Netcall Regulatory News (NET)

25 September 2012

NETCALL PLC

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

Audited results for the year ended 30 June 2012

Netcall plc (AIM: NET), a leading customer engagement software provider, today announces its audited results for the year ended 30 June 2012.

Financial Highlights

·; Revenue increased 7% to £14.6m (2011: £13.6m)

·; Adjusted EBITDA(1) increased by 26% to £3.47m (2011: £2.75m)

·; Adjusted earnings per share(2) increased 30% to 2.04p (2011: 1.57p)

·; Dividend of 0.5p per share proposed, an increase of 25% (2011: maiden dividend of 0.4p per share)

·; Revenue of a recurring nature(3) of £10.0m corresponding to 68% of total revenue (2011: 68%)

·; Cash generated from operations increased 77% to £3.90m (2011: £2.20m) before acquisition and reorganisation payments

·; Profit before tax increased 273% to £2.05m (2011: £0.55m)

·; Basic earnings per share increased 157% to 1.49p (2011: 0.58p)

·; Debt-free balance sheet with net cash funds of £8.43m (2011: £5.89m)

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

3) revenue from SaaS and support and maintenance contracts

Operational Highlights

·; Significant growth in new orders

·; Expansion of customer base across NHS, Public Sector and Contact Centre markets

·; Substantial increase in cross and up-sales from existing customers, demonstrating strength of enlarged product suite

·; Continuing efficiency focus, delivering improved margins

·; Continued investment in product development, including launch of multi-channel customer interaction capabilities

Henrik Bang, CEO of Netcall, commented,

"I am pleased to report on a successful 2011/12 which saw double digit sales order growth in each of our key markets, namely NHS, Public Sector and Contact Centre. As well as securing new clients we have made good progress cross-selling new products into our existing customers and, along with improved revenues and profitability, our cash generation was strong.

"We have started the new financial year well, with sales orders significantly ahead of this time last year. Whilst we clearly need to be mindful of prevailing economic conditions, our levels of recurring revenue combined with sales momentum gives 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 compelling customer interaction and business process solutions for end-to-end customer engagement, incorporating intelligent contact handling, callback, smart automation, workforce management, data unification and business process management. 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, Odeon, Interserve, Orange, Prudential, British Sugar, and Thames Water.

Introduction

The Board is pleased to report that the Group's performance was significantly ahead of its initial expectations and has made good progress against its strategic goals over the last financial year. The strong trading momentum we experienced in the first half of the year continued in the second half, resulting in double digit sales order growth in each of the NHS, Public Sector and Contact Centre markets.

Revenue increased 7% to £14.6m which, combined with the effect of cost savings, resulted in adjusted earnings per share growth of 30% to 2.04p. The Group delivered £3.9m of operating cash flows leading to an improved financial position with net cash of £8.4m at the year end. At 31 August the net cash balance had increased further to £9.7m.

As a result of this substantial increase in profitability and cash flow, the Board proposes a 25% increase in the dividend to 0.5 per share.

Netcall has continued to grow its customer base, securing a higher level of orders from new customers compared to last year. New customer wins during the period include contracts with a number of private sector organisations, such as Travelex and RS Components, as well as more than 20 additional Local Authorities, Police Forces and NHS Trusts. The level of cross and up-sales into our existing customer base also continues to gather pace and is at a much higher level than the same time last year.

We have expanded our product suite during the year, launching the first stage of our multi-channel interaction capabilities (email, web, mobile, data and voice) for which we have received the first orders. In addition we have released a major upgrade of Eden, our Business Process Automation solution, and achieved PA-DSS accreditation for our payment solution.

The Board believes that Netcall's core proposition of improving organisations' customer engagement activities while delivering cost savings remains resilient and compelling in the current market environment. There continues to be a strong focus on 'spend to save' solutions providing good growth opportunities for the Group. We will therefore continue to invest in expanding the Group's market presence and organisational capabilities.

Financial Review

Group revenue for the year increased 7% to £14.6m (2011: £13.6m), comprising an increase in:

·; product and professional services revenues to £4.60m (2011: £4.29m); and

·; recurring revenues from SaaS and support contracts revenues to £10.0m (2011: £9.32m).

Netcall continues to maintain excellent customer relationships and this is reflected in the strength of the recurring revenue base which increased by 7% compared to last year and accounts for 68% of total revenue. This level of recurring revenue coupled with low customer churn provides good visibility of results to come.

