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Every second of every day people make contact through Eckoh
www.eckoh.com
Leading the market in hosted speech recognition services
2 Highlights of the year
21 Independent Auditors’ Report
26 Notes to the Financial Statements
Eckoh is the UK's largest provider of hosted speech recognition services. We enable our clients to
3 Chairman’s Statement
22 Group Profit and Loss Account
45 Shareholder Information
communicate more effectively and to enhance their profitability, whilst making life better for the
6
The Business Review
23 Group Statement of Total
people who use their services.
9 Board of Directors
12 Directors’ Report
Recognised Gains and Losses
23 Reconciliation of Movements in
Group Shareholders’ Funds
18 Corporate Governance
24 Balance Sheets
20 Statement of Directors’
Responsibilities
25 Group Cash Flow Statement
The size and breadth of our client base means we've delivered solutions to companies in virtually
every industry sector, developing specific expertise and understanding through hands on experience.
front_sec_AW.qxd 03/08/2007 12:28 Page 2
"Eckoh has proven to be absolutely the right supplier of choice for Vue and has delivered an extremely
high quality level of service since we first launched. We are consequently delighted to renew our
contract with them. Their overall approach and attention to detail gives us great confidence that the
new contact centre will also prove to be a huge success."
Roland Jones, IT Director at Vue Entertainment.
Highlights of the Year
Financial highlights:
Chairman’s Statement
During the financial year ended 31 March 2007, the Board took steps to restructure and
reorganise the Group in order that our efforts could be focused on the high margin, high
growth speech solutions market. The excellent financial results are a testament to the success of
this reorganisation.
Turnover from continuing operations
Adjusted profit/(loss) before taxation*
from continuing operations
Profit before taxation
Retained profit
Cash and short-term investments
Year ended
31 March 2007
£'000
86,841
1,455
8,418
8,366
9,601
Restated
year ended
31 March 2006
£'000
64,880
(436)
1,036
1,166
12,737
• Group turnover from continuing operations
increased by 34% to £86.8m (2006: £64.9m)
• Adjusted profit before taxation* from
continuing operations increased to £1.5m
from a loss of £0.4m (Profit before taxation
£8.4m (2006: £1.0m))
• Retained profit of £8.3 (2006: £1.1m)
• Cash and short-term investment balances
total £9.6m (2006: £12.7m)
* profit before taxation, intangible asset amortisation and exceptional items.
Operational highlights:
Speech Solutions
Client IVR
• Strong new business generation during the
year, particularly in the second half, notable
wins include AXA PPP healthcare, BAA,
Parcelforce Worldwide, United Utilities and
BSkyB
• Virtually no client churn in the year and
contract terms are increasing with three-year
terms and longer being typical
• Significant long-term contract renewals with
ATOC, Vue, O2 and William Hill, three of the
top four Speech Solutions clients
• Eckoh continues to be one of the largest
players in the UK market
• Eckoh to invest in becoming a "best
practice" provider of interactive services for
media owners
• New contracts to be negotiated to reflect the
market conditions and the service that Eckoh
provides.
Peter Reynolds
Chairman
To this end, Eckoh has invested in becoming a
"best practice" provider of IVR services for
media owners and appointed KPMG to conduct
a comprehensive review of all of its media
services. As well as ensuring that all services
were operating in a fully compliant manner, this
review served to establish best practice standards
and processes which can now be used as a
benchmark for industry regulation moving
forward.
I would like to take this opportunity to thank
Eckoh's staff for their loyalty, commitment and
dedication over the past twelve months, as we
all look forward to an exciting year ahead.
Turnover from continuing operations increased
by 34% to £86.8m, and pre-tax profits from
continuing operations increased by £1.9m to
£1.5m before intangible asset amortisation and
exceptional items; cash and short-term
investments amounted to £9.6m.
Within the Speech Solutions area I am very
pleased to report a number of exciting new
long-term contracts as well as a series of
significant contract renewals from our existing
client base. We are confident that Eckoh will
maintain its position as the market leader in the
UK for hosted speech recognition solutions and
the strong sales pipeline moving in to the new
financial year reflects the growing maturity and
opportunity in this sector.
According to analysts, Datamonitor, the market
for hosted IVR self-service in the UK is expected
to grow to $283.7 million by 2012; and the
market for hosted speech solutions, is expected
to double within the same time frame. The
Board remain committed to extending our
footprint into other European territories and
have the necessary resources to achieve this. The
Speech Solutions business continues to be the
long-term focus of the Group and is where the
Board believes the best value for shareholders
will be realised.
The recent issues concerning the interactive
television market have had a significant impact
on response levels, which are currently much
lower throughout the sector. Whilst these issues
will inevitably reduce the revenues in our Client
IVR division, the very low margin nature of these
revenues means that this will have a reduced
impact on gross profits. As a result, Eckoh's
intention is to improve on the very low margin
that it currently obtains from this activity by
renegotiating its contracts, and thereby
providing a superior level of service to media
owners who want to ensure that their interactive
services operate in a compliant manner with
regard to current and future regulations.
2
3
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Harnessing the power of speech technology and beyond
Europe's largest speech enabled technology platform, scaleable to any client need, is
the foundation stone of every solution we deliver. Implemented across the web,
mobile, and telephone, our solutions provide a consistent and integrated customer
experience across all channels.
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"With more than 11 million travellers passing through BAA Airports each month it is vital that we're able to
provide timely, accurate flight information at any time of the day or night As Eckoh and BT's track record in
the travel sector has proven, the introduction of this automated service means we will have the capability to
dramatically improve information availability whilst reducing the cost of providing this vital customer service."
Tom Voice, Director of BAA Retail IT
Nik Philpot Chief Executive Officer
Adam Moloney Group Finance Director
Jim Hennigan Executive Director
The Business Review
Overview
The past 12 months have been a period of significant change for Eckoh. Following the sale of
its 64.64% holding in Symphony Telecom Holdings plc ("Symphony") in July 2006, Eckoh has
consolidated its business around its two core divisions, Speech Solutions and Client IVR.
The Group has made excellent progress in these
core areas, resulting in a strong financial
performance. Turnover from continuing
operations has increased by 34% to £86.8m
(2006: £64.9m) and profit before tax excluding
intangible asset amortisation and exceptional
items has improved from a loss of £0.4m to a
profit of £1.5m.
The sale of Symphony generated £11.0m cash
proceeds before expenses of £0.8m, and a profit
of £8.7m for the Group. £10.2m of cash
generated was used to acquire shares in Eckoh,
including a £7m tender offer to shareholders
which concluded in February. The increase in
profitability and reduction of shares in circulation
has resulted in earnings per share increasing from
0.4p to 3.2p.
Eckoh will continue with a strategy of
concentrating on the core parts of the business
and the Speech Solutions division in particular.
Developments in North America where Microsoft,
Google and Nuance have all made significant
investments in speech recognition and managed
service operations have confirmed the belief of
the Directors that huge value exists within this
market. Eckoh continues to have substantial cash
reserves and will look to expand the Speech
business throughout Europe to further establish a
clear leadership in the European Speech
Recognition market.
Continuing operations
1. Eckoh
The Speech Solutions and Client IVR divisions
6
both operate under the common Eckoh brand
and many employees are shared across both
activities. However, the nature of the businesses,
their margins and their opportunities for growth
are quite different and on that basis we continue
to report their results separately.
1.1 Speech Solutions
Eckoh is the UK's largest provider of hosted
speech recognition solutions with the broadest
client portfolio and sector penetration. Our
services are used by a wide range of mass market
organisations to serve millions of customers and
our clients include BT, National Rail Enquiries,
Parcelforce Worldwide, AXA PPP healthcare, TD
Waterhouse and Scottish Power.
Eckoh continue to add significant new clients on
long term contracts as well as renew contracts
with existing clients. This progress was evidenced
by a number of announcements made in June
2007. In conjunction with Eckoh's partner Twenty
First Century Communications Inc., ("TFCC"), we
have signed a new three-year contract to provide
advanced power outage services to United
Utilities. This is the fourth substantive contract for
the Eckoh/TFCC partnership. Additionally, along
with our partner, British Telecom ("BT"), we are
delighted to have signed a new seven-year
contract with a major UK logistics company,
further disclosure on this agreement will be made
later in the year. Finally, our client of three years
O2, has renewed its contract for age verification
services for the next three years and increased
the scope to include self-service via the web as
well as the telephone.
The recently announced contract wins are a
continuation of last years excellent progress made
within Speech Solutions as major consumer-facing
organisations adopt outsourced and advanced
technology from Eckoh to enhance their service
levels without needing to increase headcount or
reduce cost by moving to offshore locations.
