TIDMECK
RNS Number : 2432G
Eckoh PLC
24 November 2020
24 November 2020
Eckoh plc
Unaudited interim results for the six months ended 30 September
2020
Robust performance, driven by high recurring revenues and
prudent cost control
Eckoh plc (AIM: ECK) ("Eckoh" or the "Group"), the global
provider of secure payment products and customer contact solutions,
is pleased to announce unaudited results for the six months to 30
September 2020.
GBPm unless otherwise stated H1 FY21 H1 FY20 Change
------------------------------
Revenue 15.7 18.0 (13%)
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Gross profit 12.8 14.2 (10%)
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Adjusted operating profit(1) 3.4 3.4 n.m.
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Profit after taxation 2.0 2.0 n.m.
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Adjusted diluted earnings
pence per share(2) 1.11p 1.10p +1%
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Net cash 12.9 10.9 +2.0m
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Total business contracted(3) 14.0 19.4 (28%)
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New business contracted(4) 7.9 11.8 (33%)
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Financial highlights
-- Year on year profit maintained, in line with Board
expectations, despite difficult conditions in recent months
-- Revenue down 13% overall; 4% decrease after adjusting for the
one-off Coral contract in the prior year
-- US Secure Payments revenue increased significantly by 80% to
$6.5m (H1 FY20: $3.6m), offset by planned decline in Support (61%)
and expected decline in Coral (85%)
-- UK revenue down 11%, with COVID-19 impacting some transactional revenues
-- Adjusted operating profit(1) level to prior year at GBP3.4m,
and up 34% after adjusting for the Coral contract
-- Recurring revenue(5) GBP11.5m (H1 FY20 GBP12.8m), 73% of
total revenues (H1 FY20: 79%, excluding the Coral contract),
reflecting a transition towards higher growth US Secure
Payments
-- Strong cash generation, robust balance sheet and special
dividend; net cash GBP12.9m (H1 FY20: GBP10.9m)
Strategic highlights
-- Total business contracted(3) , GBP14.0m (H1 FY20 GBP19.4m,
excluding Coral contract GBP16.4m) down 15%
-- New business contracted(4) , GBP7.9m (H1 FY20: GBP11.8m,
excluding Coral contract GBP9.3m) down 15%
-- UK new business up 17% to GBP3.2m (H1 FY20: GBP2.7m) with 68%
of new business coming from existing clients. Total UK business up
8% with several significant renewals completed and more expected in
the second half
-- US Secure Payments revenue grew very strongly, reinforcing
the rationale to focus on this growth opportunity by instigating a
planned transition away from Support, which is progressing as
expected
o New business contracted $5.9m (H1 FY20: $7.3m), with H1 FY21
increasing 73% over H2 FY20 ($3.4m), and momentum increasing in the
second quarter after a challenging first quarter
o Larger number of contracts won in the period for contracts to
be delivered in the Cloud
o US Secure Payments Order book $25.9m (H1 FY20: $26.9m or FY20
$25.9m)
Outlook
-- With a highly relevant product portfolio and resilient
business model, Eckoh is well prepared to successfully manage the
current challenges, although the outlook remains uncertain due to
COVID-19
-- The Board expects profits for this financial year to be comparable to the prior year
1. Adjusted operating profit is the profit before tax adjusted
for finance income, finance expense expenses relating to share
option schemes and acquired intangibles amortisation
2. Adjusted diluted earnings per share (eps) is the diluted eps
adjusted for expenses relating to share option schemes and acquired
intangibles amortisation
3. Total business contracted includes new business from new
clients, new business from existing clients as well as renewals
with existing clients.
4. New business contracted excluding renewals with existing customers.
5. Recurring revenue is defined as on-going revenue on a
transactional basis, rather than revenue derived from the set-up
and delivery of a new service or hardware.
Nik Philpot, Chief Executive Officer, said:
"In this challenging trading period Eckoh delivered a robust
performance, in line with our expectations, generating comparable
levels of profit to last year, which reflects the resilience of our
business. I would like to thank everyone at Eckoh for this
performance. All of our team have adapted extremely well to the
challenges presented by COVID-19, they've been committed and highly
effective, despite the difficult conditions of recent months.
Our high levels of recurring revenue, a solid order book,
enterprise clients, a strong balance sheet, and prudent cost
control have enabled us to manage the impact of the pandemic
effectively. With a strong sales pipeline, we look to the future
with confidence."
For more information, please contact:
Eckoh plc
Nik Philpot, Chief Executive Officer Tel: +44 (0) 1442
458 300
Chrissie Herbert, Chief Financial Officer
www.eckoh.com
FTI Consulting LLP Tel: +44 (0) 203
727 1000
Ed Bridges, Jamie Ricketts, Darius Alexander
eckoh@fticonsulting.com
N+1 Singer (Nomad & Joint Broker)
Shaun Dobson, Tom Salvesen, Justin McKeegan Tel: +44(0) 20 7496
3000
www.n1singer.com
Canaccord Genuity Limited (Joint Broker)
Simon Bridges, Emma Gabriel Tel: +44(0) 20 7523
8000
www.canaccordgenuity.com
About Eckoh plc
Eckoh is a global provider of Secure Payment products and
Customer Contact solutions, supporting an international client base
from its offices in the UK and US.
Our Secure Payments products help our clients take payments
securely from their customers through all engagement channels. The
products, which include the patented CallGuard and ChatGuard, can
be hosted in the Cloud or deployed on the client's site and remove
sensitive personal and payment data from contact centres and IT
environments. They offer merchants a simple and effective way to
reduce the risk of fraud, secure sensitive data and become
compliant with the Payment Card Industry Data Security Standards
("PCI DSS") and wider data security regulations. Eckoh has been a
PCI DSS Level One Accredited Service Provider since 2010, securing
over GBP2 billion in payments annually.