Gross profit margin improved from 87% to 88% reflecting the benefits of a cost saving programme.

Administrative expenses before depreciation, amortisation, acquisition and reorganisation expenses and share-based charges increased to £9.41m (2011: £9.10m). The costs in the period include the full effect of the acquisition of Telephonetics in 2010/11 and £1.8m cost saving programme, offset by a 1% increase in the pro-forma fixed cost base.

Consequently, the Group recorded a 26% increase in adjusted EBITDA to £3.47m (2011: £2.75m) a margin of 24% of revenue (2011: 20%).

This adjusted EBITDA, after taking into account amortisation of acquired intangible assets of £0.95m and share-based payment charges of £0.30m, resulted in a profit before tax figure of £2.05m for the period (2011: £0.54m).

The Group recorded a tax charge of £0.24m (2011: credit £0.14m). The effective rate of 12% (2011: credit of 26%) was driven by the utilisation of previously unrecognised tax losses from prior years.

Adjusted earnings per share increased 30% to 2.04p (2011: 1.57p). Reported earnings per share increased 157% to 1.49p (2011: 0.58p).

Netcall has increased spending on product development, and as a result, research and development expenses were 26% higher at £1.27m (2011: £1.01m) of which capitalised development expenditure was 106% higher at £0.31m (2011: £0.15m).

Total capital expenditure was £0.51m (2011: £0.25m); the balance after capitalised development, being £0.20m (2011: £0.10m), was spent principally on new office facilities in connection with the rationalisation programme announced last year.

Cash generated from operations before acquisition and reorganisation payments increased by 77% to £3.90m (2011: £2.20m), a conversion of 112% of adjusted EBITDA (2011: 80%).

The Company commenced a share buyback programme during the period. By 30 June 2012, 0.98m shares had been purchased in the market, resulting in a cash outflow of £0.17m.

In January 2012 a maiden dividend of 0.4 pence per share was paid to shareholders in respect of the year ended 30 June 2011, which amounted to £0.49m.

As a result of these factors, cash increased to £8.43m (2011: £5.89m) at 30 June 2012. The Group continues to maintain a debt-free balance sheet.

A dividend in respect of the year ended 30 June 2012 of 0.5 pence per share, amounting to a total dividend of £0.61m, is to be proposed at the annual general meeting on 19 November 2012.

Business Review

Netcall's continuous objective is to provide software solutions which improve the quality of organisations' customer engagement activities while delivering significant cost savings. Through the use of our software solutions, organisations can improve the experience for their customers, patients, citizens or employees by providing them with more choice for customer engagement whilst also saving them valuable time. For example:

·; With our patented QueueBuster® solution, our customers free millions of callers from having to wait in telephone queues by offering them a free call-back. This has resulted in annual savings for the public of approximately 700 years of time that would otherwise have been spent on-hold while also delivering substantial cost savings to the organisations that deploy QueueBuster®. This solution continues to be adopted in the Contact Centre market and, following the acquisition of Telephonetics, is increasingly gaining traction in the NHS and Public Sector markets.

·; Our Appointment Management suite helps patients keep to their hospital appointments by offering them a booking and reminder service. Recent figures released by the Department of Health show that one in ten people miss their scheduled appointment, costing the NHS an estimated £120 per appointment. With our Appointment Management solution, hospitals can reduce their missed appointments by more than 50%, achieve their waiting time targets, streamline processes and, most importantly, allow healthcare professionals to see more patients. Hospitals managing more than 15 million outpatient appointments per year have now purchased this solution.

·; Our Eden solution helps customers achieve higher first contact resolution and faster handling times. The gap between specific business process needs and generic major software systems such as ERP or CRM is traditionally filled with point solutions, work-arounds, bespoke code and spreadsheets. This means that important business processes can be inefficient, unsupported and unsustainable. For our customers Eden changes all this by orchestrating the unification of systems and data, using business rules to optimise processes and creating intelligence for more effective management, thereby driving efficiencies up and costs down.

Our strategy, which remains unchanged, is to broaden our product portfolio, grow our customer footprint, combine organic growth with targeted acquisitions and continue to remain focused on operational cost management.

Cross and up-sales

Our customers continue to value quality solutions that deliver tangible results and ROI, and as such, we have been experiencing increasing uptake of additional parts of our product solution by our existing customer base.