The division increased its revenue by 19% to
£6.3m (2006: £5.3m). More significantly, the
division's gross profit increased by 33% to £3.9m
(2006: £2.9m) contributing to strong
improvement in the gross margin from 56% to
62%. The result also reflects the impact of
operational gearing, with direct costs increasing
by only 13% to £2.7m (2006: £2.4m) validating
our belief in the hosted model operated by the
division. As a result, the Speech Solutions division
more than doubled its contribution to the group
overheads to £1.2m (2006: £0.5m) and is
anticipated to become the most profitable part of
the group in 2008.
It is also pleasing that the division continued to
experience virtually no churn in its client base,
illustrating the value that the managed solutions
provided to clients. During the period some of
the largest clients, notably William Hill, National
Rail Enquiries and Vue Cinemas, were all retained
on new long term contracts.
The decision to outsource services to Eckoh tends
to be part of a long term strategy and contract
terms are typically signed on three-year terms or
longer. New contracted clients won in the period
include the British Airports Authority (a three-year
contract for flight information services),
Parcelforce Worldwide (a three-year agreement
for order tracking and re-delivery) and AXA PPP
healthcare (a five-year contract for a sickness
management solution).
The Group has an exclusive alliance with BT to
provide its top corporate customers with hosted
speech recognition services and is evaluating
entering into similar alliances with high profile
technology companies to accelerate sales growth
further. The first of these, which was announced
in June 2007, is with Genesys, a world leading
provider of contact centre software. Eckoh's
clients will be able to take advantage of a number
of technological advances encapsulated in
Genesys' technology, which will supplement
Eckoh's hosted solutions. These include more
advanced computer telephony integration ("CTI")
capabilities, which allows customer data and calls
to be transferred between agents and applications
and between locations without any additional
telephony charge. In addition, IVR solutions may
be built using the Voice XML standard. Eckoh will
benefit from exposure to Genesys' extensive
global client base of more than 4,000 companies
in 80 countries.
The service that Eckoh provides typically centres
on speech recognition as the primary technology.
It is noticeable however, that many clients are
looking for a consistent and common approach in
how their customers contact them through
channels other than the telephone, and to that
end are starting to look to Eckoh to provide a
broader solution that may encompass internet and
mobile technologies. Eckoh has significant
technical expertise in these areas which means
that it can usually accommodate the client's
requirements and provide greater protection in the
long term as competition increases.
territories for which it believes it has the necessary
resources. The Speech Solutions business
continues to be the long term focus of the group,
and where the Board believes the best value for
shareholders will be realised.
1.2 Client IVR
Eckoh is one of the UK's largest providers of IVR
and mobile interactive services to media owners,
delivering an end-to-end solution from design
through to development and implementation as
well as hosting and reporting.
The Client IVR division has seen a 50% increase in
revenue to £71.3m (2006: £47.5m),
predominantly as a result of the launch of ITV Play
shortly before the start of the financial year. Gross
profit increased by 13% to £3.5m (2006: £3.1m)
reflecting a gross margin of 5% (2006: 6%). The
increased revenue did not impact the direct
expenses which remained at £2.4m (2006:
£2.4m). Contribution to central overheads from
the division increased to £1.1m (2006: £0.7m).
Call volumes into participation TV formats such as
those shown by ITV Play were much higher in the
first half of the year, but have subsequently
declined. In the fourth quarter consumer
confidence in TV programmes which use premium
rate services was severely dented and as a result
participation was much lower. This trend has
continued into the beginning of this year, and
hence Client IVR revenues are expected to be
significantly lower than last year.
The increasing level of interest in the Eckoh speech
offering has led to a strong sales pipeline which is
expected to lead to further growth in both 2008
and future years. Our belief in the technology and
the model we operate is reinforced by exciting
recent developments in the United States, where
the market is more mature than in Europe.
Microsoft has acquired Tellme Networks Inc, a
hosted speech solutions provider, for a reported
$800m. Google, Yahoo and Nuance are also all
investing heavily in speech recognition with further
consolidation anticipated in the sector.
The adverse publicity surrounding the interactive
television market and the potential increase in risk
has led Eckoh to review its involvement in the
sector. Eckoh has worked closely with regulators
ICSTIS and Ofcom, assisted Deloittes in a review of
all ITV programming and appointed KPMG to
perform an independent review of all of its
premium rate services in the media sector. As a
result, we firmly believe that none of our
competitors in the sector have the level of
compliance expertise or the experience and scale
of resource that Eckoh now possesses.
Eckoh is confident of remaining the market leader
in the UK, the largest single market in Europe for
hosted speech services, and remains committed to
extending its footprint into other European
For Eckoh to continue to remain involved, it is
imperative that either a higher proportion of the
revenue is retained or fee based contracts are
implemented to support the "best practice"
7
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The Business Review continued
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 (69)
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. Peter is also currently a non executive director of
SR Pharma plc, a European Biopharmaceutical company and Waltech plc, a payment systems
supplier. Peter is Chairman of the Board, a member of both the Audit and Nomination Committees
and is Chairman of the Remuneration Committee.
Nik Philpot (43)
Chief Executive Officer
Joined the Board in February 1999, appointed COO and Deputy CEO in September 2001 and
appointed CEO in September 2006. Nik was a co-founder of Symphony Telecom and formerly
worked for British Telecom and Legion. As co-founder of Eckoh he has created the UK's largest
automation solutions provider for the contact centre and media industries. Nik has 18 years
experience in the voice services industry.
Adam Moloney (37)
Group Finance Director
Company Secretary
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 in August 2005. Prior to joining Eckoh, he was Manager of Finance &
Operations for the UK arm of New York based computer reseller, Resilien Inc.
Jim Hennigan (45)
Executive Director
Following a 20 year career in IT, including senior roles at Apple and Marks & Spencer, Jim joined
Eckoh in 2000 as Group CTO, becoming Managing Director of its contact centre solutions business in
2002, and appointed to the Board in February 2007. Jim is a recognised authority on speech
technology, automation and their impact on customer satisfaction.
disposal on 18 July 2006. During that period,
Symphony reported an operating loss of £0.7m
(2006: profit of £0.5m). Included within the
operating loss are exceptional costs comprising
expenditure incurred by Eckoh in relation to the
restructuring and simplification of the Eckoh
business following the disposal of Symphony
Telecom Holdings plc to Redstone plc, and by
Symphony in relation to the disposal. Continuing
operations will benefit from the restructuring with
an annual cost saving of around £0.5m going
forward.
4. Outlook
The Group made a solid start to the new year and
trading in the first quarter has been in line with
management expectations.
In the first quarter of the year the Client IVR
division has continued to be affected by lower
consumer demand for premium rate interactive
services across the media sector. Whilst this will
impact the division's revenues, the impact on
overall profitability is likely to be much less
significant due to the current low margin business
model. Management are intending to improve the
low margin through negotiation of new contracts
and by positioning the business as a best practice
provider in the media sector.
The Speech Solutions division has excellent
revenue visibility and with a strong sales pipeline,
Eckoh is confident of maintaining its position as
the market leader in the UK for hosted speech
recognition solutions. The Group remains
committed to extending its footprint into other
European territories and has the necessary
resources to achieve this. The Speech Solutions
division continues to be the long term focus of
the Group and is where the Board believes the
best value for shareholders will be realised.
Despite the challenging conditions in Client IVR,
the Group as a whole remains well positioned,
with a strong balance sheet, to benefit from long
term growth in the Speech Solutions business. As
a result the Board remains confident of delivering
shareholder value in both the current financial
year and beyond.
service that Eckoh is now obliged to provide.
Hence, it is the Company's intention to re-
negotiate its contracts, and to that end it has
already started discussions with its largest clients.
The technical and operational expertise that Eckoh
now has in this sector is un-paralleled on a global
basis. Whilst the UK market is relatively mature,
around the world there are many emerging
markets which are looking to capitalise on the
opportunities that interactivity can provide. Eckoh is
not only able to assist in setting up these services
but is also able to advise on ways of operating
them that can reduce the associated risks.
Over recent months, Eckoh has had many
discussions with broadcasters and production
companies from outside the UK regarding similar
participation TV formats. It is possible that
international opportunities may provide a positive
counter balance to any reduction in the UK
market, however, the focus on maximising the
Speech Solutions opportunity must remain the
primary focus for management.
Regulatory Review of the Interactive
Television Market
The last six months have seen a number of high
profile investigations and regulatory reviews
commence into the use of premium rate calls and
text messages in the interactive television sector.
This began towards the end of 2006 with a Select
Committee of MP's reviewing the quiz TV market
and intensified in February 2007, when a number
of major television shows became the subject of
media scrutiny following disclosure of the way in
which a number of operations were managed
exposing flaws in certain procedures.
As a result of the media coverage both ICSTIS, the
regulatory body that governs the premium rate
sector, and Ofcom, the independent regulator and
competition authority for the UK communications
industries, have instigated wide-ranging reviews
into the way these services are operated and it is
anticipated that they will recommend changes to
the codes of conduct.
