Netcall Regulatory News (NET)

26 September 2011

NETCALL PLC

("Netcall", "the Company", or "the Group")

Audited results for the year ended 30 June 2011

Netcall plc (AIM: NET), a leading provider of end-to-end customer engagement software solutions, today announces its audited results for the year ended 30 June 2011.

Financial Highlights

·; Revenue increased 229% to £13.62m (2010: £4.13m) reflecting the successful acquisition of Telephonetics during the period

·; Adjusted EBITDA(1) increased by 156% to £2.75m (2010: £1.07m)

·; Adjusted earnings per share(2) increased 34% to 1.57p (2010: 1.17p)

·; Maiden dividend of 0.4p per share proposed

·; Revenue of a recurring nature of £9.32m corresponding to 68% of total revenue

·; Cash generated from operations increased 189% to £2.20m (2010: £0.76m) before acquisition and reorganisation payments

·; Debt-free balance sheet with net cash funds of £5.89m (2010: £2.45m)

1) profit before interest, taxation, depreciation, amortisation, acquisition and restructuring expenses and share-based charges.

2) earnings per share before amortisation of acquired intangible assets, acquisition and restructuring expenses, share-based charges, adjusted to a standard rate of corporation tax

Operational Highlights

·; Successful acquisition of Telephonetics increased market presence and expanded product portfolio

·; Completed integration, realising annual cost savings of £1.8m

·; Significant cross selling pipeline built with initial orders won

·; New Appointment Management Cycle product developed from combined technologies resulting in first wins

·; 25% increase in business from new customers

·; Placing of shares at 19p raising £4.25m during the year

Henrik Bang, CEO of Netcall, commented, "This has been a period of substantial progress for Netcall, during which we have significantly increased our organisational capability and customer base, and broadened our product suite through the successful acquisition and integration of Telephonetics. We are pleased with the increase in new customer business and the initial cross-sales. As a result of our increased profit levels and cash generation we are delighted to propose the payment of a maiden dividend.

 "The new year has started well with sales orders ahead of the same period last year. Whilst the Board remains mindful of the economic climate, our developing pipeline together with the full year impact of our cost savings programme, give the Board confidence in achieving a successful outcome for the year ahead."

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About Netcall PLC

Netcall is a UK company quoted on the AIM market of the London Stock Exchange. Netcall's software product suite provides solutions for end-to-end customer engagement, incorporating call handling, callback, smart automation, workforce management and data unification. Our target markets comprise organisations of all sizes, including many blue-chip companies with global contact centre operations. The Netcall software platform helps organisations meet the growing demands of their customers and prospects whilst improving internal efficiencies, thereby increasing profitability and customer satisfaction.

Netcall's customer base contains over 600 organisations in both the private and public sectors. These include over 65% of the NHS Acute Health Trusts, major telecoms operators such as BT and Cable & Wireless and leading organisations including Interflora, Lloyds TSB, Oracle, Cineworld, Interserve, Orange, Prudential, RBS and npower.

Introduction

The Board is pleased to report that the Company has performed ahead of market expectations and has made good progress over the last 12 months following the acquisition of Telephonetics. Group revenue for the year more than trebled to £13.62m (2010: £4.13m), adjusted EBITDA increased by 156% to £2.75m (2010: £1.07m) and adjusted earnings per share increased by 34% to 1.57p (2010: 1.17p).

The Board is confident that the levels of profit and cash generation are sustainable and is therefore delighted to propose a maiden dividend of 0.4 pence per share at the forthcoming Annual General Meeting.

The significant reorganisation of the business following the acquisition of Telephonetics in July 2010 has been successfully completed, achieving annualised net cost savings of over £1.8m while creating enhanced growth prospects for the enlarged business. Against this backdrop of considerable organisational and operational activity, we recorded 25% growth in business from new customers for the Group's products such as QueueBuster, ContactPortal and Remind+ and expanded our market share in our key segments of NHS Hospital Trusts, Local Authorities and Contact Centres. This increase in market share has been partially masked when comparing these results to historic pro-forma revenues due to the contribution of a refresh programme of Telephonetics' Semap platform in the previous year.