Cross and up-sales continue to progress well. Last year's initiatives to actively market the Group's enhanced platform capabilities has started to deliver results, including orders for additional solutions from a number of our customers such as Legal & General and Thames Water. There remains substantial cross-selling opportunity across our existing customer base of more than 600 organisations, with many customers currently having only one or few of our solutions.

Product development

The Netcall roadmap focuses on expanding the capabilities of our customer engagement platform and during the year we launched the first stage of our multi-channel interaction capabilities (email, web, mobile, data and voice). This enables contact centre customers to manage queries via multiple media types through a single, universal queue, and allocate queries to the appropriate response team. This development was a key factor in Netcall winning an important proof of concept, first referenced at the interim stage, whereby Netcall supplied a global fashion retailer with a SaaS Business Process Automation solution to more than 500 retail point of sales positions using a telephone, PC or mobile device interface.

We also launched a major upgrade of Eden, our Business Process Automation solution, which significantly improved its modelling environment and security. Eden is deployed in high security IL3 and PCI environments. Our customers are today using Eden to replace current manual or semi-automated processes with integrated business processes in mobile work environments. We are planning the launch of an extended version of Eden to enhance support for mobile solutions, enabling Eden applications to run on tablets, smartphones and other mobile devices.

The product development focus this year will include embedding Eden into our core Customer Engagement Platform as well as developing standard model solutions, for example KPI and business analytics, data verification and unified desktop. Through a pre-packaged solution approach our customers will gain access to an advanced BPM suite which can be deployed quickly and easily. This will be the first stage of developing a number of standard applications which can easily be tailored to specific customer environments. We believe this will increase the competitiveness of our offerings and give us the benefit of a high level replicability of our solutions.

To date, Netcall has significantly expanded its capabilities from providing a telephony platform to offering a multi-media service with resource management and business automation solutions. This has enabled a deeper integration into our customers' businesses and gives us the opportunity to work closer with them to deliver solutions for improved organisational performance and customer service. We believe that through ongoing product development as highlighted above our customers will increasingly look to Netcall to provide them with a full range of end-to-end customer engagement solutions.

Acquisitions

Acquisitions remain an important component of Netcall's growth strategy, and the Board continues to evaluate opportunities for further consolidation in the marketplace.

Outlook

Netcall has started the new financial year well, with sales orders significantly ahead of this time last year. The Board continues to explore further acquisition opportunities to complement our organic growth, aided by being debt free and improved cash balances. Therefore, whilst the Board remains mindful of the economic climate we are confident in achieving a successful outcome for the year ahead.

Audited consolidated income statement for the year ended 30 June 2012

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 consolidated statement of comprehensive income for the year ended 30 June 2012

Audited consolidated balance sheet at 30 June 2012

Audited consolidated statement of cash flows for the year ended 30 June 2012

Audited consolidated statement of changes in equity at 30 June 2012

Notes to the financial information for the year ended 30 June 2012

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 01812912.

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 2011.

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 2012 or 2011. Statutory accounts for the years ended 30 June 2012 and 30 June 2011 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 2011 have been filed with the Registrar of Companies. The statutory accounts for the year ended 30 June 2012 will be delivered to the Registrar in due course. Copies of the Annual Report 2012 will be posted to shareholders on or about 19 October 2012. Further copies of this announcement can be downloaded from the website www.netcall.com.

3. Segmental analysis

Management consider that there 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

(1) Acquisition costs are principally professional advisor fees.

5. Earnings per share

The basic earnings per share is calculated by dividing the net profit attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the year, excluding those held in treasury.

The diluted earnings per share has been calculated by dividing the net profit attributable to ordinary shareholders by the weighted average number of shares in issued during the year, adjusted for potentially dilutive shares that are not anti-dilutive.

Adjusted 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:

6. Dividends

During the year a dividend was paid in respect of the year ended 30 June 2011 of 0.4 pence per share which amounted to £0.49m (2010: no dividend was paid).

A dividend in respect of the year ended 30 June 2012 of 0.5 pence per share, amounting to a total dividend of £0.61m, is to be proposed at the annual general meeting on 18 November 2012.

The timetable for the payment of the proposed dividend will be:

·; Ex-Dividend Date: 12 December 2012

·; Record Date: 14 December 2012

·; Payment Date: 11 January 2013