, despite the uncertainties we saw in this market, that turnover growth in the region of 20% was obtainable. I am therefore very pleased to report that we have increased revenues by just over 19%. In 2003 we intend to continue executing a business strategy that has proved successful in 2002. I am confident that Intec is better placed than ever to achieve further growth." Kevin Adams, Chief Executive, added, "In 2002 Intec has won greater market share in its core business areas. Our customer base has grown strongly in 2002 and we see ongoing demand for our products and services. The challenges of the current market have made us a more efficient, more competitive organisation, with higher product quality, and our ongoing investment in many areas means we are well placed to thrive. I am cautiously optimistic that 2003 will be, like 2002, another year of progress for Intec." There will be an analyst meeting at 09:30 hours today (3 December 2002) at RW Baird, Mint House, 77 Mansell Street, London E1 8AF, Tel: +44 (0) 20 7488 1212. ENQUIRIES Intec Telecom Systems PLC Mike Frayne, Executive Chairman +44 (0) 1483 745800 Kevin Adams, Chief Executive Officer +44 (0) 1483 745800 Andrew Rodaway +44 (0) 7768 808082 / +44 (0) 1483 745800 andrew.rodaway@intec-telecom-systems.com RW Baird +44 (0) 20 7667 8416 Shaun Dobson sdobson@rwbaird.com Cubitt Consulting +44 (0) 20 7367 5100 Fergus Wylie fergus.wylie@cubitt.com Intec Telecom Systems PLC - Full year results to 30 September 2002 Executive Chairman's Statement At the start of the year we predicted, despite the uncertainties we saw in this market, that turnover growth in the region of 20% was a realistic and obtainable objective. I am therefore very pleased to report that we have increased revenues from the £39.8 million recorded in 2001 to £47.5 million this year - an increase of just over 19%. Just as importantly, this growth has been achieved alongside positive operating cash flow of almost £2.8 million, and improved EBITDA. This has come against a background of intense competition for new business and stringent cost-control measures by our target customers. After the end of the year we were pleased to reach an agreement with BT plc ("BT") that successfully concluded a long outstanding legal dispute relating to software patents. Under the agreement Intec and its customers will enjoy freedom from any further litigation by BT in respect of these patents. We have not had to make any alteration to our products, nor make any payments to BT for Intellectual Property Rights at any stage. We also now hope to build a commercial relationship with BT and its operations worldwide. A key part of our strategy remains a positive but careful approach to acquisitions. In January 2002 we acquired the OSS products business of former competitor International Computers Limited ("ICL"). ICL is now operating as an Intec consulting and systems integration partner under the Fujitsu brand. This acquisition brought us around 20 new customers and a global partner in Fujitsu. Similarly, after the year end, we announced the acquisition of the interconnect software business unit of Ericsson, bringing us over 40 customers and another global partnership. These consolidation acquisitions firmly cement our dominance in the market sectors in which we are active, and impact positively on the competitive landscape. The recurring revenue streams we derive from these core market acquisitions help us to fund the continuing development and support of our products. The expanded customer base offers excellent cross-selling opportunities for other products and services, further increasing annual turnover. We have also spent considerable time in 2002 examining other acquisition opportunities, particularly those that would take us into new OSS markets. That we have not chosen this year to pursue any of the many opportunities we considered is, once again, a result of our strategy. Although there are many interesting technologies and companies that we considered, these have to be tempered with a realistic assessment of their financial and strategic potential. This is even more critical in a difficult market, where the inherent operating problems of many companies are only too obvious. Nevertheless, we continue to track the available