Netcall plc : Final Results

24 September 2013

NETCALL PLC

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

Audited results for the year ended 30 June 2013

Netcall plc (AIM: NET), a leading customer engagement software provider, today announces its audited results for the year ended 30 June 2013.

Financial Highlights

·      Revenue increased 10% to £16.1m (2012: £14.6m)

·      Adjusted EBITDA(1) increased by 22% to £4.24m (2012: £3.47m)

·      Adjusted earnings per share(2) increased 25% to 2.56p (2012: 2.04p)

·      Dividend of 0.7p per share proposed, an increase of 40% (2012: 0.5p per share)

·      Revenue of a recurring nature(3) of £10.7m corresponding to 66% of total revenue

·      Cash generated from operations increased 25% to £4.89m (2012: £3.90m) before acquisition and reorganisation payments

·      Profit before tax increased 10% to £2.26m (2012: £2.05m)

·      Basic earnings per share increased 11% to 1.65p (2012: 1.49p)

·      Debt-free balance sheet with net cash funds of £9.19m (2012: £8.43m)

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 contracts

Operational Highlights

·      Launch of next generation Liberty platform, including hosted version lending to greater recurring revenue opportunities

·      High ratio of sales to existing customers demonstrates high levels of customer satisfaction and deeper levels of engagement

·      Successful integration of Serengeti Systems Ltd ('Serengeti'), broadening the Group's skill set and enhancing ability to take on larger projects

·      Good demand for our SaaS and BPM solutions driven by a strengthening private sector performance

Henrik Bang, CEO of Netcall, commented,

"The successful execution of our strategy has delivered another year of solid growth for Netcall. We have seen continuing good demand for our product portfolio, driven principally by a strengthening private sector and orders for our Business Process Management ('BPM') and SaaS solutions. As a result, the Group delivered revenue growth of 10% and adjusted earnings per share growth of 25% in the year.

"Order inflow momentum remains strong as we enter the new financial year. We continue to benefit from a growing sales pipeline as the requirement for increasingly sophisticated end-to-end customer engagement solutions drives demand for our broadening range of capabilities and solutions. With a robust financial position, the Board continues to evaluate acquisition opportunities to complement our organic growth. We remain mindful of the wider economic conditions, however with a clear growth strategy in place and continued successful execution, we are confident in a positive 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 business process solutions for end-to-end customer engagement, incorporating intelligent contact handling, workforce management, business process management, customer relationship management and enterprise content 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 700 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 leading organisations including Interflora, Lloyds TSB, Cineworld, Interserve, Orange, Prudential, British Sugar, and Thames Water.

For further information, please consult the Netcall website: www.netcall.com.

Introduction

This has been another period of solid growth for Netcall as we continue to successfully execute our growth strategy. During the year we improved the product offering through the launch of our next generation platform, Liberty, further extended the customer base and completed the integration of our latest acquisition, Serengeti.

We have seen continuing good demand for our product portfolio, driven principally by a strengthening private sector and orders for our Business Process Management ('BPM') and SaaS solutions. As a result, the Group delivered revenue growth of 10% and adjusted earnings per share growth of 25%.

The Group's profitability is underpinned by the two thirds of its revenues that are recurring in nature, resulting in strong cash generation of £4.9m from trading during the period. The Group remains debt free with an increased net cash position of £9.2m at 30 June 2013.

As a result of this substantial increase in profitability and cash flow, the Board proposes a 40% increase in the dividend to 0.7 pence per share.

Private and public sector organisations' desire to transform customer engagement continues to drive demand for our innovative solutions which enable them to deliver a better quality of service to their customers while improving internal efficiencies and reducing costs. As such, we continue to see growing interest for our suite of software solutions which deliver rapid return on investment for our customers.

Netcall has continued to secure a growing level of orders from new customers, with new wins including Spire Healthcare and Oxford City Council.

Up and cross-sales to the existing customer base remain strong, representing the majority of new order inflow, and are evidence of our deepening engagement within our customers' businesses and an endorsement of the high level of customer satisfaction we enjoy.

