Final Results

Intec Telecom Systems PLC 30 November 2004 30 November 2004 Intec Telecom Systems PLC - Audited Preliminary results for the year ended 30 September 2004 Adjusted profit before tax(1) up 54% to £8.3 million on turnover increase of 36% to £68.8 million; successful acquisition of leading retail billing system. Intec Telecom Systems PLC (LSE: ITL, "Intec" or "the Company"), a global provider of enterprise-level software and services, today announces its audited results for the year ended 30 September 2004. The Company is pleased to report growth of over 35% in both profitability and revenues, positive operating cashflow despite continued strong investment in business growth, and a total of 100 new customers won or acquired in 2004. During the year Intec also made an important acquisition, the 'Singl.eView' retail billing business of ADC, which is now generating substantial new business opportunities for the company. FINANCIAL AND OPERATING HIGHLIGHTS • Revenues for the year ended 30 September 2004 increased by 36% (30% organic) to £68.8 million (year ended 30 September 2003: £50.7 million). • Adjusted profit before tax(1) substantially increased to £8.3 million (2003: £5.4 million). • Positive operating cash inflow of £4.6 million generated during the year (2003: inflow of £8.5 million). • Operating loss of £1.4 million (2003: 1.9 million) attributable to goodwill and intangible amortisation of £8.8 million. • Loss before tax £1.2 million (2003: £1.8 million). • Customer base increased by 27% to 465, with important new customer wins in the UK, US, Europe, Latin America, and Asia. • $74.5 million acquisition of 'Singl.eView' retail billing business concluded during the year. • Gross margin improved to 72% (2003: 70%). • Cash and cash equivalents stand at £32.2 million (2003: £15.3 million). • Several new products introduced to complement core billing and mediation families. • Strong pipeline for 2005. Commenting on the results, Mike Frayne, Executive Chairman said: "In 2004 Intec has become one of the top five players in the OSS/BSS market worldwide, through both our acquisition of Singl.eView and the good organic growth we have generated in the core business. Growth in revenues and earnings has substantially exceeded the industry average, and we have also enhanced our cash position, despite strong investment in all aspects of the business. Although we see continuing competitive conditions in the telecoms market, the important opportunities we are now engaged with for Singl.eView and other key products give me confidence that Intec has strong prospects for 2005 and beyond." Kevin Adams, Chief Executive, added, "Intec has won and acquired many new customers in 2004, including a number of multi-million Pound contracts around the world. Execution of our long-term strategy of high-quality, profitable growth has continued, with expansion in all areas of the business. Integrating Singl.eView, although clearly a large project, and restoring sales momentum to its pipeline, are both progressing very well, and we are cautiously confident that we can meet our objectives in 2005." There will be an analyst meeting at 09:15 hours today (30 November 2004) at Financial Dynamics, Holborn Gate, 26 Southampton Buildings, London. 1Adjusted profit before tax: A reconciliation between adjusted profit before tax and the loss before tax is shown on the consolidated profit and loss account. The differences relate to amortisation of goodwill and other intangible assets of £8.8 million (2003: £7.2 million) and exceptional administrative expenses of £0.7 million (2003: nil). Enquiries Intec Telecom Systems PLC Mike Frayne, Executive Chairman +44 (0) 1483 745800 Kevin Adams, Chief Executive Officer +44 (0) 1483 745800 Andrew Rodaway, Director of Marketing +44 (0) 7768 808082 andrew.rodaway@intecbilling.com RW Baird +44 (0) 20 7667 8416 Shaun Dobson sdobson@rwbaird.com Financial Dynamics +44 (0) 20 7831 3113 James Melville-Ross intec@fd.com Edward Bridges Cass Helstrip Executive Chairman's Statement This year has been both challenging and rewarding for Intec, as we have made great progress towards our objective of becoming one of the largest and most successful Operations Support Systems /Business Support Systems software (OSS/ BSS) product players in our sector: challenging, as we have worked hard to acquire, integrate (including extensive integration planning) and take forward the Singl.eView business while still executing our plans for strong organic growth within the core business; and rewarding, as with Singl.eView we have secured a strategically important asset and seen both revenue and profitability grow very satisfactorily despite continuing strong competition worldwide for new contracts. The headline figures of revenue growth of 36% to £68.8 million, adjusted pre-tax profits up 54% and a much reduced loss after goodwill amortisation and exceptional items, although very pleasing, do not tell the full story of another year of substantial achievements. Intec's staff and management team, which with Singl.eView now numbers over 1,300 people, has worked very hard to create a larger, stronger business that is a leader in several areas, that is profitable, cash-generative and fully-funded, and that has the best products in each of its key operating sectors. This is a great achievement and, once again, I thank all involved for their efforts throughout the year. Singl.eView The acquisition of the Singl.eView business marks a watershed for Intec. Prior to this acquisition, we would have been considered a successful, but perhaps niche, player in certain markets. The products, people and customers we acquired in August with Singl.eView take Intec into the market for the most critical systems used by our client base, retail or customer billing, and some of the areas