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EBITDA up 225% to £2.6 million; operating cash inflow increased to £5.5 million

Intec Telecom Systems PLC (“Intec” or “the Company”), a leading provider of telecoms Operations Support Systems (“OSS”), is pleased to announce its unaudited results for the nine months ended 30 June 2003. Substantial improvements in operating expenses compared to the equivalent period in 2002 (“9m 2002”), combined with revenues that have proved robust in a difficult and competitive business environment, have allowed the Company to approximately triple EBITDA profitability and to deliver positive operating cashflow of £5.5 million. Adjusted earnings per share (“EPS”) has also increased to earnings of 0.53p (9m 2002 – adjusted loss per share of 0.66p.)

The final quarter of 2003 has begun well, with a number of important new deals already signed after the quarter end. Although we are still subject to many external factors and new business remains to be closed, current visibility allows us to be cautiously confident, as in previous years, of meeting full year expectations.

HIGHLIGHTS

* Nine months’ revenues of £33.2 million (9m 2002: - £34.1 million) despite the impact of significant depreciation of the US Dollar affecting 46% of revenues.

* 225% increase in earnings before interest, tax, depreciation, and amortisation (“EBITDA”) to £2,596,000 (9m 2002: £800,000).

* Positive operating cashflow of £5.5 million (9m 2002: inflow of £0.8 million) – the year to date cash inflow is twice the 2002 full year figure.

* Adjusted earnings per share of 0.53 pence (9m 2002: adjusted loss per share of 0.66 pence).

* Recurring revenue, up 22% compared to the same period in 2002, now represents 53% of turnover.

* Loss before tax was £3.9 million (9m 2002: loss of £12.8 million), after amortisation of goodwill and intangible assets of £5.3 million (9m 2002: £12.2 million) and depreciation of £1.4 million (9m 2002: £1.3 million).

* 71 new name customers, including 31 from the acquisition of the Settler business from Ericsson.

* Customer installations reach 476 with important wins in Australia, China, Colombia, the Czech Republic, India, Ireland, Italy, Jamaica, South Africa, Venezuela, the UK and the US.
Intec remains fully funded with cash and cash equivalent investments increased to £14.0 million (30 June 2002: £11.8 million) after payment of £3.1 million for the Settler business.

* Intec wins “Telestrategies Mediation Excellence Award” for second year running in June.


“Intec has remained focused on its objective of improved operating performance in a market that remains competitive, price-sensitive and capex-constrained,” says Intec’s Executive Chairman, Mike Frayne. “We have been able to improve sales productivity, cut administrative costs, and increase development group efficiency while sustaining overall revenues. Another strong quarter of cash flow performance and improved earnings per share demonstrate the success of our strategy in the current market.”

“Intec continues to develop as a business, both in its operating performance and in its internal processes. In the current market our focus is on the best possible business performance today, combined with investment in key areas for the future,” adds Chief Executive, Kevin Adams. “We have won some very important deals in the period, beating off strong competition and increasing our market share.”

For further information:


Kevin Adams, CEO
Intec Telecom Systems PLC
+44 (0) 1483 745800
kevin.adams@intec-telecom-systems.com

Andrew Rodaway
Intec Telecom Systems PLC
+44 (0) 7768 808082
andrew.rodaway@intec-telecom-systems.com

Cubitt Consulting
Fergus Wylie/Sarah Brydon
+44 (0) 20 7367 5100
fergus.wylie@cubitt.com

Chairman’s and CEO’s Statement

Overview

In the first nine months of its 2003 financial year Intec has worked hard to deliver further improvements in operating performance against the backdrop of an OSS market which remains flat, with continuing difficult and competitive market conditions. Intec has improved its operating efficiency in a number of areas, particularly the principal cost contributors of distribution, development and administration, leading to a welcome increase in EBITDA margin and adjusted earnings per share. Operating cash inflow remains positive, and we continue to be successful in collecting cash from our growing customer base, producing a further strengthening of our cash position.

A total of 40 new customer contracts have been signed in the nine months under review, in a market where new licence business is very challenging. Adding 31 customers acquired with the Settler business brings the total to 71, representing 476 installations in around 70 countries. Total revenues for the period amounted to £33.2 million (9m 2002: £34.1 million), a strong result given an adverse impact of approximately 6% due to the depreciation of the US Dollar. Despite this small revenue drop, lower operating costs produced an increase in EBITDA of 225% to £2,596,000 (9m 2002: £800,000). Operating cash inflow was £5.5 million. This is the sixth successive quarter of positive cashflow.