ICSTIS is continuing its investigation into the "You
Say, We Pay" competition on Channel 4's
"Richard & Judy Show" and Eckoh is cooperating
fully with the investigation. The conclusion of this
investigation is expected in early July 2007.
There are no other ongoing ICSTIS investigations
involving formal breaches of the ICSTIS Code
which involve Eckoh.
In September 2007 the new Gambling Act 2005
will come into full effect and it is likely to result in
further changes to the way that premium charged
competitions are operated. The new Act requires
that competitions must either have a significant
degree of skill, a genuine free entry route or be
provided by a licensed lottery provider. It is as yet
unclear which of these three options will be
8
generally adopted by the industry which currently
generates significant revenues from these services.
These significant changes in the market have
prompted Eckoh to invest in becoming a "best
practice" provider of IVR services for media
owners. Eckoh has already appointed KPMG to
conduct a comprehensive review of all of its
media services to ensure that these are not only
operating in a fully compliant manner but that
these services could be used as a benchmark for
future regulation. As a result, Eckoh's intention is
to improve on the very low margin that it
currently obtains from this activity by
renegotiating its contracts and thereby providing
a superior level of service to media owners who
want to ensure that their interactive services
operate without the risk of non-compliance with
current and future regulations.
2. Connection Makers
Connection Makers provides dating and chat
services which are accessed over the phone, via
mobile and through the internet. These services
are advertised or distributed directly in
newspapers, magazines or on television, and are
provided to clients on a revenue share basis.
The last 12 months has seen a decline in the
business as the average selling price of services
has reduced significantly through aggressive
competition and the lack of availability of suitable
television and press advertising that is necessary
to drive critical mass. In addition, there have been
a number of regulatory changes, particularly in
the mobile market, which has impacted the
effectiveness of the advertising.
As a result, revenues for the period were down to
£9.3m (2006: £12.1m). Gross margin was stable
at 48% (2006: 46%), resulting in gross profit of
£4.5m (2006: £5.5m). Direct expenses within the
division increased slightly to £3.1m (2006:
£3.0m), leading to a contribution to central
overheads of £1.3m (2006: £2.5m).
The signs of recovery which were seen at the
beginning of the second half were unfortunately
impacted by the media coverage in the last
quarter reducing consumer confidence in
premium rate services in general and their
propensity to use them. The impact has not
however been as significant as the participation
TV market and volumes are returning to more
normal levels.
As previously stated, Connection Makers operates
as a stand-alone entity with an experienced
management team. The Board continues to
review all options for this business.
3. Discontinued Operations
Eckoh's results include those for the discontinued
Symphony operation for the period prior to its
9
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Partners for success
We've teamed up with experts in telecommunications, natural language recognition, call
handling and data storage to achieve our market leading position. Our strategic alliance with
BT has delivered speech services to over 25 leading clients, generating more than 55 million
minutes of self-service transactions.
Earlier this year, Eckoh announced a strategic technology partnership with Genesys, the worlds
leading global supplier of contact centre solutions to help increase momentum in the speech
self-service market place.
front_sec_AW.qxd 03/08/2007 12:29 Page 12
Over the past five years, Eckoh has worked with us to establish the industry's premier commentary
and results service. We're confident that by re-appointing them, we will maintain access not only to
their exceptionally robust and reliable capability, but also to their continued service innovation, which
will ensure that we continue to enhance the betting experience we provide to our customers."
Mike Grenham, Head of Sports Information, William Hill
Directors’ Report
The Directors of Eckoh plc present their annual report, together with the
audited financial statements of the Company and the Group for the year
ended 31 March 2007.
Annual General Meeting The next Annual
General Meeting of the Company will be held at
10:00 on 27 September 2007. 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.
Jim Hennigan was appointed as an Executive
Director on 1 February 2007 and will put himself
forward for re-election at the Annual General
Meeting. Martin Smith retired as a Non-
executive Director at the Annual General
Meeting on 30 October 2006 and did not seek
re-appointment. Martin Turner stood down as
Chief Executive Officer in September 2006 and
stood down as an Executive Director with effect
from 1 December 2006. 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:
Jim Hennigan
Adam Moloney
Principal activity The principal activity of Eckoh
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
organisations using advanced speech recognition
technologies. The Chairman's Statement
(page 3) and the Business Review (pages 6 to 8)
report on the progress made in the financial year
under review.
The principal subsidiary undertakings are listed
on page 34.
Results and dividends The audited financial
statements and related notes for the year ended
31 March 2007 are set out on pages 22 to 42.
The Group's profit for the year is set out in the
Profit and Loss Account on page 22.
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.
The principal risks and uncertainties affecting the
Group are discussed in the Business Review on
page 6.
On 2 November 2006 the Company changed its
name from Eckoh Technologies plc to Eckoh plc.
Research and development The Group
capitalised £0.2m (2006 £0.1m) of research and
development expenditure during the year as an
intangible asset as it expanded its product
portfolio and produced bespoke solutions for
customers.
12
Directors Remuneration
Notes:
Name
M R Turner (i)
N B Philpot
A P Moloney (ii)
H R P Reynolds
M E Smith (iii)
J P Hennigan (iv)
Totals
Salary
and fees
£'000
443
195
90
60
39
23
850
Bonus
£'000
117
117
60
-
-
79
373
Other
benefits
£000
11
14
23
4
-
4
56
2007
Total
£'000
571
326
173
64
39
106
1,279
2006
Total
£'000
213
330
95
69
25
-
732
The information contained in this table has been audited.
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 22 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.
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:
31 May 2007
Ordinary shares
of 0.25 pence each
31 March 2007
Ordinary shares
of 0.25 pence each
1 April 2006
Ordinary shares
of 0.25 pence each
N B Philpot (i)
A P Moloney
H R P Reynolds (ii)
J P Hennigan (iii)
2,282,000
2,282,000
2,282,000
-
646,550
15,000
-
646,550
15,000
-
646,550
15,000
(i) M R Turner resigned on 1 December 2006.
Included within the salary and fees figure is
an amount totalling £297,000 which was
paid after the date of his resignation as a
director in connection with a compromise
agreement. In addition, following the
exercise of share options M R Turner made
gains of £116,000 which are not included in
the table.
(ii) Included within the other benefits paid to A
P Moloney is an employer pension
contribution of £10,000. There were no
other pension costs during the year.
(iii) M E Smith resigned on 30 October 2006.
As Chairman of Symphony Telecom
Holdings plc, he also received fees totalling
£12,500 which are included in the table.
(iv) J P Hennigan was appointed as an
Executive Director on 1 February 2007.
Notes:
(i) N B Philpot's spouse is the beneficial owner
of 80,000 shares which are included in
the table.
(ii) Included in H R P Reynolds' shareholding is
258,620 shares held in the name of Brewin
Nominees Limited.
(iii) J P Hennigan was appointed as a Director
on 1 February 2007.
13
front_sec_AW.qxd 03/08/2007 12:29 Page 14
"Working with BT and Eckoh has enabled us to create a compelling offering that opens an important
new area of business for AXA PPP healthcare. SAM, complemented by our range of additional
employee health support services, gives us an even more powerful offering in the corporate
marketplace. We are confident that the employee and reporting benefits, not to mention the cost
savings and operational benefits afforded by SAM, will impress our clients and strengthen our
relationship with them."
Dudley Lusted, Head of Corporate Healthcare Development, AXA PPP healthcare
Directors’ Report continued
Directors' Share Options The Directors' interests in share options under the Share Option Scheme
(1999) are shown in the following table.
Notes:
a Granted under the Inland Revenue
approved Appendix to the Eckoh plc Share
Option Scheme (1999).
b Granted under the Eckoh plc Share Option
Scheme (1999) but not qualifying for Inland
Revenue approval.
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%.
* shares held in the name of Gartmore
Investments Limited and Gartmore Fund
Managers.
At 31 March
2007
(number)
Granted
in year
(number)
Lapsed in
year
(number)
Note
At 1 April Exercise
price
(pence)
2006
(number)
Earliest
date for
exercise
Latest
date for
exercise
N B Philpot
A P Moloney
J P Hennigan
b
a
b
b
a
b
b
b
a
b
3,000,000
380,710
337,702
1,000,000
250,000
750,000
200,000
800,000
34,014
500,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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
1,000,000
8.75
13.09.08 13.09.15
250,000
8.50
28.02.05 28.02.08
750,000
8.75
13.09.08 13.09.15
200,000
7.75
07.03.05 07.03.12
800,000 10.75
28.11.05 28.11.12
34,014
7.88
07.10.07 07.10.14
500,000
8.75
13.09.08 13.09.15
The information contained in this table has been audited.
Substantial shareholdings At 31 May 2007,
the Company had been notified of the following
material interests, representing 3% or more of its
current issued share capital.
consideration, including fees, of £3,144,155.
The shares were purchased from institutional
investors who wished to realise part of their
investment.
