Final Results

Intec Telecom Systems PLC 07 December 2005 Intec Telecom Systems PLC Audited results for the year ended 30 September 2005 Earnings1 increase 63% on revenue up 69% to £116.2 million; turnaround of acquired Singl.eView business underlines transformation of Intec into a market leading telecoms solution provider London, 7 December 2005: Intec Telecom Systems PLC ("Intec" or "the Company"), a leading supplier of billing software solutions to the global telecoms industry, today announced its audited results for the year ended 30 September 2005 ("FY 2005"). Revenue and earnings have grown almost 70% over the same period last year as a result of the turnaround of the Singl.eView acquisition, with Intec making a clear transition to being one of the world's leading BSS/OSS suppliers in terms of both business performance and product capability. Financial Highlights • Revenue up 69% to £116.2m (Year ended 30 September 2004 ("FY 2004"): £68.8m) • EBITDA before exceptionals up 58% to £16.9m (FY 2004: £10.7m) • License sales up 33% to £25.4m (FY2004:£19.1m) • Adjusted PBT up 63% to £13.5m (FY 2004: £8.3m) • Loss before tax of £4.0m (FY 2004: loss of £1.2m) after £16.4m amortisation charge (FY 2004: £8.8m) • Adjusted EPS up 7% to 3.82p (FY 2004: 3.57p); Basic loss per share (2.00p) (FY 2004: (0.80p)) • Operating cash inflow of £0.6m (FY 2004: inflow of £4.6m) • Net cash and current asset investments of £23.8m (FY 2004: £32.2m) Operational Highlights • Successfully turned around the Singl.eView business; made profitable from first quarter of ownership. • Original Intec business continues to win market share. • Increase in frequency of multi-product, multi-million pound deals. • Transformation of Intec into tier 1 vendor of business critical solutions. • Contract wins across all products and all regions including two RBOCs in the USA, MTN, The Carphone Warehouse, Saudi Telecom and VimpelCom. • New solutions launched, including Singl.eView v6, Intec IPTV and Intec Trading & Routing. • New Centre of Excellence opened in Bangalore. "2005 has been a year of transition in which Intec has increased its market share in its established business, created excellent momentum and good profitability in Singl.eView, and built a strong foundation for continued, profitable growth," said Intec's non-executive chairman, John Hughes. "It has also been a year of investment, in particular in new offshore facilities, new software solutions, and improved operational infrastructure, that are vital to our future competitive performance." "The impact of Singl.eView on Intec has been dramatic. We are delivering on its promise, particularly in terms of our market presence, and in establishing relationships with the most senior management at tier 1 telcos," added Intec CEO Kevin Adams. "As well as beating expectations for both revenue and earnings, we have transformed the Singl.eView business from substantial losses to profitability. Despite strong marketplace competition, we have won our largest ever deals, which bring long-term revenue streams." 1 Earnings is loss before tax adjusted for goodwill amortisation and exceptional items ("Adjusted profit before tax"). A reconciliation between adjusted profit before tax and the loss before tax is shown under financial highlights. Notes: • An analysts meeting will be held at 9.30am on 7 December 2005 at the offices of Financial Dynamics, Holborn Gate, 26 Southampton Building, London WC2A 1PB. Please contact Financial Dynamics on +44 (0)20 7831 3113 for details. • Digital images of the Intec executive directors can be downloaded from www.vismedia.co.uk. • Investor website can be found at www.intecbilling.com For more information, please contact: Kevin Adams, Chief Executive Officer, Intec Telecom Systems PLC Tel: +44 (0)1483 745800 Robert Gibb, Investor Relations Manager, Intec Telecom Systems PLC Tel: +44 (0)1483 745941 or 745800; Mob: +44 (0)7876 656 896 Email: robert.gibb@intecbilling.com James Melville-Ross/ Edward Bridges, Financial Dynamics Tel: +44 (0)20 7831 3113; Email: intec@fd.com Shaun Dobson, Bridgewell Securities Tel: +44 (0)20 7003 3000; Email: shaun.dobson@bridgewell.co.uk CHAIRMAN'S STATEMENT Since March 2005, when I took over the chairmanship of Intec, I have been impressed by the entrepreneurial spirit within the Company, the sophistication of its software solutions, and the depth of support which it enjoys from its many customers and business partners. These factors give me a real sense of Intec's considerable potential over the coming years. The transformation of the Company from a small start-up with one product and six customers in 1997 to a multi-product, global leader with revenues of £116 million and hundreds of