opportunities, and will not hesitate to take action at the right time. Intec's business this year has been built around a strategy of focusing on understanding market developments and customer requirements, and delivering high quality systems, profitably, to meet them. Within the continuing business our core product lines of convergent mediation (Inter-mediatE) and interconnect billing (InterconnecT) have justified our view that they are increasingly critical components of the infrastructure of a telecoms company. In a competitive market it is vital that carriers take every possible opportunity to protect and increase network revenues while minimising unnecessary operating costs. Both mediation and interconnect billing have proven capabilities in fulfilling these opportunities. The feedback we have had from many customers on the real operating benefits and short-term return on investment from buying our technology is very pleasing. As a consequence of these factors and our effective execution, in 2002 we have once again seen our customer base increase substantially, with high profile wins in all areas. Actual customer numbers were approaching 280 at the year end, and with the recent Ericsson agreement are now well over 300. Perhaps most significantly, Intec now supplies core OSS technology to 50% of the world's largest telecommunications carriers, generating a strong recurring revenue stream. The business stability and market presence that these major customers bring are key contributors to our present and future success. 2002 has been a year when all businesses in our sector have necessarily focused closely on costs. Intec made a decision early in the present business cycle that we would attempt to preserve both product investment and staff expertise as far as was consistent with good financial performance. The revenue growth anticipated by management has been achieved and hence we have been able to maintain the planned product investment. We believe this is a good strategic decision that increases our technical leadership at a time when competitors are cutting back. Ongoing product investment is a necessity in the increasingly complex telecoms market, where next-generation services are now a reality. Our core products remain state-of-the-art, and the expansion of our product line with complementary systems opens new opportunities for future growth. Despite acquisitions, we have held our staff numbers to only modest growth by close analysis of operating needs and we have targeted hiring to support current revenue-led expansion plans. Intec has also strengthened its management team this year, and the contribution they are making worldwide is evident in our results, improved market share and product capabilities. In 2003 we intend to continue executing a business strategy that has proved successful in 2002. However, we will balance this with a continual strategic review of market demands and conditions, and seek new opportunities to expand the business and increase shareholder value. There are some positive signs in the marketplace, and I am confident that Intec is better placed than ever to achieve further growth. Mike Frayne Executive Chairman 3 December 2002 Commenting on the results, Kevin Adams, Chief Executive Officer said: In 2002 Intec has won greater market share in its core business areas. We have brought to market several high quality new products, and increased the degree of commitment to Intec technology in many of our larger accounts through cross selling. We have completed a review of our entire product line and product development processes, creating a more efficient and capable organisation that will deliver the leading edge, next generation OSS products that our customers need. In 2002 the financial uncertainties faced by telecoms companies have severely impacted many of their suppliers, as major capital expenditure projects were delayed or even eliminated. Expenditure has continued to receive much higher levels of scrutiny, and purchasers have been more aggressive in pursuing more favourable prices and terms. The impact on suppliers has been clear, with many experiencing falling revenues and sharply reduced margins. This has naturally made for much more difficult trading conditions as some OSS vendors pursued business