No of shares
% of issued share capital
Universities Superannuation Scheme Ltd
Gartmore *
Cavendish Asset Management
Herald Investment Trust Limited
19,603,000
15,152,609
14,483,000
9,202,390
9.31
7.59
7.25
4.61
Share capital and reserves Details of changes
in the authorised and issued share capital and
reserves of the Company are shown in Notes 19
and 20 to the financial statements.
In order to create a more efficient capital
structure, enhance earnings per share and to
create the potential for improved shareholder
value in the future, the Company implemented
the authority granted by shareholders on 30
October 2006 to make market purchases of its
own shares. The Company purchased
25,500,000 of its own ordinary shares of 0.25
pence each, representing 9.7 per cent. of the
issued share capital, for an aggregate
On 22 February 2007, the Company was
granted the authority by shareholders to
purchase up to 35 per cent. of the existing share
capital. The Company implemented this
authority, purchasing 53,846,084 of its ordinary
shares of 0.25 pence each, representing 21.6 per
cent. of the issued share capital by way of a
tender offer for aggregate consideration,
including fees, of £7,103,166.
Ordinary shares purchased by the Company were
subsequently cancelled. As at the year end the
Company had the authority to purchase
33,115,506 of its own shares.
developments of particular significance.
By order of the Board
Adam Moloney
Company Secretary
15 June 2007
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.
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 2007 the
amount of trade creditors shown in the balance
sheet represents 33 days of average purchases
for the Group (2006: 33 days). The Company
had no trade creditors at 31 March 2007.
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 The Directors are currently conducting
a tender process for the Eckoh plc audit.
Following the conclusion of this process a
resolution concerning either the reappointment
of PricewaterhouseCoopers LLP or the
appointment of one of the other tendering firms
will be proposed at the Annual General Meeting.
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
the share option schemes are set out in Note 22
to the financial statements. All permanent
employees are eligible to join a scheme.
Charitable and political donations The Group
made no political donations during the year.
Charitable donations totalled £600 during the
year (2006: Nil).
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
14
15
front_sec_AW.qxd 03/08/2007 12:39 Page 16
The way forward
Looking ahead, Eckoh is confident of maintaining its position as the market leader in the
UK for hosted speech recognition solutions. We remain committed to extending our
footprint into other European territories and have the necessary expertise, partners,
experience, technology infrastructure and resource to achieve this. The Speech Solutions
business continues to be the long term focus of the Group and is where the Board
believes the best value for shareholders will be realised.
front_sec_AW.qxd 03/08/2007 12:29 Page 18
We recognise that the market's appetite for hosted solutions - where the technology infrastructure that
underpins the service remains within the supplier's ownership - is growing. Eckoh is our natural
partner in this high growth market. Its hosted platform is the largest in Europe and is complemented
by its extensive solution design experience."
Mark Turner, Managing Director UK, Genesys.
Corporate Governance
Compliance Statement The Board of Eckoh plc recognises its responsibilities to maintain high
standards of corporate governance throughout the Group. The Board continues to give careful
consideration to the principles of corporate governance as set out in the Combined Code
appended to the Listing Rules issued by the Financial Services Authority, although as a company
listed on AIM it is not required to comply with 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.
Compliance Statement The Board of Eckoh
plc recognises its responsibilities to maintain
high standards of corporate governance
throughout the Group. The Board continues to
give careful consideration to the principles of
corporate governance as set out in the
Combined Code appended to the Listing Rules
issued by the Financial Services Authority,
although as a company listed on AIM it is not
required to comply with 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.
Board of Directors The Chairman is
responsible for the effective running of the
Board of Directors. The Board currently has four
members, comprising the Non-executive
Chairman, the Chief Executive, the Group
Finance Director and an Executive Director. The
Board has considered the independence of its
Non-executive Chairman. After due
consideration the Board considered that the
Chairman, Peter Reynolds, is independent and
does 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 8. The Board intend to
recruit a second Non-executive Director to
improve the balance between Executive and
Non-executive Directors. The second Non-
executive Director will be appointed to each of
the Audit, Nomination and Remuneration
Committees. The Non-executive Chairman is
currently the only member of the Audit,
Nomination and Remuneration Committees.
There is a schedule of formal matters specifically
reserved for the full Board's consideration,
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 Chairman has 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.
Day-to-day management of the business is
delegated to the Management Team, consisting
of the three Executive Directors and certain
senior managers, which meets monthly. The
Board is dependent on the Management Team
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.
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 8.
The Audit Committee formally met twice during
the period under review, with no absentees.
Adam Moloney, the Group Finance Director,
attends all Audit Committee meetings by
invitation and provides advice to the Committee
where appropriate. The Company's auditors
attended both meetings and the Committee
considered reports issued by them. 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.
on the Group's performance during the year,
together with a statement on current trading
conditions.
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.
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.
The Committee reviews the external auditor's
letter confirming their independence on an
annual basis. The Committee's duties include
recommendations to the Board relating to the
appointment, reappointment 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. 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.
The principal objectives of the Remuneration
Committee are to review the performance of the
executive Directors and make recommendations
to the Board on matters relating to their
remuneration and terms of employment.
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
Management Team, 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.
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 and brokers during the
period under review. The Chairman is available
to attend presentation meetings and other
presentations on an ongoing basis. 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
18
19
front_sec_AW.qxd 03/08/2007 12:29 Page 20
"By leveraging TFCC and Eckoh's proven track record and highly specialised expertise, we look
forward to setting our customer service bar even higher and to driving home real business innovation
and operational benefits to our organisation as a whole."
Sally Ainsworth, Electricity Business Customer Services Manager, United Utilities
Statement of Directors’ Responsibilities
The Directors are responsible 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).
company and the group and hence for taking
reasonable steps for the prevention and
detection of fraud and other irregularities.
The Directors are responsible for the
maintenance and integrity of the corporate and
financial information included on the company's
website. 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 preparing
financial statements for each financial year
which give a true and fair view, in accordance
with United Kingdom Generally Accepted
Accounting Practice, of the state of affairs of the
company and group and of the profit or loss and
cash flow of the Group for that period. In
preparing those financial statements, the
Directors are required to:
• select suitable accounting policies and then
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 disclosed and explained
in the financial statements; and
• prepare the financial statements on the going
concern basis unless it is inappropriate to
presume that the company will continue in
business.
The Directors confirm that they have complied
with the above requirements in preparing the
financial statements.
The Directors are responsible for keeping proper
accounting records that disclose with reasonable
accuracy at any time the financial position of the
company and the group and enable them to
ensure that the financial statements comply with
the Companies Act 1985. They are also
responsible for safeguarding the assets of the
20
Independent Auditors' Report to
the Members of Eckoh plc
We have audited the group and parent company
financial statements (the ''financial statements'')
of Eckoh plc for the year ended 31 March 2007
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 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.
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 report to you our opinion as to whether the
financial statements give a true and fair view
and are properly prepared in accordance with
the Companies Act 1985. We report to you
whether in our opinion the information given in
the Directors' Report is consistent with the
financial statements. We also report to you if, in
our opinion, 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
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 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 2007 and
of the group's profit and cash flows for the
year then ended;
• the financial statements 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
15 June 2007
21
back_sec_AW.qxd 31/07/2007 12:14 Page 22
Group Profit and Loss Account
for the year ended 31 March 2007
Group Statement of Total Recognised Gains and Losses
for the year ended 31 March 2007
Turnover
Total continuing operations
Discontinued operations
Cost of sales
Gross profit
Net operating expenses before intangible asset amortisation
and restructuring costs
Amortisation of intangible assets
Exceptional items relating to continuing operations
Exceptional items relating to discontinued operations
Net operating expenses
Operating profit/(loss) before intangible asset amortisation
and restructuring costs
Total continuing operations
Discontinued operations
Operating (loss)/profit
Total continuing operations
Discontinued operations
Profit on disposal of subsidiary operations
Profit on disposal of fixed asset investment
Costs of group restructuring
Net interest receivable/(payable) and other similar items
Profit on ordinary activities before taxation
Taxation
Profit on ordinary activities after taxation
Minority interests
Retained profit for the year
Basic earnings per 0.25p share
Diluted earnings per 0.25p share
Notes
1,2
2
2
2
2,9
2
2
2
3
1,11
1
4
1
6
22
20,21
8
8
2007
£'000
103,376
86,841
16,535
(88,484)
14,892
(13,753)
(755)
(646)
(781)
Restated
2006
£'000
127,084
64,880
62,204
(102,696)
24,388
(22,232)
(2,165)
-
(358)
(15,935)
(24,755)
1,139
574
565
(1,043)
(310)
(733)
8,656
-
-
805
8,418
(80)
8,338
28
8,366
3.2p
3.1p
2,156
(613)
2,769
(367)
(817)
450
1,388
300
(80)
(205)
1,036
(166)
870
296
1,166
0.4p
0.4p
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.