customers is inspiring. The determination to succeed that has taken Intec this far is still ingrained within the Company's culture, and I must begin my report by thanking and congratulating everybody who works at Intec for their contribution. Intec has an impressive track record of integrating acquired businesses, having bought 10 companies in eight years. These acquisitions have brought exciting new product offerings, many customers, experienced staff and new locations to add to Intec's global reach. The addition of Singl.eView at the end of the 2004 financial year has transformed the Company in every sense. Not only did this deal take Intec into the largest sector of the BSS/OSS software market, with a truly tier 1 product, but also it opened the door for multi-product, multi-million pound contracts that create long-term commitments with major customers worldwide. I must also say farewell to two non-executive directors, Thomas Ivarson and Mike Frayne (formerly executive chairman and one of Intec's co-founders), who stepped down on 6 December 2005. Both have made invaluable contributions to Intec, and I thank them on behalf of the Company and wish them well in their future endeavours. RESULTS Revenue for the year was £116.2 million, an increase of 69 per cent over the £68.8 million recorded in 2004. At a time of strong market pressures, this is a praiseworthy achievement. Adjusted earnings per share was up seven per cent to 3.82p (2004: 3.57p). The 58 per cent growth in EBITDA before exceptionals and the 63 per cent rise in adjusted profit before tax were also creditable against a background of continuing investment in product development, Intec offices and infrastructure, professional services initiatives and distribution channels. Further discussion is included in the overview of financial results. THE MARKET Intec is well-positioned in a marketplace that is both dynamic and highly competitive. The communications industry is experiencing rapid change, driven by technologies like broadband, 3G wireless and IPTV, as well as changing patterns of consumer behaviour, for example the convergence of fixed and mobile services. Intec has advanced solutions which address these needs, and much of its future investment in products, and their distribution, will go towards creating increased business in these areas. Nevertheless, Intec remains focused on developing and delivering solutions for which clear customer demand can be forecast. OUTLOOK The Singl.eView acquisition has strengthened Intec's position as a global leader in BSS/OSS solutions. It has created a strong opportunity to benefit from the exciting services making the news within the telecommunications sector, such as IPTV, VoIP and 3G. Our market remains very competitive, and we must continue to adapt as demand patterns change, but I remain very optimistic about the future prospects for Intec to continue to grow its revenues and earnings, and to offer good returns to shareholders. John Hughes Chairman 6 December 2005 CHIEF EXECUTIVE OFFICER'S REVIEW 2005 has been a critical year for Intec. When we decided in early 2004 to enter the largest and most competitive sector in BSS/OSS - retail billing and customer management - it was arguably the biggest challenge we had faced in our history as a business. Yet we felt that it was a step we needed to take, because we were confident that it was the best road towards our goal of becoming one of the few really key players in our industry. A year on, and the impact on almost every aspect of our business has been substantial. The changes included doubling our staff team (including growing our professional services group to over 800 people), adding high profile new customers such as Virgin Mobile and Deutsche Telekom, and bringing us an outstanding new product family in Singl.eView. The global nature and worldwide reach of Intec is clearly demonstrated by the fact that 90 per cent of revenue was generated outside the UK, Intec's domicile country. Revenue for our Europe, Middle East & Africa (EMEA) region - which is headquartered in Woking, UK - rose by 74 per cent to £53.9 million or 46 per cent of the total. Within this region, revenues in Continental Europe, the Middle East and Africa rose by 126 per cent, 94 per cent and 73 per cent, respectively. North America (NA), which encompasses the US and Canada - based in Atlanta, USA - recorded an exceptionally strong increase in revenue of 100 per cent to £41.4 million or 36 per cent of the total. The North American market has suffered most from the structural problems in the telecoms sector that have impacted all suppliers in the last few years, but it also appears to be making the fastest recovery, driven by consumer