RNS Number:5457I
Retail Decisions PLC
11 March 2003
RETAIL DECISIONS PLC
Preliminary Results for year ended 31 December 2002
11 March 2003
RETAIL DECISIONS SUBSTANTIALLY STRENGTHENS INTERNATIONAL OPERATIONS AND IMPROVES
ADJUSTED OPERATING PROFIT* BY 10%
Retail Decisions, the international supplier of payment card fraud prevention
and value-added transaction services, results highlights:
* Revenue up 28% to #28.4 million
* 69% Group revenues from overseas
* Adjusted Operating Profit* up 10% to #2.6 million (2001: #2.4
million)
* Third year of increases in revenue and Adjusted Operating Profit
since demerger in 2000
* Monthly operating expenses at year end less than beginning of year
despite addition of new divisions
* Good growth of Australian businesses as a result of efficient
extractions of synergies from Motorcharge acquisition
* Pre-tax loss #9.4 million, after #10.2 million of impairment and
amortisation of goodwill and other intangible assets and #1.2million other
operating exceptional costs
Carl Clump, Retail Decisions Chief Executive said:
"Despite an extremely depressed market for IT services, Retail Decisions
increased its Revenues and Adjusted Operating Profit and continued to make
significant progress in becoming a single source supplier of transaction
services to counter the ever growing problems of fraud and financial deception."
* Operating profit before amortisation and impairment of goodwill and other
intangible assets, operating exceptional items and National Insurance on share
options.
Enquiries
Retail Decisions plc Tel: 020 7457 2020 (today)
Carl Clump, Chief Executive
William Good, Finance Director
College Hill Tel: 020 7457 2020
Adrian Duffield adrian.duffield@collegehill.com
Clare Warren clare.warren@collegehill.com
CHAIRMAN'S STATEMENT
Introduction
In spite of the gloomy operating environment for IT and IT services companies,
Retail Decisions achieved the creditable result of improving its revenues and
Adjusted Operating Profit in 2002. Furthermore good progress was made in
broadening the Group's service base to provide a more complete portfolio of risk
management services to address the many faces of fraud.
The difficult operating environment for our customers translated into spending
embargoes on capital projects, hard negotiations on existing prices and delays
in the signing of contracts. As the year evolved we therefore focussed more on
cost control and margin protection. This, coupled with a stronger than expected
performance in the final quarter from some of our newer activities, enabled us
to deliver a respectable uplift in Adjusted Operating Profit.
Our geographical spread and portfolio of services have paid off with a steady
demand for our transaction processing services, together with the successful
extraction of synergies in the two acquired Australian businesses resulting in a
very good performance.
Industry commentators believe that when growth does come back to the sector, it
will be driven by a more realistic approach to e-commerce and IT security.
Retail Decisions continues to be closely involved in these areas and is
therefore well positioned to take advantage of any upturn when it occurs.
Results
Total turnover for the year at #28.4 million was 28% ahead of 2001, which was
largely the result of our acquisition policy. Some 69% of the Group's turnover
was generated from our overseas businesses. Our usual gauge of profit
performance, Adjusted Operating Profit (operating profit before amortisation and
impairment of goodwill and other intangible assets, operating exceptional items
and National Insurance on share options) was up 10% to #2.6 million, compared to
#2.4 million in 2001.
The difficult trading environment and the lack of prospects for a quick recovery
has caused the Board to take the decision to write down the value of goodwill
and other intangible assets on the Group's balance sheet. This has resulted in a
charge of #7.3 million, which we reported in January 2003. This charge has no
cash impact on the Group.
The integration of our two Australian businesses, including redundancies, office
closures and the migration of IT systems onto a common IT platform, resulted in
an operating exceptional cost of #1.15 million in 2002. The latter activity will
continue into this year and is expected to incur a further #300,000 of
exceptional cost in 2003.
The ICE business in France was sold during 2002, generating a profit of #87,000.
Despite generating a turnover of #766,000, the contracted operational activity
was coming to an end; therefore the business was sold to avoid closure costs.
The Board also wrote off the #133,000 investment in a small start-up risk
management operation in Lithuania.
Overall the Group reported a pre-tax loss for the year of #9.4 million (2001:
loss #2.9 million). On an adjusted basis, earnings per share were 0.47p (2001:
1.07p), whilst the basic loss per share was 3.64p (2001: basic loss per share of
2.15p).