Netcall continues to demonstrate increasing financial strength. Revenues of a recurring nature now exceed the fixed cost base of the Group and the business is highly cash generative, delivering over £2m in operating cash flows for the year to bring net cash balances to £5.9m at the year end. At 31 August the net cash balance had increased further to over £6.5m.

Importantly, we secured our first cross-sale contracts into the enlarged customer base during the second half of the year, including cross-sales of Eden and ContactCentre 59R into QMax customers and QueueBuster into NHS Trust customers.

The MovieLine service remains a good source of cash generation and one which we continue to actively support. During the year we agreed a new multi-year supply contract on improved terms with our Telecom providers, upgraded the MovieLine user interface and as a result were delighted to secure a multi-year contract renewal with a key cinema customer.

Financial Review

Group revenue for the year was £13.62m (2010: £4.13m), the increase reflecting the impact of the Telephonetics acquisition. The breakdown of contribution to total revenues was as follows:

• SaaS (Software as a Service), maintenance and support contract revenues increased to £7.42m (2010: £3.28m);

• product and professional service revenues increased to £4.29m (2010: £0.85m); and

• revenues from Telephonetics' MovieLine service of £1.91m (2010: £nil). As expected, pro-forma revenues from the MovieLine service showed a decline year on year due the continued shift of transactions to the Internet.

Revenue of a recurring nature, from the Group's hosted platforms, maintenance and support agreements, was £9.32m being 68% of total revenue (2010: 79%) and is £10.0m on a pro-forma annualised basis, providing good visibility for future periods.

Gross profit margin was 87% compared to 91% in the same period last year, due to a change in product mix resulting from the acquisitions. This compares to pro-forma gross profit margin in 2010 of 85%.

Administrative expenses before depreciation, amortisation, acquisition and restructuring expenses and share-based charges increased to £9.10m (2010: £2.69m) as a result of the acquisition of Telephonetics. Pro-forma administrative expenses were 9% lower at £9.80m (2010: £10.56m) reflecting the impact of net cost savings in the period of approximately £1m offset by inflationary increases and additional investment into sales and marketing.

Approximately, £1.8m of annualised cost savings have been achieved, comprising £1.4m in staff costs and a £0.4m reduction in duplicate costs of being AIM quoted and the number of office locations.

Consequently, the Group recorded a 156% increase in adjusted EBITDA to £2.75m (2010: £1.07m), a margin of 20%, which was ahead of market expectations due to the improved gross margin, earlier than expected realisation of cost-savings from the Telephonetics integration and an on-going focus on cost management.

This adjusted EBITDA, after taking into account one-off reorganisation and acquisition costs of £0.91m and amortisation of acquired intangible assets of £0.91m, resulted in a profit before tax figure of £0.54m for the period (2010: loss £0.25m).

The Group benefited from the utilisation of tax losses brought forward and has recorded a tax credit of £0.14m (2010: £0.26m tax credit).

Adjusted earnings per share increased 34% to 1.57p (2010: 1.17p). Reported earnings per share increased to 0.58p (2010: 0.04p).

Cash generated from operations before acquisition and reorganisation payments increased to £2.20m (2010: £0.76m) a conversion of 80% adjusted EBITDA (2010: 71%).

The Group raised £4.25m before expenses in the period through the issue of 22,368,420 shares at 19 pence per share at a premium of 38% to the prevailing mid-market price on the day before the announcement of the placing. The net proceeds of the placing were used to part finance the acquisition of Telephonetics and for general working capital requirements.