appetite for new services and technologies. Intec has always had a solid footprint in this market, and the good result in 2005 reflects both improving market conditions and customer investment in next generation projects where Intec is well placed to succeed. Our largest orders in 2005 have been won in the US with Singl.eView, and it is pleasing to see this solution contribute significantly to the group. We have identified several major growth drivers for Intec: Industry rejuvenation - After several years of tight economic conditions in the communications sector there is evidence of a slow but steady recovery in the market, which should result in a general increase in capital expenditure by telcos. Communications services are a key part of modern consumer expenditure patterns, and global telecommunications traffic continues to grow steadily, particularly in developing markets. Investment in new BSS/OSS projects to match this demand is inevitable, as carriers seek to improve efficiency and customer service quality. Next generation services - New initiatives, such as third generation mobile phone networks (3G), voice calls over the Internet (VoIP), television delivered via the Internet (IPTV), the rapid growth of the downloaded content market, and new business models such as VNOs and MVNOs, are all stimulating new BSS/OSS spend. Intec has solutions in place for all of these new services, with customers already secured, and further work is progress to develop our position. Legacy replacement - A sizeable number of billing applications in use today are legacy systems, developed by carriers for their own use. Many, but not all, lack the functionality and performance required by new services and increased traffic volumes, resulting in loss of competitive edge for operators. In a sector driven by new service bundles, a growing focus on customer care and highly competitive pricing, there is considerable benefit from replacement of older systems with state-of-the-art, commercially available software solutions.. Historically, Intec has reported the total number of all of its contracted customers, regardless of the nature of our engagement with them. From this report onwards, we have decided to modify this policy to achieve greater clarity, and to better reflect the reality of our business as a tier 1 BSS/OSS solutions vendor. Around 20 per cent of our previously reported customers have contracted with us for bureau services, primarily in the US, with the balance being fully licensed users of our software. With a few notable exceptions, our bureau customers individually generate only modest revenue streams, although the bureau business as a whole is efficient and profitable. Therefore, we will in future only report licensed software customers, as these comprise around 95 per cent of our revenues. It should be noted that we are not de-emphasising our successful bureau business, but merely removing the distortive effect it has on reported customer numbers. With this change in methodology, Intec's customer base rose during FY 2005 to 599 installations in 363 companies (2004: 546 installations in 334 companies on a comparable, pro-forma basis). This growth has been achieved across all products within the Intec portfolio. In addition, it is pleasing to note that several new Singl.eView contracts, which were not visible at the time of the acquisition in August 2004, have been bid and won under Intec's ownership. Customer wins of note in 2005 include Saudi Telecom Corporation, Bezeq of Israel, South Africa-based MTN (Singl.eView), two major US carriers in separate deals (both including Singl.eView), Interconnect Clearinghouse Nigeria (settlement and mediation), The Carphone Warehouse Group PLC (Singl.eView), VimpelCom (Intec DCP and mediation added alongside an existing settlements system), Indosat, Medallion Communications of Nigeria (settlements and mediation) and Beijing Mobile, a subsidiary of China Mobile (mediation). Since year end, these have been joined by Telecommunications Services of Trinidad and Tobago (activation and settlements plus an upgrade of the existing mediation system) and Brazilian telecom operator CTBC (mediation). Intec has developed a product portfolio that includes several global market leaders, including its Settlements and Mediation products. The Company works hard to preserve its lead at the forefront of BSS/OSS by being responsive to trends in the market, by ensuring it understands customers' changing needs and by maintaining a clear roadmap for each product set and a committed continued investment. Having a comprehensive spectrum of solutions that work together seamlessly is important at a time that customers are proactively seeking