RNS Number:0404I
Eckoh Technologies PLC
27 February 2003
27 February 2003
Eckoh Technologies plc
Third Quarter and Nine Months Results
"Eckoh reports maiden pre-tax profit"
Quarter Quarter 9 months 9 months
ended ended ended ended
31 Dec 31 Dec 2001 31 Dec 2002 31 Dec 2001
2002 restated restated
#'000 #'000 #'000 #'000
Turnover from continuing operations 13,814 11,296 40,836 33,087
Operating profit/(loss) 83 (8,967) (7,371) (28,227)
Intangible asset charges and exceptional items (25) (6,722) (7,288) (18,614)
Profit/(loss) before tax 193 (8,522) (9,084) (27,271)
Profit/(loss) for the period 186 (8,553) (9,234) (27,397)
Cash and short term bank deposits 12,123 15,342 12,123 15,342
* Pre-tax profit of #0.2m for the third quarter (Q3 F2002 - loss of #8.5m)
* Strong cash generation from operations - quarterly increase in cash and
short-term bank deposits by #1.6m to #12.1m as at 31 December 2002 (Q3 F2002
- outflow of #2.5m)
* Turnover from continuing operations of #13.8m (Q3 F2002 - #11.3m)
* In November, signed exclusive 2-year alliance with BT to provide
hosted Speech Solutions
* Board changes completed - appointment of David Best as Chairman, Brian
Muscroft as Finance Director (effective 3 March 2003) and Craig Niven as
Non-Executive Director
* Since the end of the quarter, have been appointed exclusive supplier
of mobile phones and automated call centre services to Phoneworld - a new TV
shopping channel launched in February 2003 and broadcasting on Sky
Channel 666
Martin Turner, Chief Executive Officer, commented today:
"During the third quarter, Eckoh generated its first pre-tax profit of #193,000
and increased cash reserves by over #1.6m. This compares to pre-tax losses of
#8.5m and a cash outflow of #2.5m for the same period last year.
All four divisions performed in line with expectations during the quarter, which
included the seasonally slower month of December.
The highlight of the quarter was concluding our deal with BT to provide hosted
Speech Solutions to their corporate client base. Since then, we have been
working closely with them to complete the deployment of our operating platform
into their network infrastructure, and meet the target launch date of April
2003.
We are also continuing to develop and invest in other areas of our business, as
evidenced by the launch of Phoneworld in February - the UK's first 24-hour
dedicated mobile phone TV shopping channel. This forms part of our ongoing TV
distribution strategy for mobile phones, airtime contracts, accessories and
related telephony and SMS services.
The Company has achieved a break-even trading position, with over #12m of cash
and a debt-free balance sheet. This provides a strong platform for further
growth and, despite challenging conditions in a number of our markets, we remain
confident about the Company's prospects."
For further enquiries, please contact
Eckoh Technologies plc
Martin Turner, Chief Executive Officer
Nik Philpot, Chief Operating Officer
www.eckoh.com Tel: 01442 458 355
Buchanan Communications
Mark Edwards/Jerry Garcia/Fergus Mellon Tel: 020 7466 5000
Operating and Financial Review
Turnover and Gross Margins
Speech Solutions
In November 2002, we announced the formation of an exclusive alliance with BT to
provide its customers with hosted speech recognition services. This was a
milestone agreement for Eckoh, through which BT will target major UK companies
in sectors such as government, utilities, finance, retail and travel with a
range of applications developed by Eckoh. The alliance, which will be funded by
BT for an initial 2-year term, will provide a dedicated, managed service
infrastructure installed in a BT hosting facility and operated exclusively by
Eckoh. It is expected that this installation will be completed in April 2003,
meeting our target operational launch date.
During the quarter we completed the development of our Cluedo product - the
first in a series of voice games being developed for media owners and mobile
phone operators. These products deliver clients an attractive revenue source via
a share of the call costs, and also compelling value-added content. In early
January 2003 we announced our first syndications with The Sun and the News of
The World.