Eckoh's Customer Contact solutions enable enquiries and
transactions to be performed on whatever device the customer
chooses, allowing organisations to increase efficiency, lower
operational costs and provide a true Omnichannel experience. We
also assist organisations in transforming the way that they engage
with their customers by providing support and transition services
as they implement our innovative customer contact solutions.
Our large portfolio of clients come from a broad range of
vertical markets and includes government departments, telecoms
providers, retailers, utility providers and financial services
organisations.
For more information go to www.eckoh.com or email
MediaResponseUK@eckoh.com .
Introduction and Financial Highlights
Eckoh's business model and market position, with high levels of
recurring revenue, a solid order book, enterprise clients and a
strong balance sheet, combined with prudent cost control, have
enabled Eckoh to manage the impact of the global pandemic
effectively and deliver a robust first half performance.
Our US revenues are entirely underpinned by fixed fee contracts
and as we continue our planned transition away from the Support
channel, we will have even greater visibility of our revenues going
forward. For example, Secure Payment contracts are typically three
years in length, whereas Support contracts are by their nature
short term and generally one year.
The UK delivers a high level of guaranteed revenue, in
aggregate, from a combination of fixed fees and transactional
commitments, albeit from a wide range of different commercial
structures. Volumes were impacted significantly at the onset of the
pandemic in mid-March but due to the contractual arrangements we
had in place, this was not reflected proportionately in revenue. We
saw volumes increasing from mid-May and throughout the summer,
returning to normal levels in September. The lockdown in November
is not expected to impact volumes or revenue to the same extent as
earlier in the year, unless it were to continue for significantly
longer than has been indicated.
Despite the difficult conditions of recent months, Eckoh
delivered a first half performance in line with the Board's
expectations, with comparable levels of profit to the prior year,
reflecting the resilience of its business model. Last year we had a
significant one-off contract for Coral, the agent desktop product,
worth $3.8 million of which $2.1 million in revenue was recognised
in the first half last year. Adjusted operating profit for the
period was GBP3.4 million and level with the prior year (H1 FY20:
GBP3.4 million). Excluding the GBP0.9 million of operating profit
from the Coral contract in the prior year, profit increased by
33.7%. Also included in the profit from the prior year was a
foreign currency gain of GBP0.3 million, in the current period
there was a foreign currency loss of GBP0.1 million.
Total revenue for the six months was GBP15.7 million, a decrease
on the prior year of 12.9% (H1 FY20: GBP18.0 million) or adjusting
for constant exchange rates a decrease of 12.2%. After adjusting
for the Coral contract and at constant exchange rates, revenue was
down 3.0%.
Total contracted business for the Group in the period was
GBP14.0 million compared to GBP19.4 million in the prior year, down
28.2%. After excluding the Coral contract of $3.8 million in the
prior year, total contracted business saw a decrease of 14.8%. New
business in the first half was GBP7.9 million (H1 FY20: GBP11.8
million, excluding Coral contract GBP9.3m), a decrease of 14.9%
after adjusting for the non-repeatable Coral contract.
Gross profit fell by 10.0% to GBP12.8 million (H1 FY20 GBP14.2
million). The US fell 11.4% to GBP4.7 million (H1 FY20: GBP5.3
million), with gross profit margin increasing to 75% (H1 FY20: 71%,
excluding Coral licences 77%). The UK gross profit fell by 9.3% to
GBP8.0 million (H1 FY20: GBP8.8 million), where gross profit margin
increased marginally by 1% to 85%.
Cash and cash generation remain strong with a net cash position
of GBP12.9 million, an increase of GBP2.0 million on the previous
year and GBP1.3 million since March 2020. This comprises a cash
balance of GBP14.8 million, less an outstanding loan of GBP1.9
million, taken out in 2015 in part to purchase the Group's UK head
office.
Impact of COVID-19 and Current Trading
Our teams in both the UK and US have adapted well to the
challenges and continue to work extremely effectively despite the
difficult and changing conditions. All employees are equipped to
work from home, including our in-house Contact Centre agents in the
UK, who utilise Eckoh's own remote-working technology.
In March 2020, because of the pandemic, we took a number of
precautionary measures including a freeze on new hires, postponing
salary increases for 2021, limiting discretionary spend and making
no allowances for staff bonuses in the first half. During the
period we have maintained headcount to manage ongoing demand,
sustain our high service levels and ensure we are well-placed for a
recovery in demand. We have identified a number of key hires that
are required in the second half of the year and as a result,
certain costs are likely to be higher than in the first half.
In addition to the precautionary measures above, in March we
also deferred the quarterly loan repayments in April 2020 and July
2020 and the Board considered it prudent not to propose a year-end
dividend. The loan repayments have re-commenced and a repayment was
made in October 2020, the normal date for the quarterly repayments.
In addition, and due to the business performance and the prudent
balance sheet management, in September the Board announced a
special dividend, in lieu of the final dividend from the financial
year ending 31 March 2020. A dividend of 0.61p per ordinary share
was paid to Shareholders on 23 October 2020, who were on the
Register as of 25 September 2020.
The significant disruption to businesses that has arisen from
the pandemic will, we believe, lead to an adjustment in the way
that organisations approach their customer engagement strategy. In
particular, we foresee a proportion of remote working agents
becoming a permanent feature of large contact centre operations,
that will force a greater number of organisations to adopt a more
rigorous approach to data and payment security. This view is
supported by the interest in and sales for our CallGuard Remote
product, which facilitates the taking of payments securely in
remote working environments. Furthermore, we expect an even faster
adoption of emerging engagement technologies such as conversational
bots working in tandem with human agents. and the number of
companies who are accelerating their shift to Cloud-based
solutions. Eckoh will be able to assist new and existing clients in
responding to these changes.