to reduce their supplier numbers. Also notable was the announcement around year end of a solution, Intec IPTV, related to television service over Internet Protocol networks (IPTV). This pre-integrated offering from Intec addresses key service provider challenges surrounding customer interaction and the management and charging of IPTV services. These include rating, charging and balance management for different payment models; real-time service activation and provisioning; interactive customer self-care; and content partner management for revenue sharing and settlement. Outlook Intec has begun its 2006 financial year from a strong position, with good visibility of committed revenues and a significant pipeline of opportunities. Our product set meets clear needs within our growing customer base, and we have some exciting new solutions recently launched or in late stages of development. We are still only in the early stages of exploring the full potential of Singl.eView and the increased capability and visibility it gives us. As a result, we start 2006 with confidence. Kevin Adams, Chief Executive Officer 6 December 2005 OVERVIEW OF FINANCIAL RESULTS In 2005, Intec has experienced a year of substantial economic and organisational change. Against this background, the attainment of very sound financial results is very gratifying, and a testament to the hard work of Intec staff, and to the continuing support of our customers, partners and advisers. REVENUE In the year to 30 September 2005, our eighth year of operations and our fifth full year as a public company, revenue increased by 69 per cent to £116.2 million, against £68.8 million in 2004. The Singl.eView acquisition completed shortly before the start of the year contributed £55.2 million of revenue (2004: £3.1 million). Revenue from the original Intec business has been modestly affected by several factors, including strong pricing pressure in some sectors, and extended revenue recognition cycles resulting from selling core products alongside longer Singl.eView projects. MARGINS AND COSTS Gross margin has reduced to 62 per cent (2004: 72 per cent) largely as a result of the shift in the balance of revenues towards professional services consequent on a much larger proportion of services as opposed to licence sales on complex, long-term Singl.eView contracts. Due to the level of integration that has taken place between the Singl.eView and classic Intec business, it is no longer meaningful to separate out distribution and other administration costs between the two businesses. However both the increase in distribution costs to £18.4 million (increased by 41 per cent compared to last year's costs of £13.1 million) and the increase in other administrative expenses to £24.6 million (increased by 48 per cent compared to last year's cost of £16.6 million) are directly related to new spend arising from the Singl.eView acquisition. Development costs of £16.5 million have increased from last year's costs of £11.5 million primarily due to £4.8 million attributable to Singl.eView. EARNINGS Earnings performance in 2005 has improved in line with revenue, despite the need to invest in all areas of a business going through a major transition. This has been achieved through a combination of careful cost management and the identification of operating cost synergies. As such, Intec has been able to deliver EBITDA before exceptional items of £16.9 million (2004: £10.7 million), an increase of 58 per cent despite the 'turn around' challenge of the formerly loss-making Singl.eView business. Adjusted earnings per share was 3.82p per ordinary share (2004: 3.57p), an increase of seven per cent. Basic loss per share was 2.00p (2004: loss of 0.80p), again due to the 87 per cent increase in the amortisation charge. On 30 September 2005 there were 301,745,646 shares in issue (2004: 299,794,718). We are pleased to report an adjusted profit before tax of £13.5 million compared to £8.3 million in 2004, an increase of 63 per cent. The FRS 3 loss after tax and amortisation is £6.0 million (2004: loss of £1.7 million). EXCEPTIONAL ITEMS During the period Intec incurred exceptional expenditure of a non operational nature of £1.13 million; these costs are in connection with the costs of the Board restructuring earlier in the year of £0.46 million and integration and restructuring costs of £0.67 million. TAXATION The major trading companies in the Group have not incurred material 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 £1.1 million (2004: £0.3 million),offset by a tax credit of £0.1 million (2004: £0.3 million) in respect of previous years. The remainder of the tax charge is in respect of deferred tax of £0.1 million (2004: nil) and of withholding tax, which is deducted at source in certain jurisdictions and which we cannot recover, amounting to £0.9 million (2004: £0.6 million). This has resulted in an overall tax charge of £2.0 million (2004: £0.6 million). CASH FLOWS AND FINANCIAL POSITION We are reporting a positive operating cash inflow of £0.5m (2004: £4.6 million). This reduction compared to the previous year is primarily due to the increased working capital requirements arising from larger, long term projects in both Singl.eView and other products, and general investment to support very substantial growth in the business including, for example, an increase in headcount from 730 to over 1,500 people. We have continued our focus on improving our trade debtors' collections and as a result have managed to maintain the annualised debtor-days ratio materially inline with last year, despite the significant increase in revenue and associated invoicing (being 93 days compared to 88 days at 30 September 2004). Overall our cash and current asset investments decreased by £8.4 million from £32.2 million at the start of the year to £23.8 million at 30 September 2005. The reduction in cash is primarily due to the extended working capital cycles that result from the longer duration associated with Singl.eView implementations combined with the capital expenditure required to support expansion of the business and the Telmate acquisition (£2.0 million in the year). Our cash and current asset investments of £23.8 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. John Arbuthnott FCMA Finance Director 6 December 2005 FINANCIAL HIGHLIGHTS Note 2005 2004 % £000 £000 change Revenue 116,228 68,828 69% Adjusted profit before tax (i) 13,466 8,277 63% Loss before tax (i) (4,034) (1,187) EBITDA before exceptional items (ii) 16,861 10,667 58% Operating loss (4,875) (1,369) Basic loss per share (2.00p) (0.80p) Adjusted earnings per share (iii) 3.82p 3.57p 7% Notes to the financial highlights £000 £000 (i) Loss before tax (4,034) (1,187) Amortisation of goodwill and other intangibles 16,368 8,762 Exceptional expenses 1,132 702 Adjusted profit before tax 13,466 8,277 (ii) Adjusted profit before tax 13,466 8,277 Net interest income (841) (182) Depreciation 4,236 2,572 EBITDA before exceptional items 16,861 10,667 (iii) Adjusted earnings per share calculation based on the following adjusted earnings after tax: Loss after tax (6,025) (1,737) Amortisation of goodwill and other intangible assets 16,368 8,762 Exceptional expenses 1,132 702 Adjusted earnings after tax 11,475 7,727 KEY CUSTOMER DATA 2005 2004* No. No. Cumulative: Contracted customer base 358 334 Contracted customers from current year acquisitions 5 - Total contracted customer base 363 334 Cumulative: Contracted installations 592 546 Contracted installations from current year acquisitions 7 - Total contracted installation base 599 546 * For clarity, Intec has reclassified its smaller bureau customers, and will in future only report software licence based customers unless explicitly stated otherwise. INTEC TELECOM SYSTEMS PLC CONSOLIDATED PROFIT AND LOSS ACCOUNT For the year ended 30 September 2005 Before exceptionals Exceptionals and intangible and intangible amortisation amortisation Total Total 2005 2005 2005 2004 Note £000 £000 £000 £000 TURNOVER Continuing operations 2 116,228 - 116,228 68,828 Cost of sales (44,101) - (44,101) (19,550) Gross profit 72,127 - 72,127 49,278 Distribution costs (18,393) - (18,393) (13,068) Administrative expenses: Development expenditure (16,512) - (16,512) (11,494) Amortisation of goodwill and other intangible - (16,368) (16,368) (8,762) assets Exceptional items 2 - (1,132) (1,132) (702) Other administrative expenses (24,597) - (24,597) (16,621) Total administrative expenses (41,109) (17,500) (58,609) (37,579) OPERATING LOSS Continuing operations 12,625 (17,500) (4,875) (1,369) Interest receivable and similar income 1,026 - 1,026 287 Interest payable and similar charges (185) - (185) (105) LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION 2 13,466 (17,500) (4,034) (1,187) Tax charge on loss on ordinary activities 4 (1,991) - (1,991) (550) LOSS ON ORDINARY ACTIVITIES AFTER TAXATION AND RETAINED LOSS FOR THE FINANCIAL YEAR TRANSFERRED FROM RESERVES 12 11,475 (17,500) (6,025) (1,737) Adjusted Basic Basic Earnings/(loss) per share - basic and diluted 5 3.82p (5.82p) (2.00p) (0.80p) INTEC TELECOM SYSTEMS PLC CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES For the year ended 30 September 2005 2005 2004 £000 £000 LOSS FOR THE FINANCIAL YEAR (6,025) (1,737) Exchange translation differences arising on foreign currency net investments 922 (868) TOTAL RECOGNISED GAINS AND LOSSES IN THE YEAR (5,103) (2,605) RECONCILIATION OF MOVEMENTS IN CONSOLIDATED SHAREHOLDERS' FUNDS For the year ended 30 September 2005 2005 2004 £000 £000 Loss for the financial year (6,025) (1,737) Other recognised gains and losses relating to the year 922 (868) Issue of share capital net of associated expenses 302 55,316 Other reserve - (236) (Decrease)/increase in shareholders' funds (4,801) 52,475 Opening shareholders' funds 142,230 89,755 Closing shareholders' funds 137,429 142,230 INTEC TELECOM SYSTEMS PLC CONSOLIDATED BALANCE SHEET 30 September 2005 2005 2004 Note £000 £000 FIXED ASSETS Intangible assets 88,159 103,459 Tangible assets 9,387 7,530 Investments 6 6 97,552 110,995 CURRENT ASSETS Debtors 6 57,466 40,634 Investments 7 8,948 3,966 Cash at bank and in hand 14,822 28,216 81,236 72,816 CREDITORS: amounts falling due within one year 8 (11,228) (8,962) NET CURRENT ASSETS 70,008 63,854 TOTAL ASSETS LESS CURRENT LIABILITIES 167,560 174,849 CREDITORS: amounts falling due after more than one year 9 (577) (2,817) PROVISIONS FOR LIABILITIES AND CHARGES 10 (3,365) (3,403) ACCRUALS AND DEFERRED INCOME 11 (26,189) (26,399) TOTAL NET ASSETS 137,429 142,230 CAPITAL AND RESERVES Called up share capital 3,017 2,998 Share premium account 12 160,745 160,462 Own shares 12 (95) (95) Merger reserve 12 6,768 6,768 Foreign exchange reserve 12 (932) (1,854) Profit and loss account 12 (32,074) (26,049) EQUITY SHAREHOLDERS' FUNDS 137,429 142,230 INTEC TELECOM SYSTEMS PLC CONSOLIDATED CASH FLOW STATEMENT Year ended 30 September 2005 2005 2004 Note £000 £000 Net cash inflow from operating activities (i) 583 4,595 Returns on investments and servicing of finance Interest received 942 288 Interest paid and similar items (87) (83) Interest element of finance lease rental payments (36) (23) 819 182 Taxation Overseas tax paid (1,276) (1,123) UK corporation tax received 23 - (1,253) (1,123) Capital expenditure and financial investment Payments to acquire tangible fixed assets (6,569) (2,367) Proceeds on disposal of fixed assets 78 - (6,491) (2,367) Acquisitions Investment in subsidiaries 3(c) (2,004) (42,567) Net cash acquired with subsidiaries 3(b) 74 1,354 (1,930) (41,213) Cash outflow before management of liquid resources and financing (8,272) (39,926) Management of liquid resources (Increase)/decrease in cash investments/term deposits (5,163) 1,652 Financing Issue of ordinary share capital 302 56,840 Share issue costs charged to the share premium account - (1,760) Loan - 2,223 Capital element of finance lease payments (132) (152) (Decrease)/increase in cash in the year (ii), (13,265) 18,877 (iii) INTEC TELECOM SYSTEMS PLC NOTES TO THE CASH FLOW STATEMENT Year ended 30 September 2005 (i) RECONCILIATION OF OPERATING LOSS TO NET CASH IN FLOW FROM OPERATING ACTIVITIES 2005 2004 £000 £000 Operating loss (4,875) (1,369) Depreciation 4,236 2,572 Amortisation of goodwill and other intangible assets 16,368 8,762 Loss on disposal of fixed assets 1 45 Increase in debtors (12,711) (6,300) (Decrease)/increase in creditors (2,436) 885 Net cash inflow from operating activities 583 4,595 (ii) RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS 2005 2004 £000 £000 (Decrease)/increase in cash in the year (13,265) 18,877 Net cash outflow/(inflow) from decrease/(increase) in net debt and finance lease 132 (2,071) Net cash (outflow)/inflow from increase/(decrease) in liquid resources 5,163 (1,652) Change in net funds resulting from cash flows (7,970) 15,154 New finance leases - (201) Translation differences (310) (383) Movement in net funds (8,280) 14,570 Net funds at 1 October 29,700 15,130 Net funds at 30 September 21,420 29,700 (iii) ANALYSIS OF MOVEMENT IN NET FUNDS Foreign 30 September Non-cash exchange 30 September 2004 Cash flow transactions translation 2005 £000 £000 £000 £000 £000 Cash in hand and at bank 28,216 (13,265) - (129) 14,822 Finance leases (259) 132 - - (127) Debt due less than one year - - (2,223) - (2,223) Debt due after one year (2,223) - 2,223 - - Current asset investments 3,966 5,163 - (181) 8,948 Total 29,700 (7,970) - (310) 21,420 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 2005 or 2004, but is derived from those accounts. Statutory accounts for 2004 have been delivered to the Registrar of Companies and those for 2005 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 6 December 2005. 