Retained profit for the year
Exchange adjustments offset in reserves
Total recognised gains for the year
Prior year adjustment: FRS 20 share option charge
Total recognised gains since last annual report
Notes
21
2007
£'000
8,366
(63)
8,303
(109)
8,194
Restated
2006
£'000
1,166
(34)
1,132
-
-
Reconciliation of Movements in Group Shareholders' Funds
for the year ended 31 March 2007
Retained profit for the year
Exchange adjustments offset in reserves
Share buyback and tender offer
Share option charge
Shares issued under the share option schemes
Net (decrease)/increase in shareholders' funds
Shareholders' funds at beginning of year
Shareholders' funds at end of year
Notes
21
20
2007
£'000
8,366
(63)
(10,247)
111
258
(1,575)
10,274
8,699
Restated
2006
£'000
1,166
(34)
-
109
82
1,323
8,951
10,274
22
23
back_sec_AW.qxd 31/07/2007 12:14 Page 24
Balance Sheets at 31 March 2007
Group Cash Flow Statement
for the year ended 31 March 2007
Group
Company
31 March
2007
£'000
31 March
2006
£'000
31 March
2007
£'000
31 March
2006
£'000
Notes
2007
£'000
2006
£'000
Fixed assets
Intangible fixed assets
Tangible fixed assets
Investments
Current assets
Stock
Debtors: amounts falling due within one year
Debtors: amounts falling due after more than one year
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
Capital redemption reserve
Share premium account
Profit and loss account
Total shareholders' funds
Minority interests
Capital employed
Notes
9
10
11
12
13
15
17,30
17,30
14
16
18
1
19,20
20
20
20
23
190
1,148
288
1,626
17
8,644
3,273
2,000
7,601
21,535
(13,946)
7,589
9,215
-
(516)
8,699
491
198
477
7,533
8,699
-
8,699
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
-
-
9,928
9,928
-
1,766
3,273
2,000
6,146
13,185
(403)
12,782
22,710
-
-
22,710
491
198
477
21,544
27,710
-
27,710
-
-
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
The financial statements on pages 22 to 44 were approved by the Board of Directors on 15 June 2007 and signed on its behalf by:
Adam Moloney - Group Finance Director
Net cash inflow from operating activities
28
1,083
3,232
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
Net cash disposed with subsidiary undertaking
Proceeds on disposal of subsidiary undertaking
Additional proceeds from disposal of operations in a prior year
24
24
24
24
803
(83)
-
720
(162)
(990)
(286)
-
-
(1,276)
-
-
-
-
(3,165)
10,188
-
7,023
286
(335)
(298)
(347)
(362)
(1,023)
(186)
12
300
(897)
(9,722)
796
(50)
(80)
(107)
3,400
108
(5,655)
Cash inflow/(outflow) before use of liquid resources and financing
7,388
(4,029)
Management of liquid resources
Decrease in short-term investments
Financing
Issue of shares
Share buyback and tender offer
Loan raised
Loans repaid
Capital element of finance lease rental payments
(Decrease)/increase in cash in the year
29,30
1,000
4,000
20
20
29,30
29,30
29,30
258
(10,247)
-
(400)
(14)
(10,403)
(2,015)
82
-
6,000
(2,560)
(9)
3,513
3,484
24
25
back_sec_AW.qxd 31/07/2007 12:14 Page 26
Notes to the Financial Statements
for the year ended 31 March 2007
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 New accounting
standard FRS 20 "Share based payment" applies
for the first time in respect of the Company's
2007 year end. As a result of the adoption of
FRS 20 a charge is made to the profit and loss
account to reflect the calculated fair value of
employee share options over and above the
exercise price paid by employees (note 21). The
charge is calculated at the date of the grant of
the options and is charged equally over the
vesting period. The comparatives have been
restated with the corresponding adjustment to
reserves made directly to the profit and loss
reserve.
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.
The consideration paid in relation to the
acquisition is also recorded at fair value.
A separate profit and loss account of Eckoh 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
26
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
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 one Group company
operates a defined contribution pension
scheme. 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 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.
Share based payments The Company
operates a share option scheme which allowed
certain employees to acquire shares in the
Company. The fair value of share options
granted is recognised within staff costs with a
corresponding increase in equity. The fair value
is measured at grant date and spread over the
period up to the date when the recipient
becomes unconditionally entitled to payment.
The fair value of share options was measured
using the QCA-IRS option valuer using the
Black-Scholes formula, taking into account the
terms and conditions upon which the grants
were made. The amount recognised as an
expense is adjusted to reflect the actual number
of share options that vest except where
forfeiture is only due to share prices not
achieving the threshold of vesting.
FRS 20 has been applied to all options granted after
7 November 2002 which have not vested on or
before 1 January 2006. A deferred tax adjustment is
also made relating to the intrinsic value of the share
options at the balance sheet date.
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.
27
back_sec_AW.qxd 31/07/2007 12:14 Page 28
Notes to the Financial Statements
for the year ended 31 March 2007 continued
1
Segmental analysis
2
Cost of sales, gross profit and net operating expenses
Business analysis
Speech Solutions
Client IVR
Connection Makers
Discontinued operations
Central costs
Net interest receivable (note 4)
Profit on disposal of subsidiary operations (note 3)
Profit on disposal of fixed asset investment
Costs of group restructuring
Total
2007
£'000
6,261
71,314
9,266
16,535
-
-
-
-
-
Turnover
2006
£'000
5,263
47,532
12,085
62,204
-
-
-
-
-
Profit/(loss) before taxation
2006
£'000
2007
£'000
433
385
1,186
(809)
(2,314)
881
8,656
-
-
(106)
350
2,511
(880)
(2,624)
177
1,388
300
(80)
1,036
103,376
127,084
8,418
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.
Central costs comprise corporate costs, the cost of central support functions and head office costs. These costs are not apportioned across the business
segments.
Turnover
Cost of sales
Gross profit
Net operating expenses before intangible asset
amortisation and restructuring costs
Direct operating expenses
Group overhead
Amortisation of intangible assets
Exceptional items
Net operating expenses
Selling and distribution costs
Administrative expenses
Operating (loss)/profit
Continuing
£'000
Discontinued
£'000
86,841
(75,008)
11,833
(11,259)
(8,945)
(2,314)
(238)
(646)
(12,143)
(1,144)
(10,999)
(310)
16,535
(13,476)
3,059
(2,494)
(2,494)
-
(517)
(781)
(3,792)
(777)
(3,015)
(733)
2007
Total
£'000
103,376
(88,484)
14,892
(13,753)
(11,439)
(2,314)
(755)
(1,427)
(15,935)
(1,921)
(14,014)
(1,043)
Continuing
£'000
Discontinued
£'000
2006
Total
£'000
64,880
(53,331)
11,549
(12,162)
(9,640)
(2,522)
(204)
-
(12,366)
(1,693)
(10,673)
(817)
62,204
(49,365)
12,839
127,084
(102,696)
24,388
(10,070)
(10,070)
-
(1,961)
(358)
(12,389)
(5,197)
(7,192)
450
(22,232)
(19,710)
(2,522)
(2,165)
(358)
(24,755)
(6,890)
(17,865)
(367)
Business analysis
Speech Solutions
Client IVR
Connection Makers
Discontinued operations
Central short term investments
Central cash at bank and in hand
Central net assets
Total
Net assets
The Group's operating loss is stated after charging:
2007
£'000
855
(6,546)
(356)
-
2,000
7,601
5,145
8,699
2006
£'000
1,019
(6,775)
351
4,442
3,000
5,276
4,888
12,201
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)
Operating lease rentals - equipment
Operating lease rentals - land and buildings
Research and development costs
Exceptional items relating to continuing operations
Exceptional items relating to discontinued operations
Services provided by the Group's auditor
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.
During the year the Group obtained the following services from the Group's auditor at costs as detailed below:
Fees payable for the audit of the parent company and consolidated accounts
Fees payable for other services:
The audit of the subsidiary undertakings comprising continuing operations
The audit of the subsidiary undertakings comprising discontinued operations
Services relating to corporate finance transactions
Taxation services
Total fees payable for other services
Total fees payable to the Group's auditor
2007
£'000
51
49
8
-
6
63
114
2007
£'000
£'000
6,588
803
16
755
18
265
213
646
781
2006
£'000
£'000
9,278
1,008
20
2,165
65
298
2,486
-
358
2006
£'000
57
52
72
405
88
617
674
28
29
back_sec_AW.qxd 31/07/2007 12:14 Page 30
Notes to the Financial Statements
for the year ended 31 March 2007 continued
The exceptional items relating to continuing operations consist of expenditure incurred on an aborted corporate project, and the creation of a provision for
costs in connection with the ongoing regulatory review of the interactive television market. The exceptional items relating to discontinued operations consist
of expenditure incurred by Eckoh in relation to the restructuring and simplification of the Eckoh business following the disposal of Symphony Telecom
Holdings plc to Redstone plc, and by Symphony in relation to the disposal.