Whilst there remains uncertainty in the general macro-economic
climate, given the high levels of recurring revenue Eckoh has along
with its strong order book, the Board expects profits for the full
year 2021 to be comparable to the prior year, subject to there
being no further extended lockdowns in either the UK or the US.
A Clear Growth Strategy
Our strategic objectives reflect our primary goal to become the
global leader in our areas of expertise, and in particular, Contact
Centre payment security.
Our strategic objectives include:
-- Being the market leader for Contact Centre payment security
in premised, hosted and Cloud delivery
-- Capitalise on the fast-growing US market for Contact Centre payment security
-- Maximise client value through cross-selling to generate higher levels of recurring income
-- Continue to enhance the Eckoh Experience Portal to enable
faster and more flexible delivery of our solutions
-- Use Cloud Native technologies to develop next-generation
products and enhance our proprietary technologies
-- Identify and evaluate acquisition opportunities that can
support our growth strategy in Contact Centre security and customer
engagement
Operational Review
US Division (40% of group revenues)
In the US, revenue in the period was $8.0 million, a decrease of
14.7% (H1 FY20: $9.4 million). Secure Payments grew significantly
by 79.6% and was offset by a planned decline in Support and an
expected decline in Coral, with the prior year period including the
large one-off contract with $2.1 million of recognised revenue. If
the Coral contract is excluded, revenue grew by 18.0% in the US,
despite the planned decline in the US Support business.
Total contracted business was $6.9 million (H1 FY20 $14.5
million). Included in total contracted business for the prior year
was the $3.8m Coral contract and Support and Coral renewals of $2.6
million. In the period, new Secure Payments business contracted was
$5.9 million, a decrease of 19.6% (H1 FY20: $7.3 million).
In the US, the Group's focus remains on the US Secure Payments
opportunity, where it has the greatest differentiation and the
least competition. The performance of the Secure Payments business
is summarised below, together with the Support business that we are
strategically exiting, as well as the Coral business.
-- Secure Payments revenue grew 79.6% to $6.5 million (H1 FY20:
$3.6 million), and now represents 81% of US revenue. In the second
half we expect revenue to be at similar levels to the first half
due to the timing of the new contracts signed in the first
half.
-- Coral had revenues of $0.4 million in the period, compared to
$3.0 million in H1 FY20, reflecting the non-repeatable revenue of
$2.1 million from the large one-off contract in the prior period.
In the first half, Coral accounted for 6% of US revenue (H1 FY20:
32%). As noted previously, the timing of Coral orders remains hard
to forecast and they will be lumpy in nature.
-- Support revenue declined as expected to $1.1 million, a
decrease of 61% (H1 FY20: $2.8 million) and represents 13% of the
US revenue. It is expected to fall to approximately 10% of US
revenues for the full year in line with the strategic decision
taken last year to focus our staff and resources on the high growth
opportunity of Secure Payments and manage a transition away from
Support.
Secure Payments, where we deliver a patented solution that
enables enterprises to take card payments securely within their
Contact Centre operations, continued to have excellent momentum.
The pandemic made it extremely difficult to close new contracts in
the first quarter, as many sales processes were put on hold by the
customer whilst they dealt with the disruption to their businesses.
In the second quarter momentum started to build, and ultimately the
number of contracts signed in the period exceeded that in the prior
year. The new contracted business in the first half of $5.9m was
significantly greater than the $3.4m in the second half of last
year, which was also impacted by the pandemic, giving us confidence
that we can continue to make good progress in the second half of
the year.
Since 2015, when we launched our Secure Payments product in the
US, the total of new business contracted has grown significantly,
as shown below.
Financial FY16 FY17 FY18 FY19 FY20 H1 FY21
Year
New Business
Contracted $1.6m $8.3m $9.3m $13.7m $10.7m $5.9m
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The Company is focused on large enterprise contracts, but with
many of the sales processes for the largest companies temporarily
suspended in the period there was a greater emphasis on contracts
with medium-sized organisations, which generally have a lower
average contract value than the $750k previously indicated. The
majority of contracts won were in the second quarter and will be
delivered in the Cloud. These projects are easier to execute and
deliver in the current environment and illustrate ongoing demand
for our innovative technology and solutions that are designed to
safeguard our clients' migration to digital, remote working.
We do anticipate that a lasting impact of the pandemic will be a
general acceleration in Cloud deployments, although the very large
enterprises are still likely to take many years to achieve that
goal. We have recently started to see some of these large
organisations re-commence their sales processes and depending on
when these are concluded we will see the average contract values
rising again. Contracts secured in the period came from a range of
sectors including business process outsourcing, insurance,
utilities, retail, gaming and financial services, which delivered
the largest contract of the half through a large global
organisation that is already a client in the UK.
The average length of contracts for Secure Payments is three
years, therefore there have been few contracts due for renewal in
the first half due to the early stage of maturity for our business
in this area. There are two larger contracts due for renewal in the
second half of the current year and we anticipate the contracts to
be renewed successfully, and others to follow, mirroring the trend
of the UK.
External factors, such as the impending change to the Payment
Card Industry Data Security Standard (PCI DSS), the implementation
of new data laws like the newly passed California Privacy Rights
Act and significant fines levied on US organisations through the
GDPR legislation, are undoubtedly helping raise awareness of the
risks of not protecting sensitive data properly. This will assist
us in continuing to build our pipeline which is substantial and
growing. Our focus on these larger contracts means that in future
periods the timing of contract wins continues to be hard to predict
given the typically longer sales cycle.