2. TURNOVER AND SEGMENTAL REPORTING Geographic areas - analysis by origin Gross turnover Inter-segment turnover Total turnover 2005 2004 2005 2004 2005 2004 £000 £000 £000 £000 £000 £000 Turnover United Kingdom 26,048 32,670 (578) (1,849) 25,470 30,821 Continental Europe 34,672 5,889 (8,206) - 26,466 5,889 Africa 5,175 266 - - 5,175 266 Asia Pacific 7,323 2,126 - - 7,323 2,126 North America and Canada 51,592 29,600 (2,988) (1,964) 48,604 27,636 South America 3,190 2,090 - - 3,190 2,090 128,000 72,641 (11,772) (3,813) 116,228 68,828 Geographic markets - analysis by destination Turnover by destination 2005 2004 £000 £000 United Kingdom 11,929 7,280 Continental Europe 24,917 11,030 Eastern Europe 2,995 4,599 Middle East 1,228 633 Africa 12,859 7,451 Europe, Middle East and Africa (EMEA) 53,928 30,993 Asia Pacific 13,315 9,090 North America and Canada 41,420 20,756 Caribbean and Latin America 7,565 7,989 116,228 68,828 Turnover by type Turnover by activity is set out below. Turnover by activity 2005 2004 £000 £000 Licence revenue: 25,378 19,123 Professional services income: Implementation, migration, consulting and training 45,683 17,499 Hardware 202 466 Non-telecom - custom network solutions 20 1,651 45,905 19,616 Recurring income: ASP Service 7,662 4,337 Volume upgrade licences 6,236 4,320 Support and maintenance fees 31,047 21,432 44,945 30,089 116,228 68,828 Loss before taxation Before After amortisation of Amortisation amortisation of goodwill and of goodwill goodwill and exceptional and other Exceptional exceptional items intangibles items items Year ended 30 September 2005 £000 £000 £000 £000 United Kingdom (4,907) (1,010) (632) (6,549) Continental Europe 2,750 (10,851) (186) (8,287) Africa 2,266 - - 2,266 Asia Pacific 2,971 - (153) 2,818 North America and Canada 10,264 (4,507) (161) 5,596 Caribbean and Latin America 122 - - 122 Profit/(loss) before taxation 13,466 (16,368) (1,132) (4,034) In 2005, exceptional items comprise costs in respect of the Board restructure of £459,000 and integration costs incurred during the period of £673,000. In 2004, exceptional items comprise abortive acquisition costs of £173,000 and integration costs incurred during the period of £529,000. Before After amortisation of Amortisation amortisation of goodwill and of goodwill goodwill and exceptional and other Exceptional exceptional items intangibles items items Year ended 30 September 2004 £000 £000 £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 and Canada 7,216 (4,511) - 2,705 Caribbean and Latin America (134) - - (134) Profit/(loss) before taxation 8,277 (8,762) (702) (1,187) Excluding Including unamortised Unamortised unamortised goodwill goodwill goodwill 2005 2005 2005 2004 Net assets £000 £000 £000 £000 United Kingdom 10,909 1,000 11,909 24,293 Rest of Europe 17,368 40,198 57,566 54,793 Africa 3,207 - 3,207 208 Asia Pacific 155 - 155 (5) North America and Canada 17,582 46,107 63,689 62,395 Caribbean and Latin America 903 - 903 546 Net assets 50,124 87,305 137,429 142,230 It is neither practicable nor meaningful to allocate either profit/(loss) before taxation or net assets by client location or activity. 3. ACQUISITIONS a) Prior 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. Under the acquisition agreement there is a potential working capital adjustment, which has yet to be finalised and which may affect the total purchase price. As a result of revisions to the provisional fair values estimated at 30 September 2004, an adjusted fair value table is disclosed below. Alignment of Net assets at date of acquisition Net book accounting Fair value Final fair and provisional fair value value policies adjustments value £000 £000 £000 £000 Intangible fixed assets 2,724 (2,724) - - Tangible fixed assets 2,562 - - 2,562 Debtors 6,372 6,096 1,318 13,786 Cash 1,354 - - 1,354 Deferred tax 125 (125) 481 481 Deferred income (5,519) (4,653) 210 (9,962) Creditors due within one year (2,876) (1,132) (330) (4,338) Provisions due within one year (1,223) - (1,401) (2,624) Net assets acquired 3,519 (2,538) 278 1,259 Goodwill arising on acquisition 41,245 42,504 Consideration paid in cash 40,559 Acquisition costs 1,945 42,504 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; and 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 on a number of long term contracts that were in progress at the acquisition date. In these cases, fair value adjustments have been made to reflect the outcome or currently anticipated outcome of the project; b) estimated costs to complete certain ongoing legal matters; and c) estimated provisions for losses on onerous leases. d) recognition of a deferred tax asset. b) Current year acquisitions - Telmate On 29 October 2004, the Group acquired Telmate ApS (Denmark) which provides software for the management and routing optimisation of wholesale telecoms traffic. The total consideration payable is £1.96 million including acquisition costs of £51,000. Goodwill arising on acquisition has been capitalised and is being amortised over five years from the date of acquisition. Goodwill amortisation charged in the period amounts