During the year the Board focused on profit margins and maximising cash
generation from operating activities. This focus, along with the proceeds of the
rights issue, which were received in early 2002, ensured that the net debt
(excluding the convertible bond) of the Group has only slightly increased from
the prior year at #2.3million. Our underlying trading operations generated some
#4.7 million in cash flow from operating activities.
This debt, plus #1.24 million of outstanding convertible Bond, means that
gearing is 22.6% and is expected to reduce still further this year.
The net proceeds of the rights issue, totalling some #8.5m, were used to invest
in the acquisitions of Motorcharge (#5.9 million) and Payment Plus (#1.8
million), including the acquisition costs. In addition, Retail Decisions assumed
some #3.3 million of Australian Dollar debt with the acquisition of Motorcharge.
In spite of the addition of these acquisitions, and the hiring of the ReD
Consulting team, I am pleased to report that our monthly operating expenses at
the end of the financial period were slightly less than those at the start of
the year. This reflects our emphasis on managing our cost base down aggressively
as we integrated our acquisitions and continued to react to the economic
environment.
Outlook
Our strategy of having an international network and the development of new but
related operations is bearing benefits. An international presence allows us to
monitor and develop a broader knowledge of fraud. Whilst the North American and
European economies have suffered, Australia has been less affected. Our
operations in Australia have performed according to plan, justifying our
investments made at the end of 2000 and at the beginning of 2002.
The Board is not expecting an immediate pick up in transaction volumes and will
continue to focus in the short term on improving its operating margins and
cashflows.
In order to make the good progress we have in 2002 we are reliant on the
dedication and hard work of our staff. On behalf of the Board I would like to
thank them all for their continued support.
Our Card-Not-Present services and PRISM predictive neural capability (artificial
intelligence) are long term investments. We will continue to build our position
as the provider of a range of first class tools for detecting and avoiding
financial deception in transaction processing. History has shown that there will
always be fraud and there will always be demand to prevent it. The growth in
Card-Not-Present consumer spending and the continual need for retailers, telecom
businesses and financial institutions to guard against the ever present threat
of payment card fraud give the Board continuing grounds for confidence in Retail
Decisions' longer term prospects.
Nigel Whittaker
Chairman
11 March 2003
CHIEF EXECUTIVE'S REVIEW
Strategic Developments
When Retail Decisions was formed our objective was to create an international
portfolio of new market leading fraud prevention products and services to
complement our existing offering in the financial and petrol forecourt sectors
and to earn increasing amounts of revenue on a per transaction basis. Retail
Decisions has made good progress in this respect.
The Group began 2002 in a positive mood as a result of having achieved our 2001
objectives and completing the fundraising exercise started in that year. These
funds enabled us to finalise the acquisition of the Australian card business
Motorcharge, which was quickly integrated into our existing Australian
operations. The Motorcharge business, which was acquired for #5.9million, has
contributed #2.1 million of Adjusted Operating Profit, it has been and will
continue to be a significant contributor to the Group. In its last full
financial year prior to acquisition, Motorcharge generated a comparable
operating profit of #0.5 million. The excellent performance by our Australian
operations was the most notable success of the year.
In February we further strengthened our standing in the card payment market by
hiring a team of well-respected payment card consultants to form the core of ReD
Consulting. The division reversed an Adjusted Operating Loss of #119,000 at the
half-year stage to a profit of #46,000 for the full year. The division gives the
Group access to the most senior levels within our target customers. It acts as
an extension to our marketing activities and allows us to prospect in new
territories in a low cost manner.
Our Card-Not-Present capability was substantially enhanced when we acquired
Payment Plus for #1.8 million in March 2002. Its payment processing software
allows the Card-Not-Present merchant to connect directly into the card payment
infrastructure, allowing the merchant to accept payment for goods and services
by credit card directly, whilst also giving the merchant the opportunity to send
its transactions to our fully managed ebitGuard service for fraud screening. The
business generated #0.9 million of revenue but incurred an Adjusted Operating
Loss of #0.3m.