at any price, regardless of the longer term consequences to their businesses and their customers. The overall balance of business has been very encouraging. All revenue streams (new licences, professional services, and recurring income) have shown good growth, particularly in comparison to OSS industry trends this year. In 2002 new licence sales grew by almost 10%, representing 33% of turnover, a strong result in a market that has proved highly competitive for new business. Intec's ability to generate new contract wins underlines our belief that sustained investment in products and distribution channels is the correct approach. We have undoubtedly gained market share this year, consolidating the position of InterconnecT as clear market leader and also moving Inter-mediatE close to market leadership. InterconnecT now has over 140 installed sites, with new customers such as Maxis in Malaysia, Global Telecom in Brasil, Telus in Canada, VimpelCom in Russia and VSNL in India. Our US Carrier Access Billing System, InterconnecT CABS CG, has also been a very strong performer, winning no less than 9 new licences and over 35 service contracts. Inter-mediatE, our high performance convergent mediation system has fulfilled our expectations, moving towards a dominant position in the industry, with over 130 systems installed. Intec won 16 new Inter-mediatE licences in 2002, many of them in combination with either InterconnecT or InterconnecT CABS CG. Our two most notable mediation contracts this year were with COLT Telecommunications for a pan-European roll-out that replaced four other vendors' systems, and with one of the world's largest carriers, SBC Communications in the US, for a single platform usage collection system. Both are multi-million pound contracts which clearly establish Inter-mediatE as the premier platform in high volume convergent mediation. Outlook 2002 has been a year of very mixed fortunes for the telecoms sector. It would be unwise to predict that 2003 will be substantially better, although there are signs that the climate is improving. Telecoms traffic continues to climb and the arrival of new services such as MMS will undoubtedly stimulate it further. We have generated increased EBITDA and positive operating cash flows and we intend to continue this trend. Our customer base has grown strongly in 2002 and we see ongoing demand for our products and services. We have a number of new products coming to market or recently arrived, and we have greatly solidified our product roadmaps for the next few years. The challenges of the current market have made us a more efficient, more competitive organisation, with higher product quality, and our ongoing investment in many areas means we are well placed to thrive. The market remains turbulent, and we are not complacent about the need to work hard to continue to grow the business, but I am cautiously optimistic that 2003 will be, like 2002, another year of progress for Intec. Kevin Adams, Chief Executive Officer 3 December 2002 INTEC TELECOM SYSTEMS PLC FINANCIAL HIGHLIGHTS Year ended 30 September 2002 Note 2002 2001 % £'000 £'000 change Revenue 47,474 39,798 + 19.3% EBITDA before exceptional items (i) 3,739 3,414 + 9.5% Operating loss (13,325) (140,046) Basic loss per share (7.94p) (80.21p) Adjusted earnings per share (ii) 0.46p 1.14p Notes to the Financial Highlights £'000 £'000 (i) Total operating loss (13,325) (140,046) Depreciation 1,745 1,380 Amortisation of goodwill and other intangibles 7,079 8,680 Impairment of goodwill 7,464 133,400 Exceptional Poland debtor provision 776 - EBITDA before exceptional items 3,739 3,414 (ii) Adjusted earnings per share calculation based on the following adjusted earnings after tax: Loss after tax (14,782) (140,371) Amortisation of goodwill and other intangible assets 7,079 8,680 Impairment of goodwill 7,464 133,400 Writedown of investments 321 283 Exceptional Poland debtor provision 776 - Adjusted earnings after tax 858 1,992 KEY CUSTOMER DATA 2002 2001 £'000 £'000 Cumulative: Contracted customer base 254 203 Contracted customers from current year acquisitions 18 - Total contracted customer base 272 203 + 34% Cumulative: Contracted installations 359 257 Contracted installations from current year acquisitions 24 - Total contracted installation