The external market environment remains very competitive, with carriers still cautious about capital expenditure, although we believe that many customers are now reviewing investment plans and initiating new OSS projects. Intec continues to pursue high quality opportunities in all established markets, as well actively selling into the most active developing sectors, such as China and Eastern Europe.

In the period Intec gained certification to the TL9000 and ISO 9001 quality management standards for its Atlanta-based mediation development processes. Ongoing investment in both new and existing products to ensure they remain true market leaders remains the cornerstone of our development process. Despite substantial growth in our product portfolio, expenditure on development has risen only moderately, as efficiencies generated through structural and technical changes in Product Operations continue to show benefit.

During the period we concluded the acquisition of the ‘Settler’ business of Ericsson, our major competitor in the interconnect billing market. With this acquisition Intec has expanded its base of supported customers by 31 carriers, and acquired a new business partner in Ericsson. Technology acquired from Ericsson has also been used to launch new products and strengthen our product roadmap in other areas.

Operational Review

During the period under review new customers were signed in Australia, China, Colombia, the Czech Republic, Ireland, India, Italy, Jamaica, South Africa, Venezuela, the UK and the US. Notable recent wins included InterconnecT at Slovak Telecom, a large replacement mediation project for a major European PTT, and InterconnecT and InterconnecT ITU at a substantial fixed-line provider in Australia.

Our acquisition of the ‘Settler’ business from Ericsson, now rebranded as InterconnecT Settler, has taken us into a number of new markets and brought valuable extra technical capabilities. In addition to the core Settler product, two additional systems, InterconnecT Automated Reconciliation and InterconnecT Optimised Routing, both based on acquired Ericsson technology, have been successfully launched and are operating in customer sites. This acquisition is also contributing in a valuable way to next-generation products.

In June we announced the Intec Dynamic Charging Platform (DCP), a new solution aimed at mobile operators bringing next-generation services to their customers. Intec DCP, which is complementary to our existing mediation solution, will allow operators to connect a wide range of complex network systems with the billing and rating platforms that are essential to revenue generation from complex services such as multimedia downloads, video messaging, online gaming and entertainment. We believe Intec DCP will be of interest to any mobile operator wanting to bill for complex, next-generation services, and we are already in discussion with a number of customers about this innovative and important product.

Our core products InterconnecT and Inter-mediatE are both the subject of major development programs aimed at ensuring they retain their technical leadership in the marketplace. Important new versions of both products are due in the next year. The InterconnecT family is the clear market leader worldwide, with over 275 installations. Inter-mediatE, with the award of the ‘Telestrategies Mediation Award for Excellence 2003’ in June for the second year running, based on customer testimonials, continues to be the industry’s most successful convergent mediation solution. Over 130 carriers worldwide rely on Inter-mediatE. InterconnecT CABS CG continues to build its market share with over 115 US operators now relying on it for access charge billing. We have consolidated our two US service bureaus into one, with all operations now centred in Dallas, Texas.

Acquisition update

Intec continues its long-term policy of business expansion through both organic development and carefully evaluated and managed acquisitions. Our December 2002 acquisition of Ericsson’s ‘Settler’ business unit, a major competitor in the interconnect billing market, has helped us acquire a number of new customers in recent months as well as delivering satisfactory support revenues. With the recent move of our acquired staff to new premises in Sweden, the integration is virtually complete.

Many other opportunities exist in the OSS market. Intec actively seeks out and reviews candidate companies and technologies. Our criteria for pursuing these are unchanged – high-quality companies with complementary technologies or useful market share that we believe will strengthen the Intec business and build long-term shareholder value.

Corporate Developments

Intec reviews its operating requirements on a continual basis to ensure we have the staff, offices, processes and resources required to meet our business objectives. In the current OSS marketplace, where pricing pressure and strong competition dominate the environment, Intec has been working to ensure it gains productivity from its asset base. All expenditure is subject to critical review, up to Board level if necessary, to eliminate any unproductive costs. We also strive to deploy or re-deploy staff to maximum effectiveness, with loss of experienced people only a very last resort. On a like for like basis, Intec staff numbers at 30 June 2003 were 490 compared to 500 at 30 September 2002. Including 31 new staff from the Settler acquisition, total staff numbers at 30 June 2003 were 521.

Financial Review

As previously reported Intec experiences a degree of unevenness in quarterly revenues, primarily due to long sales cycles, uncertainty in the closure dates of new contracts, and generally challenging market conditions. Total reported revenues, amounting to £33.2 million, are £0.99 million or 3% lower than the equivalent nine- month period in 2002. Both periods included a figure close to £1 million for revenues from acquired businesses. We believe that the small variation in overall revenue is consistent with normal quarterly variations, particularly in view of the depreciation of the US Dollar.