The Group used £2.53m of cash during the period in acquiring and integrating Telephonetics, comprising: £1.06m in cash consideration (net of cash acquired); and £1.47m of acquisition and reorganisation cost payments. A further £0.30m of reorganisation costs are included in current liabilities at 30 June 2011 and are expected to be paid during the next financial year.

As a result of these factors, cash increased by £3.44m (2010: outflow £1.71m). The Group continues to maintain a debt-free balance sheet and had net cash funds of £5.89m at 30 June 2011.

Strategy

In order to build and retain long term shareholder value, the Board remains committed to its on-going investment in its suite of contact centre and enterprise call management solutions. These combine to deliver a complete solution for end-to-end customer engagement, enabling our customers to improve the productivity and quality of their customer interactions.

The Board believes that the current economic climate serves to increase the importance of effective customer engagement as an integral component of our customers' business strategies. In the private sector there is a growing emphasis on customer retention and repeat business, and in the public sector, Local Authorities and NHS Trusts are being required to deliver more to their citizens with less resource. In addition, we believe that our customers are increasingly looking to source solutions which can be introduced into an organisation in phases, to provide step-by-step improvement, and which have the potential to be extended into other areas of their business.

Our headline strategy is therefore to continue to broaden and cross-fertilise our product suite of contact centre and enterprise call management solutions, expand our customer base in targeted niches and increase the number of applications used by each customer.

In addition to organic growth, the fragmented nature of the contact centre and enterprise call management solutions market provides Netcall with the opportunity to extend its market reach, broaden its product suite and further increase operational efficiencies. The Board therefore continues to consider accelerating growth through selective acquisitions.

Acquisition of Telephonetics

Netcall started the period well placed in the call back and workforce management contact centre markets. In line with our strategy, we have successfully broadened our product portfolio to include intelligent call handling, smart automation and data unification products with the acquisition of Telephonetics in July 2010 for £9.9m, which also added significant market share in niches such as NHS Hospital Trusts and Local Authorities.

The Board has been extremely pleased by the results of the integration programme. We have identified over £1.8m of annualised net cost savings, which is ahead of our original estimates, while investing in key areas such as sales, marketing and product development.

The initial integration of the product platforms is now complete, with all 'on-premise' versions of the enlarged product suite able to interact and share appropriate resources and technology. The next phase will be to increase the number of cloud-based versions of our products, such as our workforce management and IVR solutions, to enable our customers to choose the deployment model suitable for them while continuing to expand the integration of the product sets to enrich their functionality.

We have invested considerable effort during the year on the integration and training of the enlarged sales team regarding the new product sets, while repositioning and branding the enlarged product portfolio and centralising the sales support functions to enable greater focus. This process is now complete and the encouraging initial levels of cross-sales together with an improving overall sales order trend for the quarters following the acquisition give the Board confidence in the execution of the strategy.

Business Development

We have been pleased with the number of new customers signed during the year, securing contracts with some of the UK's leading organisations in the private sector, such as Nestle and AA DriveTech, while adding 18 Local Authorities and NHS Trusts. We have also continued to win international QueueBuster business during the period.

We are continuing to develop alliances with distribution partners where they help increase our penetration into core markets including organisations such as Siemen Communications, BT and Cable & Wireless.

With the majority of our 600 strong customer base currently utilising a sub-set of the entire customer engagement portfolio we believe the cross sale opportunity to be significant. Each solution can operate standalone or as part of a fully integrated communications platform. Each of our current customers already benefits from the increased operational efficiencies, service levels and cost reductions which our solutions provide. These benefits have the potential to be augmented through the implementation of additional Group solutions.

We continue to invest in product development with total investment in excess of £1m in the year (2010: £0.1m). In addition to the product integration programme we have broadened our product portfolio by developing new solutions from our existing technologies. An example of this is Appointment Management Cycle for the health sector which combines smart automation, intelligent call handling and call back technology and is planned to be further enhanced by the inclusion of resource management and data integration in the future. This synergistic combination of proven technologies provides a differentiated offering from that of our competitors with an increased value proposition to our customers. We have had early sales of this new product, Appointment Management Cycle, including new customers such as Ipswich Hospital NHS Trusts.

