Eckoh plc
Annual Report 2006

Plain-text annual report

E c k o h T e c h n o o g i e s p l c l A n n u a l R e p o r t 2 0 0 6 a l w a y s i n s p i r i n g Every second of every day people make contact through Eckoh www.eckoh.com September 2005: Eckoh in the financial services sector TD Waterhouse extends contract with BT and Eckoh for speech-enabled stock quotation service until 2007 In September 2005, Eckoh and BT announced a two-year contract extension to supply TD Waterhouse with an automated stock quotation service, using advanced speech recognition technology. Under the new two-year contract, the service will allow investors to access real-time share price information on more than 1,500 UK-listed companies, popular indices and registrar information quickly and easily, using automated speech recognition technology. 1 Highlights of the year 3 Chairman’s Statement 4 The Business Review 9 Board of Directors 11 Directors’ Report 16 Corporate Governance 21 Statement of Directors’ Responsibilities 23 Independent Auditors’ Report 24 Group Profit and Loss Account 25 Group Statement of Total Recognised Gains and Losses 25 Reconciliation of Movements in Group Shareholders’ Funds 26 Balance Sheets 27 Group Cash Flow Statement 28 Notes to the Financial Statements 48 Shareholder Information "Since its introduction, the service has provided our customers with more than 2 million quotes and has had a positive impact on the number of customers progressing to an agent to complete a trade. We are delighted with the results and are now turning our attention to look at the future potential for self-service, working closely with our partners BT and Eckoh." Darren Hepworth, Vice President of Customer Contact at TD Waterhouse June 2006: Eckoh in the logistics sector Eckoh win three-year contract to supply ground-breaking parcel tracking service to Parcelforce Worldwide In June 2006, Eckoh in association with strategic business partner BT, announced a new three-year contract with Parcelforce Worldwide, the UK's leading express carrier. The contract, which marks Eckoh's entry into the £23 billion European express logistics market, is to supply Parcelforce Worldwide with a new automated information service that allows customers to track parcels and make re-delivery arrangements over the phone on a 24-hour, no queue basis. The service, which will go live this summer, will be one of the first in the UK's express logistics industry to give customers personalised information. "We believe Eckoh and BT's hosted solution not only provides us with the flexibility we need to cater for the variable peaks in our business but most importantly delivers a quality of service and convenience that will impress our customers and enhance our business relationship with them." Emma Bailey, Customer Services Policy Manager at Parcelforce Worldwide Highlights of the Year Eckoh is a leading European provider of outsourced automated solutions. Eckoh, always inspiring Eckoh sets the standard for outsourced automated solutions across Europe, specialising in advanced speech recognition and interactive services. We enable our clients to communicate more effectively and to enhance their profitability, whilst making life better for people who use their services. 6 months ended 31 March 2006 £'000 6 months ended 30 Sept 2005 £'000 Year ended 31 March 2006 £'000 Year ended 31 March 2005 £'000 Group turnover increased by 59% to £127.1m (2005 - £79.7m) Turnover Adjusted profit before taxation* Profit/(loss) before taxation Retained profit/(loss) 72,077 1,204 (81) 306 55,007 127,084 79,720 1089 1,226 969 2,293 1,145 1,275 841 (9,411) (9,440) 13,296 Cash and short-term investments 12,737 13,296 12,737 Adjusted profit before taxation* increased to £2.3m from £0.8m (Profit before taxation £1.1m (2005 - loss £9.4m)) Retained Profit of £1.3m (2005 - loss £9.4m) Cash and short-term investment balances total £12.7m (2005 - £13.3m) * Profit before taxation, intangible asset amortisation and impairment, exceptional items and discontinued operations (note 29). 1 February 2006: Eckoh in the media sector Eckoh provides IPC, the UK’s leading consumer magazine publisher, with an extensive range of premium rate interactive services using a combination of IVR, mobile and on-line technologies. Eckoh provides hundreds of premium content services to over 50 IPC magazine publications; leading titles include: TV Times, What’s On TV, Chat, Now, Woman’s Own, Marie Claire, Ideal Home and Woman & Home. By consistently refreshing popular content on existing services as well as proactively developing a steady stream of innovative new services, Eckoh help IPC not just to interact with their readers, but to market to them more effectively. “Eckoh’s proven ability and expertise in operating hundreds of interactive services simultaneously combined with their proactive and innovative approach made them the ideal partner for IPC’s Telemedia activity.” Amanda Chester, Direct Marketing Director IPC Chairman’s Statement I am very pleased to report a year of significant strategic progress, and strong operating performance in all areas of activity. Group turnover increased by 59% to £127.1m for the year, generating pre-tax profits of £2.3m before intangible asset amortisation, restructuring charges and discontinued operations. The profit before taxation was £1.1m and group cash balances were £12.7m at year end. Peter Reynolds Chairman At the start of the financial year the Board agreed a strategic plan for our Symphony Telecom subsidiary designed to enhance the business, and ultimately realise value for Eckoh shareholders. Central to this plan was the April 2005 acquisition of Anglia Telecom Centres Limited for cash consideration of £9.7m and the subsequent listing of the enlarged Symphony Group on AIM in September, which raised a net £3.5m of cash through a placing of new shares. Although we felt the AIM market's initial valuation of Symphony was disappointing compared to other listed peers, we remained confident that the quality of the underlying business was strong, and that Eckoh's 64.64% shareholding in Symphony could ultimately be realised at an appropriate valuation. Together with the Symphony Board, Eckoh believes that the recommended cash offer for Symphony by Redstone plc of 54.5p per share does represent an appropriate and fair offer for the company, and we will therefore vote our 20,099,999 ordinary shares in favour of the offer - which represents a 32.9% premium to the placing price of the new shares issued last September. The sale of our stake in Symphony at 54.5p per share will realise gross cash proceeds of approximately £11.0m. In addition, a further £4.7m of cash will be received from the repayment of the Eckoh subordinated loan by Symphony over a 4 year period. During the year we have also reorganised our remaining Eckoh businesses into two independent businesses with dedicated management teams and operating structures. Firstly, our successful Speech Solutions business has now merged with IVR Client Services under the "Eckoh" brand. This operation generated combined revenues in excess of £50m last year. However, following the renewal of the ITV and BT contracts, and recent launch of a number of new and exciting "participation TV" channels - including ITV Play - we expect revenues to be significantly higher next year. Secondly, we have rebranded our Advertised Services division as "Connection Makers", which now operates as a stand-alone entity within the Group under the direction of a newly formed and experienced management team. Connection Makers continued to operate profitably during the year, and is now looking to expand its range of consumer entertainment services over the next twelve months. We continue to believe that Eckoh's share price does not fully reflect the value of the Group's constituent businesses and assets, and the Board remains committed to pursue a strategy to unlock value for Eckoh shareholders. We are evaluating a number of new strategic options aimed to achieve this goal, and will make further announcements in due course to keep shareholders advised of our progress. Finally I would like to thank our staff for their continuing loyalty, dedication and hard work over the past twelve months. 3 The Business Review Overview The Group has seen another year of strong growth, generating a profit before taxation (excluding intangible asset amortisation and impairment, exceptional items and discontinued operations) of £2.3m (2005 - £0.8m). The profit before tax for the year was £1.1m (2005 - loss £9.4m). Turnover increased by 59% to £127.1m (2005 - £79.7m). On 22 June 2006 the board of Symphony Telecom Holdings plc ('Symphony') and the Board of Redstone plc ('Redstone') reached agreement on the terms of a recommended offer for the entire issued share capital of Symphony. The offer was made on the basis of 54.5p in cash for each Symphony ordinary share at a premium of 32.9% compared to last September's placing price of 41p per ordinary share. Since the admission of Symphony on AIM on 15 September 2005, Eckoh has held 20,099,999 shares representing 64.64% of the issued ordinary share capital of Symphony. The Eckoh Board has undertaken to accept the Redstone offer, which will realise a cash inflow of approximately £11.0 million for the Eckoh Group. A recent internal review has led to the reorganisation of the Group's remaining businesses into two independent divisions, each within separate legal entities. Speech Solutions and IVR Client Services have now merged and operate under the 'Eckoh' brand, while the Group's IVR Advertised Services operation has been re-branded as 'Connection Makers'. Key reasons for these changes include: • Creation of two separately accountable, stand-alone operations • The merging of complementary activities - including technical and product development teams • Appointment of dedicated management teams • Improvements in operating performance and efficiency 4 • Enhancement of strategic options available The Directors are continuing to evaluate a number of strategic options, and will make further announcements in due course. Operating Review 1.Eckoh Speech Solutions Eckoh is a European market leader in self-service call centre solutions using advanced speech recognition and related technologies. The Group has an exclusive partnership with BT to provide its top corporate customers with hosted speech recognition services. To date this alliance has supplied speech solutions services to 20 clients and created over 30 applications, generating over 40 million minutes of self-service speech transactions. The BT alliance was extended in July 2005 until 2010, which will enable BT to fulfil the increasing requirement from customers for long term, multi-year contracts for Eckoh's hosted speech recognition services. Turnover for the year grew 6% to £5.3m (2005 - £5.0m), and gross margin increased to 56% (2005 - 53%). Direct operating expenses were £2.4m (2005 - £2.2m) resulting in an increased contribution to £0.6m (2005 - £0.5m) of which £0.5m was in the second half. Turnover for H2 was £3.0m, an increase of 28% on H1 and 28% on H2 2005. Eckoh management intends to deliver high growth rates in this area of operation, and has increased its sales and marketing investment as part of the strategy to achieve this. The results of this investment are bearing fruit with recent contract wins with Parcelforce Worldwide, National Rail Enquiries, Empire Cinemas, Her Majesty's Court Services (HMCS), Government Department for Environment, Food and Rural Affairs (DEFRA), ScottishPower and Hitachi Capital. A change in the revenue model away from large initial build fees to transactional based charges has enabled clients to fully evaluate the benefit of a speech recognition solution. This has enabled the Group to sign significant clients to long term contracts, with revenue recognised over the term of the contract rather than as significant, one-off fees. The benefit of this approach became visible in the second half of the year. There have also been key contract renewals with William Hill and TD Waterhouse indicating that Eckoh's proposition remains competitive and is delivering appropriate value to clients. In addition, 'Journey Finder', a speech-based product developed by Eckoh and BT and utilised in the successful TrainTrackerTM service for National Rail Enquiries, was voted 'Product of the Year 2005' at last year's European Call Centre Awards. The speech recognition market is still in its infancy, with future growth rates uncertain. However, recent positive news flow and interest in the product has reaffirmed the Directors confidence that there is potential for significant growth in the UK and European hosted speech markets. Eckoh Speech Solutions has some clear differentiators from its competitors including one of the largest call processing platforms in Europe, highly experienced management and Martin Turner Chief Executive Officer Nik Philpot Chief Operating Officer Adam Moloney Group Finance Director technical teams, an exclusive alliance with BT and a flexible pricing model benefiting from Eckoh's group traffic volumes. These factors have placed Eckoh in a prime position to cement its position as the European Market leader in speech solutions. Client IVR Eckoh is one of the UK's largest providers of IVR and mobile interactive services, and works with a number of prominent media owners such as ITV, Trinity Mirror, Channel 4, IPC Magazines, EMAP and Northcliffe Newspapers. Eckoh delivers an end-to-end interactive solution including creation, design, development, implementation, deployment, hosting and reporting. Client IVR is able to secure and retain the largest contracts by hosting its services on one of the largest call processing platforms in the UK, by offering very competitive rates and providing top quality customer support. These contracts generate an extremely large aggregated call volume which allows Eckoh to negotiate the best commercial contracts from carriers such as BT and C&W as well as through Eckoh's own network. Although margins are low from its direct activity, the division complements both Speech Solutions and Connection Makers who benefit from accessing the same rate structure, as well as cross-selling their higher margin services. Eckoh management has focused efforts on its most significant customers which has enabled overheads to be reduced without compromising quality. This strategy has been rewarded with contracts with: • The UK's largest commercial broadcasting company, ITV, who have renewed their contract to run until at least September 2007 • The UK's largest newspaper publishing group, Trinity Mirror, who have renewed their contract to run until at least December 2006 • The UK's leading consumer magazine group, IPC Magazines, who agreed a three year contract from June 2005 Eckoh has been the interactive telephony partner of ITV in a highly competitive market since March 2004 and it was announced recently that this agreement has once again been