base 383 257 + 49% INTEC TELECOM SYSTEMS PLC PROFIT AND LOSS ACCOUNT Year ended 30 September 2002 Before Intangible intangible amortisation, amortisation, impairment and impairment and exceptionals exceptionals (notes 3,6) Total Total 2002 2002 2002 2001 £'000 £'000 £'000 £'000 Note TURNOVER Continuing operations 45,853 45,853 39,798 Acquisitions 1,621 1,621 - Total turnover 2 47,474 47,474 39,798 Cost of sales (15,430) (15,430) (12,675) Gross profit 32,044 32,044 27,123 Distribution costs (9,945) (9,945) (9,158) Administrative expenses: Development expenditure (8,026) - (8,026) (5,869) Amortisation of goodwill and other intangible 7 - (7,079) (7,079) (8,680) assets Impairment of goodwill 7 - (7,464) (7,464) (133,400) Other administrative expenses 3 (12,079) (776) (12,855) (10,140) Total administrative expenses (20,105) (15,319) (35,424) (158,089) OPERATING LOSS Continuing operations 1,317 (13,611) (12,294) (140,124) Acquisitions 677 (1,708) (1,031) - Group operating loss 1,994 (15,319) (13,325) (140,124) Share of operating profit in associate - - - 78 Total operating loss 1,994 (15,319) (13,325) (140,046) Amount written off investments 3 - (321) (321) (283) Interest receivable and similar income 494 - 494 1,171 Interest payable and similar charges (331) - (331) (73) LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION 2,157 (15,640) (13,483) (139,231) Tax charge on loss on ordinary activities 5 (1,299) - (1,299) (1,140) LOSS ON ORDINARY ACTIVITIES AFTER TAXATION RETAINED FOR THE FINANCIAL YEAR 858 (15,640) (14,782) (140,371) (Loss)/earnings per share - basic 6 (7.94p) (80.21p) (Loss)/earnings per share - adjusted 6 0.46p 1.14p (Loss)/earnings per share - diluted 6 (7.94p) (80.21p) INTEC TELECOM SYSTEMS PLC CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES Year ended 30 September 2002 2002 2001 £'000 £'000 LOSS FOR THE FINANCIAL YEAR (14,782) (140,371) Exchange translation differences arising on foreign currency net (557) (168) investments TOTAL RECOGNISED GAINS AND LOSSES IN THE YEAR (15,339) (140,539) RECONCILIATION OF MOVEMENTS IN CONSOLIDATED SHAREHOLDERS' FUNDS 2002 2001 £'000 £'000 Loss for the financial year (14,782) (140,371) Other recognised gains and losses relating to the year (557) (168) Issue of share capital net of associated expenses 3,353 197,182 Movement on contingent consideration on acquisitions (2,497) 2,497 (Decrease)/increase in shareholders' funds (14,483) 59,140 Opening shareholders' funds 100,690 41,550 Closing shareholders' funds 86,207 100,690 INTEC TELECOM SYSTEMS PLC CONSOLIDATED BALANCE SHEET 30 September 2002 Note 2002 2001 £'000 £'000 FIXED ASSETS Intangible assets 7 63,422 73,181 Tangible assets 2,910 3,009 Investments 101 422 66,433 76,612 CURRENT ASSETS Stocks 64 29 Debtors 8 17,965 19,103 Investments 5,151 2,966 Cash at bank and in hand 8,156 14,987 31,336 37,085 CREDITORS: falling due within one year 9 (5,796) (7,759) NET CURRENT ASSETS 25,540 29,326 TOTAL ASSETS LESS CURRENT LIABILITIES 91,973 105,938 Deferred income due within one year (5,766) (5,248) TOTAL NET ASSETS 86,207 100,690 CAPITAL AND RESERVES Called up share capital 1,903 1,836 Share premium account 10 238,652 235,366 Other reserves 10 - 2,497 Merger reserve 10 249 249 Foreign exchange reserve 10 (708) (151) Profit and loss account 10 (153,889) (139,107) EQUITY SHAREHOLDERS' FUNDS 86,207 100,690 INTEC TELECOM SYSTEMS PLC CONSOLIDATED CASH FLOW STATEMENT Year ended 30 September 2002 Note 2002 2001 £'000 £'000 Net cash inflow/(outflow) from operating activities (i) 2,770 (3,716) Returns on investments and servicing of finance Interest received 494 1,171 Interest element of finance lease rental payments (4) (17) Interest paid and similar items (327) (56) 163 1,098 Taxation Overseas taxation (paid)/received (378) 5 UK Corporation taxation paid (10) (531) (388) (526) Capital investment Payments to acquire tangible fixed assets (1,651) (1,861) Payment to acquire Intellectual Property Rights - (304) Proceeds on disposal of fixed assets 59 74 (1,592) (2,091) Acquisitions Investment in subsidiaries (5,222) (188,680) Net cash acquired with subsidiaries 6 1,801 (5,216) (186,879) Cash outflow before management of liquid resources and financing (4,263) (192,114) Use of liquid resources (Increase)/decrease in cash investments/term