Coral is a browser-based agent desktop that increases efficiency
by bringing all the contact centre agent's communication tools into
a single screen. It also enables organisations, particularly those
who have grown by acquisition, to standardise their contact centre
facilities, as Coral can be implemented in environments that
operate on entirely different underlying technology. In the prior
period, we secured a contract extension with a Fortune 100
telecommunications company for our agent desktop tool Coral. The
contract was worth a minimum of $3.8 million, and of this, $2.1
million relating to the purchase of licences was recognised in the
prior first half revenue. As we indicated at the time, we would not
expect a further deal of additional licences of this size in
FY21.
In Support, as we stated last year, we are transitioning away
from this activity to focus on the high growth Secure Payments
opportunity. The majority of the employees servicing the Support
channel have been switched to increasingly service the more
substantial and higher growth Secure Payments opportunities, and
this will continue.
Recurring revenues in the US were 56% in the period compared to
63% for the same period last year, after adjusting for the one-off
$2.1 million of Coral licences. Recurring revenue for the Secure
Payments activity was 47% compared to 44% in the prior year. We
would expect recurring revenue to increase in the second half and
continue to grow over time as we continue to deploy new clients
live, particularly given the recent Secure Payment contracts which
will be delivered in the Cloud. Recurring revenue for Secure
Payments is lower than the UK operation due to the hardware
component and in particular the disproportionately large value of
non-recurring revenue relating to hardware and set-up fees from our
largest Secure Payment contract that went live last year.
The US operation's revenues are based on fixed contractual fees
giving us continued resilience in the current situation. Given most
of the contracts signed in the first half were in the second
quarter, there will be limited impact from these new client
deployments in the second half and therefore revenue is forecast to
be largely comparable to the first half of FY21. Because of the
delay in a number of the sales processes due to the pandemic our
sales pipeline has continued to grow and is at a substantial
level.
UK Division (60% of group revenues)
The UK division has delivered a robust performance in the period
generating comparable levels of profit to the prior year despite
the challenging environment presented by the pandemic.
Revenue in the period was GBP9.4 million, a decrease on last
year of 10.5% (H1 FY20: GBP10.5 million), and gross profit
decreased 9.3% to GBP8.0 million (H1 FY20: GBP8.8 million). The
revenue decline was directly due to the impact that the pandemic
had on our clients' activity. Because our UK business has been
running for many years, there are a range of commercial models that
have evolved over time, unlike the US business which has only been
operating since 2015. Where the commercial model is transactional,
which remains the most common model, it is usual for a client to
commit to a high percentage of its expected volumes and in so doing
achieve the most competitive buying rate. However, this is not the
case for a few of our longstanding clients, some of which are
Eckoh's largest. At the peak of the pandemic's impact,
transactional volumes were significantly reduced, but because of
the blend of our contracts the aggregated impact on revenue across
our client base was much less than this figure.
Many of our clients had limited options in place to deal with
such an extreme pandemic, notably their ability to operate their
contact centres effectively and securely from remote locations.
Over the ensuing months we have seen many putting more robust
disaster recovery plans in place and this appears to have led to
much less disruption in the most recent lockdown, which we expect
to lead to less impact on our associated revenues. We believe that
a lasting impact of the pandemic on our client's outlook to
customer engagement, as well as the wider market, will be a greater
awareness of the importance of the appropriate tools to deliver
remote customer service that is both flexible, robust and secure.
We expect this to lead to ongoing and growing interest in the
solutions that Eckoh has to offer to assist in this regard.
Gross margins in the UK increased in the period by 1% to 85% (H1
FY20: 84%), and recurring revenue has decreased as expected to 85%
from 87% in H1 FY20. As indicated previously, we expect recurring
revenue to return to pre-IFRS 15 levels, to a steady state in the
range of approximately 85% to 87%.
Total business contracted was up 7.9% to GBP8.6 million (H1
FY20: GBP7.9 million), and new business contracted was GBP3.2
million up 17.0% on the prior period (H1 FY20: GBP2.7 million).
Renewals in the period were GBP5.4 million, an increase of 3.1%
over the prior year (H1 FY20: GBP5.2 million).
Looking at the segmentation of UK revenue, 28% came from Secure
Payment services (H1 FY20: 21%), 34% from Customer Contact
Solutions (H1 FY20: 36%) and the remaining 38% from clients where
we provide a combination of both solutions (H1 FY20: 43%). The
increase in the period from Secure Payment services is principally
due to the uptake by new clients (one of which is a major UK bank)
of the CallGuard Remote product, which facilitates the taking of
payments securely in remote working environments. Whilst the
clients whose transactions have been impacted most by the pandemic
are those larger clients with a combined solution, in most cases
these are underpinned by a level of guaranteed revenue.
New business in the UK continues to come from sales delivered
through our Eckoh Experience Portal ("EXP"), which enables
organisations to buy and deploy our Customer Contact and Secure
Payment solutions in a modular fashion. The focus of the sales team
remains on larger, more complex opportunities, typically known as
'digital transformations' where Eckoh provides a fully integrated
solution in which newer digital channels for customer engagement
such as live web chat, chatbots and social media messaging sit
alongside more conventional ones such as voice and email. This can
then be overlaid with our Secure Payment proposition encompassing
CallGuard, ChatGuard and our eWallet capability.
Our model of cross-selling to existing clients remains a key
part of the Eckoh strategy, not just to generate incremental
revenue but also to continue the trend of strong client retention
and to further increase the lifetime value of the Group's
customers. In recent months there has been greater opportunity than
normal to leverage the ability of EXP to allow us to add
incremental solutions to our existing clients. As stated
previously, we believe the current business environment encourages
organisations to more readily add business with their proven
trusted partners, rather than entering into relationships with new
partners. This trend comes through strongly in our figures as 68%
or GBP2.2 million of the new business secured in the first half of
GBP3.2million, was contracted with existing customers for delivery
of new solutions or modifications.