Services and Products
In the second quarter of 2002, the trading conditions confronting our US and UK
businesses deteriorated rapidly. Signings of new contract wins were delayed,
while transactional volumes in our original telephony fraud prevention service
in the US declined more than had been anticipated. This impact was further
compounded by our largest customer in this sector, AT &T, renegotiating a severe
price cut.
Off-line Traditional Fraud Prevention (Card Clear)
In the UK, we were affected by the annual reduction of #0.5 million in revenue
from the Association of Payment Clearing Services ("APACS") to #3.0 million for
this financial year. The number of Card Clear broadcast sites as expected,
declined from 5,847 to 2,897 as many of our customers moved to an on-line
authentication strategy, including our own Card Express service, which is
referred to in more detail later.
We reported in January that new terms for Retail Decisions to continue to act as
a Data Distributor of the Industry Hot Card File to specified retailers had been
agreed for a further period of up to two years. Revenue from the new APACS
contract during the current year is expected to be between #1.4 million and #1.8
million. The number of retail sites protected by the Group will be one of the
factors determining the actual amount of this revenue. This is at a lower level
than the previous agreement, although it does prolong the life of an established
product that provides important fraud protection for the retail industry,
particularly in high volume environments.
This decline has been predicted for some time. It has always been the Group's
stated intention to reduce its overall dependence on this agreement. This has
indeed happened as the proportion of sales this contract represents to the total
revenue has fallen from 16% in 2001 to 11% in 2002.
In South Africa the financial community has recognised the strength and
importance of our all-round fraud prevention capabilities. For example, the
South African bank, Absa, reports that a significant part of the reduction in
its fraud and credit write-offs was attributable to our Card Clear service and
that it is looking forward to further savings in 2003.
Transaction Switching and Fraud Prevention (Card Express Platform)
In the UK and Europe the Group remains confident about the future prospects of
its Card Express infrastructure. Many new retail sites were added during the
period, in particular from Shell, Texaco, Esso (Europe), Blockbuster and
Superdrug. We have also continued our success in the area of mobile telephony,
with Virgin Mobile joining T-Mobile and O2 as customers. Our intention continues
to be to migrate both existing and new customers to a transaction-based pricing
model which we believe provides revenue streams which are more sustainable over
time.
Over the last six months of 2002, the number of sites linked to the Card Express
platform grew from some 2,485 to 3,416. These retail sites on average generated
some 13.88 million transactions a month, handling on average some #458 million
of card transactions per month at an average of #32.99 per transaction.
Card-not-Present Fraud Prevention (ebitGuard)
Our Card-not-Present fraud prevention service, ebitGuard, was successful in
growing its customer base, with new customers including GSI and Eastbay in the
US, as well as companies such as eComet in the UK. This demonstrates the growing
importance of this service. Our Card-not-Present capability has been enhanced by
the addition of Payment Plus, which we have integrated with our own ebitGuard
product.
Consumers on-line spending is substantially increasing. We saw a five fold
increase in the number of transactions in the last quarter compared to Q4 in
2001. This supports our original strategic decision to focus on this area of the
market and invest heavily in ebitGuard and its supporting infrastructure.
Transaction volumes, although growing, are still relatively small. Nevertheless,
we expect to generate revenue from ebitGuard from all our international business
units in the forthcoming year. We remain committed to the long-term commercial
potential of this product.
Emerging Forms of Financial Deception (PRISM)
Artificial intelligence, which can detect very subtle changes in behavioural
patterns, is an important tool for the future in terms of uncovering complicated
and evolving patterns of fraud and financial deception. Our artificial
intelligence product, PRISM, was added to our portfolio for its ability to
detect these types of fraud. This product has the longest sales cycle of all the
Group's services as its benefits are most obvious when easier fraud loopholes
have been closed. In spite of the economic conditions we have had a number of
successes, CSK, our reseller in Japan, sold one licence. Meanwhile Retail
Decisions South Africa successfully sold and installed the technology with two
South African Banks.
We announced in January 2003 that we had signed a contract with a major
financial organisation for the provision of risk management services using the
Group's PRISM neural technology. This contract is worth $2.0 million in revenue
over the next three years and includes a license fee of $0.5 million payable in
2003.
The focus this year for PRISM remains on building additional routes to market. A
reseller agreement has been signed in South America with ENIAC. Our strategy to
increase international sales is to continue to expand our reseller network.