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 executive directors) employed by the Group during the year was:
3
Profit/(loss) on disposal of subsidiary operations
Profit on 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
2007
£'000
8,656
-
-
8,656
2006
£'000
1,512
(232)
108
1,388
On 18 July 2006, Eckoh disposed of its 64.64% holding in Symphony Telecom Holdings plc ("Symphony"), generating £10.188m of cash after expenses of
£0.766m and a profit of £8.656m.
4 Net interest receivable/(payable) 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 on finance leases
Net interest receivable/(payable) and other similar items
2007
£'000
900
900
(93)
-
(2)
(95)
805
2006
£'000
286
286
(348)
(130)
(13)
(491)
(205)
Of the net interest receivable, £76,000 (2006: £382,000) interest payable relates to the Symphony Group and has been reported within profit before tax
attributable to discontinued operations in the segmental analysis. Net interest receivable in respect of the Eckoh Group is £881,000 (2006: £177,000) as
reported in the segmental analysis (see note 1).
Technical support
Customer services
Administration and management
Staff costs for the above persons are:
Wages and salaries
Social security costs
Other pension costs
Equity settled share based payments under FRS 20
6
Taxation
Corporation tax based on the loss for the period was as follows:
UK Corporation tax charge at 30% (2006: 30%)
2007
Number
45
56
62
163
Restated
2006
Number
38
137
67
242
£'000
£'000
5,850
617
10
111
6,588
2007
£'000
80
8,265
874
30
109
9,278
2006
£'000
166
At 31 March 2007 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 18).
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 on ordinary activities before taxation
Corporation tax rate of 30%
Effect of significant shareholdings exemption
Effect of expenses not deductible for tax purposes
Effect of capital allowances in excess of depreciation
Effect of tax losses utilised
Effect of marginal rate relief
Current tax charge for the year
2007
£'000
8,418
2,525
(3,222)
1,228
(50)
(401)
-
80
2006
£'000
1,036
311
-
724
(27)
(832)
(10)
166
30
31
back_sec_AW.qxd 31/07/2007 12:14 Page 32
Notes to the Financial Statements
for the year ended 31 March 2007 continued
7
Profit of Holding Company
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.
Of the profit for the financial period, a profit of £11,662,000 (2006: £57,000) is dealt with in the accounts of Eckoh 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.
Company
8
Earnings per share
Basic earnings per share Basic earnings per ordinary share is calculated on the basis of the weighted average number of ordinary shares of 263,382,969
(2006: 271,957,745) in issue during the year and the profit for the year, after minority interests, of £8.366m (2006: profit of £1.166m).
Diluted earnings per share In calculating diluted earnings 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 plus the
unamortised element of the FRS 20 charge is less than the average market price of ordinary shares in the period.
2007
Weighted
average
number of
shares
(number in
thousands)
Earnings
attributable to
ordinary
shareholders
£'000
Restated
earnings
attributable
to ordinary
shareholders
£'000
Earnings
per share
(pence)
2006
Restated
weighted
average
number of
shares
(number in
thousands)
Basic earnings per share
Dilutive effect of share options
Diluted earnings per share
8,366
-
8,366
263,383
5,152
268,535
3.2p
-
3.1p
1,166
-
1,166
271,958
2,465
274,423
9
Intangible fixed assets
Group
Cost
At 1 April 2006
Additions
Disposals
At 31 March 2007
Amortisation
At 1 April 2006
Charge for the year
Disposals
At 31 March 2007
Net book value
At 31 March 2007
At 31 March 2006
Goodwill
£'000
Other intangible
assets
£'000
Development
expenditure
£'000
80,943
-
(62,963)
17,980
72,907
517
(55,444)
17,980
-
8,036
788
73
(490)
371
318
87
(64)
341
30
470
182
213
-
395
84
151
-
235
160
98
Restated
earnings
per share
(pence)
0.4p
-
0.4p
Total
£'000
81,913
286
(63,453)
18,746
73,309
755
(55,508)
18,556
190
8,604
The goodwill disposal relates to the disposal of Symphony.
The other intangible assets purchased represent branded television advertisements, the estimated useful economic lives of which were assessed to be three
years. The disposal represents the write-off of fully amortised assets that are no longer in use.
The Company had no intangible fixed assets during the year (2006: Nil).
10 Tangible fixed assets
Group
Cost
At 1 April 2006
Additions
Disposals
At 31 March 2007
Depreciation
At 1 April 2006
Charge for the year
Disposals
At 31 March 2007
Net book value
At 31 March 2007
At 31 March 2006
Fixtures, fittings
and equipment
£'000
Motor
vehicles
£'000
7,930
980
(4,778)
4,132
6,459
806
(4,281)
2,984
1,148
1,471
55
10
(55)
10
28
13
(31)
10
-
27
Total
£'000
7,985
990
(4,833)
4,142
6,487
819
(4,312)
2,994
1,148
1,498
The net book value of tangible fixed assets includes £18,000 (2006: £42,000) in respect of assets held under finance lease contracts.
Company
The Company had no tangible fixed assets during the year (2006: Nil).
11
Fixed asset investments
Cost
At 1 April 2006
Additions
Disposals
At 31 March 2007
Group
£'000
Company
£'000
288
-
-
288
9,624
354
(50)
9,928
The additional investment represents the eDirectory.co.uk plc shareholding of £288,000 previously held at Group level, and £67,000 capital contribution to
Eckoh UK Limited in respect of share option charges.
The disposal represents the disposal of the Company's investment in Symphony.
32
33
back_sec_AW.qxd 31/07/2007 12:14 Page 34
Notes to the Financial Statements
for the year ended 31 March 2007 continued
The following are the principal subsidiary undertakings of the Group:
14 Creditors: amounts falling due within one year
Subsidiary undertakings:
Eckoh UK Limited (i)
Eckoh France SAS (ii)
Country of
incorporation
England and Wales
France
Connection Makers Limited
England and Wales
Class of
holdings
Ordinary
Ordinary
Ordinary
Principal
activities
Percentage of share
capital held by
Eckoh plc
Subsidiary
undertaking
IVR & Speech solutions
100%
-
Speech solutions
IVR services
-
100%
100%
-
(i) On 19 September 2006, the company name of Eckoh Technologies (UK) Limited was changed to Eckoh UK Limited.
(ii) On 5 March 2007, the company name of Eckoh Technologies France SAS was changed to Eckoh France SAS.
The Company also holds 100% of the issued share capital of nine non-trading or dormant companies, not shown above.
All trading companies operate principally in their country of incorporation and have March year-ends.
12 Stock
Group
Finished goods
Work in progress
Company
The Company had no stock during the year (2006: Nil).
13 Debtors
Amounts falling due within one year
Trade debtors
Other debtors (note 27)
Amounts due from subsidiary undertakings
Loan to subsidiary undertaking
Prepayments and accrued income
31 March
2007
£'000
-
17
17
31 March
2006
£'000
437
42
479
Group
Company
31 March
2007
£'000
1,689
1,728
-
-
5,227
8,644
31 March
2006
£'000
4,823
606
-
-
17,108
22,537
31 March
2007
£'000
-
1,578
181
-
7
1,766
31 March
2006
£'000
-
53
4,904
4,000
72
9,029
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
15 Debtors: amounts falling due after more than one year
Other debtors (note 26)
31 March
2007
£'000
-
8,610
-
7
-
257
40
5,032
13,946
31 March
2007
£'000
3,273
3,273
Group
Company
31 March
2006
£'000
2,007
10,221
-
23
194
1,282
271
18,279
32,277
31 March
2007
£'000
31 March
2006
£'000
-
-
403
-
-
-
-
-
-
-
892
-
-
-
-
-
403
892
Group
Company
31 March
2006
£'000
-
-
31 March
2007
£'000
3,273
3,273
31 March
2006
£'000
-
-
A contingent asset of up to £850,000 is receivable in consideration for the disposal of Freecom.net Limited to eDirectory.co.uk plc in July 2005. This asset
has not been recognised due to the high degree of uncertainty with regard to the timing and amount.
16 Creditors: amounts falling due after more than one year
Bank loan (note 14)
Obligations under finance leases
31 March
2007
£'000
-
-
-
Group
Company
31 March
2006
£'000
1,473
20
1,493
31 March
2007
£'000
31 March
2006
£'000
-
-
-
-
-
-
The finance leases are secured on the assets of the Group to which the finance leases relate.
17 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, 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.
34
35
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Notes to the Financial Statements
for the year ended 31 March 2007 continued
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. 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
Symphony 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 2007 was:
Sterling
EU currencies (other than Sterling)
At 31 March 2007
Floating rate
Fixed rate
At 31 March 2007
Cash at
bank and
in hand
£'000
7,484
117
7,601
Cash at
bank and
in hand
£'000
7,601
-
7,601
Short-term
investments
£'000
2,000
-
2,000
Short-term
investments
£'000
-
2,000
2,000
Other
debtors
due within
1 year
£'000
1,524
-
1,524
Other
debtors
due within
1 year
£'000
1,524
-
1,524
Other
debtors
due after
1 year
£'000
3,273
-
3,273
Other
debtors
due after
1 year
£'000
3,273
-
3,273
Total
£'000
14,281
117
14,398
Total
£'000
12,398
2,000
14,398
Interest on the loan to Symphony Telecom Holdings, which is included within other debtors, is charged at 1% over the Bank of England base rate.