around it such as customer management. In the telecoms sector there is a customer-centred strategic focus, and billing is one of the primary systems that make the greatest impact on our customers' business performance. I am very pleased that we have entered this space with a solution and a worldwide staff capability that we believe is superior to anything else we see in the market. The scale of the Singl.eView acquisition naturally required Shareholder approval, and a detailed prospectus was therefore circulated in the summer, with approval granted at an EGM on 24 August. A great deal of work was also completed during this period on pre-acquisition integration planning to ensure the best possible transition to Intec ownership. Market The telecoms industry, while undoubtedly performing better today than it has over recent periods, still faces structural and technical challenges, for example the growing innovation and competition from next-generation wireless technologies such as 3G, or the rapid spread of Internet Protocol (IP)-based networks. These are positive developments for Intec, and we are encouraged by the number of substantial opportunities we see for both Singl.eView and existing Intec products in high-value projects worldwide. Our objective is to turn these market developments into profitable business over coming quarters. Organic Business Naturally, Singl.eView has not been our only area of focus in 2004, and we continue to invest heavily in product development to ensure our continuing success. I am pleased that all of our other major product lines have continued to move ahead during the year. Both InterconnecT and Inter-mediatE, which historically have generated over 90% of our revenue, have been the subject of substantial new version releases. We believe both products are clear technical leaders in terms of performance, functionality and robustness. The feedback we have to date from customers who have seen or used the new products is very positive. Both products have performed well, with Intec announcing more new contract wins across the OSS/BSS sector than any other competitor. In addition, the products acquired in September 2003 from Digiquant A/S of Denmark, now developed and marketed principally as Intec DCP, have won a number of important new orders, including a major contract in North America. Careful investment, based on solid business cases, that generates high-quality, marketable products with good customer demand, remains the foundation of Intec's success. That, combined with effective sales and marketing, plus close attention to customer care, allows us to build and retain a strong customer base that now includes over 60% of the world's top 100 carriers, as well as a number of companies outside the telecoms sector. We see non-telecoms customers as potentially an interesting opportunity for Intec technology, and we are actively investigating a number of sectors. Outlook In 2005 we will continue to focus on the best possible performance in a business which has now almost doubled in size, with a particular emphasis on maximising the opportunities created by our acquisition of Singl.eView. There is evidence that many carriers are reviewing their systems and architectures for ways to improve financial performance, customer satisfaction and operational flexibility. We believe we are in a strong position to offer them the products and services to help achieve these goals. Although the industry remains cautious in its approach to expenditure, the need to move forward is growing and we believe that Intec can continue to grow and develop as one of the leading providers in our market. Mike Frayne Executive Chairman 29 November 2004 Chief Executive's Review The 30% organic growth in turnover, Intec achieved in 2004, with only a 10% staff increase, is particularly pleasing as it has been within a telecoms industry that is cautious about capital expenditure and operating expenses. Intec announced more new contracts in the past twelve months than any other competitor, and continues to gain market share. An increasing number of the deals signed have been valued at several million pounds, indicating Intec's growing profile as one of the world's major OSS/BSS suppliers, with the technology and capabilities to address large and sophisticated projects. 2004 has seen the emergence of a number of important trends. Firstly, a slow but steady improvement in the fortunes of the telecoms industry, with many carriers reporting their best results for several years. This feeds through into a better trading environment for suppliers like Intec. That said, carriers remain cautious about expenditure, and the focus remains on projects which clearly deliver cost, efficiency or customer satisfaction benefits. Intec has a product set which can help fulfil these requirements. Secondly, many of the technical innovations developed in the last few years, such as 3G networks, voice over Internet Protocol (VoIP), and video messaging, are now reaching consumers in large numbers. These changes drive new technology projects that address the complex capabilities that such services require. We have won important and innovative projects in 2004 in all these areas. Our growth comes from focusing on the strengths that have made Intec successful, particularly good customer care, sound implementations and technically strong products. It is therefore pleasing to report that both customer churn and staff turnover remain at very low levels, and certainly a long way below industry averages. We have over 1,000 people worldwide involved directly in the development, implementation and support of our products, working with customers in over 70 countries. A pleasing feature of the year has been the mainly organic growth in new licence sales, up 64% in 2004 following relatively