renewed for a minimum of 18 months. In addition, this most recent negotiation was of particular significance due to the inclusion of a new contract to supply services to ITV Play, a new 'participation TV' channel which launched in April 2006 on digital terrestrial television and is due to launch on digital satellite television platforms. The new formats commissioned by ITV Play are also being shown across ITV's family of channels, and these have resulted in a quantum jump in the revenues delivered by ITV, which are expected to continue throughout the whole of the coming financial year. Turnover for the year from Client IVR increased by 22% to £47.5m (2004 - £39.0m), with gross profit decreasing to £3.1m (2005 - £3.4m) due to the proportion of traffic generated by the broadcast clients increasing substantially. However, the refocus of the business on to the largest clients has enabled the division to reduce its cost base with direct operating expenses reducing to £2.4m (2005 - £3.1m) thus increasing the divisional contribution to £0.7m (2005 - £0.2m). The associated risk is that the loss of any key clients would have a significant impact. To mitigate the risk, Eckoh's strategy revolves around providing a level of service and support that our competitors cannot match, whilst being fiercely price competitive. This strategy has seen key renewals and contract wins to date. 2.Connection Makers Connection Makers is the new brand for Eckoh's IVR Advertised Services. This division has operated profitably for many years and specialises in dating and chat services which it provides to clients on a revenue share basis or advertising directly in newspapers, magazines and on television. Gross margins from individual campaigns fluctuate with advertising efficiency, which is influenced by price, seasonality, TV programming and availability. During the year the contract with Trinity Mirror to supply dating services to its large range of national and regional newspapers was renewed until December 2006 and a number of IPC magazines launched editorial dating services for the first time. 5 July 2005: Eckoh's speech alliance with BT extended until 2010 In July 2005, Eckoh announced the extension of their speech alliance contract to provide BT customers with hosted speech recognition services up to 2010. The five-year extension will enable BT to fulfil the increasing requirement from customers for long term, multi-year contracts for Eckoh's hosted speech recognition services. The speech alliance was created to meet the growing demand from businesses for advanced speech recognition technology and since January 2004, over 30 speech applications have been successfully deployed for 20 BT customers generating over 40 million minutes of self-service speech transactions. “Over the past three years, Eckoh has consistently demonstrated client service excellence through their leading market expertise, speed of customer response and through their state of the art deployment of sophisticated client handling solutions and broader self- service options to our customers." Chris Pike, General Manager, CRM solutions at BT The Business Review continued Eckoh intends to consolidate its share of the chat and dating market by establishing a market leading telephone and mobile speed dating brand in the UK. This new and ground breaking service will enable participants to speed date over the phone or on their mobile with local users from the comfort of their homes. The launch will require a sizeable marketing investment in the coming year and the new service will also be offered to existing and prospective clients. In February 2006 changes to the Sky Electronic Programming Guide (EPG) on the digital satellite television platform, resulted in Eckoh's L!VE TV channel being moved to a different channel number and a new index category. The format of the channel has had to change significantly because of this move and has resulted in some uncertainty as to whether the good performance in the second half of the year can be maintained. Turnover from Connection Makers increased to £12.1m (2005 - £11.6m) with gross profit of £5.5m (2005 - £5.0m). Direct operating expenses were £3.0m (2005 - £2.3m). The introduction of a dedicated management team to the division is designed to facilitate growth in both turnover and profitability through increased focus and the introduction of new services. 3.Symphony Telecom On 30 April 2005, Symphony acquired Anglia Telecom Centres Limited ('Anglia') from TTG Europe plc for cash consideration of £9.7m and on 15 September 2005 the enlarged Symphony group floated on AIM, at the same time placing 35.36% of shares with new investors. Since then, Symphony has operated as a 64.64% subsidiary of Eckoh and its financial results have been fully consolidated into Eckoh's financial statements (including Anglia since the date of acquisition). Turnover increased to £61.3m (2005 - £21.0m), largely due to the acquisitions during the year which contributed £39.6m. Operating profit, before exceptional items of £0.4m (2005 - Nil) and intangible asset amortisation of £2.0m (2005 - Nil) amounted to £2.1m (2005 - £1.3m). The exceptional items relate to restructuring, integration and other one-off costs. The operating loss for the year was £0.3m (2005 - profit: £1.3m) After non-operating exceptional items and net interest payable of £0.6m (2005 - Nil) the loss before tax was £0.9m (2005 - £1.3m profit) and the loss per share 4.0p (2005 - 6.2p earnings per share). No dividend has been proposed.(2005 - Nil) On 22 June 2006 the board of Symphony and the Board of Redstone reached agreement on the terms of a recommended offer for the entire issued share capital of Symphony. The offer was made on the basis of 54.5p in cash for each Symphony ordinary share at a premium of 32.9% compared to last September's placing price of 41p per ordinary share. The Eckoh Board has undertaken to accept the Redstone offer, which will realise a cash inflow of approximately £11.0 million for the Eckoh Group. Depreciation on tangible fixed assets has reduced to £1.0m (2005 - £1.3m). Exceptional Items During the year, there were three exceptional gains. A gain of £1.5m arose from the 35% disposal as a result of the flotation of Symphony, £0.1m was received following the disposal of the hardware services operation in a prior year and £0.3m was generated from the disposal of investment shares held in Felix Group plc. The amortisation charge of £2.2m predominantly relates to the amortisation of the goodwill arising on the acquisition of Anglia. In addition, there were restructuring costs of £0.4m, largely consisting of integration costs relating to the acquisition of Anglia, and costs of £0.08m were incurred during the group restructure to establish the Symphony Telecom Holdings Group. Discontinued Operations Following the sale of Freecom.net Limited, a loss on disposal of £0.2m has been recognised. Balance Sheet & Cash Flow Statement Eckoh generated £3.2m (2005 - £4.5m) of cash from operating activities during the year. Cash balances reduced from £13.3m to £12.7m principally due to outflows in connection with the acquisition of Anglia. At 31 March 2006, cash residing in the Symphony Group amounted to £4.5m, which is offset by an inter-company loan balance, due to be repaid to Eckoh, of £4.7m. As a result, the Eckoh Group, post the Symphony disposal has cash of £12.9m, as well as the cash inflow of £11.0m from the disposal proceeds of the 64.64% holding in Symphony. Eckoh disposed of Freecom.net Limited, its internet services company, to eDirectory.co.uk plc ('eDirectory') on 29 July 2005. The consideration comprises 4,155,844 eDirectory ordinary shares. Further to this, and subject to certain conditions, a further £1.6 million of deferred consideration is receivable in eDirectory ordinary shares or a cash equivalent. eDirectory shares are currently traded on Ofex. The business has been included within discontinued operations in Eckoh's financial statements and a loss on disposal of £0.2m has been recognised. Central Costs Central costs are not allocated to the business divisions of the Group, are largely fixed in nature, and include indirect operating costs (finance, IT, property etc.) and corporate costs (directors, audit, insurance, professional advisors etc.). These costs have reduced to £2.5m (2005 - £3.2m) due to a continued effort to reduce costs. A charge is made to Symphony for a proportion of these costs, this charge is disclosed within the operating expenses of Symphony. 7 June 2006: Eckoh in the travel sector Eckoh & BT secure five-year deal with National Rail Enquiries to deliver UK’s most ambitious speech solution designed for the mass market In June 2006, Eckoh announced an extended five-year deal worth a minimum of £3 million with National Rail Enquiries to deliver a ground breaking automated train information service which is expected to launch in July 2006. The new speech-enabled travel information solution will supersede and enhance the already highly successful TrainTracker™ service (0871 200 4950), designed to give travellers up to the minute times for direct train services across all 2,500 mainland stations. "Eckoh and BT's experience for providing best of breed self-service technology, combined with their proactive partnership approach and proven track record of serving high and volatile call volumes for the successful TrainTracker™ service, led me to extend the existing deal. The advanced intelligence of the new TrainTracker™ service will provide an even more sophisticated, flexible and complete service." Chris Scoggins, CEO, National Rail Enquiries Board of Directors Board Committees * Member of the Audit Committee † Member of the Remuneration Committee ß Member of the Nomination Committee # Senior Independent Director Peter Reynolds (68) Non-executive Director *ß † Chairman of the Board Chairman of Remuneration Committee Joined the Board in September 2003. Currently also Executive Chairman of Swallow Ventures Limited, a company specialising in CRM software and of Sterling Designs, a highly profitable kitchen manufacturing company. In May 2004, Peter was appointed as a Non-executive Director of SR Pharma plc, who's principal activity is research and development of pharmaceutical products. Martin Turner (48) Chief Executive Officer ß Joined the Board in February 1999 as Group Finance Director and was appointed CEO in September 2001. He was co-founder of Symphony Telecom and formerly worked for Price Waterhouse in North America and Arthur Andersen & Co in London. He qualified as a chartered accountant in 1983. Nik Philpot (42) Chief Operating Officer Deputy Chief Executive Officer Joined the Board in February 1999 and was appointed COO and Deputy CEO in September 2001. He was a co-founder of Symphony Telecom and formerly worked for British Telecom and Legion. He has 20 years experience in the voice services industry. Adam Moloney (36) Group Finance Director Joined the Company in May 2003 as Group Accountant, taking on the role of Acting Group Finance Director in July 2004, following the departure of the previous Group Finance Director and appointed Group Finance Director with effect from August 2005. He qualified as a CIMA accountant in 1997. Prior to joining Eckoh, he was Manager of Finance & Operations for the UK arm of New York based computer hardware reseller, Resilien Inc. Martin Smith (51) Non-executive Director †#*ß Chairman of Audit Committee Chairman of the Nomination Committee Joined the Board in September 2003. Has over 25 years experience in the mobile telecommunications sector. Formed Mobile Telecom plc in 1986 and held the position of Chairman and Chief Executive until May 2001 when he sold his majority shareholding to Vodafone plc. Appointed as Non-executive Director and Chairman of Symphony Telecom Holdings plc on 16 June 2005. Sam Driver Company Secretary Appointed as Company Secretary in July 2004. Graduate of the Institute of Chartered Secretaries and Administrators ("ICSA") in February 2003 and elected as Associate of ICSA in February 2004. Worked in South Africa in the banking, auditing, insurance and risk management and communication sectors; joined Eckoh in August 2001 as Company Secretarial Manager. 9 9 November 2005: Eckoh in the utilities sector ScottishPower prepares for winter with speech recognition technology from Eckoh In November 2005 Eckoh, in association with TFCC, announced a service to provide ScottishPower customers with a power outage reporting solution allowing callers to get updates in their local area and to receive call-back capability. Eckoh has a strategic partnership with Twenty First Century Communications Inc. of the USA to host the company’s High Volume Call Answering (HVCA®) service in the UK market. TFCC currently work with over 70 US electric utility clients in the North American marketplace. “We are extremely pleased to partner with Eckoh in the UK marketplace and are delighted at the partnership’s success in winning this significant contract with ScottishPower. The HVCA® solution selected by ScottishPower combines TFCC’s market-leading proven performance in North America with Eckoh’s UK market leadership in the provision of high volume automated call handling solutions. Together with Eckoh, we look forward to replicating our success in the UK with ScottishPower and other utility clients.” Thomas Calabro, Senior Vice President for TFCC Directors’ Report The Directors of Eckoh Technologies plc present their annual report, together with the audited financial statements of the Company and the Group for the year ended 31 March 2006. 