deposits (2,252) 15,377 Payments received from escrow 52 627 Financing Issue of ordinary share capital - 183,700 Share issue costs charged to the share premium account - (4,922) Capital element of finance lease payments (188) (234) (Decrease)/increase in cash in the period (ii),(iii) (6,651) 2,434 INTEC TELECOM SYSTEMS PLC NOTES TO THE CASH FLOW STATEMENT Year ended 30 September 2002 (i) RECONCILIATION OF OPERATING LOSS TO NET CASH IN FLOW/(OUT FLOW) FROM OPERATING ACTIVITIES 2002 2001 £'000 £'000 Operating loss (13,325) (140,124) Depreciation 1,745 1,380 Amortisation of goodwill and other intangible assets 7,079 8,680 Impairment of goodwill 7,464 133,400 Gain on disposal of fixed assets (25) (10) (Increase)/decrease in stock (39) 79 Increase in debtors (172) (2,948) Decrease/(increase) in creditors 43 (4,173) Net cash inflow/(outflow) from operating activities 2,770 (3,716) (ii) RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS 2002 2001 £'000 £'000 (Decrease)/increase in cash in the period (6,651) 2,434 Net cash outflow from decrease in finance lease 188 234 Net cash outflow/(inflow) from increase/(decrease) in liquid resources 2,200 (16,004) Change in net funds resulting from cashflows (4,263) (13,336) Finance leases acquired with subsidiary - (178) Translation differences (195) 58 Movement in net funds (4,458) (13,456) Net funds at 1 October 2001/2000 17,765 31,221 Net funds at 30 September 2002/2001 13,307 17,765 (iii) ANALYSIS OF MOVEMENT IN NET FUNDS Foreign 30 September exchange 30 September 2001 Cash flow translation 2002 £'000 £'000 £'000 £'000 Cash in hand and at bank 14,987 (6,651) (180) 8,156 Finance leases (188) 188 - - Cash investments/term deposits 2,914 2,252 (15) 5,151 Escrow Account 52 (52) - - Total 17,765 (4,263) (195) 13,307 INTEC TELECOM SYSTEMS PLC NOTES TO THE PRELIMINARY ANNOUNCEMENT 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 2002 or 2001, but is derived from those accounts. Statutory accounts for 2001 have been delivered to the Registrar of Companies and those for 2002 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. The preliminary announcement was approved by the Board of Directors on 2 December 2002. 2. TURNOVER AND SEGMENTAL REPORTING Geographic areas - analysis by location of operations Total turnover Inter-segment turnover External turnover 2002 2001 2002 2001 2002 2001 £'000 £'000 £'000 £'000 £'000 £'000 Turnover United Kingdom 21,148 22,919 (1,509) (1,737) 19,639 21,182 Continental Europe 166 400 - - 166 400 Asia-Pacific 1,758 1,072 - (64) 1,758 1,008 North America & Canada 25,566 17,224 (600) (215) 24,966 17,009 South America 945 205 - (6) 945 199 49,583 41,820 (2,109) (2,022) 47,474 39,798 Geographic markets - analysis by location of client Turnover by destination 2002 2001 £'000 £'000 United Kingdom 3,519 6,105 Continental Europe 9,753 10,528 Eastern Europe 1,235 1,562 Middle East 728 680 Africa 1,687 814 Asia-Pacific 5,521 4,977 North America & Canada 21,058 12,576 South America 3,973 2,556 47,474 39,798 2. TURNOVER AND SEGMENTAL REPORTING (continued) Turnover by activity Turnover by activity is set out below. It is not practicable to allocate either profit before taxation or net assets by client location or activity. Turnover by Activity 2002 2001 £'000 £'000 Licence Sales 15,481 14,165 Professional services income: Implementation and migrations 6,937 4,752 Consulting and training income 1,793 1,904 Hardware 576 502 Non-Telecom - custom network solutions 2,957 2,493 Sub-total 12,263 9,651 Recurring income: ASP Service 2,761 1,675 Volume upgrade licences 1,928 3,598 Support and maintenance fees 15,041 10,709 Sub-total 19,730 15,982 47,474 39,798 2. TURNOVER AND SEGMENTAL REPORTING (continued) Year ended 30 September 2002 Before After amortisation amortisation of goodwill of goodwill and Exceptional and exceptional Amortisation Goodwill items exceptional items of goodwill impairment (see note 3) items Loss before taxation £'000 £'000 £'000 £'000 £'000 United Kingdom 677 (2,200) (1,684) (1,097) (4,304) Continental Europe 185 (74) - - 111 Asia-Pacific 187 (420) (5,780) - (6,013) North America & Canada 948 (4,385) - - (3,437) South America 160 - - - 160 Loss before taxation 2,157 (7,079) (7,464) (1,097) (13,483) Year ended 30 September 2001 Before After amortisation