During the first half, our strong track record with existing
clients has continued to be demonstrated through the levels of
renewal business contracted. In August 2020, we secured a six-year
renewal of our contract with Capita for the provision of services
for the Congestion Charge to Transport for London, at a total
contract value of GBP4 million. There are a number of other
sizeable renewals expected to close in the second half of our
financial year. There were no losses in the period, although we
were forced to terminate one client contract due to security
concerns around their systems that we believed exposed us to
unacceptable risk.
Despite the current situation, we are continuing to see positive
activity levels in the UK and the pipeline continues to be strong.
The new business and consistent renewals of existing clients gives
us, in normal circumstances, high revenue visibility and our UK
clients are underpinned by contractual fees or minimum transaction
levels. The UK business does have some exposure to consumer-facing
clients and due to the ongoing impact of the pandemic and the most
recent lockdown, we anticipate a further impact to transactions in
the coming months. Therefore, we would reasonably expect revenue in
the second half to be a similar level to the first and costs will
continue to be managed tightly with overall profit comparable to
full year 2020.
Technology and Innovation
Further to the significant number of additional patents we were
granted in the last financial year, we have had a further two added
in this period taking the total number granted to 14. These
are:
-- Authenticating Users for Data Exchange in the US. Eckoh's
patented process uses both voice biometrics to authenticate a
caller, and a phone 'footprint' to authenticate the caller's mobile
device. The dual authentication mechanism increases the merchant's
confidence that the caller is the genuine cardholder.
-- Contact Centre Authentication in Europe. A revolutionary
technology which ensures that customers are securely authenticated
prior to talking with contact centre agents. As well as saving time
and improving data accuracy, the contact centre authentication
approach can dramatically improve security. This was granted in
July and has been validated in Belgium, France, Germany, Ireland,
Italy, Netherlands, Spain and the UK.
We have progressed our Cloud Native initiative in line with our
ongoing technology strategy and now have a number of deployments
for some of our largest customers operating through this model. We
have also demonstrated that the need to operate mission critical
services in a hybrid model (i.e. until such time as it becomes
logical to completely converge cloud and physical) is eminently
possible, efficient and scalable with the right expertise. It has
also been pleasing to see the integration to client systems, for
which we are renowned, is equally effective and arguably even more
seamless under the Cloud Native initiative.
Continuing this theme and in line with our broadening client
base in both the US and UK, we have continued to increase the
footprint of leading CRM, finance and carrier solutions we are
integrated with. With the market recognising our unique and
transparent means of passing data from one system to another
without the need and costs associated with complex integration, we
have broadened our reference capability significantly during the
period.
Cyber Essentials was recently added to our list of
accreditations against the growing number of global Information
Security standards. Alongside our well-established PCI DSS,
ISO-27001 and ISO-9001 accreditations, this addition reinforces our
credentials as a high-calibre and secure supplier.
In January we will be releasing a major upgrade to our CallGuard
product. This will include significant enhancements to the
usability of the product for both the agent and consumer, based
upon feedback from multiple existing clients in the UK and US as
well as more comprehensive analytics. It is important that our
product remains market leading and we believe that these latest
enhancements will ensure that we continue to set the standard in
our sector.
Current Trading and Outlook
Despite the continued disruption to market conditions relating
to COVID-19, the Board remains confident of the future prospects of
the Group, as indicated with the approval of the special dividend
in September, which was paid to Shareholders in October. The
business is underpinned by balance sheet resilience, high recurring
revenues, excellent sales pipelines and the long-term market
opportunity.
Financial Review
Revenue
Revenue for the period decreased by 12.9% to GBP15.7 million (H1
FY20: GBP18.0 million) and at constant exchange rates by 12.2%.
Revenue in the UK, which represents 60% (H1 FY20: 58%) of total
group revenues, decreased by 10.5% to GBP9.4 million (H1 FY20:
GBP10.5 million). The US represented 40% (H1 FY20: 42%, 36%
excluding Coral licences) of total group revenues and revenues
decreased in the period to GBP6.3 million (H1 FY20: GBP7.5
million), revenues in local currency fell by 14.7% year on year and
in sterling by 16.4%. Further explanations of movements in revenue
between the US and UK divisions have been addressed in the
Operational Review above.
H1 FY21 H1 FY21 H1 FY21 H1 FY20 H1 FY20 H1 FY20
(UK) (US) Total (UK) (US) Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------------- -------- -------- -------- -------- -------- --------
Revenue 9,401 6,281 15,682 10,504 7,511 18,015
Gross Profit 8,028 4,723 12,751 8,847 5,329 14,176
Gross margin 85% 75% 81% 84% 71% 79%
-------------- -------- -------- -------- -------- -------- --------
Gross profit margin was 81% for the first half of the financial
year 2021 compared to 79% for the first half of 2020. Gross profit
margin in the UK business increased by 1% to 85%. In the US the
margin increased from 71% to 75%, due in principle to the Coral
licences included in the first half of the financial year 2020.
Excluding the Coral licenses in 2020, gross profit margin was 77%.
The decline of the US gross profit margin is as expected, as new
secure payment clients went live during the half and the margin
decreased marginally due to the hardware delivered as part of the
Secure Payment solutions, in addition to the planned decline in the
Support business.
In the UK, as the service is hosted on an Eckoh platform there
is typically no hardware provided to clients and gross profit
margin is expected to remain level at 83% to 85%. In the US, due to
the impact of IFRS 15 and the growth in the Secure Payments
activities, we would expect gross profit margin to gradually
decrease to a range of approximately 70% to 75% in the next two
years with the continued decline of the Support business and the
on-going deployment of new Secure Payment business having a greater
impact than the renewals of the earlier Secure Payment contracts.