Licence sales of £6.0 million (18% of turnover) are lower than the £10.2 million reported in the first nine months of 2002. New licences continue to be the most challenging area of the OSS business, although Intec has still been able to secure high value contracts based on a strong business proposition, and we continue to outperform major competitors in terms of new deal flow.

Recurring revenues, which consist of support and maintenance, volume upgrades, bureau and support business, once again increased, at £17.4 million (53%) of turnover, up 22% from £14.3 million (42%) for nine months of 2002. This includes a contribution of £0.9 million from the Settler business acquisition. Customer churn remains at exceptionally low levels, with the very small number of contract terminations we experience almost exclusively within small start-up or merged businesses.

Professional services income, including contracted implementation and consultancy services, has also increased slightly to £9.7 million (29%) from £9.6 million (28%) in 2002.

In terms of regional contribution North America and Asia Pacific have experienced the most challenging trading conditions. Pricing pressure in the low-cost markets of Asia, and reluctance amongst US carriers to embark on major capex projects are the key factors. EMEA contributed 42% of turnover, North America 35%, CALA 13%, and Asia-Pacific 10%.

Gross margin increased slightly to 68% (9 months 2002: 67%), largely reflecting more efficient use of internal and external resources for implementations. An 18% decrease in distribution costs from £7.8 million to £6.5 million reflects, in the main, reduced partner fee and commission payments due to reduced licence sales.

Investment in our product portfolio remains strong at £6.9 million (9m 2002 £6.0 million). This increase reflects both the Settler development team (£0.8 million expenditure in the period), our expanded product portfolio, and next-generation product versions. Given these factors, overall efficiency of development effort has increased considerably as a result of ongoing structural and technical changes within Product Operations. For example, in a number of projects we are sharing development effort across different products in areas such as user interfaces.

Administrative costs decreased by 17% to £6.7 million (9m 2002: £8.1 million) due to the depreciation of the US Dollar, continuing attention to cost control across the business and the reassignment of senior executives to product management. In addition, as mentioned in our 2002 annual report, items of non-recurring expenditure such as legal costs for the resolved BT litigation increased our costs throughout 2002.

Goodwill amortisation charges have increased from £4.7 million in 2002 to £5.3 million in the current period, reflecting additional goodwill amortisation from the current year Settler acquisition (amortised over four years) and the former ICL Sims/Prospero business acquired in the second quarter of 2002. No provision for goodwill impairment has been considered necessary.

Operating loss of £4.1 million is a significant improvement over the £12.7 million operating loss reported in the prior period, reflecting both lower overall costs in a number of areas and the absence of a goodwill impairment charge. Excluding the goodwill impairment charges, operating loss was 24% lower than the previous period.

We are pleased to report that cash and cash investments at 30 June 2003 have increased to £14.0 million, after payment of £3.1 million (including acquisition costs) for the Ericsson Settler business. Positive operating cash inflows of £5.5 million reflect ongoing improvement in cash collections and the subsequent effect of cost control measures taken throughout the group.

Intec’s annualised debtor days including maintenance renewals are 100 days compared to 105 days as at 30 September 2002 and 109 days reported at 30 June 2002. Successful cash collections have continued during the fourth quarter. Collections to date are now in excess of the full year figure for 2002.

Outlook

In the nine months to 30 June 2003 Intec has focused on winning good quality new business, sustaining and extending revenues from existing customers, and managing costs proactively. Despite the highly competitive telecoms marketplace Intec has been able to deliver operating results that are well within the range of management expectations and normal quarterly fluctuations.


Intec continues to invest in creating an expanding, world-class product portfolio through its worldwide development organisation. With several new products recently launched, and updated versions of core products in the pipeline, we believe we are very well positioned for future market improvements.

The final quarter of 2003 has begun well, with a number of important new deals signed after the quarter end. Although we are still subject to many external factors and new business remains to be closed, current visibility allows us to remain cautiously confident of meeting full year expectations.

Mike Frayne, Executive Chairman
Kevin Adams, Chief Executive Officer
18 August 2003

This press release was distributed by ResponseSource Press Release Wire on behalf of Intec Telecom Systems in the following categories: Consumer Technology, Personal Finance, Business & Finance, Computing & Telecoms, for more information visit https://pressreleasewire.responsesource.com/about.