difficult trading conditions in 2003 and 2002. Demand for new licences has been apparent across all markets and product lines, although emerging markets and new technologies have seen the strongest growth. New licences are the lifeblood of a software business, feeding through into both short and long term revenue streams. Our other sources of revenue, recurring revenue and professional services, have also grown very satisfactorily, up 19% and 42% respectively, due to our growing customer base and numerous large projects around the world. In 2005 we expect the balance of revenues to shift somewhat, as the higher levels of professional services associated with Singl.eView projects are reflected in the results. Our customer base has increased in 2004 by 100 customers to a total of 465 companies representing 668 product installations, with important wins announced at Telekom Malaysia, M-Tel (Nigeria), TelePacific, Telecom Egypt, Telenet (Belgium), Telefonica Moviles, Nitel, VIVO (Brazil), China Unicom, Golden Telecom (Russia), PJN (Indonesia), Safaricom, Energis, VimpelCom, Cable & Wireless, and TA Orange (Thailand), among others. Customers have been won in all market sectors, from major fixed line carriers to the latest IP and 3G focused operators. Singl.eView brings us around 67 new contracted installations of which 19 are also existing Intec customers. Some of the best known new Singl.eView customers include Deutsche Telekom, Virgin Mobile, Tele2 and AT&T. We run User Groups and Conferences in each of our operating regions, as well as providing various online and interactive forums and newsletters as ways to support and communicate with clients. The quality of our customer relationships remains of paramount importance to all staff at Intec. Intec now has a substantially expanded Operations and Business Support Systems (OSS/BSS) software product set compared to previous periods, with world class products in retail billing (Singl.eView), multi-service mediation (Inter-mediatE), interconnect settlements (InterconnecT), and dynamic charging/ active mediation (Intec DCP). We also have solutions with growing presence and success in a number of other areas, including service activation (Inter-activatE), content partner management (InterconnecT CPM) and optimised routing (InterconnecT OR). The individual elements within our product portfolio are complementary and we always seek to maximise customer commitment and satisfaction through offering the most complete solution. All carriers needs a core set of OSS/BSS technologies, and Intec's approach has always been to acquire, develop and market the systems, such as billing, which we believe will remain important to carriers regardless of external factors. All regions have performed well in 2004, with the following revenue growth rates: EMEA, up 42%; North America, up 34%; CALA, up 18%; Asia Pacific, up 37%. These are excellent results, particularly when seen against a backdrop of a global telecoms industry that has itself shown little growth in overall size. Outlook 2004 has been a key period in Intec's development, both in terms of our business performance and our future potential. We are now unarguably one of a small group of major suppliers in the OSS/BSS sector, with a product set that we believe is unmatched in breadth and performance. With the capabilities that we have, and the opportunities that we see, I am confident that Intec will continue performing strongly and I look forward to 2005 with confidence. Kevin Adams Chief Executive Officer 29 November 2004 FINANCIAL PERFORMANCE I am pleased to report that in 2004 Intec has once again delivered increased revenues and substantial profit growth against a backdrop of continued challenging market conditions and a weakening dollar. Revenue In the year to 30 September 2004, our seventh year of operations and our fourth full year as a public company, revenue increased by 36% to £68.8 million, against £50.7 million for the equivalent period in 2003. The Singl.eView acquisition contributed £3.1 million to revenue for the month of September. Both revenue and costs have been impacted by the dollar which weakened against sterling by approximately 11%. Had we not suffered this dollar impact we estimate our revenues would have grown by approximately a further 5%. Intec's principal sources of revenue in our core OSS business are from our two major product families, Settlement (InterconnecT & InterconnecT CABS) and Mediation/Activation (Inter-mediatE & Inter-activatE), which together account for 81% of 2004 total revenues. Revenue for these products in 2004 was £55.7m (2003 - £47.7m) giving organic growth of 17%. As reported last year, in September 2003 we acquired the Digiquant business from which we have developed a product range called Intec DCP. DCP deals with the management and billing of next-generation services, and accounted for 10% of revenues in 2004. The Singl.eView product suite, acquired on 27 August 2004, accounted for 4% of current year revenues. Margins and Costs Due to customer and market requirements approximately 45% of Group sales are made in dollars whilst only 26% of the Group's total costs are in dollars. Intec's principal exposure to foreign currency lies in translation risk when the net results and net assets of overseas subsidiaries are translated into Sterling. The movements in average exchange rates during the period have reduced reported costs by approximately £1.7 million. With an estimated reduction in reported revenues of £3.4 million the net impact at the EBITDA level is estimated to be a reduction of £1.7m. Gross margin has improved to 72 % (2003: 70%). This has been achieved by an increased proportion of licence sales and volume upgrades in the year, combined with improved margins on support & maintenance and professional services. Distribution