As part of the launch of Phoneworld in February 2003 (a new TV shopping channel
broadcasting on Sky channel 666 and dedicated to selling mobile phones and
related services), Eckoh has supplied a fully automated, speech-driven
fulfillment service to streamline the ordering of mobile phones and accessories
from the TV promotions. Early indications from the channel are very positive,
in terms of order volumes, ordering efficiency, customer satisfaction and low
costs of operation.
In addition to developing our indirect sales channels for Speech Solutions
(which includes BT), we are planning to increase our own direct sales efforts
over the next six months. We will target end-user customers with a number of "
packaged" Speech products such as Postcode Reader, Vote Creator, Store Locator,
Product Ordering and Voice Booking services.
Turnover from Speech Solutions in the third quarter remained steady at #0.5m (Q2
F2003 - #0.5m) and generated a gross margin of 43% (Q2 F2003 - 46%).
Interactive Voice Response ("IVR")
Eckoh's IVR business is one of the largest in the UK and has been profitable and
cash generative for many years. We currently own and operate one of the largest
call-processing platforms in Europe, with the capacity to handle over 250,000
IVR calls per hour.
Although the market for IVR services continues to be competitive, the
commencement of the Autumn TV broadcasting schedule resulted in an increase in
IVR activity from a number of our larger media clients. This resulted in an
increase in turnover to #4.9m from #4.8m for the previous quarter, while gross
margin remained steady at 26% for the quarter (Q2 F2003 - 26%).
In response to client demand, we are adopting a "one-stop-shop" approach to
client IVR services by bundling a number of complimentary services together,
such as IVR, Web, Speech Solutions and SMS. Increasingly complex applications
and new opportunities require a single supplier solution to ensure the smooth
integration of different communication technologies, which Eckoh is well placed
to provide. For example, large-scale TV voting applications often need to
register votes from a number of different sources (voice, SMS, web, etc) and
record them in one integrated database.
IVR and Speech Solutions generated 14.8m minutes of voice traffic for the
quarter, compared to 16.2m for the previous quarter.
Mobile Wholesale
Eckoh's mobile wholesale division, Phones Express, sells mobile phones, airtime
contracts and accessories through exclusive distribution arrangements with
satellite TV channels broadcasting on digital television and in specialist print
media. Since June 2002, we have been selling mobile packages via promotions on
Auctionworld (Sky Channel 651). In February 2003 we launched Auctionworld's new
24-hour channel, Phoneworld (Sky Channel 666), which provides round-the-clock
promotions for mobile packages and related services which are fulfilled
exclusively by Phones Express and which are processed by Eckoh's automated
speech solution.
Third quarter turnover declined to #3.3m compared to the previous quarter (Q2
F2003 - #4.0m) as a result of seasonal Christmas offers appearing on
Auctionworld which restricted the number of mobile promotions. Margins
remained strong at 48% (Q2 F2003 - 54%).
During January 2003, we continued to suffer from restricted airtime on
Auctionworld, as it cleared out unsold Christmas inventory and planned for the
launch of Phoneworld in early February. Early indications since the launch of
Phoneworld are positive, and management expect that volumes will recover to
pre-Christmas levels as the new channel becomes established.
Network Services
Through its network of dealers, joint ventures, telesales and direct sales
staff, Network Services (branded as 'Symphony Telecom') resells fixed line and
mobile services to businesses in the UK and Ireland.
Compared to the prior quarter, revenue decreased 5% to #5.0m (Q2 F2003 - #5.3m).
However, this includes the seasonally slower Christmas period and represents a
16% increase over the same period last year (Q3 F2002 - #4.3m). Gross margin
dropped a percentage point to 30% compared to the prior quarter (Q2 F2003 -
31%), which included a number of one-off carrier rebates. The customer base
decreased marginally to 6,264 as at 31 December (30 September - 6,450), mainly
due to customer account consolidation.
The business is continuing to look for new opportunities to expand, and expects
to conclude a new joint venture agreement before the end of the financial year
to boost its distribution. In addition, Symphony is continuing to work closely
with its carrier suppliers, as they look to consolidate their distribution
channels in the small and medium-sized business market in the UK. Symphony
believes it will benefit from such consolidation.