Fuel Card Transaction Processing
Our Australian fuel card transaction processing operation performed strongly
during the period. This division reported sales of #9.5 million, significantly
ahead of #3.9 million in 2001. Adjusted Operating Profits were #3.7 million
(#1.3 million). This significant growth was due to the combined performances of
our established Motorpass operation with Motorcharge, which was acquired in
January 2002. The separate business processes have been integrated whilst the
migration of IT systems on to a common platform is continuing. It is expected to
be completed in the second half of 2003. We remain confident of the future
prospects for the division and we expect further efficiencies to come through
during the current period.
These businesses originated from the need to prevent fraud with cash and general
payment cards. The result was a restricted corporate card with enhanced
automated reporting.
Summary
The financial year 2002 has been difficult. We started the year with new equity
funds secured and the two promising acquisitions made. The slow down in two of
our core markets, the US and the UK, meant that we had to amend our plans for
the year, although the Australian operation flourished and met all our
expectations.
In 2003, we will continue to look at the shape and make up of our business. Our
strategy is to ensure that we are properly positioned from a market and cost to
revenue perspective, to face the ongoing challenges.
We will continue to focus on our vision of becoming an international single
source supplier providing transaction services and products to counter fraud and
financial deception. Our experience clearly tells us that there is no single
solution to the problem of fraud and hence we have developed a suite of services
from the simple use of hot card files through to the use of advanced artificial
intelligence. These services will continue to become increasingly more important
as fraud grows on a global basis.
In short, we have made investments for the medium and long term in order to
replace declining revenues from our original businesses. The new markets into
which we have invested are starting to show signs of growth.
Carl Clump
Chief Executive
11 March 2003
SUMMARISED CONSOLIDATED PROFIT AND LOSS
FOR THE YEAR ENDED 31 DECEMBER 2002
2002 2001
#000 #000
Notes unaudited audited
Turnover
Continuing operations 20,064 20,419
Acquisitions 7,591 -
Discontinued 766 1,776
---------- ---------
Total Turnover 28,421 22,195
Adjusted operating expenses and other operating (25,821) (19,827)
income
---------- ---------
Adjusted Operating Profit (before amortisation 9 2,600 2,368
and impairment of goodwill and other intangible
assets, other operating exceptional costs and
national insurance on share options)
Amortisation of goodwill and other intangible (2,898) (2,539)
assets
Impairment of goodwill and other intangible 4 (7,297) (2,019)
assets
Other operating exceptional costs (2001: 3 (1,159) (331)
including national insurance on share options)
--------- ---------
Total Operating Loss (8,754) (2,521)
Write off of investment and profit on sale of (46) -
business
Net Interest payable and other charges (579) (374)
--------- ---------
Loss on ordinary activities before taxation (9,379) (2,895)
Tax on loss on ordinary activities (684) (374)
--------- ---------
Loss for the financial year (10,063) (3,269)
========= =========
(Loss)/earnings per ordinary share 5 Pence Pence
Basic (3.64) (2.15)
Basic before amortisation, impairment and other 0.47 1.07
operating exceptionals
CONSOLIDATED BALANCE SHEET AT 31 DECEMBER 2002
2002 2001
#000 #000
unaudited audited
Fixed assets
Intangible assets 12,879 16,888
Tangible assets 2,397 1,783
Investments - 144
---------- --------
15,276 18,815
Deferred Tax Asset -
Current assets
Stock 15 -
Debtors 18,143 10,005
Cash at bank and in hand 3,994 5,712
---------- --------
22,152 15,717
---------- --------
Creditors - Amounts falling due within one year
Convertible Bond (1,247) (1,247)
Other Liabilities (20,522) (12,318)
---------- --------
(21,769) (13,565)
---------- --------
Net current assets 383 2,152
---------- --------
Total Assets less current liabilities 15,659 20,967
Creditors - Amounts falling due after more than one (50) (3,598)
year