When clients renew their contracts without additional significant
hardware, the gross profit margin should gradually start to
increase.
Administrative expenses
Total administrative expenses were GBP10.2 million in the
period, compared to GBP11.6 million for the same period last year.
Adjusted administrative expenses were GBP9.3 million compared to
GBP10.8 million for the same period last year, as a result of the
precautionary measures taken earlier in the year at the onset of
the pandemic. Discretionary spend has been limited in the first
half of 2021, including the freezing of new hires, postponing
salary increases for 2021 and no allowances have been made in the
period for staff bonuses. The adjusted administrative expenses of
GBP9.3 million are expected to increase in the second half as we
invest, on a cautionary basis, in the business for the future.
Included in administrative expenses is a trading foreign currency
loss of GBP0.1 million (H1 FY: GBP0.3million gain).
Profitability Measures
Adjusted Operating profit for the period was GBP3.4 million in
line with adjusted operating profit for the same period last year
(H1 FY20: GBP3.4 million), reflecting the resilience in the
business. Included in the first half of FY20 was Operating profit
from Coral licences of GBP0.9 million and a foreign currency gain
of GBP0.3 million. Included in the first half profit for the
current period was a foreign currency loss of GBP0.1 million. In
addition, as the Group have managed in the period the planned
transition from the US support business, the year on year operating
profit decline was GBP0.9 million for the US Support business, this
was more than offset by the increase in operating profit of GBP1.8
million from the US Secure Payments as we continue to successfully
deploy solutions to clients and start to recognise the revenue,
including a proportion of the hardware and implementation fees. In
the UK, despite a decline in revenue in the period, due to the
impact of COVID-19 on the transactional volume of some of our
longstanding clients, operating profit grew year on year by GBP0.3
million through prudent cost control.
Six months Year
ended Six months ended
30 Sept ended 31 March
2020 30 Sept 2019 2020
GBP'000 GBP'000 GBP'000
---------------------------------- ----------- -------------- ----------
Profit from operating activities 2,538 2,557 3,286
Amortisation of acquired
intangible assets 486 498 979
Expenses relating to share
option schemes 392 359 468
Adjusted operating profit(1) 3,416 3,414 4,733
----------- -------------- ----------
Amortisation of intangible
assets 164 147 314
Depreciation of owned assets 363 415 848
Depreciation of leased assets 254 247 491
---------------------------------- ----------- -------------- ----------
Adjusted EBITDA 4,197 4,222 6,386
---------------------------------- ----------- -------------- ----------
Finance charges
For the financial period ended 30 September 2020, the net
interest charge was GBP10k (H1 FY20: GBP1k).
Taxation
For the financial period ended 30 September 2020, there was a
tax charge of GBP484k (H1 FY20: GBP515k), an effective tax rate of
19% (H1 FY20: 20%).
Earnings per share
Basic earnings per share was 0.80 pence per share (H1 FY20: 0.80
pence per share). Diluted earnings per share was 0.77 pence per
share (H1 FY20: 0.78 pence per share). Adjusted diluted earnings
per share was 1.11 pence per share (H1 FY20: 1.10 pence per
share)
Contract liabilities and assets
Contract liabilities and contract assets relating to IFRS 15
Revenue from Contracts with Customers are revenue and costs
relating to the implementation of our solutions which are deferred
onto the balance sheet until our solution is accepted by the client
and then they are released evenly over the initial term of the
contract. Total contract liabilities were GBP14.0 million a
decrease from the March 2020 contract liabilities of GBP14.4
million (H1 FY20: GBP15.2 million). Included in this balance are
contract liabilities relating to the Secure Payments product or
hosted platform product of GBP12.7 million compared to GBP13.2
million at March 2020 (H1 FY20: GBP14.3 million). Deferred assets
as at 30 September were GBP5.2 million compared to GBP5.6 million
at March 2020 (H1 FY20: GBP4.8 million). The amounts held on the
balance sheet have decreased from the year end due to the timing of
the new business contracted in the first half.
Cashflow and liquidity
Net cash at 30 September 2020 was GBP12.9 million, an
improvement of GBP2.0 million to the previous year and GBP1.3
million from 31 March 2020. There has been a net cash outflow for
trade debtors, trade creditors, inventory and tax of GBP1.7 million
(H1 FY20: cash inflow GBP0.4 million).