Net operating expenses, intangible asset amortisation and impairment and
exceptional items
Before intangible asset amortisation and impairment, net operating expenses for
the quarter were #4.6m (Q2 F2003 - #5.4m), which included #0.5m (Q2 F2003 -
#1.1m) of commissions paid to digital television channels in relation to our
Mobile Wholesale business. Commission reduced following fewer connections,
combined with a change in commission terms. Excluding these commissions, net
operating costs (before intangible asset amortisation and impairment) were #4.1m
for the quarter - a #0.2m decrease from the previous quarter (Q2 F2003 - #4.3m).
Following an unexpected increase in billing activity in one of our previously
acquired resale businesses, contingent consideration of #150,000 is now expected
to be paid. This amount, less #25,000 of amortisation in the quarter, has been
included in the balance sheet as goodwill.
Operating profit
Eckoh recorded an operating profit of #0.1m for the quarter ended 31 December
2002, compared to a loss from continuing operations of #3.3m for the same
quarter last year (which included #3.1m of goodwill amortisation and impairment
and exceptional items).
Cash and short term bank deposits
At 31 December 2002 cash and short term deposits totalled #12.1m (30 September
2002 - #10.5m). The increase in cash during the quarter is as a result of
profitable trading combined with improvements in working capital, particularly
in the reduction of mobile phone stock.
Current Trading
As stated in our half-year results, we are not expecting to see material
revenues from the BT deal in this financial year or until the infrastructure
built into BT's network has been completed. This is currently scheduled for
completion in April 2003 and no problems are envisaged at this stage. We
continue to believe that the potential for Eckoh through this relationship is
significant.
We also stated that we intend to continue to develop other areas of our
business. For example, the launch of Phoneworld in February is a significant
step in our plan to further expand our mobile wholesale operations using TV as
the distribution medium. Combining direct response television with automated,
speech-driven fulfillment, we have been able to generate significant numbers of
mobile customers and connections at a fraction of the cost of traditional
retailers, and believe this business model is a credible alternative to other
methods of distribution in the UK and Europe.
Consolidated profit and loss account
for the quarter and nine months ended 31 December 2002
Quarter ended Quarter 9 months ended 9 months ended
31 December ended 31 December 31 December
2002 31 December 2002 2001
unaudited 2001 unaudited unaudited & restated
unaudited & restated
#'000 #'000 #'000 #'000
Note
Turnover 13,814 13,661 41,240 41,676
Continuing operations 13,814 11,296 40,836 33,087
Discontinued operations - 2,365 404 8,589
Cost of sales (9,124) (9,420) (27,176) (28,093)
Gross profit 4,690 4,241 14,064 13,583
Net operating expenses (4,582) (6,486) (14,147) (23,196)
before intangible asset
amortisation and
impairment and exceptional
items
Amortisation of intangible (25) (1,625) (1,632) (7,068)
assets
Impairment of intangible - (4,076) (5,656) (8,205)
assets
Exceptional items - (1,021) - (3,341)
Total administrative (4,607) (13,208) (21,435) (41,810)
expenses
Operating profit/(loss) 108 (2,245) (83) (9,613)
before intangible asset
amortisation and
impairment and exceptional
items
Continuing operations 108 (208) (10) (1,981)
Discontinued operations - (2,037) (73) (7,632)
Operating profit/(loss) 83 (8,967) (7,371) (28,227)
Continuing operations 83 (3,268) (7,298) (8,467)
Discontinued operations - (5,699) (73) (19,760)
Provision against fixed - - (2,000) -
asset investment
Profit on disposal of - 303 - 303
internet operations
Net interest receivable 110 142 287 653
Profit/(loss) on ordinary 193 (8,522) (9,084) (27,271)