The currency and interest rate profile of the Group's financial assets at 31 March 2006 was:
Sterling
EU currencies (other than Sterling)
At 31 March 2006
Floating rate
Fixed rate
At 31 March 2006
36
Cash at
bank and
in hand
£'000
9,526
211
9,737
Cash at
bank and
in hand
£'000
9,737
-
9,737
Short-term
investments
£'000
3,000
-
3,000
Short-term
investments
£'000
-
3,000
3,000
Total
£'000
12,526
211
12,737
Total
£'000
9,737
3,000
12,737
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 4.90% (2006: 4.54%) per annum. Floating rate cash earns interest based on relevant national LIBOR equivalents.
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 2007 was approximately 0% (2006: 10.28%). 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 2007 was:
Fixed rate financial liabilities
Variable rate financial liabilities
Financial liabilities on which no interest is paid
At 31 March 2007
Maturity profile:
Within 1 year, or on demand
Between 1 and 2 years
Between 2 and 5 years
At 31 March 2007
Finance
leases
£'000
Provision for
regulatory
review
£’000
Provision for
NIC and other
similar taxes
on share
options
£’000
(7)
-
-
(7)
(7)
-
-
(7)
-
-
(451)
(451)
(451)
-
-
(451)
-
-
(65)
(65)
(65)
-
-
(65)
31 March
2007
Total
£'000
(7)
-
(65)
(72)
(72)
-
-
(72)
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 2006 was:
Fixed rate financial liabilities
Variable rate financial liabilities
Financial liabilities on which no interest is paid
At 31 March 2006
Maturity profile:
Within 1 year, or on demand
Between 1 and 2 years
Between 2 and 5 years
At 31 March 2006
Bank loan
and
overdraft
£'000
-
3,480
-
3,480
2,007
1,473
-
3,480
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
Borrowing facilities The Group has no borrowing facilities.
Fair value of financial assets and liabilities The fair values of the financial assets and liabilities approximate to their book values.
37
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Notes to the Financial Statements
for the year ended 31 March 2007 continued
18 Provisions for liabilities and charges
Group
At 1 April 2006
Amounts paid
(Release)/charge to the profit and loss account
Disposals
At 31 March 2007
Company
At 1 April 2006
Amounts paid
(Release)/charge to the profit and loss account
Amounts transferred to subsidiary undertaking
At 31 March 2007
Restructuring
provision
£'000
Provision for
regulatory
review
£'000
93
(25)
(68)
-
-
-
-
451
-
451
Restructuring
provision
£'000
Provision for
regulatory
review
£'000
93
(25)
(68)
-
-
-
-
-
-
-
Provision for
NIC and other
similar taxes
on share
options
£'000
79
(17)
27
(24)
65
Provision for
NIC and other
similar taxes
on share
options
£'000
55
(10)
10
(55)
-
Total
£'000
172
(42)
410
(24)
516
Total
£'000
148
(35)
(58)
(55)
-
The restructuring provision at 1 April 2006 consisted of costs in relation to the post acquisition integration of Anglia Telecom Centres Limited in to the
Symphony Telecom Holdings group and of costs in relation to the disposal of Freecom.net. £68,000 was released to the profit and loss account as the
provision was no longer required.
£451,000 has been charged to the profit and loss account to create a provision in connection with the ongoing regulatory review of the interactive
television market.
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. During the year ended 31 March
2007, Eckoh plc transferred the provision for National Insurance on share options to Eckoh UK Limited, a subsidiary undertaking.
All of the above are payable within one year.
Total unprovided deferred tax assets are as follows:
Depreciation in excess of capital allowances
Losses available to offset against deferred tax
Equity settled share based payments
Unprovided deferred tax asset
Group
Company
2007
£'000
(247)
(6,795)
(73)
(7,115)
2006
£'000
(564)
(9,062)
(40)
(9,666)
2007
£'000
-
(825)
-
(825)
2006
£'000
-
(1,091)
-
(1,091)
No deferred tax asset has been recognised on the grounds that there is insufficient evidence that the asset will be recoverable.
19 Share capital
Company and Group
Authorised
31 March
2007
£'000
31 March
2006
£'000
600,000,000 (2006: 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 2006
Shares issued under the share option scheme
1 April 2006 - 31 March 2007
Share buyback and tender offer
As at 31 March 2007
Number of
shares
Nominal
Value
£'000
Consideration
received
£'000
272,456,475
3,399,185
(79,346,084)
195,509,576
681
8
(198)
491
-
258
-
258
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 2006 and 31 March 2007 fell within the range 9.75p - 13.25p per share.
Details of ordinary shares issued for cash to employees following the exercise of share options during the year are shown in note 22.
20 Share capital and reserves
Group
Balance at 1 April 2006
Profit for the year
Exchange adjustments offset to reserves
Share option charge
Shares issued under the share option schemes
Share buyback and tender offer
Balance at 31 March 2007
Company
Balance at 1 April 2006
Profit for the year
Share option charge
Shares issued under the share option schemes
Share buyback and tender offer
Balance at 31 March 2007
Share
capital
£'000
681
-
-
-
8
(198)
491
Share
capital
£'000
681
-
-
8
(198)
491
Capital
redemption
reserve
£'000
Share
premium
account
£'000
-
-
-
-
-
198
198
227
-
-
-
250
-
477
Capital
redemption
reserve
£'000
Share
premium
account
£'000
-
-
-
-
198
198
227
-
-
250
-
477
Profit
and loss
account
£'000
9,366
8,366
(63)
111
-
(10,247)
7,533
Profit
and loss
account
£'000
20,062
11,662
67
-
(10,247)
21,544
38
39
back_sec_AW.qxd 31/07/2007 12:14 Page 40
Notes to the Financial Statements
for the year ended 31 March 2007 continued
In order to create a more efficient capital structure, enhance earnings per share and to create the potential for improved shareholder value in the future, the
Company implemented the authority granted by shareholders on 30 October 2006 to make market purchases of its own shares. The Company purchased
25,500,000 of its own ordinary shares of 0.25 pence each for an aggregate consideration, including fees, of £3,144,155. The shares were purchased from
institutional investors who wished to realise part of their investment. On 22 February 2007, the Company was granted the authority by shareholders to
purchase up to 35% of the existing share capital. The Company implemented this authority, purchasing 53,846,084 of its ordinary shares by way of a
tender offer for aggregate consideration, including fees, of £7,103,166. Ordinary shares purchased by the Company were subsequently cancelled.
21 Impact of FRS 20, Share-based payment
Profit for the year as previously reported in the 2006 Annual Report
Share option charge relating to the implementation of FRS 20
Restated profit for the year 31 March 2006
Restated
2006
£'000
1,275
109
1,166
Outstanding at 1 April
Granted
Forfeited
Exercised
Outstanding at 31 March
Exercisable at 31 March
2007
Weighted
average
exercise price
(pence)
7.84
-
8.14
7.65
7.88
7.47
Number of
shares
17,050,645
-
(495,146)
(3,399,185)
13,156,314
8,536,314
2006
Weighted
average
exercise price
(pence)
7.68
8.75
8.41
7.85
7.84
7.40
Number of
shares
15,534,878
3,000,000
(444,328)
(1,039,887)
17,050,645
9,457,000
The weighted average fair value of options granted in the year was nil (2006: £109,500).
As a result of the FRS 20, Share-based payment charge a deferred tax asset arises of £73,000 as at 31 March 2007. This asset has been disclosed but not
accrued due to the uncertainty over its recoverability.
Also as a result of this FRS the total number of dilutive options has decreased from 14,339,000 to 2,465,000 for the year ended 31 March 2006. The effect
of this and the change in the profit has reduced the earnings per share from 0.5p to 0.4p with the diluted earnings per share remaining at 0.4p to the year
ended 31 March 2006.