Consolidated statement of comprehensive income
for the six months ended 30 September 2020
Six months Six months
ended 30 ended 30 Year ended
September September 31 March
2020 2019 2020
GBP'000 GBP'000 GBP'000
Continuing operations
Revenue 15,682 18,015 33,178
Cost of sales (2,931) (3,839) (6,854)
------------------------------------------------ ----------- ----------- -----------
Gross profit 12,751 14,176 26,324
Administrative expenses (10,213) (11,619) (23,038)
------------------------------------------------ ----------- ----------- -----------
Operating profit 2,538 2,557 3,286
------------------------------------------------ ----------- ----------- -----------
Adjusted operating profit 3,416 3,414 4,733
Amortisation of acquired intangible
assets (486) (498) (979)
Expenses relating to share option
schemes (392) (359) (468)
------------------------------------------------ ----------- ----------- -----------
Profit from operating activities 2,538 2,557 3,286
------------------------------------------------ ----------- ----------- -----------
Finance charges (22) (39) (68)
Finance income 12 38 84
------------------------------------------------ ----------- ----------- -----------
Profit before taxation 2,528 2,556 3,302
Taxation (484) (515) (166)
-----------
Profit for the period 2,044 2,041 3,136
================================================ =========== =========== ===========
Other comprehensive income/(expense)
------------------------------------------ ---- ----------- ----------- -----------
Items that will be reclassified
subsequently to profit or loss:
Foreign currency translation differences
- foreign operations (74) 52 (48)
------------------------------------------- --- ----------- ----------- -----------
Other comprehensive (expense)/ income
for the period, net of income tax (74) 52 (48)
------------------------------------------------ ----------- ----------- -----------
Total comprehensive income for the
period attributable to the equity
holders of the parent company 1,970 2,093 3,088
================================================ =========== =========== ===========
Profit per share expressed in pence
------------------------------------------ ---- ----------- ----------- -----------
Basic earnings per 0.25p share 0.80 0.80 1.23
Diluted earnings per 0.25p share 0.77 0.78 1.20
------------------------------------------------ ----------- ----------- -----------
Consolidated statement of financial position
as at 30 September 2020
30 September 30 September 31 March
2020 2019 2020
GBP'000 GBP'000 GBP'000
------------------------------- ------------- ------------- ---------
Assets
Non-current assets
Intangible assets 6,709 7,200 7,313
Property, plant and equipment 3,774 4,482 3,851
Right -of-use leased assets 404 - 277
Deferred tax asset 3,786 4,116 3,805
-------------------------------- ------------- ------------- ---------
14,673 15,798 15,246
------------------------------- ------------- ------------- ---------
Current assets
Inventories 258 514 312
Trade and other receivables 12,333 13,920 13,494
Cash and cash equivalents 14,808 13,512 13,541
-------------------------------- ------------- ------------- ---------
27,399 27,946 27,347
------------------------------- ------------- ------------- ---------
Total assets 42,072 43,744 42,593
-------------------------------- ------------- ------------- ---------
Liabilities
Current liabilities
Trade and other payables (18,502) (20,607) (21,078)
Other interest-bearing loans
and borrowings (975) (1,300) (975)
Lease liabilities (380) (280) (233)
-------------------------------- ------------- ------------- ---------
(19,857) (22,187) (22,286)
------------------------------- ------------- ------------- ---------
Non-current liabilities
Other interest-bearing loans
and borrowings (975) (1,300) (975)
Lease liabilities (17) (246) (33)
Deferred tax liabilities (281) (519) (290)
-------------------------------- ------------- ------------- ---------
(1,273) (2,065) (1,298)
------------------------------- ------------- ------------- ---------
Net assets 20,942 19,492 19,009
-------------------------------- ------------- ------------- ---------
Shareholders' equity
Called up share capital 638 638 638
Share premium account 2,663 2,663 2,663
Capital redemption reserve 198 198 198
Merger reserve 2,697 2,697 2,697
Currency reserve 848 844 848
Retained earnings 13,898 12,881 11,965
-------------------------------- ------------- ------------- ---------
Total Shareholders' equity 20,942 19,492 19,009
-------------------------------- ------------- ------------- ---------
Consolidated interim statement of changes in equity
as at 30 September 2020
Called Capital
up share Share redemption Merger Currency Retained Total Shareholders'
capital premium reserve reserve reserve earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 1 April
2020 638 2,663 198 2,697 848 11,965 19,009
Total comprehensive
income for the period
Profit for the period - - - - - 2,044 2,044
Other comprehensive
expense for the period - - - - - (74) (74)
Contributions by and
distributions to owners
Shares transacted
through
Employee Benefit Trust - - - - - (41) (41)
Shares purchased for
share ownership plan - - - - - (173) (173)
Share based payment
charge - - - - - 177 177
Balance as at 30
September
2020 638 2,663 198 2,697 848 13,898 20,942
------------------------- ---------- --------- ------------ --------- --------- ---------- --------------------
Called Capital
up share Share redemption Merger Currency Retained Total Shareholders'
capital premium reserve reserve reserve earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------- ---------- --------- ------------ --------- --------- ---------- --------------------
Balance at 1 April
2019 635 2,659 198 2,697 896 10,099 17,184
------------------------- ---------- --------- ------------ --------- --------- ---------- --------------------
Total comprehensive
income for the period
Profit for the period - - - - - 2,041 2,041
Other comprehensive
(expense)/ income for
the period - - - - (52) - (52)
Contributions by and
distributions to owners
Shares transacted
through
Employee Benefit Trust - - - - - (47) (47)
Shares issued under
the share option
schemes 3 4 - - - - 7
Share based payment
charge - - - - - 359 359
------------------------- ---------- --------- ------------ --------- --------- ---------- --------------------
Balance at 30 September
2019 638 2,663 198 2,697 844 12,452 19,492
------------------------- ---------- --------- ------------ --------- --------- ---------- --------------------
Consolidated statement of cash flows
for the six months ended 30 September 2020
Six months Six months
ended ended Year ended
30 September 30 September 31 March
2020 2019 2020
GBP'000 GBP'000 GBP'000
-------------------------------------- -------------- -------------- -----------
Profit after taxation 2,044 (2,041) 3,136
Interest income (12) (38) (84)
Interest payable 22 39 68
Taxation 484 515 166
Depreciation of property, plant
and equipment 363 661 848
Depreciation of leased assets 254 - 491
Amortisation of intangible assets 650 645 1,293
Share based payments 177 323 468
Exchange differences 51 (288) (264)
-------------------------------------- -------------- -------------- -----------
Operating profit before changes
in working capital and provisions 4,033 3,898 6,122
-------------------------------------- -------------- -------------- -----------
Decrease/ (increase) in inventories 54 (57) 146
Decrease/ (increase) in trade
and other receivables 1,161 (728) (285)
(Decrease)/ increase in trade
and other payables (2,592) 395 1,257
-------------------------------------- -------------- -------------- -----------
Net cash generated in operating
activities 2,656 3,508 7,240
-------------------------------------- -------------- -------------- -----------
Taxation (466) (268) (88)
-------------------------------------- -------------- -------------- -----------
Net cash from continuing operating
activities 2,190 3,240 7,152
-------------------------------------- -------------- -------------- -----------
Cash flows from investing activities
Purchase of property, plant and
equipment (294) (238) (571)
Purchase of intangible fixed assets (157) (172) (951)
Proceeds from sale of tangible
fixed assets 3 - -
Interest paid (16) (39) (50)
Interest paid on lease liability (6) - (18)
Interest received 12 38 84
Net cash utilised in continuing
investing activities (458) (411) (1,506)
-------------------------------------- -------------- -------------- -----------
Cash flows from financing activities
Dividends paid - - (1,558)
Repayment of borrowings - (650) (1,300)
Principal elements of lease payments (251) (244) (503)
Purchase of own shares (173) - (187)
Issue of shares - 6 7
Shares acquired by Employee Benefit
Trust (41) (11) (146)
-------------------------------------- -------------- -------------- -----------
Net cash utilised in continuing
investing activities (465) (899) (3,687)
Increase / (decrease) in cash
and cash equivalents 1,267 1,930 1,959
Cash and cash equivalents at the
start of the period 13,541 11,582 11,582
-------------------------------------- -------------- -------------- -----------
Cash and cash equivalents at the
end of the period 14,808 13,512 13,541
-------------------------------------- -------------- -------------- -----------
Notes to the condensed consolidated interim financial
statements
For the six months ended 30 September 2020
GENERAL INFORMATION
Eckoh plc is a public limited company and is incorporated and
domiciled in the UK under the Companies Act 2006 (Company
Registration number 03435822). The address of the Company's
registered office is Telford House, Corner Hall, Hemel Hempstead,
HP3 9NH.