With an increased market opportunity and growing pipeline, we continue to invest in enhancing and broadening our end-to-end customer engagement product suite to ensure we continue to offer new valuable solutions to our customers. The most significant product development in the period was the launch of a major upgrade of our platform which includes an embedded version of our BPM suite together with tighter product integration and an updated technology stack.

Targeted acquisitions remain an important pillar of our growth strategy as we look to augment organic growth with acquisitions. During the year, we acquired Serengeti, a provider of Enterprise Content Management ('ECM') and Customer Relationship Management ('CRM') software to the UK public sector, expanding the customer base and product portfolio. Serengeti has now been successfully integrated into the Group and the enlarged product portfolio is creating incremental new business opportunities.

Financial Review

Group revenue for the year increased 10% to £16.1m (2012: £14.6m) comprising underlying organic growth of 6% offset by a continuing reduction in the MovieLine service; and an initial nine month contribution from Serengeti.

An increasing proportion of new order inflow is for SaaS solutions and this shift in sales mix from product sales has a delayed revenue impact, while adding to the revenue visibility of the Group.

Revenue which is considered to be recurring in nature, derived from SaaS and support contracts, increased to £10.7m (2012: £10.0m) being 66% (2012: 68%) of total Group revenue and continues to exceed the Group's fixed operating costs.

The gross profit margin improved from 88% to 90% reflecting the benefit of continuing cost saving programmes.

Administrative expenses, before depreciation, amortisation, acquisition and reorganisation costs and share-based charges, increased to £10.2m (2012: £9.41m) as a result of the acquisition of Serengeti, higher incentive pay and a 1% increase in the fixed cost base.

Consequently, the Group recorded a 22% increase in adjusted EBITDA to £4.24m (2012: £3.47m) a margin of 26% of revenue (2012: 24%).

This adjusted EBITDA, after taking into account amortisation of acquired intangible assets of £1.04m, share-based payment charges of £0.51m, and, £0.24m acquisition and restructuring costs relating to Serengeti, resulted in profit before tax of £2.26m for the period (2012: £2.05m).

The Group tax charge was £0.27m (2012: £0.24m) and effective rate of tax of 12% (2012: 12%). The effective rate of tax was driven by the utilisation of previously unrecognised tax losses from prior years.

Adjusted earnings per share increased 25% to 2.56p (2012: 2.04p). Reported earnings per share increased 11% to 1.65p (2012: 1.49p).

Cash flow remains strong with cash generated from operations before acquisition and reorganisation payments increasing by 25% to £4.89m (2012: £3.90m), representing 116% of adjusted EBITDA (2012: 112%).

Expenditure on research and development including capitalised expenditure increased by 20% to £1.52m (2012: £1.27m) due to spending on product development. As a result capitalised software development expenditure was 48% higher at £0.46m (2012: £0.31m).

Total capital expenditure was £0.58m (2012: £0.51m); the balance after capitalised development, being £0.12m (2012: £0.20m) relating to corporate facilities.

The Company purchased 0.89 million of its own shares during the period for £0.25m; as a result it now holds 1.87 million ordinary shares in treasury.

The Company used £1.95m of cash during the period in acquiring Serengeti, comprising £2.39m cash, offset by £0.44m cash acquired within the business. In addition to the cash already paid, a liability for remaining contingent consideration of £92,000 had been recorded resulting in a total consideration of £2.48m.

As a result of these factors, cash increased to £9.19m at 30 June 2013 (30 June 2012: £8.43m).  The Group continues to maintain a debt-free balance sheet.

A dividend in respect of the year ended 30 June 2013 of 0.7 pence per share, amounting to a total dividend of £0.84m is to be proposed at the Annual General Meeting on 21 November 2013. 

Business Review

Organisations today face the balancing act of having to improve the quality of their customer engagement while also being required to improve operational efficiencies and reduce costs.