costs of £13.1 million increased by £4.3 million compared to last year's costs of £8.8 million. Of this £3.3 million relates to new spend arising from the Digiquant and Single.View acquisitions. The remaining increase of £1.0 million is in line with increased sales revenue. Development costs of £11.5 million have increased by £1.4 million compared to last year's costs of £10.1 million. An increase of £1.6 million is directly attributable to the acquisitions noted above. We have been able to reduce our spend on the core Intec products by £0.2 million as a result of successful new releases of these products early in the year. Other administrative expenses of £16.6 million have increased by £5.2 million compared to last year's cost of £11.4 million, with £3.7 million attributable to acquisitions. The remaining £1.5 million has been incurred in supporting revenue growth. Earnings Earnings performance in 2004 has significantly improved compared to 2003. This has been achieved through a combination of revenue growth and careful cost management. As such, Intec has been able to deliver EBITDA before exceptional items of £10.7 million (2003: £7.2 million), an increase of 48% despite the impact of the weakening dollar and the 'turn around' challenge of the formerly loss-making Digiquant business. Adjusted earnings per share were 3.57p per ordinary share (2003: 2.17p). We are pleased to report an adjusted profit before tax (after exceptionals) of £7.6 million compared to £5.4 million in 2003, an increase of 41%. The FRS 3 loss after tax and amortisation is £1.7 million (2003: Loss of £3.0 million) Exceptional Items During the period Intec incurred exceptional expenditure of a non operational nature of £0.7 million; these costs are in connection with abortive acquisitions £0.2 million and integration and restructuring costs of £0.5 million. Taxation The major trading companies in the Group have not incurred corporate tax liabilities. The US operations have substantial ongoing tax benefits arising from goodwill allowances which will continue to reduce tax charges against profits in future periods. In addition, there are significant losses brought forward in the US, Canada, Denmark and Ireland. However, we have incurred corporate taxation in a number of our smaller overseas trading subsidiaries and branches amounting to £0.4 million (2003: £0.5 million), offset by a tax credit of £0.4 million (2003: £0.1 million charge) 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 (2003: £0.4 million). This has resulted in an overall tax charge of £0.6million (2003: £1.3 million). Cash Flows and Financial Position We are pleased to report a positive operating cash inflow of £4.6 million. Whilst this is lower than the 2003 cash inflow of £8.5 million it is not unexpected due to the increased working capital requirements arising from larger long term projects. We have continued our focus on improving our trade debtors' collections and as a result have achieved an improvement in the annualised debtor-days ratio of 88 days compared to 92 days at 30 September 2003. Overall our cash resources increased by £16.9 million from £15.3 million at the start of the year to £32.2 million at 30 September 2004. A large proportion of this increase arose from a net inflow of £13.9 million raised through the Placing and Open Offer associated with the Singl.eView transaction. Our cash and cash equivalents of £32.2 million are more than sufficient to meet the Group's current operating requirements. A significant proportion of our liquid funds are invested in a cash fund to spread risk and improve yields. Acquisitions Intec has a well-developed strategy and process for business expansion through both organic development and carefully-evaluated and managed acquisitions. The following progress review considers acquisitions made during the 2004 financial year and provides an update on the 2003 acquisition of Digiquant A/S. Digiquant A/S As previously reported, on 17 September 2003, Intec acquired Danish company Digiquant A/S. During 2004 the provisional fair values disclosed in the prior year financial statements have been finalised and are detailed in Note 3 to the Financial Statements. Singl.eView On 27 August 2004, Intec acquired the 'Singl.eView' retail billing software division from ADC Telecommunications Inc. The total consideration, settled in cash, amounted to US$74.5 million (£40.6 million) plus acquisition costs of £1.9 million. Of the $74.5 million, $71 million was raised through a vendor placing of 60.4 million Intec shares to an existing shareholder, General Atlantic Partners, and its related entities. The remaining $3.5 million was funded from Intec's own cash reserves. As part of the acquisition process, Intec also conducted a Placing and Open Offer of 31.2 million shares, raising net proceeds of £17.1 million after issue costs. In the post acquisition period, Singl.eView contributed £3 million to revenue and an operating loss of £0.9 million after goodwill amortisation of £0.7 million. Singl.eView currently has 610 staff based primarily in Australia, Canada and Ireland. Intec has a detailed integration plan in respect of Singl.eView and has made significant progress in implementing this plan in the period since acquisition. Accounting policy adjustments and provisional fair values have been made in respect of this acquisition as detailed in Note 3 to the accounts. We expect that there will be adjustments to these provisional fair values in the future as we work through the contracts inherited at the time of acquisition. John Arbuthnott FCMA Finance Director 29 November 2004 INTEC TELECOM SYSTEMS PLC FINANCIAL HIGHLIGHTS For the year ended 30 September 2004 2004 2003 % Note £000 £000 change Revenue 68,828 50,673 36% Adjusted profit before tax (i) 8,277 5,390 54% Loss