11.00 am on Monday 30 October 2006. Details of the business to be proposed at the Annual General Meeting are contained within the Notice of Meeting, which accompanies this Report. Directors The current Directors of the Company are shown on page 9. Adam Moloney was appointed Group Finance Director on 1 August 2005 and was re-elected at the Annual General Meeting held on 21 September 2005. All other Directors served throughout the year. The articles of association require that at the Annual General Meeting one third, or as near as possible, of the Directors will retire by rotation. All Directors must be re-elected at intervals of not more than three years, in accordance with the provisions of the Combined Code on Corporate Governance appended to the Listing Rules of the United Kingdom Listing Authority. The following Directors retire by rotation and put themselves forward for re-election at the Annual General Meeting: Nik Philpot Martin Smith Principal activity The principal activity of Eckoh Technologies plc and its subsidiary undertakings ("the Group") is the provision of telecommunications services to businesses and consumers, with a strategic focus on designing, building and managing speech solutions for large corporations and organisations using advanced speech recognition technologies. The Chairman's Statement (page 3) and the Business Review (pages 4 to 7) report on the progress made in the financial year under review. The principal subsidiary undertakings are listed on page 36. Results and dividends The audited financial statements and related notes for the year ended 31 March 2006 are set out on pages 24 to 48. The Group's profit for the year is set out in the Profit and Loss Account on page 24. The Company intends to reinvest any future earnings to finance the growth of its business and does not anticipate paying any dividends in the foreseeable future. Research and development The Group incurred £2.5m (2005 - £2.1m) of research and development expenditure during the year £0.1m (2005 - £0.1m) of which had been capitalised during the year as an intangible asset, as it expanded its product portfolio and produced bespoke solutions for customers. Annual General Meeting The next Annual General Meeting of the Company will be held at 11 Directors’ Report continued Directors Remuneration (audited) Notes: (i) A P Moloney was appointed as Group Finance Director on 1 August 2005 (ii) M E Smith, as Chairman of Symphony Telecom Holdings plc also received a fee of £39,585 (iii)B D McArthur Muscroft resigned on 25 June 2004 (iv)D G Best resigned on 5 July 2004 Name M R Turner N B Philpot A P Moloney (i) H R P Reynolds M E Smith (ii) B D McArthur Muscroft (iii) D G Best (iv) Totals Salary and fees £'000 195 195 61 69 25 - - Bonus £'000 - 117 25 - - - - Other benefits £000 18 18 9 - - - - 2006 Total £'000 213 330 95 69 25 - - 2005 Total £'000 258 258 - 51 25 57 29 545 142 45 732 678 Directors' interests The interests of the Directors in the share capital of the Company and their options in respect of shares in the Company are shown below. Except as disclosed in Note 25 to the financial statements, no Director has had any material interest in a contract of significance (other than service contracts) with the Company or with any subsidiary company during the year. Amendments to section 309 of the Companies Act came into effect from 6 April 2005. A new concept of a "qualifying third party indemnity provision" which is referred to as a "QTPIP" was introduced . A QTPIP is a provision which indemnifies a director against liabilities in civil action by a person other than the company (or an associated company). The Company adopted a QTPIP during the year under review. A copy of this document will be open to inspection by members 15 minutes before and during our forthcoming Annual General Meeting. Directors' Interests in Shares The interests, all of which are beneficial, of the Directors (and their immediate families) in the share capital of the Company, as shown in the register kept by the Company, are set out below: 21 June 2006 Ordinary shares of 0.25 pence each 31 March 2006 Ordinary shares of 0.25 pence each 1 April 2005 Ordinary shares of 0.25 pence each Notes: M R Turner N B Philpot (i) A P Moloney (ii) H R P Reynolds (iii) M E Smith 1,139,000 2,282,000 - 646,550 1,034,482 1,139,000 2,282,000 - 646,550 1,034,482 1,139,000 2,282,000 - 646,550 1,034,482 (i) N B Philpot's spouse is the beneficial owner of 80,000 shares which have been included within the table. (ii) A P Moloney was appointed as a Director on 1 August 2005 (iii)Included in H R P Reynolds' shareholding is 258,620 shares held in the name of Brewin Nominees Limited. 12 Directors' Share Options The Directors' interests in share options under the Share Option Scheme (1999) are shown in the following table. Notes: At 31 March 2006 (number) Granted in year (number) Lapsed in year (number) Note At 1 April Exercise price (pence) 2005 (number) Earliest date for exercise Latest date for exercise a Granted under the Inland Revenue approved Appendix to the Eckoh Technologies plc Share Option Scheme (1999). M R Turner N B Philpot A P Moloney c a b a b c a b a b a b c 3,000,000 380,710 337,702 - - - 342,857 342,857 657,143 657,143 3,000,000 380,710 337,702 - - - 342,857 342,857 657,143 657,143 250,000 - 342,857 342,857 407,143 407,143 - - - - - - - - - - - - - 3,000,000 6.50 27.06.05 27.06.12 b Granted under the Eckoh Technologies plc 380,710 7.88 07.10.07 07.10.14 337,702 7.88 07.10.07 07.10.14 - - 8.75 13.09.08 13.09.15 8.75 13.09.08 13.09.15 3,000,000 6.50 27.06.05 27.06.12 380,710 7.88 07.10.07 07.10.14 337,702 7.88 07.10.07 07.10.14 - - 8.75 13.09.08 13.09.15 8.75 13.09.08 13.09.15 250,000 8.50 28.02.07 28.02.14 - - 8.75 13.09.08 13.09.15 8.75 13.09.08 13.09.15 Share Option Scheme (1999) but not qualifying for Inland Revenue approval. c Granted under the Eckoh Technologies plc Share (1999) but not qualifying for Inland Revenue approval. The objective conditions of these share options were reviewed and amended by the Remuneration Committee on 13 September 2005. The performance target attaching to the above options is the closing middle market price of a share, on any day on which the London Stock Exchange is open for the transaction of business following the third anniversary of the date of grant, must be greater than the exercise price of the Option by RPI plus 15%. Relationship between the Eckoh Board and Symphony Telecom Holdings Board ("Symphony") During the year the Chairman and Chief Executive of Symphony were both Directors of the Company. Both Martin Smith and Martin Turner report on relevant Symphony matters at Company Board meetings where appropriate. Substantial shareholdings At 21 June 2006, the Company had been notified of the following material interests, representing 3% or more of and 19 to the financial statements. As at the year end the Company had the authority to purchase 27,141,659 of its own shares. Share schemes The Directors believe that a key element in attracting, motivating and retaining employees of the highest calibre is employee involvement in the performance of the Group through participation in share schemes. By doing so, the Directors believe that employees' interests will be aligned with those of shareholders. Details of options granted under No of shares % of issued share capital Gartmore * Herald Investment Trust Limited Cavendish Asset Management Universities Superannuation Scheme Ltd 40,515,798 19,845,000 13,883,000 12,175,000 14.87 7.28 5.09 4.47 its current issued share capital. Share capital and reserves Details of changes in the authorised and issued share capital and reserves of the Company are shown in Notes 18 the share option schemes are set out in Note 20 to the financial statements. All permanent employees are eligible to join a scheme. A new Performance Share Plan was approved by shareholders at the Annual General Meeting * shares held in the name of Gartmore Investments Limited, Gartmore Fund Managers and Gartmore Global Partners. In addition, the USB AG London Branch Holding of 13,537,386 ordinary shares (representing 4.97% of the issued share capital of the company), is included in the Gartmore holding. 13 February 2006: Eckoh in the leisure sector Britain’s newest cinema chain “Empire” signs three-year speech deal with Eckoh In February 2006, Eckoh announced a new three-year contract to supply Empire Cinemas with an end-to-end automated cinema information and booking solution. The automated information and booking service is being rolled out to all 17 cinema outlets from March 2006, providing Empire Cinema customers with a 24/7, one-number solution for accessing local cinema and film information as well as the ability to book tickets and specify seating preference. “Eckoh's reputation for providing best of breed speech technology and their proven track record of operating high volume speech applications for other leading cinema providers, made them the natural provider of choice. By partnering with Eckoh, we look forward to leading the way in the provision of highly sophisticated and innovative cinema services to our customer base.” Justin Ribbons - CEO, Empire Cinemas Directors’ Report continued By order of the Board Sam Driver Company Secretary 26 June 2006 Payments to creditors The Company and its subsidiaries have a variety of payment terms with their suppliers. The Group agrees payment terms with its suppliers when it enters into binding purchasing contracts for the supply of goods and services. Its suppliers are, in that way made aware of these terms. The Company seeks to abide by these payment terms when it is satisfied that the supplier has provided the goods or services in accordance with the agreed terms and conditions. At 31 March 2006 the amount of trade creditors shown in the balance sheet represents 31 days of average purchases for the Group (2005 - 46 days). The Company had no trade creditors at 31 March 2006. Statement of Disclosure of Information to Auditors As far as the Directors are aware there is no information relevant to the audit of which the Company's auditors are unaware and the Directors have taken all steps that they ought to have taken as Directors in order to make themselves aware of any such relevant information and to establish that the Company's auditors are aware of that information. Auditors A resolution to reappoint PricewaterhouseCoopers LLP as auditors of the Company, and to authorise the Directors to set their fees, will be submitted to the forthcoming Annual General Meeting. held on 28 July 2004. Charitable and political donations The Group made no political donations during the year. Anglia Telcom Centres Limited made £2,500 of charitable donations during the year (2005 - £918). Employees The Directors believe that the Group's employees are a source of competitive advantage. The Directors recognise that continued and sustained improvement in the performance of the Group depends on its ability to attract, motivate and retain employees of the highest calibre. The Group is committed to the principle of equal opportunity in employment. It seeks to ensure that no employee or applicant is treated less favourably on the grounds of gender, marital status, nationality, race, colour, ethnic or national origin, religion, disability or sexual orientation or is disadvantaged by conditions or requirements, including age limits, which cannot be objectively justified. Entry into and progression within the Group are solely determined by the application of job criteria, personal aptitude and competence. It is the Group's policy to apply best practice in the employment of disabled people. Full and fair consideration is given to every application for employment from disabled persons whose aptitude and skills can be utilised in the business and to their training and career development. This includes, wherever possible, the retraining and retention of staff who become disabled during their employment. All staff are informed of matters concerning their interest as employees and the financial and economic factors affecting the business. Established management communication channels have been supplemented by direct presentations to staff by Directors to explain developments of particular significance. Environmental report The Directors recognise the importance and responsibility of ensuring that the Group's businesses are conducted with respect and care for the environment. Environmental management is regularly monitored by the Board through the internal control risk management process. 15 Corporate Governance Compliance Statement The Board of Eckoh Technologies plc recognises its responsibilities to maintain high standards of corporate governance throughout the Group. Except as stated in this report, the Company complied with all the provisions of the Combined Code on Corporate Governance (the "Combined Code"). The Company is committed to complying with the Combined Code so far as is practicable and appropriate for a public company of its size and nature. This statement explains how the Company has applied the principles of the Combined Code. Board of Directors The Chairman is responsible for the effective running of the Board of Directors. The Board has five members, comprising the Non-executive Chairman, the Chief Executive, the Chief Operating Officer, the Group Finance Director and one Non-executive Director. The Board has considered the independence of its Non-executive Directors. The matters considered included but were not limited to Martin Smith's position as Chairman of Symphony Telecom Holdings plc, the consultancy agreement that was in place for part of the year under review (terminated on 30 June 2005) between the Company and MES Investments Limited (Martin Smith, has an interest in MES Investments Limited), the fee paid to Martin Smith in relation to the acquisition of Anglia Telecom Centres Limited and the position of Peter Reynolds as Non- executive Chairman of the Board. After due consideration the Board considered that the Chairman, Peter Reynolds, and the Non- executive Director, Martin Smith, are independent and do not have any involvement in the day-to-day management of the Company or its subsidiaries. The biographical details of the Board members are set out on page 9. The Board believes that the balance achieved between Executive and Non-executive Directors is appropriate and effective for the control and direction of the business. The Board formally met eleven times during the period under review, with full attendance on each occasion, with the exception of the February meeting, where the apology from Martin Turner, was noted. including a policy enabling Directors to take independent professional advice in the furtherance of their duties at the Company's expense. The Board programme is designed so that Directors have a regular opportunity to consider the Group's strategy, policies, budgets, progress reports and financial position and to arrive at a balanced assessment of the Group's position and prospects. In addition, strategic developments are on the agenda at each Board meeting, and where appropriate the Board programme also includes a day set aside purely for strategic review and planning. The Company has a clear division of responsibility between the roles of Chairman and Chief Executive within the business. The Non-executive Directors' letters of appointment do not specify an expected time commitment. However the relevant letters of appointment do state that the Non-executive Directors are to attend at least seven Board meetings a year. In addition they are to make themselves available on reasonable notice to individual Directors throughout their appointment as Non-executive Directors of the Board. The Non-executive Directors have a responsibility to ensure that the strategies and policies proposed by the Executive Directors are fully discussed and critically examined, not only with regard to the best long-term interests of shareholders, but also having regard to the Company's relationships with its employees, customers and suppliers. The Board and its Committees are supplied with information and papers to ensure that all aspects of the Company's affairs are reviewed on at least an annual basis. There is a schedule of formal matters specifically reserved for the full Board's consideration, Day-to-day management of the business is delegated to the Operating