activities before taxation
Taxation (20) (3) (20) 6
Profit/(loss) on ordinary 173 (8,525) (9,104) (27,265)
activities after taxation
Minority interests 13 (28) (130) (132)
Profit/(loss) for the 186 (8,553) (9,234) (27,397)
period
Earnings/(loss) per 3
ordinary share
Basic and diluted 0.1p (4.2p) (4.5p) (13.5p)
earnings/(loss) per share
Basic and diluted 0.1p (1.1p) (0.0p) (4.5p)
earnings/(loss) per share
before intangible asset
amortisation and
impairment, and
exceptional items
Statement of total recognised gains and losses
for the quarter and nine months ended 31 December 2002
Quarter Quarter 9 months 9 months ended
ended ended ended 31 Dec
31 Dec 31 Dec 31 Dec 2001
2002 2001 2002 audited
unaudited unaudited unaudited
#'000 #'000 #'000 #'000
Profit/(loss) for the period 186 (8,553) (9,234) (27,397)
Exchange adjustments offset in reserves - (236) - 39
Total recognised gains/(losses) for the period 186 (8,789) (9,234) (27,358)
Consolidated balance sheet
as at 31 December 2002
31 December 31 December 31 March
2002 2001 2002
unaudited unaudited & restated audited
Note #'000 #'000 #'000
Fixed assets
Intangible fixed assets 125 9,030 7,376
Tangible fixed assets 1,925 2,060 2,316
Investment - 2,000 2,000
2,050 13,090 11,692
Current assets
Stock 675 674 501
Debtors 6,620 10,550 9,554
Bank - short term deposits 8,500 12,588 10,500
Cash at bank and in hand 3,623 2,754 3,600
19,418 26,566 24,155
Creditors: amounts falling due within one year (9,278) (10,602) (12,613)
Net current assets 10,140 15,694 11,542
Total assets less current liabilities 12,190 29,054 23,234
Creditors: amounts falling due after more than one (34) (39) (57)
year
Provisions for liabilities and charges (627) (1,900) (2,472)
Net assets 11,529 27,115 20,705
Capital and reserves 4
Called up share capital 518 511 515
Shares to be issued 75 600 253
Share premium account 72,432 72,425 72,429
Merger reserve - 3,445 2,973
Profit and loss account (61,655) (49,864) (55,494)
Total equity shareholders' funds 5 11,370 27,117 20,676
Minority interests 159 (2) 29
Capital employed 11,529 27,115 20,705
Consolidated cash flow statement
for the quarter and nine months ended 31 December 2002
Quarter Quarter 9 months 9 months
ended ended ended ended
31 Dec 2002 31 Dec 2001 31 Dec 2002 31 Dec 2001
unaudited unaudited unaudited unaudited
#'000 #'000 #'000 #'000
Note
Net cash inflow/(outflow) from operating 6 1,712 (1,680) (1,198) (9,083)
activities
Return on investments and servicing of finance
Net interest 94 176 271 727
Capital expenditure and financial investment
Purchase of tangible fixed assets (186) (170) (900) (622)
Other fixed asset investments - (670) - (670)
(186) (840) (900) (1,292)
Acquisitions and disposals
Consideration paid in respect of prior period - (150) (100) (872)
acquisitions
Cash inflow/(outflow) before use of liquid 1,620 (2,494) (1,927) (10,520)
resources and financing
Management of liquid resources
(Increase)/decrease in short-term investments (1,000) 3,438 2,000 11,662
Financing
Issue of shares - - 5 -
Capital element of finance lease payments (20) (55) (55) (90)
(20) (55) (50) (90)
Increase in cash in the period 600 889 23 1,052
Notes to the third quarter and nine months results
1. Basis of preparation
The financial statements for the quarter and nine months ended 31 December 2002 have been prepared using accounting
policies consistent with those set out in the Company's consolidated 2002 statutory accounts. These statements do not
constitute statutory accounts within the meaning of section 240 of the Companies Act 1985 and are unaudited.
Financial information for the quarter and nine months ended 31 December 2001 has been extracted from the accounting
records of the Group. The merger reserve and profit and loss account balances have been restated to reflect the nine
months to 31 December 2002 release of the merger reserve for the year ended 31 March 2002.