to £363,000. Net liabilities at date of acquisition Provisional and provisional fair value fair value £000 Tangible fixed assets 7 Debtors 132 Cash 74 Deferred income (37) Creditors due within one year (201) Net liabilities acquired (25) Goodwill arising on acquisition 1,985 1,960 Consideration paid in cash 1,909 Acquisition costs 51 1,960 There are no differences between the net book value and the provisional fair value. c) Reconciliation to cash flow statement - current and prior year acquisitions £000 Telmate consideration paid in cash 1,909 Telmate acquisition costs 51 Additional acquisition costs for Singl.eView 44 2,004 4. TAX ON LOSS ON ORDINARY ACTIVITIES 2005 2004 £000 £000 Current taxation: Company tax at 30% (2004: 30%) - - Overseas taxation 1,957 875 Prior year adjustment (111) (305) Total current tax 1,846 570 Deferred taxation: Origination and reversal of timing differences 145 (20) Tax on loss on ordinary activities 1,991 550 The standard rate of current tax for the year is 28% (2004: 30%), based on the weighted average tax rates of the major jurisdictions in which the Group operates. 5. (LOSS)/EARNINGS PER ORDINARY SHARE 2005 2004 £000 £000 Basic and diluted loss (6,025) (1,737) Amortisation of goodwill and other intangible assets 16,368 8,762 Exceptional items 1,132 702 Adjusted earnings after tax 11,475 7,727 Number Number Basic and diluted weighted average number of shares 300,622,987 216,147,912 Pence Pence Basic and diluted loss per ordinary share (2.00) (0.80) Amortisation of goodwill and other intangible assets 5.44 4.05 Exceptional items 0.38 0.32 Adjusted earnings per ordinary share 3.82 3.57 For the year ended 30 September 2005 and the year ended 30 September 2004, 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 provides an additional indication of underlying trading performance. Exceptional items do not have a material tax impact. 6. DEBTORS 2005 2004 £000 £000 Trade debtors 29,585 22,532 Amounts owed by subsidiary undertakings - - Corporation tax 329 349 Overseas tax 141 42 Deferred tax 612 266 Other debtors 286 1,308 Prepayments and accrued income: Due within one year 25,824 15,554 Due after more than one year (see note below) 689 583 57,466 40,634 Accrued income is £21.0 million (2004: £11.5 million). The prepayments and accrued income due after more than one year primarily relate to deposits on leased properties due after more than five years. 7. INVESTMENTS HELD AS CURRENT ASSETS 2005 2004 £000 £000 Cash investments 8,948 3,966 Cash investments relate to cash or cash equivalents held on deposit which are not accessible within twenty four hours. 8. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR 2005 2004 £000 £000 Loan 2,223 - Obligations under finance leases 70 128 Trade creditors 3,837 4,946 Amounts due to subsidiary undertakings - - Corporation tax 859 915 Overseas tax 1,023 103 Other creditors including other taxation and social security 3,216 2,870 11,228 8,962 Loan On 27 August 2004, the Company executed 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 6.75% (2004: 4.75%). 9. CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR 2005 2004 £000 £000 Loan - 2,223 Obligations under finance leases 62 131 Other creditors 515 463 Total 577 2,817 10. PROVISIONS FOR LIABILITIES AND CHARGES Onerous lease Lease Other commitments incentives Provisions Total £000 £000 £000 £000 At 1 October 2004 2,023 607 773 3,403 Additions 97 715 - 812 Fair value adjustment 315 - 404 719 Utilised/paid (607) (426) (564) (1,597) Exchange differences 20 12 (4) 28 At 30 September 2005 1,848 908 609 3,365 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. Lease incentives relate to rent free periods or other incentives which are being spread up to the first break point of the lease. 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. Opening balances have been reclassified based on a review of the classification of certain balances. 11. ACCRUALS AND DEFERRED INCOME 2005 2004 £000 £000 Amounts falling due within one year Accruals 10,364 8,939 Deferred income 15,825 17,460 26,189 26,399 12. STATEMENT OF MOVEMENTS ON SHARE CAPITAL AND RESERVES Called Share Foreign Profit up share Premium Merger Own Exchange and loss Group capital account reserve shares reserve account Total £000 £000 £000 £000 £000 £000 £000 As at 1 October 2004 2,998 160,462 6,768 (95) (1,854) (26,049) 142,230 Issues of ordinary 19 283 - - - - 302 shares Loss for the year - - - - - (6,025) (6,025) Foreign exchange translation - - - - 922 - 922 At 30 September 2005 3,017 160,745 6,768 (95) (932) (32,074) 137,429 This information is provided by RNS The company news service from the London Stock Exchange

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