amortisation of goodwill of goodwill and Exceptional and exceptional Amortisation Goodwill items exceptional items of goodwill impairment (see note 3) items Loss before taxation £'000 £'000 £'000 £'000 £'000 United Kingdom 1,077 (329) - (283) 465 Continental Europe 221 (9) - - 212 Asia-Pacific (84) (681) (16,000) - (16,765) North America & Canada 2,576 (7,661) (117,400) - (122,485) South America (658) - - - (658) Loss before taxation 3,132 (8,680) (133,400) (283) (139,231) Excluding Including unamortised Unamortised unamortised goodwill goodwill goodwill 2002 2002 2002 2001 £'000 £'000 £'000 £'000 Net assets United Kingdom 14,804 2,321 17,125 26,995 Continental Europe (58) - (58) 258 Africa (464) - (464) - Asia-Pacific 494 - 494 7,782 North America and Canada 9,295 59,607 68,902 65,655 South America 208 - 208 - Net assets 24,279 61,928 86,207 100,690 3. EXCEPTIONAL ITEMS Other administrative expenses During the year, our Polish associate failed to meet its obligations to Intec. We have instituted legal proceedings in Poland to recover the outstanding amount due to us and have in the meantime provided for the trading exposure of £0.8 million. Amount written off investments Exceptional items comprise the writedown of own shares of £175,000 (2001: £283,000) and a write down of the Polish associate investment of £146,000 (2001: £nil). 4. ACQUISITIONS a) Current year acquisitions Operational support systems business of ICL On 25 January 2002, the group acquired the operational support systems ("OSS") business of ICL, a Fujitsu company ("the vendor"). The OSS business acquired comprises certain tangible fixed assets, intellectual property rights, and customers. The net initial consideration for the acquisition was £2,550,000 paid in cash plus acquisition costs of £19,000. In addition, deferred cash consideration is payable on a quarterly basis, calculated by reference to support contract revenues over the two year period from the acquisition date. As at 30 September 2002, £335,000 of the deferred consideration has been paid leaving an estimated £703,000 over the remainder of the two year period. Goodwill arising on acquisition has been capitalised and is being amortised over two years from the date of acquisition. Net assets at date of acquisition Provisional And provisional fair value fair value £'000 Tangible fixed assets 125 Goodwill arising on acquisition 3,482 3,607 Net initial cash consideration 2,550 Deferred consideration 1,038 Acquisition costs 19 3,607 4. ACQUISITIONS (continued) a) Current year acquisitions (continued) Interconnexxion Africa (Pty) Limited On 31 July 2002, Independent Technology Systems Limited, a wholly owned subsidiary company of Intec Telecom Systems PLC ("Intec") agreed to acquire its distribution partner in South Africa, Interconnexxion Africa (Pty) Ltd (" Interconnexxion"). The total consideration, paid by the issue of 2,204,725 ordinary shares, amounted to £560,000. Pursuant to the agreement, Intec has acquired all the assets of Interconnexxion, including customer licensing and support contracts and equipment for payment of £209,000. The balance of the consideration of £351,000 was used to settle an outstanding loan of Interconnexxion. Goodwill arising on consolidation has been written off in full to the profit and loss account. Net assets at date of acquisition Provisional And provisional fair value fair value £'000 Debtors 10 Cash 6 Creditors (1) Goodwill arising on acquisition 548 563 Consideration paid in shares 560 Acquisition costs 3 563 b) Prior year acquisitions CABS (previously CHA Systems, Inc.) Contingent consideration of £5,009,000 was settled in respect of the acquisition of the CABS business. £2,272,000 was paid in cash and the balance of £2,737,000 was settled through the issue of ordinary shares. Additional costs of £46,000 have also been capitalised. The difference between the original estimated contingent consideration and final consideration paid has been capitalised and amortised over the remaining useful economic life. c) Reconciliation to cash flow statement £'000 Net initial consideration for ICL OSS business 2,569 Deferred consideration payments for ICL OSS business 335 Contingent consideration on prior year acquisition of CHA Systems, Inc. 2,318 5,222 d) Post balance sheet event On 20 November 2002, the company signed an agreement with Ericsson AB of Sweden to acquire Ericsson's 'Settler' interconnect billing product unit, including the Settler development team and worldwide rights to develop and market the Settler product range. The total consideration amounts to US$5.1 million (£3.3 million). 