Channels through which customers can interact with organisations continue to proliferate (web, mobile, social media, webchat, telephone and SMS) and for many businesses, this means they must support all of these channels, manage multiple, complex requests quickly and do so more efficiently whilst delivering repetitive positive customer experiences. Simultaneously, organisations operate in an increasingly complex environment with changes in customer behaviour combined with stricter regulation and growing compliance requirements.

To navigating through these challenges, organisations are looking to improve their end to end customer engagement processes. Netcall's platform provides a suite of innovative software solutions which support organisations' integrated end to end customer engagement strategies. Our platform also provides the ability to gather relevant customer information required to create improved customer engagement strategies and relationship programmes with the aim of continuously improving customer service, retention and acquisition.

Our Liberty platform also includes multi-channel contact handling solutions designed to improve customer interactions supported by BPM and workflow capabilities enabling the implementation of consistent, compliant and efficient business processes underpinned by management information to track and monitor business performance.

This is supported by our workforce optimisation solutions, which simplify staff forecasting and planning while offering management and quality monitoring of staff, and the platform has the capacity to collect, store and retrieve relevant customer information and interaction history capabilities which can provide valuable information such as customer preferences and trends.

Our solutions can be purchased as a suite or individually, in the Cloud or on premise. The Group's modular platform approach where customers can buy solutions individually provides a flexible and affordable entry point from which the platform can be upgraded and expanded. This protects customers' investments as their business requirements evolve while also potentially reducing the number of suppliers. For Netcall, the modular platform approach enables us to resell and upsell into the existing customer base as new products are introduced on the platform.

Examples of solution implementations include:

·      King's College London chose to upgrade their platform to Liberty. This included an expansion of their applications to include email blending allowing the college to manage, report and improve 50% of service desk interactions. As a result email wait times are now measured in minutes.

·      Alliance Homes selected our CRM (Customer Relationship Management), EDRMS (Electronic Document and Records Management System) and Business Process Management solutions to improve customer service and transform internal operations. Netcall is delivering an enterprise-wide solution that allows Alliance Homes to provide a fully integrated, compliant case management process, offering a complete 360° view of all tenant records and interactions as well as supporting field workers with full mobile access.

·      The Warranty Group, an existing Netcall customer, has implemented Netcall's Business Process Management capability to create a unified desktop environment for contact centre agents integrating and updating information from disparate systems via a modern and logical interface resulting in a significant reduction in average handling times. In addition Netcall has subsequently provided an integrated and rules based knowledgebase solution to support contact centre agents managing customer repairs for a large consumer goods company.

Moving forward the Group's established strategy remains unchanged; to broaden its product portfolio, grow its customer footprint, combine organic growth with targeted acquisitions and continue its focus on operational cost management.

Customer wins

Netcall continued to win new customers during the financial year with order value exceeding that of the previous year.

Netcall has also continued to benefit from its significant presence within NHS Acute Trusts and Health Boards in the UK to contracting with new and existing customers for our Appointment Management Cycle which has now been purchased by more than one in five Acute Trusts or Health Boards.

In addition Netcall's existing customer base of more than 700 organisations continues to represent a significant new business opportunity with a large share having a limited number of our solutions. This represents a substantial cross-selling and up-selling opportunity which is also reflected in the Group's new order inflow of which the majority in the year came from existing customers who upgraded or expanded the usage of the Group's offering. Recent examples, in addition to the ones mentioned above, include British Airways who chose a SaaS based solution and Southwest One selecting a premise-based implementation.

Product development

The Netcall product roadmap focuses on continuously expanding the Group's cloud and premise based platform capabilities concentrating on offering customers a full suite of end-to-end customer engagement solutions.

During the year Netcall launched a significant upgrade to the Company's platform, including business process management and work-flow as a new standard capability. The new Liberty platform has been very well received with a number of customers having already decided to purchase or upgrade to the new platform. We also recently launched an upgrade to Netcall's cloud version of the platform which includes a wide range of new functionality thereby strengthening our offering and underpinning the Group's ability to deliver customers blended solutions while providing the Group with an opportunity to grow its recurring revenue stream.