before tax (i) (1,187) (1,780) (33%) EBITDA before exceptional items (ii) 10,667 7,222 48% Operating loss (1,369) (1,914) Basic loss per share (0.80p) (1.59p) Adjusted earnings per share (iii) 3.57p 2.17p 65% Notes to the Financial Highlights £000 £000 (i) Loss before tax (1,187) (1,780) Amortisation of goodwill and other intangibles 8,762 7,170 Exceptional administrative expenses 702 - Adjusted profit before tax 8,277 5,390 (ii) Adjusted profit before tax 8,277 5,390 Net interest income (182) (134) Depreciation 2,572 1,966 EBITDA before exceptional items 10,667 7,222 (iii) Adjusted earnings per share calculation based on the following adjusted earnings after tax: Loss after tax (1,737) (3,042) Amortisation of goodwill and other intangible assets 8,762 7,170 Exceptional administrative expenses 702 - Adjusted earnings after tax 7,727 4,128 KEY CUSTOMER DATA 2004 2003* No. No. Cumulative: Contracted customer base 417 365 14% Contracted customers from current year acquisitions 48 - Total contracted customer base 465 365 27% Cumulative: Contracted installations 601 526 14% Contracted installations from current year acquisitions 67 - Total contracted installation base 668 526 27% * Prior year information is shown net of adjustments following a redefinition of the criteria for recognising a new customer/installation and in recognition of customer consolidations in the market place. INTEC TELECOM SYSTEMS PLC CONSOLIDATED PROFIT AND LOSS ACCOUNT For the year ended 30 September 2004 Before Exceptionals exceptionals and and Intangible intangible amortisation amortisation (note 2) Total Total 2004 2004 2004 2003 Note £000 £000 £000 £000 TURNOVER Continuing operations 65,774 65,774 50,673 Acquisitions 3,054 3,054 - Total turnover 2,4 68,828 68,828 50,673 Cost of sales 4 (19,550) (19,550) (15,172) Gross profit 49,278 49,278 35,501 Distribution costs 4 (13,068) (13,068) (8,784) Administrative expenses: Development expenditure (11,494) - (11,494) (10,073) Amortisation of goodwill and other intangible assets 7 - (8,762) (8,762) (7,170) Exceptional administrative expenses - (702) (702) - Other administrative expenses 4 (16,621) - (16,621) (11,388) Total administrative expenses 4 (28,115) (9,464) (37,579) (28,631) OPERATING LOSS Continuing operations 8,059 (8,480) (421) (1,914) Acquisitions 36 (984) (948) - Group operating loss 4,5 8,095 (9,464) (1,369) (1,914) Interest receivable and similar income 287 - 287 340 Interest payable and similar charges (105) - (105) (206) LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION 2 8,277 (9,464) (1,187) (1,780) Tax charge on loss on ordinary activities 5 (550) - (550) (1,262) LOSS ON ORDINARY ACTIVITIES AFTER TAXATION AND RETAINED LOSS FOR THE FINANCIAL YEAR TRANSFERRED FROM RESERVES 13 7,727 (9,464) (1,737) (3,042) Adjusted Basic Basic Earnings/(loss) per share - diluted 6 3.57p (4.37p) (0.80p) (1.59p) INTEC TELECOM SYSTEMS PLC CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES For the year ended 30 September 2004 2004 2003 £000 £000 LOSS FOR THE FINANCIAL YEAR (1,737) (3,042) Exchange translation differences arising on foreign currency net investments (868) (278) TOTAL RECOGNISED GAINS AND LOSSES IN THE YEAR (2,605) (3,320) RECONCILIATION OF MOVEMENTS IN CONSOLIDATED SHAREHOLDERS' FUNDS For the year ended 30 September 2004 Restated (see note 1) 2004 2003 £000 £000 Loss for the financial year (1,737) (3,042) Other recognised gains and losses relating to the year (868) (278) Issue of share capital net of associated expenses 55,316 6,727 Other reserve (236) 236 Increase in shareholders' funds 52,475 3,643 Opening shareholders' funds 89,755 86,112 Closing shareholders' funds 142,230 89,755 INTEC TELECOM SYSTEMS PLC CONSOLIDATED BALANCE SHEET 30 September 2004 Restated (see note 1) 2004 2003 Note £000 £000 FIXED ASSETS Intangible assets 7 103,459 69,106 Tangible assets 7,530 4,400 Investments 6 6 110,995 73,512 CURRENT ASSETS Stocks - 3 Debtors 8 40,634 22,648 Investments 3,966 5,616 Cash at bank and in hand 28,216 9,724 72,816 37,991 CREDITORS: amounts falling due within one year 9 (8,962) (6,996) NET CURRENT ASSETS 63,854 30,995 TOTAL ASSETS LESS CURRENT LIABILITIES 174,849 104,507 CREDITORS: amounts falling due after more than one year 10 (2,817) (69) PROVISIONS FOR LIABILITIES AND CHARGES 11 (3,403) (2,050) ACCRUALS AND DEFERRED INCOME 12 (26,399) (12,633) TOTAL NET ASSETS 142,230 89,755 CAPITAL AND RESERVES Called up share capital 13 2,998 2,066 Share premium account 13 160,462 238,697 Own shares 13 (95) (95) Merger reserve 13 6,768 6,768 Other reserve 13 - 236 Foreign exchange reserve 13 (1,854) (986) Profit and loss account 13 (26,049) (156,931) EQUITY SHAREHOLDERS' FUNDS 142,230 89,755 INTEC TELECOM SYSTEMS PLC CONSOLIDATED CASH FLOW STATEMENT Year ended 30 September 2004 2004 2003 Note £000 £000 Net cash inflow from operating activities (i) 4,595 8,537 Returns on investments and servicing of finance Interest received 288 340 Interest paid and similar items (83) (79) Interest element of finance lease rental payments (23) - 182 261 Taxation Overseas taxation paid (1,123) (898) Capital expenditure and financial investment Payments to acquire tangible fixed assets (2,367) (2,056) Proceeds on disposal of fixed assets - 49 (2,367) (2,007) Acquisitions Investment in subsidiaries 3(c) (42,567) (3,694) Net cash acquired with subsidiaries 1,354 505 (41,213) (3,189) Cash (outflow)/inflow before management of liquid resources and financing (39,926) 2,704 Management of liquid resources Decrease/(increase) in cash investments/term deposits 1,652 (459) Financing Issue of ordinary share capital 56,840 59 Share issue costs charged to the share premium account (1,760) (11) Loan (note 16) 2,223 (720) Capital element of finance lease payments (152) - Increase in cash in the year (ii),(iii) 18,877 1,573 INTEC TELECOM