Board, consisting of the three Executive Directors and certain senior managers, which meets monthly. The Board is dependent on the Operating Board for the provision of accurate, complete and timely information and the Directors may seek further information where necessary. The Chairman is responsible for ensuring that all Directors are properly briefed on issues arising at Board meetings. The Board and the Operating Board are assisted by the Company Secretary, who provides a point of reference and regular support for all Directors and senior managers. The Company Secretary has responsibility for ensuring that Board procedures are followed, for establishing the Group's corporate governance policies with the Chairman and the Chief Executive and for assisting the Board in facilitating compliance by the Company with its legal obligations. The appointment and removal of the Company Secretary is one of the matters reserved for the full Board's decision, in accordance with the formal schedule referred to above. The Chairman, assisted by the Company Secretary, ensures that all new Directors receive an appropriate induction on joining the Board. An evaluation of the performance of the Board and its Committees is undertaken annually. A Board Effectiveness Questionnaire is completed by all Board members. The Company Secretary co-ordinates the responses and provides feedback to the Board, areas requiring enhancement are discussed and actions agreed. In addition the Chairman undertakes annual performance evaluations of each of the Directors. The Board, excluding the Chairman, meets once a year to discuss the performance of the Chairman. The Senior Independent Director is responsible for providing appropriate 16 feedback of the outcome of his review to the Chairman. Under the Company's articles of association, each year at least one third of the Directors must retire and submit themselves for re-election by the shareholders at the Annual General Meeting. The communication accompanying the Company's Notice of Annual General Meeting sets out reasons for the Board's belief that the individual should be re-elected. Board Committees Certain responsibilities are delegated to the Remuneration Committee, the Audit and the Nomination Committees. The three committees have written terms of reference, which define their authorities, duties and membership. The written terms of reference are available for inspection at the Company's registered office during normal business hours on any weekday excluding Saturdays, Sundays and public holidays. Details of membership of the committees are given on page 9. The Company has not sought to comply with the requirements of the Combined Code to have three independent Non-executive Directors as members of the Audit Committee. An exemption to this requirement for smaller quoted companies is contained in the Combined Code. The Audit Committee comprises Martin Smith, who chairs the Committee, and Peter Reynolds. The Company has not sought to comply with the requirements of the Combined Code, with regards to a member of the Committee having recent and relevant financial experience. However, Adam Moloney, the Group Finance Director, attends all Audit Committee meetings by invitation and provides advice to the Committee where appropriate. The Committee formally met twice during the period under review, with no absentees. The Chief Executive Officer and Group Finance Director were invited to and attended both meetings. The Company's auditors were available via telephone for the interim results meeting and attended the preliminary results meeting. The Committee considered reports issued by the Company's auditors at these meetings. The auditors have direct access to the Audit Committee without the presence of an Executive Director. The Committee reviews the effectiveness of the Company's internal financial controls and receives regular reports from the external auditors. The Committee also reviews the scope and results of the external audit as well as its cost effectiveness. During the period of review, the terms of reference of the Audit Committee were reviewed and it was agreed that no changes thereto were required. During the year, the following non audit services were performed: taxation and transaction services. The Committee reviews the external auditor's letter confirming their independence on an annual basis. In accordance with the Combined Code, the Committee's duties include recommendations to the Board relating to the appointment, re-appointment and removal of the external auditor. The Audit Committee annually reviews the requirement for an internal audit function. The Committee has decided that none is necessary at present. Instead, other monitoring processes have been applied to provide assurance to the Board that the system of internal control is functioning satisfactorily. The Nomination Committee is responsible for the formal selection process of Executive and Non-executive Directors. It is made up of the two independent Non-executive Directors and the Chief Executive Officer and is chaired by Martin Smith. The Committee met twice during the period under review, with no absentees. The normal selection process involves the formulation of a clear job description and ideal candidate profile, the appointment of independent recruitment consultants, if appropriate, and interviews of suitable candidates by the Committee and one or more of the Executive Directors. A short-list of candidates then meets with the remaining Directors. Following feedback from all Directors, and after due consideration, the Nomination Committee recommends the appointment of the chosen candidate. Internal Control and Risk Management The Directors formally acknowledge their responsibility for establishing effective internal control within the Company. In this context, control is defined as those policies, processes, tasks and behaviours established to ensure that business objectives are achieved most cost effectively, assets and shareholder value are safeguarded and laws, regulations and policies are complied with. The Board has put in place a system of internal controls, set within a framework of a clearly defined organisational structure, with well understood lines of responsibility, delegation of authority, accountability, policies and procedures which is supported by training, budgeting, reporting and review procedures. The organisational structure includes the Operating Board, which comprises the Company's Executive Directors and senior managers, which meet monthly. An annual operating budget and long-term business plan are prepared by management and are reviewed and approved by the Board prior to the commencement of each financial year. Monthly reporting and analysis of results against budget, risk assessment and related internal controls and forecasts are received, discussed by management and reported to the Board. There are ongoing processes for identifying, evaluating and managing the Company's significant risks and related internal controls which are integrated into the Company's operations. Such processes are reported to, and reviewed by, the Board at each meeting. These processes have identified the risks most important to the Company (business, operational, financial and compliance), determined the financial implications, and assessed the adequacy and effectiveness of their control. The reporting and review processes provide routine assurance to the Board as to the adequacy and effectiveness of the internal controls. The Directors have reviewed the effectiveness of the Company's system of internal control in accordance with the requirements of the Combined Code. Shareholder Relations The Company holds meetings with its major institutional investors and general presentations are given covering the interim and preliminary results. Peter Reynolds met with shareholders, brokers and analysts during the period under review. The Chairman is available to attend presentation meetings and other presentations on an ongoing basis. Martin 17 April 2006: Eckoh in broadcasting Eckoh renews interactive telephony contract with ITV and wins new contract with ITV Play In April 2006, Eckoh was re-appointed by ITV, the UK's biggest commercial television network, to provide premium rate telephone services for channel programming. The new contract, which runs until at least September 2007, was awarded following a year in which Eckoh has successfully managed telephone services for ITV across more than thirty hit shows including I'm a Celebrity…Get Me Out of Here!, Celebrity Love Island, Soapstar Superstar, Ant and Dec's Gameshow Marathon and This Morning. In this period Eckoh has successfully handled more than 30 million calls for ITV. ITV HQ, Southbank, London "Eckoh has delivered a first class performance throughout 2005, making it an easy decision to re-appoint the company as our supplier of PRTS services. The breadth of services Eckoh provides and the clients that the company works with gave us the confidence that it remained the right partner for ITV." Jane Marshall - Commercial Development Director of ITV Consumer Corporate Governance continued Smith, as the Senior Independent Director, is available to shareholders to discuss any concerns. All Directors have access to the Company's nominated advisors who give feedback from shareholders and receive copies of broker update documents. All shareholders have the opportunity to raise questions at the Company's Annual General Meeting, or leave written questions, which will be answered in writing as soon as possible. At the meeting the Chairman will give a statement on the Group's performance during the year, together with a statement on current trading conditions. The Chairmen of the Audit, Nomination and Remuneration Committees will normally attend the AGM. In addition to regular financial reporting, significant matters relating to the trading or development of the business are disseminated to the market by way of Stock Exchange announcements. The Company's Annual Report and Accounts, Interim Statements and other major announcements are published on the Company's corporate web site at www.eckoh.com. Going Concern Under company law, the Company's Directors are required to consider whether it is appropriate to prepare financial statements on the basis that the Company and the Group are going concerns. As part of its normal business practice the Group prepares annual and longer term plans and, in reviewing this information, the Company's Directors are satisfied that the Group and the Company have reasonable resources to enable them to continue in business for the foreseeable future. For this reason the Company and the Group continue to adopt the going concern basis in preparing the financial statements. 19 May 2006: Eckoh in interactive entertainment Eckoh launch the UK’s first mass participation telephone game In May 2006, Eckoh was commissioned to provide ITV Play, the leading participation TV channel, with the first mass participation telephone quiz format in the UK. Eckoh was appointed as preferred telephony supplier to ITV Play in April 2006; the new quiz format is expected to become a central strand of Play activity over the coming months. "The Rovers Return Quiz Night is the best in our new breed of formats, combining Eckoh's cutting edge interactive technology to bring thousands of people together with the nation's favourite soap. Eckoh's experience has been invaluable in the development of this show and the team has pulled out all the stops to ensure that ITV Play continues its reputation as an innovator in participation television." William van Rest - Controller ITV Play Statement of Directors’ Responsibilities The following statement sets out the responsibilities of the Directors in relation to the financial statements. The report of the Auditors, shown on page 23, sets out their responsibilities in relation to the financial statements. any time the financial position of the Company and the Group and to enable them to ensure that the financial statements comply with the Companies Act 1985. They are also responsible for taking reasonable steps to safeguard the assets of the Company and the Group, and in that context must have proper regard to the establishment of appropriate systems of internal control with a view to the prevention and detection of fraud, theft and other irregularities. Company law requires the Directors to prepare financial statements for each financial year, which give a true and fair view of the state of affairs of the Company and the Group as at the end of the financial year and of the profit or loss and cash flow of the Group for the financial year. In preparing those financial statements, the Directors are required to: • select appropriate accounting policies and apply them consistently; • make judgements and estimates that are reasonable and prudent; • state whether applicable accounting standards have been followed subject to any material departures being disclosed and explained; and • prepare the financial statements on the going concern basis, unless they consider it to be inappropriate. The Directors confirm that the financial statements comply with the above requirements. The maintenance and integrity of the web site of Eckoh Technologies plc is the responsibility of the Directors. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. The Directors are responsible for ensuring that the Company keeps sufficient accounting records to disclose with reasonable accuracy at 21 November 2006: Eckoh in the government sector Magistrates Courts to increase fine payment revenues and reduce costs with automated payment collection service from Eckoh In November 2005, Her Majesty's Courts Service in the North East region signed up to a 24/7, automated payment solution to be deployed by Eckoh and strategic business partner BT. The automated solution is expected to yield similar results to the West Yorkshire HMCS, where it has already yielded transformational cost savings and an overwhelming 36% increase in fine payments since June 2004. "The self-service solution delivered by Eckoh and BT will be particularly helpful for customers who want to pay their fines quickly and discreetly and who are simply not able to make payments during normal business hours. We look forward to working with Eckoh and BT to match the significant cost savings and tremendous operational achievement being enjoyed by West Yorkshire HMCS.” Paul Skelton North East Regional Performance Manager Independent Auditors' Report to the Members of Eckoh Technologies plc We have audited the Group and parent company financial statements (the ''financial statements'') of Eckoh Technologies plc for the year ended 31 March 2006 which comprise the Group Profit and Loss Account, the Group and Company Balance Sheets, the Group Cash Flow Statement, the Group Statement of Total Recognised Gains and Losses, the Reconciliation of Movements in Group Shareholders' Funds and the related notes. These financial statements have been prepared under the accounting policies set out therein. Respective responsibilities of directors and auditors The Directors' responsibilities for preparing the Annual Report and the financial statements in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice) are set out in the Statement of Directors' Responsibilities. the Companies Act 1985. We also report to you if, in our opinion, the Directors' Report is not consistent with the financial statements, if the company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors' remuneration and other transactions is not disclosed. We read other information contained in the Annual Report, and consider whether it is consistent with the audited financial statements. This other information comprises only the Directors' Report, the Chairman's Statement and the Business Review. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any other information. Basis of audit opinion Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). This report, including the opinion, has been prepared for and only for the company's members as a body in accordance with Section 235 of the Companies Act 1985 and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgments made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Group's and company's circumstances, consistently applied and adequately disclosed. We report to you our opinion as to whether the financial statements give a true and fair view and are properly prepared in accordance with We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. Opinion In our opinion the financial statements: • give a true and fair view, in accordance with United Kingdom Generally Accepted Accounting Practice, of the state of the Group's and the parent company's affairs as at 31 March 2006 and of the Group's profit and cash flows for the year then ended; and • have been properly prepared in accordance with the Companies Act 1985; and • the information given in the Directors' Report is consistent with the financial statements. PricewaterhouseCoopers LLP Chartered Accountants and Registered Auditors London 26 June 2006 23 Group Profit and Loss Account for the year ended 31 March 2006 Turnover Continuing operations Acquisitions Total continuing operations Discontinued operations Cost of sales Gross profit Net operating expenses before intangible asset amortisation and impairment and restructuring costs Amortisation of intangible assets Impairment of intangible assets Restructuring costs Net operating expenses Operating profit/(loss) before intangible asset amortisation and impairment and restructuring costs Continuing operations Acquisitions Total continuing operations Discontinued operations Operating (loss)/profit Continuing operations Acquisitions Total continuing operations Discontinued operations Profit on disposal of subsidiary operations Profit on disposal of fixed asset investment Costs of group restructuring Net interest (payable)/receivable and other similar items Profit/(loss) on ordinary activities before taxation Taxation Profit/(loss) on ordinary activities after taxation Minority interests Retained profit/(loss) for the year Basic earnings/(loss) per 0.25p share Diluted earnings/(loss) per 0.25p share Notes 1,2 2 2 2 2,9 2,9 2 2 3 1,11 1 4 1 6 21 19 8 8 2006 £'000 127,084 86,626 39,578 126,204 880 (102,696) 24,388 (22,123) (2,165) - (358) (24,646) 2,265 284 2,214 2,498 (233) (258) (241) 216 (25) (233) 1,388 300 (80) (205) 1,145 (166) 979 296 1,275 0.5p 0.4p 2005 £'000 79,720 76,529 - 76,529 3,191 (59,675) 20,045 (19,533) (2,539) (7,756) - (29,828) 512 469 - 469 43 (9,783) (9,826) - (9,826) 43 - - - 372 (9,411) (6) (9,417) (23) (9,440) (3.5p) (3.4p) There is no difference between the profit on ordinary activities before taxation and the profit for the year stated above and their historical cost equivalents. 24 Group Statement of Total Recognised Gains and Losses for the year ended 31 March 2006 Retained profit/(loss) for the year Exchange adjustments offset in reserves Total recognised gains/(losses) for the year 2006 £'000 1,275 (34) 1,241 2005 £'000 (9,440) (8) (9,448) Reconciliation of Movements in Group Shareholders' Funds for the year ended 31 March 2006 Retained profit/(loss) for the year Exchange adjustments offset in reserves Employee share options exercised (note 20) Net increase/(decrease) in shareholders' funds Shareholders' funds at beginning of year Shareholders' funds at end of year 2006 £'000 1,275 (34) 82 1,323 8,951 10,274 2005 £'000 (9,440) (8) 26 (9,422) 18,373 8,951 25 Balance Sheets at 31 March 2006 Fixed assets Intangible fixed assets Tangible fixed assets Investments Current assets Stock Debtors Short-term investments Cash at bank and in hand Creditors: amounts falling due within one year Net current assets Total assets less current liabilities Creditors: amounts falling due after more than one year Provisions for liabilities and charges Net assets Capital and reserves Called up share capital Share premium account Profit and loss account Total shareholders' funds Minority interests Capital employed Notes 9 10 11 12 13 16,28 16,28 14 15 17 1 18,19 19 19 21 Group Company 31 March 2006 £'000 31 March 2005 £'000 31 March 2006 £'000 31 March 2005 £'000 8,604 1,498 288 10,390 479 22,537 3,000 9,737 35,753 (32,277) 3,476 13,866 (1,493) (172) 12,201 681 227 9,366 10,274 1,927 12,201 918 1,571 - 2,489 22 11,021 7,000 6,296 24,339 (17,353) 6,986 9,475 (65) (152) 9,258 679 147 8,125 8,951 307 9,258 - - 9,624 9,624 - 9,029 3,000 31 12,060 (892) 11,168 20,792 - (148) 20,644 681 227 19,736 20,644 - 20,644 - - 10,401 10,401 - 4,036 7,000 398 11,434 (1,237) 10,197 20,598 - (93) 20,505 679 147 19,679 20,505 - 20,505 The financial statements on pages 24 to 48 were approved by the Board of Directors on 26 June 2006 and were signed on its behalf by: Martin Turner - Chief Executive Officer 26 Group Cash Flow Statement for the year ended 31 March 2006 Notes 26 2006 £'000 2005 £'000 3,232 4,475 Net cash inflow from operating activities Returns on investments and servicing of finance Interest received Interest paid Loan issue costs Taxation Capital expenditure and financial investment Purchase of tangible fixed assets Expenditure on intangible fixed assets Proceeds on disposal of tangible fixed asset Disposal of trade investment Acquisitions and disposals Purchase of subsidiary undertakings Net cash acquired with subsidiary undertakings Contingent consideration paid in respect of a prior year acquisition Costs of group restructuring (note 1) Disposal of subsidiary undertaking Net cash disposed with subsidiary undertaking Proceeds on part disposal of subsidiary undertaking (note 3) Additional proceeds from disposal of operations in a prior year (note 3) 22 22 22 22 Cash (outflow)/inflow before use of liquid resources and financing 286 (335) (298) (347) (362) (1,023) (186) 12 300 (897) 410 (38) - 372 - (1,167) (290) - - (1,457) (9,722) (250) 796 (50) (80) (29) (107) 3,429 108 (5,655) (4,029) - - - - - - - (250) 3,140 Management of liquid resources Decrease/(increase) in short-term investments 27,28 4,000 (500) Financing Issue of shares Loan raised Loans repaid Capital element of finance lease rental payments Increase in cash in the year 27,28 82 6,000 (2,560) (9) 3,513 3,484 26 - (80) (29) (83) 2,557 27 Notes to the Financial Statements for the year ended 31 March 2006 Principal Accounting Policies Basis of accounting These financial statements have been prepared on the going concern basis, under the historical cost convention and in accordance with the Companies Act 1985 and applicable Accounting Standards in the United Kingdom. The principal accounting policies adopted by the Group are described below together with an explanation of where changes have been made to previous policies on the adoption of new accounting standards in the year. New accounting standards FRS 21 "Events after the balance sheet date", FRS 22 "Earnings per share", the presentation part of FRS 25 "Financial instruments: Disclosure and presentation", FRS 27 "Life assurance" and FRS 28 "Corresponding amounts" all apply for the first time in respect of the Group's 2006 year end. None of these standards have had an impact on either the current or previous financial years. Basis of consolidation The Group financial statements consolidate the accounts of the Company and its subsidiary undertakings, the principal ones of which are set out in note 11. The results of subsidiaries acquired are included in the consolidated profit and loss account from the date control passes. Intra-Group transactions are eliminated fully on consolidation. All companies over which the Group actually exercises dominant influence are consolidated as subsidiary undertakings. Dominant influence is defined as the ability to determine the operating and financial policies, which includes determining budgets, product offering and customer acceptance. On acquisition of a subsidiary, all of the subsidiary's assets and liabilities that exist at the date of acquisition are recorded at their fair values reflecting their condition at that date. A separate profit and loss account of Eckoh Technologies plc itself is not presented, as permitted by Section 230 of the Companies Act. Goodwill Goodwill arising on consolidation represents the excess of the fair value of the consideration paid over the fair value of the identifiable net assets acquired. Goodwill is capitalised on the Group balance sheet and amortised in equal instalments over its estimated useful economic life. The expected useful economic life is generally assumed to be 5 years for telecommunications businesses. The useful economic life is assessed for each acquisition as it arises. The carrying value of goodwill is assessed at the end of the first full 28 financial year following the acquisition and thereafter if there is any indication of impairment. Any impairment in value is charged to the profit and loss account. Other intangible fixed assets Other intangible fixed assets (including customer bases and client contracts) acquired by the Group are capitalised and amortised over their expected useful economic lives. The expected useful economic life of an acquired customer base is generally assumed to be 3-5 years. The useful economic lives for other intangible assets are assessed for each acquisition as it arises. The carrying value of intangible fixed assets is assessed at the end of each financial year if there is any indication of impairment. Any impairment in value is charged to the profit and loss account. Tangible fixed assets Tangible fixed assets are stated at cost or fair value on acquisition less depreciation. Depreciation is provided at rates calculated to write off the cost less the estimated residual value of each asset over its expected useful economic life by equal instalments, as follows: Motor vehicles over 3 years Fixtures, fittings and office equipment over 3 years The carrying value of tangible fixed assets is reviewed when necessary and any impairment in value is charged to the profit and loss account. Investments Long-term investments, held as fixed assets, are stated at cost less provision for any impairment in value. Borrowings Loans are stated at cost plus interest accrued but not paid. Loan arrangement fees are capitalised as part of the loan and written off over the term of the loan in proportion to the interest payable on the loan. Amounts payable under the loan are analysed between amounts falling due within one year and amounts falling due after more than one year. Stock and work in progress Stock and work in progress are valued at the lower of cost and net realisable value. In general, cost is determined on a first in first out basis and includes transport and handling costs. Where necessary, provision is made for obsolete and slow moving items. Foreign currency transactions Transactions in foreign currencies are recorded in Sterling at the rate ruling on the date of the transaction. Assets and liabilities denominated in foreign currencies are translated into Sterling at the rates of exchange ruling at the balance sheet date. The results of overseas subsidiary undertakings are translated into Sterling at average rates for the year. The assets and liabilities are translated at rates of exchange ruling at the end of the financial year. Differences on exchange arising from the retranslation of the net investment in overseas subsidiary undertakings are taken to reserves and are reported in the statement of total recognised gains and losses. Other foreign exchange gains or losses are taken to the profit and loss account in the year in which they arise. Finance and operating leases Assets acquired under finance leases are recorded as tangible fixed assets in the balance sheet. The obligations to pay future capital instalments are shown in creditors and are analysed between amounts falling due within one year and amounts falling due after more than one year. The interest element of rental obligations is charged to the profit and loss account over the period of the lease in proportion to the balance of capital repayments outstanding. The amount capitalised in respect of finance leases is the present value of the minimum lease payments payable during the lease term. Rents payable under operating leases are charged against income on a straight line basis over the length of the lease. Pensions The Group operates a group personal pension scheme and two Group companies operate defined contribution pension schemes. The assets of the schemes are held separately from those of the Group in independently administered funds. Contributions payable are charged in the profit and loss account in the year in which they are incurred. Deferred taxation Deferred taxation is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date, where transactions or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the balance sheet date. A net deferred tax asset is regarded as recoverable and therefore recognised only when, on the basis of all available evidence, it can be regarded as more likely than not that there will be suitable taxable profits against which to recover carried forward tax losses and from which the future reversal of underlying timing differences can be deducted. Deferred tax is measured at the average tax rates that are expected to apply in the periods in which the timing differences are expected to reverse, based on tax rates and laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax is measured on a non-discounted basis. Turnover Turnover represents the invoiced amount, net of Value Added Tax, of goods sold and services provided to customers. Revenue recognition Symphony's revenue from calls, which excludes value added tax and trade discounts, is recognised in the profit and loss account at the time the call is made. Calls made in the year, but not billed by the year end, are accrued within debtors as accrued income. Revenue from line rentals is recognised in the month which the charge relates to. Revenue from the sale of handsets