Furthermore the integration of the product portfolio acquired from Serengeti earlier in the year is moving forward. These additional capabilities combined with our existing solutions further extends our platform's positioning which have opened new sales opportunities previously not available for Netcall.

In the year ahead, our priority will be to broaden the cloud offering while continuing to invest in mobility and multi-channel solutions and integrating our CRM and the Liberty solutions.

Acquisitions

Acquisitions remain an important component of Netcall's growth strategy, and the Board continues to evaluate opportunities for growing its solution portfolio and customer base to create shareholder value.

Outlook

Netcall has started the new financial year well, with sales orders well ahead of this time last year. We continue to benefit from a growing sales pipeline as the requirement for increasingly sophisticated end-to-end customer engagement solutions drives demand for our broadening range of capabilities and solutions. With a robust financial position, the Board continues to evaluate acquisition opportunities to complement our organic growth. We remain mindful of the wider economic conditions; however with a clear strategy in place and continued successful execution, we are confident in a positive outcome for the year ahead.

Audited consolidated income statement for the year ended 30 June 2013

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 2013

Audited consolidated balance sheet at 30 June 2013

Audited consolidated statement of cash flows for the year ended 30 June 2013

Audited consolidated statement of changes in equity at 30 June 2013

Notes to the financial information for the year ended 30 June 2013

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 2012.

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 2013 or 2012. Statutory accounts for the years ended 30 June 2013 and 30 June 2012 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 2012 have been filed with the Registrar of Companies. The statutory accounts for the year ended 30 June 2013 will be delivered to the Registrar in due course. Copies of the Annual Report 2013 will be posted to shareholders on or about 21 October 2013. Further copies of this announcement can be downloaded from the websitewww.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. 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 issue 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:

5. Dividends

During the year a dividend was paid in respect of the year ended 30 June 2012 of 0.5 pence per share (2012: 0.4 pence per share) which amounted to £0.61m (2012: £0.49m).

A dividend in respect of the year ended 30 June 2013 of 0.7 pence per share, amounting to a total dividend of £0.81m, is to be proposed at the annual general meeting on 21 November 2013.

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

·      Ex-Dividend Date: 11 December 2013

·      Record Date: 13 December 2013

·      Payment Date: 10 January 2014

6. Acquisition of Serengeti

On 25 September 2012, the Company acquired the entire issued share capital of Serengeti Systems Ltd ("Serengeti"), a UK-based provider of Enterprise Content Management ("ECM") software. The consideration for the acquisition was £2.48m comprising £2.13m cash and £0.35m contingent consideration.

Analysis of assets and liabilities acquired:

The goodwill of £2.12m arising from the acquisition is attributable to the expected synergistic benefits expected from combining operations of Serengeti and Netcall including the expanded human capital that the skilled workforce of Serengeti provides.

On acquisition of Serengeti, 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: acquired with Serengeti were valued using the excess earnings method. The value of this intangible asset at acquisition is £0.31m. Management believe that these customer relationships have a minimum useful economic life of six years;

ii.     Software: acquired with Serengeti remains at its carrying value. The value of this intangible asset at acquisition is £0.34m (principally previously capitalised development expenditure). Management believe that this software has a minimum economic life of four years; and,

iii.    Brand: the Serengeti brand was valued using the relief from royalty method. The value of this intangible asset at acquisition is £10,000. Management believe that this brand value has a minimum economic life of 18 months.

A £0.07m credit to deferred tax has been made to record the liability arising on these intangible assets.

The contingent consideration is based on an earn-out arrangement of up to £0.90m which will be payable in a mixture of cash and shares dependent upon the achievement of certain targets in the period to November 2014 by the acquired Serengeti business.  Any new shares allotted as consideration will be priced on the average mid-market price preceding issue. The fair value of the contingent consideration arrangement of £0.35m was estimated based on the assumed attainment of the earn-out targets of which £0.26m was paid during the year.

The acquired business contributed revenues of £0.94m and loss of £0.12m to the Group for the period 25 September 2012 to 30 June 2013.