A further area of investment, in response to customer demand and recent key wins, will be in our premise-based and cloud-based payment product which operates within customers' Payment Card Industry Data Security Standards ('PCI-DSS') compliant environments. Medium term developments include enlarging the portfolio with new products in key product categories such as multi-media.

Outlook

Netcall has started the year well with sales orders ahead of this time last year and a strengthened balance sheet. Whilst the Board remains mindful of the economic climate, Netcall's developing pipeline together with the full year impact of our cost savings programme and the increased scale of the business, give the Board confidence in achieving a successful outcome for the year ahead.

Audited consolidated income statement for the year ended 30 June 2011

All activities of the Group in the current and prior periods are classed as continuing. All of the profit for the period is attributable to the shareholders of Netcall plc.

Audited statement of comprehensive income for the year ended 30 June 2011

Audited consolidated balance sheet at 30 June 2011

Audited consolidated statement of changes in equity at 30 June 2011

Audited consolidated statement of cash flows for the year ended 30 June 2011

Notes to the financial information for the year ended 30 June 2011

1. General information

Netcall plc (AIM: "NET", "Netcall", or "the Company"), is a leading provider of customer engagement software, is a limited liability company and is quoted on AIM (a market of the London Stock Exchange). The Company's registered address is 3rd Floor, Hamilton House, 111 Marlowes, Hemel Hempstead, HP1 1BB and the Company's registered number is 1812912.

2. Basis of preparation

The Group financial statements consolidate those of the Company and its subsidiaries (together referred to as the 'Group').

The financial information set out in these preliminary results has been prepared in accordance with International Financial Reporting Standards ('IFRSs') as adopted by European Union. The accounting policies adopted in this results announcement have been consistently applied to all the years presented and are consistent with the policies used in the preparation of the statutory accounts for the period ended 30 June 2010.

The consolidated financial information is presented in sterling (£), which is the company's functional and the Group's presentation currency.

The financial information set out in these results does not constitute the company's statutory accounts for 2011 or 2010. Statutory accounts for the years ended 30 June 2011 and 30 June 2010 have been reported on by the Independent Auditors; their report was (i) unqualified; (ii) did not draw attention to any matters by way of emphasis; and (iii) did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.

Statutory accounts for the year ended 30 June 2010 have been filed with the Registrar of Companies. The statutory accounts for the year ended 30 June 2011 will be delivered to the Registrar in due course. Copies of the Annual Report 2011 will be posted to shareholders on 21 October 2011. Further copies of this announcement can be downloaded from the website www.netcall.com.

3. Segmental analysis

Management consider that these is one operating business segment being the design, development, sale and support of software products and services, which is consistent with the information reviewed by the Board of Directors, when making strategic decisions. Resources are reviewed on the basis of the whole of the business performance.

The key segmental measure is adjusted EBITDA which is profit before interest, tax, depreciation, amortisation, share-based payments and reorganisation and acquisition expenses, which is set out on the consolidated income statement.

4. Acquisition and reorganisation costs

During the year the Group acquired Telephonetics Ltd and incurred £38,000 (2010: £916,000) of acquisition costs, principally professional advisor fees. The subsequent reorganisation resulted in restructuring charges to the income statement of £910,000 (2010: £nil) comprising: £630,000 of redundancy costs; and, £187,000 of provisions for vacant property and £93,000 of professional advisor and contract termination.