and the related costs are recognised at the date of delivery. Connection incentive bonuses are recognised when specific performance criteria are met. Provision is made for expected claw-backs. Speech Solutions build fee revenue is recognised on delivery of the speech application. Call revenue from speech services is recognised when the Group has determined that users have accessed its services via a telephone carrier network and/or the Group's telecommunication call processing equipment connected to that network. In the event that build, call and maintenance revenue are included in the same contract, each component part is separately valued and individual component revenues are recognised when that component is delivered. Client Services and Advertised Services revenue is recognised when the Group has determined that users have accessed its services via a telephone carrier network and/or the Group's telecommunication call processing equipment connected to that network. Cost of sales includes media costs, network charges, production costs and facility costs, and is expensed in the accounting period in which the related revenues are generated. Advertising costs The Group places direct- response advertisements to promote its Eckoh IVR services in a variety of media, including television, radio, magazines, newspapers and other publications. The costs of such advertising are expensed on the date on which the advertisements first appear in the relevant media. Research and development Research and development expenses include expenses incurred by the Group to develop new products and enhance its systems. Research costs are charged to the profit and loss account in the year in which they are incurred. Development costs are expensed when incurred unless the SSAP 13 criteria are met, in which case the expenditure is capitalised and amortised over the estimated useful life of the asset. Related party transactions FRS 8, 'Related Party Transactions', requires the disclosure of the details of material transactions between the reporting entity and related parties. The Group has taken advantage of exemptions under FRS 8 not to disclose transactions between group companies. Costs of share option schemes Under UITF 17 the Company is required to recognise as a charge to the profit and loss account the amount by which the fair market value of any shares or share options issued exceeds their respective issue or exercise price on the date of the grant. The charge is spread over the period to vesting. As a result of the grant of share options since 6 April 1999 the Company will be obliged to pay employer's National Insurance contributions on the difference between the market value of the underlying shares and their exercise price when the options are exercised. A provision is made for this liability using the value of the Company's shares at the balance sheet date and is spread over the vesting period of the share options. Financial instruments In accordance with FRS 13, 'Derivatives and other financial intstruments: disclosures', the Group has taken advantage of the exemption available for short- term debtors and creditors. All financial assets and liabilities are recorded at historical cost, apart from the net assets and liabilities of overseas subsidiary undertakings, which are translated into sterling at rates of exchange ruling at the balance sheet date. 29 Notes to the Financial Statements for the year ended 31 March 2006 continued 1 Segmental analysis Business analysis Symphony Telecom Speech Solutions Client Services Advertised Services Discontinued operations Central costs Net interest receivable (note 4) Profit on part disposal of subsidiary operations (note 3) Profit on disposal of fixed asset investment (note 11) Costs of group restructuring Total Turnover Contribution 2006 £'000 2005 £'000 2006 £'000 2005 £'000 Profit/(loss) before taxation 2006 £'000 2005 £'000 61,324 5,263 47,532 12,085 880 - - - - - 20,967 5,001 38,989 11,572 3,191 - - - - - 2,295 555 681 2,529 (214) - - - - - 1,546 459 213 2,667 130 - - - - - 127,084 79,720 5,846 5,015 (637) (106) 350 2,511 (233) (2,522) 174 1,388 300 (80) 1,145 1,284 (150) (10,306) 2,557 43 (3,249) 410 - - - (9,411) Analyses by business are based on the Group's management structure. Turnover between segments is immaterial. There are no material foreign entities, nor are there material foreign customers thus no segmental information by geographical area is presented. Contribution by segment is arrived at by taking the segmental turnover less opertating costs excluding depreciation. Central costs comprise corporate costs, the cost of central support functions and head office costs. These costs are not apportioned across the business segments. The reduction in central costs from the prior year is largely as a result of the allocation of costs to Symphony Telecom Holdings plc in respect of shared central resources utilised. Costs of group restructuring comprise advisory costs incurred in relation to setting up the Symphony Telecom Holdings plc group. Business analysis Symphony Telecom Speech Solutions Client Services Advertised Services Discontinued operations Central short term investments Central cash at bank and in hand Central net assets Total Net assets Net assets excluding intangible fixed assets 2005 £'000 2006 £'000 2005 £'000 (600) 812 (3,038) (63) 30 7,000 6,296 (1,179) 9,258 (4,018) 929 (6,829) 351 - 3,000 5,276 4,888 3,597 (1,075) 713 (3,382) (63) 30 7,000 6,296 (1,179) 8,340 2006 £'000 4,442 1,019 (6,775) 351 - 3,000 5,276 4,888 12,201 Treasury is managed on a Group basis, as such, short-term investments and cash at bank and in hand can not be practicably divided between the business segments. 30 2005 Total £'000 79,720 (59,675) 20,045 19,533 16,345 3,188 2,539 7,756 - 29,828 7,012 22,816 (9,783) 2 Cost of sales, gross profit and net operating expenses Acquisitions £'000 Continuing £'000 Discontinued £'000 2006 Total £'000 Continuing £'000 Discontinued £'000 Turnover Cost of sales Gross profit 39,578 86,626 880 127,084 76,529 (34,453) (67,933) (310) (102,696) (58,730) 5,125 18,693 570 24,388 17,799 Net operating expenses before intangible asset amortisation and impairment and restructuring costs Direct operating expenses Group overhead Amortisation of intangible assets Impairment of intangible assets Restructuring costs Net operating expenses Selling and distribution costs Administrative expenses Operating (loss)/profit 2,911 2,911 - 1,861 - 137 4,909 1,812 3,097 216 18,409 15,887 2,522 304 - 221 18,934 4,828 14,106 (241) 803 803 - - - - 803 250 553 (233) The Group's operating loss is stated after charging: Staff costs (note 5) Depreciation of tangible owned fixed assets (note 10) Depreciation of tangible leased fixed assets (note 10) Amortisation of intangible fixed assets (note 9) Impairment of intangible fixed assets (note 9) Loss on disposal of tangible fixed assets Operating lease rentals - equipment Operating lease rentals - land and buildings Research and development costs Auditors' remuneration - audit (Company £0.04m (2005 - £0.04m)) Auditors' remuneration - non-audit services Restructuring costs 17,330 14,142 3,188 2,539 7,756 - 27,625 6,222 21,403 (9,826) 22,123 19,601 2,522 2,165 - 358 24,646 6,890 17,756 (258) 2006 £'000 9,169 1,008 20 2,165 - - 65 298 2,486 280 9 358 3,191 (945) 2,246 2,203 2,203 - - - - 2,203 790 1,413 43 2005 £'000 8,566 1,289 30 2,539 7,756 7 107 475 2,097 134 31 - In addition to the auditors' remuneration for audit services, Symphony Telecom Holdings plc remunerated the auditors for non-audit services in respect of the acquisition of Anglia Telecom Centres Limited, the flotation on AIM of the enlarged Symphony Group, raising bank debt finance and group restructuring. The non-audit services amounted to £0.6m, of which the full amount has been capitalised within the balance sheet. The auditors were remunerated for non-audit advisory services in respect of taxation and International Accounting Standards. The restructuring costs relate to integration costs incurred by Symphony Telecom Holdings plc following acquisitions made during the year. 31 Notes to the Financial Statements for the year ended 31 March 2006 continued 3 Profit/(loss) on disposal of subsidiary operations Profit on part disposal of subsidiary undertaking Loss on disposal of subsidiary undertaking Additional proceeds from disposal of operation in a prior year Profit on disposal of subsidiary operations 2006 £'000 1,512 (232) 108 1,388 2005 £'000 - - - - On 15 September 2005, Eckoh's telecoms subsidiary, Symphony Telecom Holdings plc ('Symphony'), floated on AIM, at the same time placing 10,997,561 ordinary shares, equivalent to 35.36% of the issued share captial with new investors. A gain of £1.512m arose on the 35.36% part disposal. Symphony remains a 64.64% subsidiary of Eckoh and its financial results have been consolidated into Eckoh's financial statements. Eckoh disposed of the entire issued share capital of Freecom.net Limited, its internet services company, to eDirectory.co.uk plc ('eDirectory') on 31 July 2005. The consideration comprises 4,155,844 eDirectory ordinary shares. Further to this, subject to certain conditions, a further £1.6 million of deferred consideration is payable in eDirectory ordinary shares or a cash equivalent. eDirectory shares are currently traded on Ofex. The accounting treatment for this transaction was to show a net loss of £0.232m on disposal in the profit and loss account. Symphony received proceeds of £0.1m in respect of the disposal of its hardware services operation in a prior year, not previously accounted for. 4 Net interest (payable)/receivable and other similar items Interest receivable and other similar income Bank interest receivable Interest payable and other similar charges Interest payable on bank loans and overdrafts Amortisation of issue costs of bank loan Interest payable finance leases Net interest (payable)/receivable and other similar items 2006 £'000 286 286 (348) (130) (13) (491) (205) 2005 £'000 410 410 (25) - (13) (38) 372 Of the net interest payable, £379,000 relates to the Symphony Group and has been reported within profit before tax attributable to Symphony Telecom in the segmental analysis. Net interest receivable in respect of the Eckoh Group is £174,000 as reported in the segmental analysis (see note 1). 32 5 Staff costs Details of Directors' emoluments are given in the Directors Report on page 12 and form part of the financial statements. The average monthly number of employees (including directors) employed by the Group during the year was: Technical support Customer services Administration and management Staff costs for the above persons are: Wages and salaries Social security costs Other pension costs 6 Taxation Corporation tax based on the loss for the period was as follows: UK Corporation tax charge at 30% (2005 - 30%) 2006 Number 38 137 67 242 £'000 8,265 874 30 9,169 2006 £'000 166 2005 Number 50 111 78 239 £'000 7,675 865 26 8,566 2005 £'000 6 At 31 March 2006 the Group had accumulated UK tax losses and overseas losses available to offset against future trading profits in certain Group companies. No deferred tax asset has been recognised in respect of these losses (see note 17). The tax charge assessed for the period is different to the standard rate of corporation tax in the UK (30%). The differences are explained below: Profit/(loss) on ordinary activities before taxation Corporation tax rate of 30% (2005 - 30%) Effect of expenses not deductible for tax purposes Effect of capital allowances in excess of depreciation Effect of tax losses (utilised)/unutilised Effect of marginal rate relief Current tax charge for the year 7 Profit of Holding Company 2006 £'000 1,145 344 724 (27) (865) (10) 166 2005 £'000 (9,411) (2,823) 2,736 (29) 122 - 6 Of the profit for the financial period, a profit of £57,000 (2005 - £1,302,000) is dealt with in the accounts of Eckoh Technologies plc. The Directors have taken advantage of the exemption available under section 230 of the Companies Act 1985 and not presented a profit and loss account for the Company alone. 33 Notes to the Financial Statements for the year ended 31 March 2006 continued 8 Earnings/(loss) per share Basic earnings/(loss) per share Basic earnings/(loss) per ordinary share is calculated on the basis of the weighted average number of ordinary shares of 271,957,745 (2005 - 271,226,435) in issue during the year and the profit for the year, after minority interests, of £1.275m (2005 - loss of £9.440m). Diluted earnings/(loss) per share In calculating diluted earnings/(loss) per share, the weighted average number of ordinary shares in issue is adjusted to include the dilutive effect of potential ordinary shares. The potential ordinary shares represent share options granted to employees where the exercise price is less than the market price of ordinary shares as at 31 March 2006. Earnings attributable to ordinary shareholders £'000 2006 Weighted average number of shares (number in thousands) Earnings per share (pence) Loss attributable to ordinary shareholders £'000 2005 Weighted average number of shares (number in thousands) Basic earnings/(loss) per share Dilutive effect of share options Diluted earnings/(loss) per share 1,275 - 1,275 271,958 14,339 286,297 0.5p - 0.4p (9,440) (9,440) 271,226 5,615 276,841 9 Intangible fixed assets Group Cost At 1 April 2005 Additions Disposals At 31 March 2006 Amortisation At 1 April 2005 Charge for the year Disposals At 31 March 2006 Net book value At 31 March 2006 At 31 March 2005 Goodwill £'000 Other intangible assets £'000 Development expenditure £'000 71,046 9,897 - 80,943 71,046 1,861 - 72,907 8,036 - 1,135 132 (479) 788 315 250 (247) 318 470 820 128 54 - 182 30 54 - 84 98 98 Loss per share (pence) (3.5p) - (3.4p) Total £'000 72,309 10,083 (479) 81,913 71,391 2,165 (247) 73,309 8,604 918 The other intangible assets purchased represent a customer base and a customer contract, of which the estimated useful economic lives were assessed to be three years and one year respectively. The disposal represents a customer base that was disposed of on 31 July 2005 following the disposal of Freecom.net Limited. The capitalised development expenditure in the year represents costs in respect of developing additional speech technology solutions which meet the SSAP13 capitalisation criteria. The estimated useful economic life is three years. Company The Company had no intangible fixed assets during the year (2005 - Nil). 34 10 Tangible fixed assets Group Cost At 1 April 2005 Acquisitions (note 22) Additions Disposals At 31 March 2006 Depreciation At 1 April 2005 Charge for the year Disposals At 31 March 2006 Net book value At 31 March 2006 At 31 March 2005 Fixtures, fittings and equipment £'000 Motor vehicles £'000 7,130 54 961 (215) 7,930 5,569 1,002 (112) 6,459 1,471 1,561 64 20 32 (61) 55 54 26 (52) 28 27 10 Total £'000 7,194 74 993 (276) 7,985 5,623 1,028 (164) 6,487 1,498 1,571 The net book value of tangible fixed assets includes £0.042m (2005: £0.032m) in respect of assets held under finance lease contracts. Company The Company had no tangible fixed assets during the year (2005 - Nil). 