5. TAX ON LOSS ON ORDINARY ACTIVITIES 2002 2001 £'000 £'000 Current taxation: UK corporation tax at 30% (2001: 30%) - 454 Overseas taxation 1,098 753 Prior year 273 (105) Share of tax in associate at 30% - 38 Total current tax 1,371 1,140 Deferred taxation: Origination and reversal of timing differences (72) - Tax on loss on ordinary activities 1,299 1,140 The major trading companies in the UK and the US have not incurred corporate tax liabilities. However, we have suffered corporate taxation is a number of our overseas trading subsidiaries and branches amounting to £0.7 million, of which £0.3 million is 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. The US operations have substantial ongoing tax benefits arising from goodwill allowances which will continue to ameliorate tax charges against profits in future periods. In addition, there are significant losses brought forward in the US. 6. (LOSS)/EARNINGS PER ORDINARY SHARE 2002 2001 £'000 £'000 Basic and diluted loss (14,782) (140,371) Amortisation of goodwill and other intangible assets 7,079 8,680 Impairment of goodwill 7,464 133,400 Amounts written off investments 321 283 Exceptional Polish debtor provision 776 - Adjusted earnings after tax 858 1,992 Number Number Basic and diluted weighted average number of shares 186,219,551 175,007,925 Pence Pence Basic and diluted loss per ordinary share (7.94) (80.21) Amortisation of goodwill and other intangible assets 3.80 4.96 Impairment of goodwill 4.01 76.23 Amounts written off investments 0.17 0.16 Exceptional Polish debtor provision 0.42 - Adjusted earnings per ordinary share 0.46 1.14 For the year ended 30 September 2002 and the year ended 30 September 2001, 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. 7. INTANGIBLE ASSETS IPR Goodwill Total £'000 £'000 £'000 Cost At 1 October 2001 2,041 213,320 215,361 Additions - 4,791 4,791 Translation differences (9) - (9) At 30 September 2002 2,032 218,111 220,143 Accumulated amortisation At 1 October 2001 306 141,874 142,180 Amortisation 234 6,845 7,079 Impairment provision - 7,464 7,464 Translation differences (2) - (2) At 30 September 2002 538 156,183 156,721 Net book value At 30 September 2002 1,494 61,928 63,422 At 30 September 2001 1,735 71,446 73,181 The Directors have performed impairment reviews of the goodwill arising on the company's 2001 acquisitions. This has resulted in a write-down of £5.7 million on the goodwill relating to i2i and £1.7 million on the acquisition of Dataphone (UK) Limited. 8. DEBTORS Group 2002 2001 £'000 £'000 Trade debtors 13,676 13,535 Amounts owed by subsidiary undertakings - - Corporation tax recoverable 196 216 Withholding tax recoverable: - 82 Deferred tax 72 - Other debtors 301 1,139 Prepayments and accrued income Due within one year 3,720 3,669 Due after more than one year - 462 17,965 19,103 9. CREDITORS: FALLING DUE WITHIN ONE YEAR Group 2002 2001 £'000 £'000 Obligations under finance leases - 188 Trade creditors 1,767 2,007 Corporation tax 454 454 Overseas tax 516 356 Other creditors including taxation and social security 686 601 Accruals 1,670 2,235 Deferred/contingent consideration 703 1,918 5,796 7,759 10. STATEMENT OF MOVEMENTS ON SHARE CAPITAL AND RESERVES Called Share Foreign Profit up share premium Other Merger exchange and loss capital account reserve reserve reserve account Total Group £'000 £'000 £'000 £'000 £'000 £'000 £'000 As at 1 October 2001 1,836 235,366 2,497 249 (151) (139,107) 100,690 Adjustment to fair value of shares issued as part of contingent consideration - - 340 - - - 340 Issues of ordinary shares 67 3,286 (2,737) - - - 616 Decrease in deferred consideration - - (100) - - - (100) Loss for the period - - - - - (14,782) (14,782) Foreign exchange translation - - - - (557) - (557) At 30 September 2002 1,903 238,652 - 249 (708) (153,889) 86,207 This information is provided by RNS The company news service from the London Stock Exchange

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