Provisions for liabilities and charges - (4)
---------- --------
Net assets 15,609 17,365
========== ========
Capital and reserves
Called up share capital 2,814 1,609
Shares to be issued - 561
Share premium account 21,102 13,220
Merger reserve 700 700
Other reserve 6,578 6,578
Profit and loss account - deficit (15,585) (5,303)
---------- --------
Total equity shareholders' funds 15,609 17,365
========== ========
STATEMENT OF GROUP TOTAL RECOGNISED GAINS AND LOSSES
FOR THE YEAR ENDED 31 DECEMBER 2002
2002 2001
#000 #000
unaudited audited
Loss for the financial year (10,063) (3,269)
Exchange loss (219) (198)
--------------------------- ---------------- --------
Recognised losses for the year (10,282) (3,467)
=========================== ================ ========
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2002
Notes 2002 2001
#000 #000
unaudited audited
Net cash inflow from operating activities 6 4,698 2,350
-------- --------
Returns on investments and servicing of
finance
Interest received 57 202
Interest element of finance lease payments (28) -
Interest paid (566) (576)
-------- --------
Net cash outflow from returns on investments (537) (374)
and servicing of finance -------- ------
Taxation
UK corporation tax paid (266) (58)
Overseas corporation tax paid (642) (100)
-------- --------
(908) (158)
-------- --------
Capital expenditure and financial investment
Increase in fixed asset investments - (12)
Purchase of tangible fixed assets (968) (787)
Sale of tangible fixed assets 87 -
-------- --------
--------
Net cash outflow from capital expenditure and (881) (799)
financial investments
--------
--------
Acquisitions and disposals
Purchase of subsidiary undertaking (7,693) -
Net overdraft acquired with subsidiary (3,308) -
undertaking
Sale of business 124 -
Purchase of business - (1,465)
-------- --------
Net cash outflow from acquisitions and (10,877) (1,465)
disposals
-------- --------
Net cash outflow before financing (8,505) (446)
-------- --------
Financing
(Decrease)/ increase in borrowings (4,004) 850
Issue of ordinary share capital 9,653 82
Expenses of share issue (1,127) -
Capital element of finance lease payments (192) -
-------- --------
Net cash inflow from financing 4,330 932
-------- --------
(Decrease)/increase in cash in the year (4,175) 486
======== ========
NOTES
1. Publication of non-statutory accounts and basis of preparation
The financial information contained in this preliminary announcement is
unaudited and so does not constitute statutory accounts for the year ended 31
December 2002. The financial information for the year ended 31 December 2001 is
derived from the statutory accounts for that period which have been delivered to
the Registrar and included an audit report which was unqualified and did not
contain a statement under either Section 237(2) or Sections 237(3) of the
Companies Act 1985. The statutory accounts for the year ended 31 December 2002
will be finalised on the basis of the financial information presented by the
directors in the preliminary announcement and will be delivered to the Registrar
of Companies following the Company's Annual General Meeting.
2. Availability of Accounts
Once finalised, a summary report and accounts will be circulated to all
shareholders and copies of this report, plus copies of the full statutory
accounts are available from the Company's head office: ReD House, Brookwood,
Surrey. GU24 0BL
3. Exceptional Items
The exceptional item charged to the operating loss for the year ended 31
December 2002 of #1,159,000 relates to the costs incurred in re-organising the
Group following the acquisition of Motorcharge in Australia.
4. Impairment of goodwill and other intangible assets
The impairment of goodwill and other intangible assets charged to the profit and
loss account in the year relates to the write down of the Group's intangible
assets held in the US and UK business units.
5. Loss per Ordinary Share
Basic loss per share is calculated by dividing the loss attributable to ordinary
shareholders by the weighted average number of ordinary shares in issue during
the year. For diluted earnings per share, the weighted average number of
ordinary shares in issue is adjusted to assume conversion of all dilutive
potential ordinary shares.