11 Fixed asset investments Cost At 1 April 2005 Transfer of investments to subsidiary undertaking Additions At 31 March 2006 Group £'000 - - 288 288 Company £'000 10,401 (777) - 9,624 During the year ended 31 March 2006, Eckoh Technologies plc transferred three subsidiary undertakings, with a total book value of £777,000, to Eckoh Technologies (UK) Limited. The additional fixed asset investment represents the 4,155,844 eDirectory.co.uk plc ordinary shares received as consideration following the disposal of Freecom.net Limited on 31 July 2005. eDirectory.co.uk plc shares are currently traded on Ofex. The accounting treatment for the disposal was to show a loss of £0.232m in the profit and loss account (see note 3). During the year ended 31 March 2006, the Group disposed of its investment shares held in Felix Group plc. The resulting gain on disposal of £300,000 has been reported in the profit and loss account. Prior to disposal, the investment was carried at a nil book value. 35 Notes to the Financial Statements for the year ended 31 March 2006 continued The following are the principal subsidiary undertakings of the Group: Subsidiary undertakings: Eckoh Technologies (UK) Limited Intelliplus Limited Medius Networks Limited Country of ncorporation England and Wales England and Wales England and Wales Eckoh Technologies France SAS France Connection Makers Limited Symphony Telecom Holdings Plc Symphony Telecom Limited Anglia Telecom Centres Limited Telenet Communications Limited IMS-PLUS Beheer NT Independent Networks Limited Unitel Networks Services Limited Network Business Call Limited BDR Networks Limited Fenix Networks Limited (i) Network Billing Services Limited Open-Link Technology Limited England and Wales England and Wales England and Wales England and Wales Ireland Holland England and Wales England and Wales England and Wales England and Wales Northern Ireland England and Wales England and Wales IP Integration Network Services Limited England and Wales Class of holdings Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Principal activities Percentage of share capital held by Eckoh Technologies plc Subsidiary undertaking IVR & Speech solutions 100% IVR services IVR services Speech solutions IVR services Holding company Network services Network services Network services Network services Network services Network services Network services Network services Network services Network services Network services Network services - - - 100% 64.64% - - - - - - - - - - - - - 100% 100% 100% - - 100% 100% 100% 100% 50% 50% 50% 50% 50% 50% 50% 50% (i) On 8 May 2006, the company changed its name from Lloyd Network Services Limited to Fenix Networks Limited. The eight subsidiary undertakings which are 50% owned are consolidated in accordance with Financial Reporting Standard 2. The Group determines the budgets and key financial matters of each of these undertakings. The Group also determines key strategic and operational decisions such as product offering, customer acceptance and provides substantially all of the back office support. The Company also holds 100% of the issued share capital of sixteen non-trading or dormant companies, not shown above. All trading companies operate principally in their country of incorporation and have March year-ends. 31 March 2006 £'000 437 42 479 31 March 2005 £'000 - 22 22 12 Stock Group Finished goods Work in progress At 31 March 2006 Company The Company had no stock during the year (2005 - Nil). 36 13 Debtors Amounts falling due within one year Trade debtors Other debtors Amounts due from subsidiary undertakings Loan to subsidiary undertaking (note 25) Prepayments and accrued income 14 Creditors: amounts falling due within one year Bank loans and overdrafts Trade creditors Amounts owed to group undertakings Obligations under finance leases UK Corporation tax Other taxation and social security Other creditors Accruals and deferred income 31 March 2006 £'000 4,823 606 - - 17,108 22,537 31 March 2006 £'000 2,007 10,221 - 23 194 1,282 271 18,279 32,277 Group Company 31 March 2005 £'000 2,032 1,264 - - 7,725 11,021 31 March 2006 £'000 - 53 4,904 4,000 72 9,029 Group Company 31 March 2005 £'000 224 8,907 - 17 8 1,068 38 7,091 17,353 31 March 2006 £'000 - - 892 - - - - - 892 1,237 31 March 2005 £'000 - 53 3,916 - 67 4,036 31 March 2005 £'000 - - 1,237 - - - - - The bank loan is secured on the assets of Symphony Telecom Holdings plc and those of its principal subsidiary undertakings. In addition, Eckoh Technologies plc has provided a parental guarantee. 15 Creditors: amounts falling due after more than one year Bank loan (note 14) Obligations under finance leases The finance leases are secured on certain assets of the Group. 31 March 2006 £'000 1,473 20 1,493 Group Company 31 March 2005 £'000 - 65 65 31 March 2006 £'000 31 March 2005 £'000 - - - - - - 37 Notes to the Financial Statements for the year ended 31 March 2006 continued 16 Financial instruments The Group's treasury policy requires that funds are invested in short-term (less than 12 months) deposit accounts with AA rated banks or building societies with net assets exceeding £3 billion, to ensure that funds are available to meet current and future operating requirements. The Group's financial instruments comprise cash, bank loans, finance leases, liquid resources and various items, such as debtors and creditors that arise directly from its operations. It is, and has been throughout the year under review, the Group's policy that no trading in financial instruments shall be undertaken. Similarly the Group did not undertake any financial hedging arrangements during the year under review. The year-end position reflects these policies and there have been no changes in policies or risks since the year-end. The main risks arising from the Group's financial instruments are liquidity risk, interest rate risk and foreign currency risk. The Group monitors its liquidity risk and interest rate risk on cash deposits primarily through cash flow forecasting. Cash at bank is pooled and invested in overnight money market accounts and deposits. Foreign currency risk is monitored through cash flow forecasting and currency is held in foreign currency bank accounts only to the extent that it is required for working capital purposes. Liquidity risk Through cash flow forecasting and acquisition planning, the Group monitors working capital and capital expenditure requirements and through the use of rolling short-term investments ensures that cash is available to meet obligations and the cash element of acquisition considerations as they fall due. Interest rate risk The Group principally finances its operations through shareholders' funds and working capital. In addition Symphony Telecom Holdings plc has a variable rate bank loan which is currently being repaid in instalments. The Group had no other borrowings during the year, other than finance leases and its only material exposure to interest rate fluctuations was on its cash deposits, short-term investments and debt. Foreign currency risk The Group's principal exposure to exchange rate fluctuations arises on the translation of overseas net assets and losses into sterling for accounting purposes. This risk is managed by taking differences that arise on the retranslation of the net overseas investments to reserves. Short-term debtors and creditors (other than finance leases) have been excluded from all the following disclosures. Financial Assets The currency and interest rate profile of the Group's financial assets at 31 March 2006 and 31 March 2005 were: Sterling EU currencies (other than Sterling) At 31 March Floating rate Fixed rate At 31 March Cash at bank and in hand £'000 9,526 211 9,737 Cash at bank and in hand £'000 9,737 - 9,737 2006 Short-term investments £'000 3,000 - 3,000 Short-term investments £'000 - 3,000 3,000 Cash at bank and in hand £'000 5,916 380 6,296 Cash at bank and in hand £'000 6,296 - 6,296 2005 Short-term investments £'000 7,000 - 7,000 Short-term investments - 7,000 7,000 Total £'000 12,526 211 12,737 Total £'000 9,737 3,000 12,737 Total £'000 12,916 380 13,296 Total 6,296 7,000 13,296 The short-term investments represent fixed rate short-term deposits, which are placed with financial institutions on a rolling basis and earn interest at an average rate of 4.54% (2005 - 4.82%) per annum. Floating rate cash earns interest based on relevant national LIBOR equivalents. 38 Financial liabilities The financial liabilities of the Group are detailed in the table below. The interest rate on the finance leases is fixed and the average rate for the year to 31 March 2006 was approximately 10.28% (2005 - 9%). The interest rate on the bank loan is variable and is linked to national LIBOR rates. The average rate for the year to 31 March 2006 was approximately 7.45%. The provision for NIC and other similar taxes on share options and restructuring provision do not bear interest. The interest rate risk and maturity profile of the Group's financial liabilities, which are all denominated in Sterling, at 31 March 2006 was: Fixed rate financial liabilities Variable rate financial liabilities Financial liabilities on which no interest is paid Maturity profile: Within 1 year, or on demand Between 1 and 2 years Between 2 and 5 years Finance leases £'000 Restructuring provision £'000 Provision for NIC and other similar taxes on share options £'000 43 - - 43 23 12 8 43 - - 93 93 93 - - 93 - - 79 79 79 - - 79 31 March 2006 Total £'000 43 3,525 172 3,740 2,220 1,512 8 3,740 Bank loan £'000 - 3,525 - 3,525 2,025 1,500 - 3,525 All the Group's creditors falling due within one year (other than finance leases and bank loans) are excluded from the above table due to the exclusion of short-term items. The interest rate risk and maturity profile of the Group's financial liabilities at 31 March 2005 was: Fixed rate financial liabilities Financial liabilities on which no interest is paid Maturity profile: Within 1 year, or on demand Between 1 and 2 years Between 2 and 5 years Bank loan £'000 60 - 60 60 - - 60 Finance leases £'000 Restructuring provision £'000 82 - 82 17 54 11 82 - 135 135 135 - - 135 Provision for NIC and other similar taxes on share options £'000 - 17 17 17 - - 17 31 March 2005 Total £'000 142 152 294 229 54 11 294 Borrowing facilities Apart from a fixed term, variable rate bank loan held by Symphony Telecom Holdings plc and repayable within 2 years, the Group has no other borrowing facilities. Fair value of financial assets and liabilities The fair values of the financial assets and liabilities approximate to their book values. 39 Notes to the Financial Statements for the year ended 31 March 2006 continued 17 Provisions for liabilities and charges Group At 1 April 2005 Amounts paid Additional provisions charged to the profit and loss account At 31 March 2006 Company At 1 April 2005 Amounts paid Additional provisions charged to the profit and loss account At 31 March 2006 Restructuring provision £'000 135 (400) 358 93 Restructuring provision £'000 76 (52) 69 93 Provision for NIC and other similar taxes on share options £'000 17 - 62 79 Provision for NIC and other similar taxes on share options £'000 17 - 38 55 Total £'000 152 (400) 420 172 Total £'000 93 (52) 107 148 The restructuring provision at 1 April 2005 consisted of residual costs relating to the termination of the Mobile Wholesale business. The restructuring provision at 31 March 2006 consists of costs in relation to the post acquisition integration of Anglia Telecom Centres Limted in to the Symphony Telecom Holdings group. On exercise of share options issued after 6 April 1999, the Company will be required to pay National Insurance on the difference between the exercise price and market value of the shares issued for employees subject to UK taxation. In addition a provision has also been made for similar social security taxes affecting employees not subject to UK taxation. The Company will become unconditionally liable to pay the National Insurance and other similar taxes upon exercise of the options, which are exercisable over a period of up to ten years from the date of grant. The Company spreads the liability over the period to vesting and adjusts it according to the market value of the Company's shares at each subsequent balance sheet date. All of the above are payable within one year. Total unprovided deferred tax assets are as follows: Accelerated capital allowances Losses available to offset against deferred tax Unprovided deferred tax asset Group Company 2006 £'000 (564) (8,738) (9,302) 2005 £'000 (532) (9,176) (9,707) 2006 £'000 - (1,091) (1,091) 2005 £'000 - (1,119) (1,119) No deferred tax asset has been recognised as the Directors are not reasonably certain as to the likelihood of the asset being recoverable. 40 18 Share capital Company and Group Authorised 31 March 2006 £'000 31 March 2005 £'000 600,000,000 (2005: 600,000,000) ordinary shares of 0.25p each 1,500 1,500 Allotted, called up and fully paid Date of issue and share type Ordinary shares of 0.25p each As at 1 April 2005 Shares issued under the share option scheme 1 April 2005 - 31 March 2006 As at 31 March 2006 Number of shares 271,416,588 1,039,887 272,456,475 Nominal Value £'000 Fair value of consideration received £'000 679 2 681 - 82 82 The issue of ordinary shares detailed in the above table were to employees following the exercise of share options listed below. The market values of the ordinary shares issued between 1 April 2005 and 31 March 2006 fell within the range 6.75p - 12.5p per share. On 1 August 2005 the Company issued 643,255 ordinary shares for cash to an employee following the exercise of share options granted in 2004. On 14 December 2005 the Company issued 321,632 ordinary shares for cash to an employee following the exercise of share options granted in 2004. On 21 December 2005 the Company issued 75,000 ordinary shares for cash to an employee following the exercise of share options granted in 2002. 19 Share capital and reserves Group Balance at 1 April 2005 Profit for the year Net exchange adjustments Shares issued under the share option schemes Balance at 31 March 2006 Company Balance at 1 April 2005 Profit for the year Shares issued under the share option schemes Balance at 31 March 2006 Share capital £'000 679 - - 2 681 Share capital £'000 679 - 2 681 Share premium account £'000 Profit and loss account £'000 147 - - 80 227 Share premium account £'000 147 - 80 227 8,125 1,275 (34) - 9,366 Profit and loss account £'000 19,679 57 - 19,736 41 Notes to the Financial Statements for the year ended 31 March 2006 continued 20 Share options The number of shares subject to options, the period in which they were granted and the periods in which they may be exercised is given below: Date of grant Exercise price (pence) Exercise period 31 March 2006 31 March 2005 30 April 1999 31 May 2001 7 March 2002 27 June 2002 29 August 2002 28 November 2002 7 October 2005 13 December 2005 28 February 2005 13 September 2005 20.0 16.75 7.75 6.5 7.5 10.75 7.88 9.0 8.5 8.75 2002-2012 2004-2011 2005-2012 2005-2012 2005-2012 2005-2012 2008-2015 2008-2015 2008-2015 2008-2015 20,000 2,000 1,335,000 6,050,000 368,500 1,280,000 2,734,783 40,362 2,170,000 3,000,000 40,000 2,000 1,532,500 6,050,000 552,500 1,280,000 3,717,516 40,362 2,320,000 - Balance as at 31 March 2006 17,000,645 15,534,878 The following options were exercised during the year: Date of exercise 1 August 2005 14 December 2005 21 December 2005 Number of shares Exercise price (pence) 643,255 321,632 75,000 1,039,887 7.88 7.88 7.50 In addition, 494,328 options lapsed during the year, all of which related to options granted during prior years. 