Eckoh plc is a global provider of Secure Payment products and
Customer Contact solutions.
These condensed consolidated interim financial statements for
the six months ended 30 September 2020 comprise the Company and its
subsidiaries (together the "Group").
1. Basis of preparation
These condensed consolidated interim financial statements for
the six months ended 30 September 2020 have been prepared in
accordance with IAS 34 Interim Financial Reporting as adopted by
the European Union. This report does not include all of the
information required for full annual financial statements and
should be read in conjunction with the consolidated financial
statements of the Group as at and for the year ended 31 March 2020,
which have been prepared in accordance with International Financial
Reporting Standards (IFRS) as adopted by the European Union and
applicable law.
The unaudited condensed consolidated interim financial
information for the period ended 30 September 2020 does not
constitute statutory accounts as defined in Section 435 of the
Companies Act 2006. The comparative figures for the year ended 31
March 2020 are extracted from the statutory financial statements
which have been filed with the Registrar of Companies, on which the
auditor gave an unqualified report, which made no statement under
section 498(2) or (3) respectively of the Companies Act 2006 and
did not draw attention to any matters of emphasis.
The preparation of interim financial statements requires
management to make judgements, estimates and assumptions that
affect the application of accounting policies and the reported
amounts of assets and liabilities, income and expense. Actual
results may differ from these estimates.
In preparing these condensed consolidated interim financial
statements, the significant judgements made by management in
applying the Group's accounting policies and the key sources of
estimation uncertainty were the same as those that applied to the
consolidated financial statements as at and for the year ended 31
March 2020.
In reporting financial information, the Group presents
alternative performance measures ("APMs") which are not defined or
specified under the requirements of IFRS. The Directors consider
that disclosing alternative performance measures enhances
Shareholders' ability to evaluate and analyse the underlying
financial performance of the Group. They have identified adjusted
operating profit and adjusted EBITDA as measures that enable the
assessment of the performance of the Group and assists in
financial, operational and commercial decision-making. In adjusting
for these measures, the Directors have sought to eliminate those
items of income and expenditure that do not specifically relate to
the normal operational performance of the Group in a specific
year.
These condensed consolidated interim financial statements were
approved by the Board of Directors on 23 November 2020.
The accounting policies adopted in these interim financial
statements are consistent with those of the previous financial year
and the corresponding interims period.
Going concern
The Directors have, at the time of approving the condensed
consolidated interim financial statements, a reasonable expectation
that the Company and the Group have adequate resources to continue
in operational existence for the foreseeable future. Thus, they
continue to adopt the going concern basis of accounting in
preparing the financial statements.
New standards and interpretations not yet adopted
Amended standards and interpretations not yet effective are not
expected to have a significant impact on the Group's consolidated
financial statements.
2. Dividends
In September the Board announced a special dividend, in lieu of
the final dividend from the financial year ending 31 March 2020. A
dividend of 0.61p per ordinary share was paid to Shareholders on 23
October 2020, who were on the Register as of 25 September 2020. The
total amount of the dividend was GBP1.6 million.
3. Earnings per share
The basic and diluted earnings per share are calculated on the
following profit and number of shares. Earnings for the calculation
of earnings per share is the net profit attributable to equity
holders of the parent.
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2020 2019 2020
GBP000 GBP000 GBP000
------------------------------------ -------------- -------------- ----------
Earnings for the purposes of basic
and diluted earnings per share 2,044 2,041 3,136
------------------------------------ -------------- -------------- ----------
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2020 2019 2020
Denominator '000 '000 '000
-------------------------------------- -------------- -------------- ----------
Weighted average number of shares
in issue in the period 255,852 255,085 255,085
Shares held by employee ownership
plan (1,717) (1,434) (1,630)
Number of shares used in calculating
basic earnings per share 254,135 253,651 253,455
Dilutive effect of share options 9,678 9,460 8,782
-------------------------------------- -------------- -------------- ----------
Number of shares used in calculating
diluted earnings per share (where
applicable) 263,813 263,111 262,237
-------------------------------------- -------------- -------------- ----------
4. Subsequent events to 30 September 2020
As at the date of these statements there were no such events to
report.
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