5. Earnings per share

Adjusted and basic earnings per share have been calculated to exclude the effect of acquisition and reorganisation costs, share-based payment charges, amortisation of acquired intangible assets and utilisation of historic tax losses. The Board believes this gives a better view of on-going maintainable earnings. The table below sets out a reconciliation of the earnings used for the calculation of earnings per share to that used in the calculation of adjusted earnings per share:

The table below sets out the weighted average number of shares used to calculate the earnings per share figures:

6. Acquisition of subsidiary

On 30 July 2010, the company acquired the entire issued share capital of Telephonetics Ltd (formerly Telephonetics plc a company incorporated in England & Wales), ("Telephonetics"), a UK-based provider of speech automation and data integration solutions, by way of a scheme of arrangement. The consideration for the acquisition was £9.88m comprising £5.78m cash and £4.10m shares (35,256,187 (including those issued on 10 August) new ordinary shares issued of 5 pence each at 11.5 pence). In addition, on 10 September 2010 the company paid £100,000 for the early settlement of the vendor earn out assumed by Telephonetics on the acquisition of Datadialogs Ltd. The consideration was satisfied by payment of £50,000 and issue of 425,540 new ordinary shares of 5 pence each at 11.75 pence per share.

Analysis of assets and liabilities acquired

Fair value adjustments

On acquisition of Telephonetics, all assets were fair valued and appropriate intangible assets recognised following the principles of IFRS3. A deferred tax liability related to these intangible assets was also recognised. Management identified three material intangible assets: (i) customer relationships; (ii) software; and (iii) brand.

The customer relationships intangible asset acquired with Telephonetics was valued using the excess earnings method. The value of this intangible asset at acquisition is £3.33 million. Management believe that these customer relationships have a minimum useful economic life of six years.

The software acquired with Telephonetics remains at their carrying value. The value of this intangible asset at acquisition is £869,000 (including previously capitalised development expenditure, software licenses held for use in the business and Datadialogs software capitalised at the point of its acquisition). Management believe that this software has a minimum useful economic life of four years.

The Telephonetics' brand was valued using the relief from royalty method. The value of this intangible asset at acquisition is £50,000. Management believe that this brand value has a minimum useful economic life of eighteen months.

A £895,000 credit to deferred tax has been made to record the liability arising on these intangible assets.

Impact of acquisition on results of the Group

The acquired business contributed revenues of £9.78 million and net profit of £0.51m (after related amortisation charges and tax credits) to the Group for the period 31 July 2010 to 30 June 2011. If the acquisition had occurred on 1 July 2010, management estimate the enlarged business would have had revenues of £14.43m and net profit of £0.51m (after related amortisation charges and tax credits). Acquisition costs of £38,000 (2010: £916,000) have been charged to the income statement as incurred.

7. Share capital

All issued shares each having a par value of 5 pence are fully paid.

The Company issued 22,368,420 new ordinary shares on 26 and 27 July 2010. The fair value of the shares issued amounted to £4.25 million (19 pence per share). The related transaction costs amounting to £152,000 have been netted off against the proceeds.

The Company issued 34,670,092 new ordinary shares on 30 July to the shareholders of Telephonetics Ltd (formerly Telephonetics plc) ('Telephonetics') as part of the purchase consideration for 100% of its ordinary share capital (see note 6). Subsequently on 10 August 2010, the Company issued 586,095 new ordinary shares following the exercise of options pursuant to Telephonetics options schemes which purchased as part of the acquisition of Telephonetics by the Company. The ordinary shares have the same rights as the other shares in issue. The fair value of the shares issued amounted to £4.05 million (11.5 pence per share). Pursuant to this acquisition, under Section 612 of the Companies Act 2006, the Company qualified for merger relief. Therefore, no share premium is accounted for in relation to shares issued in consideration for this series of transactions. Instead the difference between the nominal value of shares issued and the fair value of the shares issued is credited to the merger reserve.

The Company issued 425,530 new ordinary shares on 10 September 2010 in consideration for the release of vendor earn out provisions assumed by Telephonetics on its acquisition of Datadialogs Limited. The ordinary shares have the same rights as the other shares in issue. The fair value of the shares issued amounted to £50,000 (11.75 pence per share).