21 Minority interests Balance at beginning of year Additions Minority share of losses for the year Balance at end of year 31 March 2006 £'000 31 March 2005 £'000 307 1,916 (296) 1,927 34 250 23 307 The addition during the year relates to the minority interest in the net assets of Symphony Telecom Holdings plc on 15 September 2005, the date on which the Company floated on AIM, at the same time placing 35.36% of shares with new investors. 42 22 Acquisitions and disposals The Group made two acquisitions and one disposal during the year ended 31 March 2006. They are considered in turn below: a) Acquisition of Anglia Telecom Centres Limited On 29 April 2005, Symphony Telecom Holdings plc, a Group company, purchased the entire issued share capital of Anglia Telecom Centres Limited ('Anglia') for total cash consideration of £9,699,000. Costs of £273,000 were capitalised as part of the investment. Total net liabilities acquired were £125,000 after fair value adjustments of £348,000. From the date of acquisition Anglia contributed £38.0m to turnover, a profit of £2.3m to operating loss and £2.1m to the profit for the year. Tangible fixed assets Stock Debtors Cash Creditors Net assets/(liabilities) acquired Goodwill Consideration Consideration satisfied by: Cash Acquisition costs Initial book value of net assets and fair value £'000 67 572 2,777 792 (3,985) 223 Revaluations £'000 Fair value £'000 - (15) (136) - (197) (348) 67 557 2,641 792 (4,182) (125) 9,824 9,699 9,426 273 9,699 The book value of the assets and liabilities have been taken from the management accounts of Anglia at the date of acquisition. The revaluations include adjustments to accruals in respect of unprovided liabilities and to debtors in respect of overstated assets. There were no other fair value adjustments. In its last financial year to 31 March 2005, Anglia Telecom made a profit after tax of £0.9m. For the period since that date to the date of acquisition, Anglia Telecom generated turnover of £3.6m and recorded operating profits of £0.1m and profit after tax of £0.1m. Goodwill arising on the acquisition is being amortised on a straight-line basis over the estimated useful economic life of 5 years. b) Acquisition of IMS PLUS Beheer B.V. On 28 June 2005 Eckoh Technologies plc ('Eckoh') acquired the entire issued share capital of IMS PLUS Beheer B.V. ('IMS') for Nil consideration from Cellular Holdings Limited. Eckoh granted Symphony Telecom Holdings plc ('Symphony') an option to acquire IMS for Nil consideration. Symphony exercised the option to purchase IMS on 30 November 2005. During the period that Eckoh held the shares in IMS Symphony was responsible for the day to day budgetary, financial and operational control of IMS. The Directors believe that Symphony actually exercised dominant influence during the period that Eckoh held the shares in IMS and on that basis the results of IMS have been consolidated within the financial results of Symphony from the date that Eckoh acquired it. This has not been disclosed as a separate geographic segment due to its size. Total net liabilities acquired were £49,000 after fair value and accounting policy alignment adjustments of £44,000. From the date of acquisition IMS contributed £1.5m to turnover, a loss of £0.2m to both operating loss and profit for the year. 43 Notes to the Financial Statements for the year ended 31 March 2006 continued Tangible fixed assets Stock Debtors Cash Creditors Net liabilities acquired Goodwill Consideration Consideration satisfied by: Acquisition costs Initial book value of net assets £'000 Accounting policy alignment £'000 Revaulations £'000 Fair value £'000 8 10 299 4 (414) (93) - - (78) - 46 (32) - - - - 76 76 8 10 221 4 (292) (49) 72 23 23 23 The book value of the assets and liabilities have been taken from the management accounts of IMS at the date of acquisition. The accounting policy alignment relates to the timing of recognition of revenue and cost of sales of mobile connection commissions. The revaluation adjustment to creditors is in respect of overprovided liabilities. As the Directors consider the goodwill arising on consolidation to be immaterial it has been written off in full to the profit and loss account. In its last financial year to 31 March 2005 and since then until its acquisition on 31 May 2005, IMS was a dormant company, the trade having previously been part of the vendor business. c) Disposal of Freecom.net Limited Eckoh disposed of the entire issued share capital of Freecom.net Limited, its internet services company, to eDirectory.co.uk plc ('eDirectory') on 31 July 2005. The consideration comprises 4,155,844 eDirectory ordinary shares. Further to this, subject to certain conditions, a further £1.6 million of deferred consideration is payable in eDirectory ordinary shares or a cash equivalent. eDirectory shares are currently traded on Ofex. The accounting treatment for this transaction was to show a net loss of £0.232m on disposal in the profit and loss account. Net liabilities disposed were £100,000 inclusive of cash reserves of £107,000. Costs of £29,000 were incurred in respect of the disposal. 23 Pension commitments The Group operates a group personal pension scheme and, in addition, the subsidiary companies Symphony Telecom Limited and Eckoh Technologies (UK) Limited operate a defined contribution pension scheme. The assets of the pension schemes are held separately from those of the Group in independently administered funds. The pension charge represents contributions payable by the Group to the funds. There were no outstanding or proposed contributions at the balance sheet date. 44 24 Financial commitments The Group had annual commitments under non-cancelable operating leases as follows: Land & buildings: Expiring within one year Expiring within two to five years Expiring after five years Other: Expiring within one year Expiring within two to five years 25 Related party transactions At 31 March 2006 £'000 At 31March 2005 £'000 - 83 250 333 47 27 74 14 15 317 346 5 159 164 The Company has taken advantage of the exemption conferred by Financial Reporting Standard 8 that transactions between Group companies do not need to be disclosed. Related party transactions with directors and other companies are as follows: A Group company, Eckoh Technologies (UK) Limited, paid an amount of £25,000 (2005 - £25,000) for the year ended 31 March 2006 to Martin Turner and Nik Philpot, both directors of the Company, for the lease of Unit 6, Clifton Court, Hemel Hempstead. The transaction was conducted on an arms length basis. Eckoh Technologies (UK) Limited paid an amount of £6,000 (2005 - £19,000) for the year ended 31 March 2006 to Martin Smith, a non-executive director of Eckoh Technologies plc, for consultancy services. Eckoh Technologies (UK) Limited paid an amount of £38,000 (2005 - Nil) for the year ended 31 March 2006 to Lesley Innes, a non-executive director of Symphony Telecom Holdings plc, for consultancy services. Eckoh Technologies plc paid an amount of £100,000 (2005 - Nil) for the year ended 31 March 2006 to Martin Smith in relation to the acquisition of Anglia Telecom Centres Limited. There are no balances outstanding on any of the above at the year-end. As part of the financing arrangements for the acquisition of Anglia Telecom Centres Limited in April 2005, Eckoh Technologies plc loaned Symphony Telecom Holdings plc £7,500,000. £3,500,000 was repaid during May 2005. The loan has no set repayment terms but cannot be repaid until the bank loan is repaid. The loan bears interest at 1.75% above national LIBOR rates. Apart from the £3,500,000 no repayments of capital or interest were made during the year. The partners to the 50% owned subsidiaries are considered to be related parties due to their 50% interest in the share capital of the respective entity. Where such partners are corporates, companies and individuals related to these corporates are also considered to be related parties of the Symphony Telecom Limited group. 45 Notes to the Financial Statements for the year ended 31 March 2006 continued Fees for management services charged by, and amounts due to, these parties are shown below. Related party M A McHugh N Gravett BDR Voice & Data Solutions Limited Agreed Finance Limited Nottingham Telephones Limited NT Leasing Limited Lloyd Communication Limited Fenix Solutions Limited Comec Voice & Data Limited Connected entity Network Billing Services Limited Network Billing Services Limited BDR Networks Limited BDR Networks Limited NT Independent Networks Limited NT Independent Networks Limited Fenix Networks Limited Fenix Networks Limited Open-Link Technology Limited Telecommunications Management (UK) Limited Unitel Network Services Limited Digitel Europe Limited Network Finance Limited IP Integration Limited Unitel Network Services Limited Network Business Call Limited IP Integration Network Services Limited 26 Cash flow from operating activities Reconciliation of operating loss to net cash inflow from operating activities 31 March 2006 Amount charged £'000 31 March 2006 Creditor balance £'000 31 March 2005 Amount charged £'000 31 March 2005 Creditor balance £'000 38 38 68 55 - 130 - 15 77 128 - 127 9 24 24 32 55 5 59 30 15 (32) 85 - 79 9 24 24 121 - 20 137 25 - 28 98 - 93 - 17 17 66 - 5 94 30 - (5) 37 2 45 - Continuing £'000 Acquisitions £'000 Discontinued £'000 31 March 2006 Total £'000 (258) 1,028 2,165 - 110 (241) 968 304 4 (30) 216 41 1,861 (4) 140 (8,654) (7,203) (1,611) 8,841 3,232 9,206 3,008 (256) 387 31 March 2005 Total £'000 (9,783) 1,319 10,295 7 40 (148) 2,745 4,475 Continuing £'000 Discontinued £'000 (9,840) 1,244 10,295 7 40 (280) 2,779 4,245 57 75 - - - 132 (34) 230 (233) 19 - - - 160 (109) (163) Operating (loss)/profit Depreciation of tangible fixed assets Amortisation and impairment of intangible assets Loss/(profit) on disposal of tangible fixed assets Decrease/(increase) in stock (Increase)/decrease in debtors Increase/(decrease) in creditors Net inflow/(outflow) from operating activities 46 27 Reconciliation of net cash flow to net funds Net funds at start of year Increase in net cash Movement in short-term investments Movements in finance leases Movements in debt Net funds at end of year 28 Reconciliation of movement in net funds Cash at bank and in hand Debt due after 1 year Debt due within 1 year Finance leases due after 1 year Finance leases due within 1 year Short term investments Total 31 March 2006 £'000 13,154 3,484 (4,000) 39 (3,460) 9,217 Cash flow £'000 3,484 (1,359) (2,101) 45 (6) (3,421) (4,000) (3,937) 31 March 2005 £'000 9,988 2,557 500 29 80 13,154 At 31 March 2006 £'000 9,780 (1,359) (2,161) (20) (23) (3,563) 3,000 9,217 At 1 April 2005 £'000 6,296 - (60) (65) (17) (142) 7,000 13,154 Short-term investments consist of short-term deposits with financial institutions that mature within 12 months of the date of inception. 29 Adjusted profit before taxation Profit/(loss) on ordinary activities before taxation Adjust for: Amortisation of intangible fixed assets Impairment of intangible fixed assets Restructuring costs Additional proceeds of disposal of operation in a prior year Profit on disposal of fixed asset investment Profit on part disposal of subsidiary undertaking Loss on disposal of subsidiary undertaking Costs of group restructuring Discontinued operations Adjusted profit before taxation 31 March 2006 £'000 1,145 2,165 - 358 (108) (300) (1,512) 232 80 233 2,293 31 March 2005 £'000 (9,411) 2,539 7,756 - - - - - - (43) 841 47 Notes to the Financial Statements for the year ended 31 March 2006 continued 30 Post balance sheet events On 22 June 2006 Eckoh Technologies plc ("Eckoh") announced that the Board of Symphony Telecom Holdings plc ("Symphony") and the Board of Redstone plc ("Redstone") reached agreement on the terms of a recommended offer to be made by Evolution Securities Limited, on behalf of Redstone for the entire issued share capital of Symphony. The offer is being made on the basis of 54.5p in cash for each Symphony ordinary share at a premium of 14.7% to the mid-market closing share price on 21 June 2006 and 32.9% compared to last September's placing price of 41p per ordinary share, valuing the entire issued and to be issued share capital of Symphony at £17.3 million. Eckoh has an interest in 20,099,999 ordinary shares representing 64.6% of the issued ordinary share capital of Symphony. The Eckoh Board has undertaken to accept the Redstone offer, which will realise approximately £11.0 million in cash for Eckoh, the proceeds of which will be placed on deposit. For the year ended 31 March 2006, Symphony reported an operating loss of £0.3 million on turnover of £61.3 million. As at 31 March 2006, Symphony had net assets of £4.4 million, including cash balances of £4.5million. Redstone is a leading provider of telecoms and IT solutions for businesses and organisations of all types and sizes. Shareholder Information Financial Calendar Full year results Preliminary announcement on 27 June 2006 Annual Report To be posted to shareholders before 30 September 2006 Annual General Meeting To be held at 11.00 am on 30 October 2006 at the offices of Buchanan Communications, 45 Moorfields, London EC2Y 9AE Half year results Interim announcement November/December 2006 Registrar Secretary Please contact our Registrar at the address below to advise change of address and also for any enquiries relating to lost share certificates or other enquiries relating to share registration: S J Driver Telephone: 01442 458 300 Fax: 01442 458 486 Registered Office Telford House, Corner Hall, Hemel Hempstead, Hertfordshire HP3 9HN. Registered in England and Wales, No. 3435822 Capita Registrars The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU Telephone: 0870 162 3100 (overseas): +44 208 639 2157 Fax: 020 8639 2342 Email: ssd@capitaregistrars.com Website: www.capitaregistrars.com Share Price Quotation The Company's share price is quoted daily in national newspapers as well as on-line at such sites as http://www.ft.com under the symbol "ECK". Web Site Additional shareholder information including press releases and links to the Group's activities can be found on the Company's web site at: http://www.eckoh.com 48 

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