2002 2001
(Loss)/ Per Share Amount (Loss)/ Per Share Amount
Earnings Earnings
#000 Pence #000 Pence
(restated)
Basic
EPS
Loss attributable (10,063) (3.64) (3,269) (2.15)
to ordinary
shareholders
Amortisation of 2,898 1.05 2,539 1.67
goodwill and other
intangible
assets
Impairment 7,297 2.64 2,019 1.33
of
goodwill
and other
intangible
assets
Other exceptional 1,159 0.42 630 0.41
items
Estimated NI on - - (299) (0.19)
share option
gains --------- -------- -------- ----------
Adjusted 1,291 0.47 1,620 1.07
Earnings
--------- -------- -------- ----------
Diluted EPS
Loss attributable (10,063) (3.64) (3,269) (2.09)
to ordinary
shareholders
Amortisation of 2,898 1.05 2,539 1.62
goodwill and other
intangible
assets
Impairment 7,297 2.64 2,019 1.29
of
goodwill
and other
intangible
assets
Other exceptional 1,159 0.42 630 0.40
items
Estimated NI on - - (299) (0.19)
share option
gains --------- -------- -------- ----------
Adjusted 1,291 0.47 1,620 1.03
Earnings
--------- -------- -------- ----------
Supplementary basic and diluted EPS have been calculated to exclude the effect
of goodwill and licence amortisation, goodwill impairment, exceptional items and
notional National Insurance on share options in order that the effect of these
items on reported earnings can be fully appreciated
A reconciliation of the weighted average number of ordinary shares used as the
denominator in calculating the basic and diluted earrings per ordinary share is
given below
2002 2001
Weighted Average number Weighted Average number
of Shares of Shares
(restated)
Basic 276,489 152,069
Options and warrants 172 2,917
Convertible bonds - 1,749
-------------- --------------
276,661 156,735
============== ==============
The calculations of EPS for the year ended 31 December 2001 have been adjusted
to reflect the bonus element of the rights issue in Jan 2002.
6. Reconciliation of operating loss to net cash inflow from
operating activities
2002 2001
#000 #000
Operating loss (8,754) (2,521)
Amortisation of goodwill and other intangible assets 2,898 2,539
Impairment of goodwill and other intangible assets 7,297 2,019
Depreciation of tangible fixed assets 1,252 1,195
Loss on sale of fixed assets 2 29
Decrease in provisions (4) (299)
Decrease in stocks 50 -
Decrease/(increase) in debtors 161 (814)
Increase in creditors 1,796 202
---------- ---------
Net cash inflow from operating activities 4,698 2,350
---------- ---------
7. Reconciliation of movement in net debt
2002 2001
#000 #000
-------------------- -------- ------- -------- -------- --------
(Decrease) / increase in cash in (4,175) 486
period
Cash inflow/(outflow) from increase/(decrease) in 4,196 (850)
debt
-------------------------------- -------- -------- --------
Changes in net debt resulting from cash flows 21 (364)
Debt acquired on (379) -
acquisition
- Issue of share capital to settle - 13,753
debt
- Exchange differences 55 48
-------------------------- -------- -------- -------- --------
Movement in net debt in the period (303) 13,437
Net debt at 1 January 2002 (3,232) (16,669)
--------------------- ------- -------- -------- -------- --------
Net debt at 31 December 2002 (3,535) (3,232)
--------------------- ------- -------- -------- -------- --------
8. Analysis of net debt
As at 1st January 2002 Cash flow Acquisitions (excluding Other non cash Exchange movements As
at 31st December 2002
overdrafts)
#000 #000 #000 #000 #000 #000
Cash in hand 5,712 (1,736) - - 18 3,994
at bank
Overdrafts (3,606) (2,439) - - (57) (6,102)
-------- -------- -------- -------- -------- -------
2,106 (4,175) - - (39) (2,108)
Debt due
after 1
year
Obligations - - (187) 137 - (50)
under finance
leases
Bank loans (3,598) 3,511 - - 87 -
Debt due
within 1
year
Obligations - 192 (192) (137) 7 (130)
under finance
leases
Convertible (1,247) - - - - (1,247)
bonds
Other (493) 493 - - - -
liabilities
--------
4,196
-------- -------- -------- ------- ------- --------
Total (3,232) 21 (379) - 55 (3,535)
-------- -------- -------- -------- -------- -------
9. 9. Reconciliation of Adjusted Operating Profit to Total Operating
Loss
Adjusted Operating Amortisation of licence Goodwill Operating exceptional Total operating
Profit and goodwill impairment costs loss
#000s #000s #000s #000s #000s
Continuing 544 (2,384) (7,297) (54) (9,191)
Operations
Acquisitions 1,787 (514) - (944) 329
Discontinued 269 - (161) 108
Operations
---------- ---------- --------- --------- --------
Total 2,600 (2,898) (7,297) (1,159) (8,754)
---------- ---------- --------- --------- --------
This information is provided by RNS
The company news service from the London Stock Exchange
END
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