22 Share options
The Eckoh plc Share Option Scheme ("the Scheme") was introduced in November 1999. Under the Scheme the Board can grant options over shares in the
Company to Group employees. The grant price of share options is the middle market quotation price as derived from the Daily Official List of the London
Stock Exchange on the date of the grant. The contractual life of an option is ten years. Options granted under the Scheme become exercisable subject to
the closing middle market share price exceeding RPI plus 15% following the third anniversary of the grant date. Exercise of an option is subject to continued
employment. The fair value of share options was measured using the QCA-IRS option valuer using the Black-Scholes formula, taking into account the terms
and conditions upon which the grants were made. The fair value per option granted and the assumptions used in the calculation are as follows:
2007
2006
Range of
exercise
prices
(pence)
6.5 - 8.5
8.5 - 10.5
10.5 - 12.5
16.5 - 20.0
Weighted
average
exercise
price
(pence)
7.19
8.75
10.75
19.85
Number of
shares
(000’s)
Weighted average
remaining life
Expected
Contractual
9,098
2,757
1,280
21
1.0
3.5
0.7
0.0
6.0
8.5
5.7
2.2
Weighted
average
exercise
price
(pence)
7.31
8.75
10.75
18.36
Number
of shares
(000’s)
12,708
3,040
1,280
22
Weighted average
remaining life
Expected
Contractual
2.2
4.4
1.7
0.0
7.2
9.5
6.7
3.3
The weighted average share price for options exercised over the year was 7.65 pence (2006: 7.85 pence). The total charge for the year relating to employee
share based payments was £111,000 (2006: £109,000).
Date of grant
7 October 2004
13 December 2004
28 February 2005
13 September 2005
Share price at date of grant (pence)
Exercise price (pence)
Number of employees
Shares under option
Vesting period (years)
Expected volatility
Option life (years)
Expected life (years)
Risk free rate
Expected dividends expressed as a dividend yield
Fair value per option (pence)
7.75
7.75
24
882,614
3
68%
10
5
4.73%
-
3.64
9.25
9.25
1
7,200
3
67%
10
5
4.43%
-
4.38
7.95
7.95
17
8.72
8.72
3
1,870,000
2,750,000
3
66%
10
5
4.76%
-
3.54
3
59%
10
5
4.19%
-
3.65
23 Minority interests
Balance at beginning of year
Minority share of losses for the period
Additions
Disposals
Balance at end of year
24 Acquisitions and disposals
31 March
2007
£'000
1,927
(28)
-
(1,899)
-
31 March
2006
£'000
307
(296)
1,916
-
1,927
The expected volatility is based on historical volatility over the last three years. The expected life is the average expected period to exercise. The risk free rate
of return is the yield on zero-coupon UK government bonds of a term consistent with assumed options life. A reconciliation of option movements over the
year to 31 March 2007 is shown below:
Net assets disposed were £4.031m inclusive of cash reserves of £3.165m and a goodwill balance of £7.519m following the write off to reserves of
£2.378m.
On 18 July 2006, Eckoh disposed of its 64.64% holding in Symphony Telecom Holdings plc ("Symphony"), generating £10.188m of cash net of expenses of
£0.766m and a profit of £8.656m. The disposal was a satisfactory conclusion following the AIM flotation of Symphony in September 2005.
40
41
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Notes to the Financial Statements
for the year ended 31 March 2007 continued
25 Pension commitments
28 Cash flow from operating activities
The Group operates a group personal pension scheme and, in addition, the subsidiary company Eckoh UK Limited operates 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.
26 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
27 Related party transactions
At 31 March
2007
£'000
At 31 March
2006
£'000
-
25
227
252
-
-
-
-
83
250
333
47
27
74
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 UK Limited, paid an amount of £25,000 (2006: £25,000) for the year ended 31 March 2007 to Martin Turner and Nik Philpot for
the lease of Unit 6, Clifton Court, Hemel Hempstead. Martin Turner was a director of the Company up to 1 December 2006. Nik Philpot remains a director
of the Company. The transaction was conducted on an arms length basis. On 16 January 2007, the building was sold to an unrelated third party.
Eckoh UK Limited paid an amount of £36,000 (2006: £38,000) for the year ended 31 March 2007 to Lesley Innes, for consultancy services. Lesley Innes was
a non-executive director of Symphony Telecom Holdings plc up to the date of disposal on 18 July 2006.
Eckoh UK Limited, paid an amount of £100,000 (2006: Nil) for the year ended 31 March 2007 to Peter Reynolds in relation to the disposal of Symphony
Telecom Holdings plc. Peter Reynolds is the Chairman of the Company.
eDirectory.co.uk plc paid an amount of £2,000 to Adam Moloney for services as a non-executive director. Adam Moloney is a director of the Company. The
Company holds 6.8% of the issued share capital of eDirectory.co.uk plc.
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 2006, Eckoh plc loaned Symphony Telecom Holding plc
£7,500,000. £3,500,000 was repaid during May 2006. On the disposal of Symphony amounts due to Eckoh plc totalled £700,000. This amount was added
to the principal of the loan, brining the loan to £4,700,000. The loan bears interest at 1% above the Bank of England base rate and interest is payable six
monthly in arrears. The capital amount of £4,700,000 is due to be repaid in four instalments, the fourth and final instalment is due to be paid in June 2010.
The first interest payment of £100,771 was received during the year ended 31 March 2007. As at 31 March 2007, the balance on the loan totals
£4,797,000. £1,524,000 is reported within other debtors due within I year and £3,273,000 is reported within other debtors due after more than one year.
Reconciliation of operating loss to net cash inflow from operating activities
31 March
2007
Total
£'000
(1,043)
819
755
111
(21)
3,949
(3,487)
1,083
Continuing
£'000
Discontinued
£'000
(310)
756
238
80
(17)
2,649
(1,997)
1,399
(733)
63
517
31
(4)
1,300
(1,490)
(316)
31 March
2006
Total
£'000
(367)
1,028
2,165
109
110
(8,654)
8,841
3,232
Continuing
£'000
Discontinued
£'000
(817)
775
204
99
20
(7,637)
6,987
(369)
450
253
1,961
10
90
(1,017)
1,854
3,601
At 31 March
2007
£'000
At 31 March
2006
£'000
9,214
(2,015)
(1,000)
36
3,359
9,594
13,154
3,484
(4,000)
39
(3,460)
9,217
Operating loss
Depreciation of tangible fixed assets
Amortisation of intangible assets
Share option charge
(Increase)/decrease in stock
Decrease/(increase) in debtors
(Decrease)/increase in creditors
Net inflow/(outflow) from operating activities
29 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
30 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
At 1 April
2006
£'000
9,616
(1,473)
(1,886)
(20)
(23)
(3,402)
3,000
9,214
Cash flow
£'000
Disposals
£'000
At 31 March
2007
£'000
(2,015)
-
400
-
14
414
(1,000)
(2,601)
-
1,473
1,486
20
2
2,981
-
2,981
7,601
-
-
-
(7)
(7)
2,000
9,594
Short-term investments consist of short-term deposits with financial institutions that mature within 12 months of the date of inception. The disposals relate
to the debt in Symphony on the date of disposal.
42
43
back_sec_AW.qxd 05/09/2007 16:54 Page 44
Notes to the Financial Statements
for the year ended 31 March 2007 continued
31 Adjusted profit before taxation
Profit/(loss) on ordinary activities before taxation
8,418
1,036
At 31 March
2007
£'000
At 31 March
2006
£'000
Adjust for:
Amortisation of intangible fixed assets
Exceptional items relating to continuing operations
Exceptional items relating to discontinued operations
Profit on disposal of fixed asset investment
Profit on disposal of subsidiary undertaking
Costs of group restructuring
Adjusted profit before taxation
755
646
781
-
(8,656)
-
1,944
2,165
-
358
(300)
(1,388)
80
1,951
Shareholder Information
Financial Calendar
Full year results
Preliminary announcement on 18 June 2007
Annual Report
Posted to shareholders September 2007
Annual General Meeting
To be held at 10:00am on 27 September 2007 at the offices of Travers Smith, 10 Snow Hill, London, EC1A 2AL
Half year results
Interim announcement November/December 2007
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:
A P Moloney
Telephone: 01442 458 300
Fax: 01442 458 486
Capita Registrars
Northern House, Woodsome Park , Fenay Bridge, Huddersfield ,
West Yorkshire, UK, HD8 0LA
Telephone: 0870 162 3131
Fax: 01484 600 911
Email: shareholder.services@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 www.ft.com under the symbol "ECK".
Registered Office
Telford House, Corner Hall, Hemel Hempstead, Hertfordshire HP3 9HN.
Registered in England and Wales, No. 3435822
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:
www.eckoh.com
44
Our Clients:
Financial Services
AXA PPP healthcare
Barclays Stockbrokers
Hitachi Capital Consumer Finance
London Stock Exchange
TD Waterhouse
Public Sector
Central Office of Information
Her Majesty’s Courts Service
Rural Payments Agency
Retail and Distribution
Electrolux
Ideal Shopping Direct
Parcelforce Worldwide
Rentokil Initial
Wyevale Garden Centres
Media and Broadcast
BSkyB
Emap
IPC
ITV
Trinity Mirror
Travel and Leisure
BAA
Empire Cinemas
Enterprise Rent-A-Car
National Rail Enquiries
William Hill
Vue Entertainment
Telecoms and Utilities
BT
Northern Ireland Electricity
O2
ScottishPower
Tesco Mobile
Three Valleys Water
United Utilities