SYSTEMS PLC NOTES TO THE CASH FLOW STATEMENT Year ended 30 September 2004 (i) RECONCILIATION OF OPERATING LOSS TO NET CASH IN FLOW FROM OPERATING ACTIVITIES 2004 2003 £000 £000 Operating loss (1,369) (1,914) Depreciation 2,572 1,966 Amortisation of goodwill and other intangible assets 8,762 7,170 Loss/(gain) on disposal of fixed assets 45 (5) Decrease in stock - 61 Increase in debtors (6,300) (894) Increase in creditors 885 2,153 Net cash inflow from operating activities 4,595 8,537 (ii) RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS 2004 2003 £000 £000 Increase in cash in the year 18,877 1,573 Net cash outflow from increase in net debt and finance lease (2,071) - Net cash inflow from decrease in debt acquired with subsidiary - 720 Net cash (outflow)/inflow from increase in liquid resources (1,652) 459 Change in net funds resulting from cash flows 15,154 2,752 New finance leases (201) - Finance leases acquired with subsidiary - (210) Debt acquired with subsidiary - (720) Translation differences (383) 1 Movement in net funds 14,570 1,823 Net funds at 1 October 15,130 13,307 Net funds at 30 September 29,700 15,130 (iii) ANALYSIS OF MOVEMENT IN NET FUNDS 30 September Other non Foreign 2003 cash Exchange 30 September £000 Cash flow transactions translation 2004 £000 £000 £000 £000 Cash in hand and at bank 9,724 18,877 - (385) 28,216 Finance leases (210) 152 (201) - (259) Debt due after one year - (2,223) - - (2,223) Current asset investments 5,616 (1,652) - 2 3,966 Total 15,130 15,154 (201) (383) 29,700 (iv) ACQUISITION CASH FLOWS The Singl.eView acquisition contributed £818,000 to the Group's net operating cash flow, paid £2,000 in respect of net returns on investment and servicing of finance, £16,000 in respect of taxation and paid £192,000 in respect of capital investment in fixed assets. INTEC TELECOM SYSTEMS PLC NOTES TO THE FINANCIAL INFORMATION 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 2004 or 2003, but is derived from those accounts. Statutory accounts for 2003 have been delivered to the Registrar of Companies and those for 2004 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. In accordance with UITF Abstract 38, own shares held through the ESOT (Employee Share Option Trust) have been deducted in arriving at shareholders' funds. The change is retrospective and the comparative consolidated balance sheet has been restated to reflect a reclassification of the investment in own shares from Fixed Asset Investments to Equity Shareholders' Funds. This resulted in a reduction of net assets and equity shareholders' funds of £95,000. The preliminary announcement was approved by the Board of Directors on 29 November 2004. 2. TURNOVER AND SEGMENTAL REPORTING Geographic areas - analysis by origin Gross turnover Inter-segment turnover Total turnover 2004 2003 2004 2003 2004 2003 £000 £000 £000 £000 £000 £000 Turnover United Kingdom 32,670 25,965 (1,849) (576) 30,821 25,389 Continental Europe 5,889 612 - - 5,889 612 Africa 266 765 - - 266 765 Asia-Pacific 2,126 549 - - 2,126 549 North America and Canada 29,600 23,528 (1,964) (1,857) 27,636 21,671 South America 2,090 1,687 - - 2,090 1,687 72,641 53,106 (3,813) (2,433) 68,828 50,673 Geographic markets - analysis by destination Turnover by destination 2004 2003 £000 £000 United Kingdom 7,280 5,135 Continental Europe 11,030 10,979 Eastern Europe 4,599 2,902 Middle East 633 1,077 Africa 7,451 1,670 Europe, Middle East and Africa (EMEA) 30,993 21,763 Asia-Pacific 9,090 6,621 North America and Canada 20,756 15,538 Caribbean and Latin America 7,989 6,751 68,828 50,673 Turnover by type Turnover by activity is set out below. Turnover by activity 2004 2003 £000 £000 Licence Sales 19,123 11,635 Professional services income: Implementation, migration, consulting and training 17,499 11,620 Hardware 466 113 Non-Telecom - custom network solutions 1,651 2,052 19,616 13,785 Recurring income: ASP Service 4,337 3,532 Volume upgrade licences 4,320 3,442 Support and maintenance fees 21,432 18,279 30,089 25,253 68,828 50,673 Loss before taxation Before After amortisation Amortisation of Exceptional amortisation of of goodwill and administrative goodwill and goodwill and other expenses exceptional items exceptional intangibles £000 £000 Year ended 30 September 2004 items £000 £000 United Kingdom 1,263 (1,402) (455) (594) Continental Europe (363) (2,849) (247) (3,459) Africa 240 - - 240 Asia-Pacific 55 - - 55 North America & Canada 7,216 (4,511) - 2,705 Caribbean and Latin America (134) - - (134) Profit/(loss) before taxation 8,277 (8,762) (702) (1,187) Exceptional administrative expenses comprise abortive acquisition costs of £173,000 and integration costs incurred during the period of £529,000. Before After amortisation of Amortisation of Exceptional amortisation of goodwill and goodwill and Administrative goodwill and exceptional other expenses exceptional items intangibles £000 items Year ended 30 September 2003 £000 £000 £000 United Kingdom 2,528 (2,574) - (46) Rest of Europe 384 (69) - 315 Asia-Pacific 660 - - 660 Africa 594 - - 594 North America & Canada 710 (4,527) - (3,817) Caribbean and Latin America 514 - - 514 Profit/(loss) before taxation 5,390 (7,170) - (1,780) Excluding Including unamortised Unamortised unamortised goodwill goodwill goodwill 2004 2004 2004 2003 Net assets £000 £000 £000 £000 United Kingdom 22,470 1,823 24,293 13,283 Rest of Europe 4,814 49,979 54,793 11,107 Africa 208 - 208 (219) Asia-Pacific (5) - (5) (16) North America and Canada 11,796 50,599 62,395 65,186 Caribbean and Latin America 546 - 546 414 Net assets 39,829 102,401 142,230 89,755 It is neither practicable nor meaningful to allocate either profit before taxation or net assets by client location or activity. 