The balances as at 31 March 2002 have been extracted from the statutory accounts, which have been filed with the
Registrar of Companies. The auditors' report on those accounts was unqualified and did not contain any statement
under section 237 of the Companies Act 1985.
The results for the quarter and nine months ended 31 December 2002 were approved by the Board on 26 February 2003 and
will be posted on the Company's web site, www.eckoh.com, on 27 February 2003.
2. Segmental analysis - for the quarter and nine months ended 31 December 2002
Following the completion of the restructure of continuing operations the Company now operates as a single integrated
business. No segmental information is thus presented. In addition, following the closure or disposal of overseas
entities during the previous financial year there are no material foreign entities and segmental information by
geographical area is therefore not presented.
3. Earnings/(loss) per ordinary share of 0.25p each
Quarter Quarter 9 months ended 9 months ended
ended ended 31 Dec 31 Dec
31 Dec 31 Dec 2002 2001
2002 2001 restated
restated #'000 #'000
#'000 #'000
Profit/(loss) for the period before the 211 (2,134) 54 (9,086)
following:
Intangible asset amortisation and impairment (25) (5,701) (7,288) (15,273)
Exceptional items - (1,021) - (3,341)
Provision against fixed asset investment - - (2,000) -
Profit on disposal of internet operations - 303 - 303
Profit/(loss) for the period 186 (8,553) (9,234) (27,397)
Weighted average number of shares in the period:
Basic and diluted 207,292,024 203,069,562 207,065,951 202,297,838
Basic and diluted earnings/(loss) per share 0.1p (1.1p) (0.0p) (4.5p)
before the following:
Intangible asset amortisation and impairment - (2.8p) (3.5p) (7.5p)
Exceptional items - (0.5p) - (1.7p)
Provision against fixed asset investment - - (1.0p) -
Profit on disposal of internet operations - 0.2p - 0.2p
Basic and diluted earnings/(loss) per share 0.1p (4.2p) (4.5p) (13.5p)
The dilutive effect of share options in issue and shares to be issued is not material enough to impact on the
disclosed earnings per share for the current quarter.
4. Share capital and reserves
Ordinary share Shares to be Share premium Merger reserve Profit and loss
capital issued account account
#'000 #'000 #'000 #'000 #'000
At 1 April 2002 515 253 72,429 2,973 (55,494)
Loss for the period - - - - (9,234)
Shares issued in 2 - 3 - -
respect of share
options exercised
Contingent and 1 (101) - 100 -
deferred share
consideration for
acquisitions in prior
years
Movement in fair - (77) - - -
value of contingent
share consideration
for acquisitions in
prior years
Realisation of merger - - - (3,073) 3,073
reserve
At 31 December 2002 518 75 72,432 - (61,655)
5. Reconciliation of movement in shareholders' funds
Quarter ended Quarter 9 months ended 9 months ended
31 Dec ended 31 Dec 31 Dec
2002 31 Dec 2002 2001
2001
#'000 #'000 #'000 #'000
Opening shareholders' funds 11,109 35,523 20,676 54,362
Profit/(loss) for the period 186 (8,553) (9,234) (27,397)
Net movement in contingent share consideration 75 383 (77) 113
Employee share options exercised - - 5 -
Exchange adjustments offset in reserves - (236) - 39
Closing shareholders' funds 11,370 27,117 11,370 27,117
6. Net cash inflow/(outflow) from operating activities
Quarter ended Quarter 9 months ended 9 months ended
31 Dec ended 31 Dec 31 Dec
2002 31 Dec 2002 2001
2001 restated
restated
#'000 #'000 #'000 #'000
Operating profit/(loss) 83 (8,967) (7,371) (28,227)
Depreciation and impairment of tangible fixed 314 379 937 1,161
assets
Amortisation and impairment of intangible fixed 25 5,701 7,288 15,273
assets
Decrease/(increase) in stock 620 285 (174) 504
Decrease/(increase) in debtors 1,264 3,119 2,950 2,983
(Decrease)/increase in creditors/provisions (594) (2,270) (4,828) (850)
Loss on disposal of fixed assets - 73 - 73
1,712 (1,680) (1,198) (9,083)
END
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