3. ACQUISITIONS a) Current year acquisitions -Singl.eView On 27 August 2004, the Group acquired the 'Singl.eView'' retail billing software division from ADC Telecommunications, Inc.. The total consideration, settled in cash, amounted to US$74.5 million (£40.6 million) plus acquisition costs of £1.9 million. Goodwill arising on acquisition has been capitalised and is being amortised over five years from the date of acquisition. Goodwill charged in the period amounts to £702,000. Alignment of Net assets at date of acquisition Net book accounting Fair value Provisional and provisional fair value value policies adjustments fair value £000 £000 £000 £000 Intangible fixed assets 2,724 (2,724) - - Tangible fixed assets 2,562 - - 2,562 Debtors 6,372 6,096 - 12,468 Cash 1,354 - - 1,354 Deferred tax 125 (125) - - Deferred income (5,519) (4,653) - (10,172) Creditors due within one year (2,876) (1,132) - (4,008) Provisions due within one year (1,223) - (681) (1,904) Net assets acquired 3,519 (2,538) (681) 300 Goodwill arising on acquisition 42,160 42,460 Consideration paid in cash 40,559 Acquisition costs 1,901 42,460 The accounting policy alignments principally represent: a) adjustments in respect of revenue recognition on contracts in progress so that amounts previously recognised or deferred under US GAAP are now recognised under a percentage of completion basis, subject to appropriate deferrals of revenue where significant contractual performance obligations have yet to be met; b) treatment of deferred tax and balance sheet presentation with the requirements of UK generally accepted accounting principles. The fair value adjustments represent: a) the estimated cost of completing certain onerous fixed price contracts; A number of long term contracts acquired are in progress, and where appropriate, provisional fair value adjustments have been made. b) estimated costs to complete certain ongoing legal matters; c) estimated provisions for losses on onerous leases. The provisional fair value adjustments will be reviewed regularly during the forthcoming financial year. The results of Singl.eView for the period from 1 November 2003 up to the acquisition date and the prior financial year are disclosed on the following page. Period from 1 November 2003 Year ended to 31 October 27 August 2003 2004 £000 £000 Turnover 30,989 53,847 'Exceptional' items: Restructuring costs 4,576 2,414 Termination of operation 1,979 - Loss on sale of asset 122 - Onerous leases - 2,196 Fixed asset write-down - 275 Other - 10 Operating loss (14,942) (18,138) Amounts written off investments - (8,744) Interest (316) 311 Loss before taxation (15,258) (26,571) Taxation (137) 1,883 Loss after taxation (15,395) (24,688) b) Prior year acquisitions Digiquant A/S As disclosed in the 2003 annual report, the Group acquired Digiquant A/S in September 2003. Following a review of the fair value of the recorded assets and liabilities a number of fair value adjustments were identified. The fair value adjustments on the acquisition of Digiquant A/S relate to the recovery of bad debts, the cost of completing certain fixed price contracts and the reversal of accruals no longer required. Accordingly a revised fair value table is disclosed below: Fair value table Alignment Net book of Net liabilities at date of acquisition value at Accounting Fair value Fair value and provisional fair value acquisition policies adjustments to Group £000 £000 £000 £000 Tangible fixed assets 1,076 - - 1,076 Debtors 3,172 - (192) 2,980 Long term deposits 595 - - 595 Cash 505 - - 505 Creditors (amounts falling due within one year) (3,482) - - (3,482) Creditors (amounts falling due after one year) (141) - - (141) Provisions for liabilities and charges (2,074) - (1,129) (3,203) Accruals and deferred income (2,596) - 370 (2,226) Net liabilities acquired (2,945) - (951) (3,896) Goodwill arising on acquisition 10,738 6,842 Consideration paid in shares 6,679 Acquisition costs 163 6,842 c) Reconciliation to cash flow statement £000 Consideration for Singl.eView 40,559 Acquisition costs 1,901 Deferred consideration payments on prior period acquisition 107 42,567 4. ANALYSIS OF CONTINUING OPERATIONS AND ACQUISITIONS Year ended 30 September 2004 Continuing Acquisitions Total £000 £000 £000 TURNOVER 65,774 3,054 68,828 Cost of sales (17,960) (1,590) (19,550) GROSS PROFIT 47,814 1,464 49,278 Distribution costs (12,771) (297) (13,068) Development expenditure (11,239) (255) (11,494) Amortisation of goodwill and other intangibles (8,060) (702) (8,762) Exceptional items (420) (282) (702) Other administrative expenses (15,745) (876) (16,621) Total administrative expenses (35,464) (2,115) (37,579) Operating profit before goodwill and other 8,059 36 8,095 intangibles Exceptional items (420) (282) (702) Amortisation of goodwill and other intangibles (8,060) (702) (8,762) Total operating loss after goodwill (421) (948) (1,369) 5. TAX ON LOSS ON ORDINARY ACTIVITIES 2004 2003 £000 £000 Current taxation: UK corporation tax at 30% (2003: 30%) - 555 Overseas taxation 875 974 Prior year adjustment (305) (127) Total current tax 570 1,402 Deferred taxation: Origination and reversal of timing differences (20) (140) Tax on loss on ordinary activities 550 1,262 The standard rate of current tax for the year is 30% (2003: 30%), based on the UK Corporation tax rate, since the largest source of the Group's revenues is in the UK. 6. (LOSS)/EARNINGS PER ORDINARY SHARE 2004 2003 £000 £000 Basic and diluted loss (1,737) (3,042) Amortisation of goodwill and other intangible assets 8,762 7,170 Exceptional items 702 - Adjusted earnings after tax 7,727 4,128 Number Number Basic and diluted weighted average number of shares 216,147,912 190,889,194 Pence Pence Basic and diluted loss per ordinary share (0.80) (1.59) Amortisation of goodwill and other intangible assets 4.05 3.76 Exceptional items 0.32 - Adjusted earnings per ordinary share 3.57 2.17 For the year ended 30 September 2004 and the year ended 30 September 2003, 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. Adjusted earnings per ordinary share has been calculated and disclosed above as the Directors consider it gives a more comparable indication of underlying trading performance. 7. INTANGIBLE ASSETS Intellectual Property Rights Goodwill Total £000 £000 £000 Cost At 1 October 2003 2,022 230,969 232,991 Additions - 43,119 43,119 Translation differences (11) - (11) At 30 September 2004 2,011 274,088 276,099 Accumulated amortisation At 1 October 2003 754 163,131 163,885 Amortisation 206 8,556 8,762 Translation differences (7) - (7) At 30 September 2004 953 171,687 172,640 Net book value At 30 September 2004 1,058 102,401 103,459 At 30 September 2003 1,268 67,838 69,106 Additions relates to the goodwill arising upon acquisition of the Singl.eView business (£42,160,000), fair value adjustments arising on the prior year acquisition of Digiquant (£951,000 - see note 3(b)) and a minor increase in the final deferred consideration paid on the 2002 acquisition of the operational support systems business from ICL (£8,000). 8. DEBTORS Group Company 2004 2003 2004 2003 £000 £000 £000 £000 Trade debtors 22,532 13,815 - - Amounts owed by subsidiary undertakings - - 44,744 28,660 Corporation tax recoverable 349 196 - - Overseas tax recoverable 42 85 - - Deferred tax (see Note 20) 266 240 - - Other debtors 1,308 438 98 15 Prepayments and accrued income: Due within one year 15,554 7,285 24 153 Due after more than one year (see note below) 583 589 - - 40,634 22,648 44,866 28,828 Accrued income is £11.5 million (2003 £5.8 million). The prepayments and accrued income due after more than one year relate to deposits on leased properties due after more than five years. 9. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR Group Company 2004 2003 2004 2003 £000 £000 £000 £000 Bank loans and overdrafts - 125 - - Obligations under finance leases 128 141 - - Trade creditors 4,946 2,233 695 163 Corporation tax 915 1,169 155 155 Overseas tax 103 625 - - Other creditors including other taxation and social security 2,870 2,604 70 - Deferred/contingent consideration - 99 - - 8,962 6,996 920 318 10. CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR Group Company 2004 2003 2004 2003 £000 £000 £000 £000 Loan 2,223 - 2,223 - Obligations under finance leases 131 69 - - Other creditors 463 - - - Total 2,817 69 2,223 - Loan On 27 August 2004, the Company completed a credit agreement between the Company and ADC Telecommunications, Inc. upon acquisition of the Singl.eView business. Under the credit agreement, there is a credit facility of up to $6 million, maturing 18 months from the date of the credit agreement. $4 million was borrowed upon completion of the acquisition. The loan attracts interest at a variable annual rate of interest equal to the rate as published from time to time in the Wall Street Journal, New York edition as the 'prime rate', currently 4.75% Group Company 2004 2003 2004 2003 £000 £000 £000 £000 Maturity of obligations under finance leases Within one year (note 15) 128 141 - - More than one year but less than five years 131 69 - - 259 210 - - 11. PROVISIONS FOR LIABILITIES AND CHARGES Onerous lease Other commitments Provisions Total Group £'000 £'000 £'000 At 1 October 2003 2,050 - 2,050 Additions 1,223 - 1,223 Fair value adjustment - 1,810 1,810 Released to profit and loss (413) (1,237) (1,650) Exchange differences (30) - (30) At 30 September 2004 2,830 573 3,403 Onerous lease commitments disclosed above relate to future estimated losses on sub-let or vacant lease commitments acquired with the Digiquant and Singl.eView businesses. Amounts provided relate to the period up to the first option to break on a property in Denmark and properties acquired with the Singl.eView acquisition. The first option to break for the Denmark property is in 2011 and accordingly the provision above includes the discounted fair value of the future losses up to this point. Other provisions disclosed above relate to future estimated costs to complete certain ongoing legal matters in respect of Singl.eView, a potential repayment of a grant previously received by Singl.eView and the costs of completing certain onerous fixed price implementation contracts. These provisions are expected to be utilised within one year. 12. ACCRUALS AND DEFERRED INCOME Group Company 2004 2003 2004 2003 £000 £000 £000 £000 Amounts falling due within one year Accruals 8,939 5,924 366 294 Deferred income 17,460 6,709 - - 26,399 12,633 366 294 13. STATEMENT OF MOVEMENTS ON SHARE CAPITAL AND RESERVES Called Share Foreign Profit up share premium Merger Other Own exchange and loss Group capital account reserve reserve shares reserve account Total £000 £000 £000 £000 £000 £000 £000 £000 As at 1 October 2003 2,066 238,697 6,768 236 (95) (986) (156,931) 89,755 Issues of ordinary 932 56,144 - (236) - - - 56,840 shares Share issue expenses - (1,760) - - - - - (1,760) Reduction in share premium account - (132,619) - - - - 132,619 - Loss for the year - - - - - - (1,737) (1,737) Foreign exchange translation - - - - - (868) - (868) At 30 September 2004 2,998 160,462 6,768 - (95) (1,854) (26,049) 142,230 The other reserve relates to the shares that were issued subsequent to the year end. Own shares are held by the Intec Employee Share Trust. The trust currently holds 270,000 shares in the Company at a cost of £2.05 each. By special resolution, the Company reduced its share premium account from £239,342,514.72 to £106,723,863.44 and this was confirmed by an order of the High Court of Justice on 5 May 2004. The order was registered pursuant to section 138 of the Act on 6 May 2004. This information is provided by RNS The company news service from the London Stock Exchange

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