TIDMECK
RNS Number : 0532U
Eckoh PLC
21 November 2023
21 November 2023
Eckoh plc
("Eckoh", the "Group", or the "Company")
Unaudited interim results for the six months ended 30 September
2023
- Cloud transition driving higher margins and quality of earnings
- North America pipeline at record levels and North America ARR up 22%
- Record level of contracted business with positive traction across our new solution set
Eckoh plc (AIM: ECK) the global provider of Customer Engagement
Data Security Solutions, is pleased to announce unaudited results
for the six months to 30 September 2023.
Period ended 30 September
GBPm (unless otherwise stated) H1 FY24 H1 FY23 Change
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Revenue 18.8 19.6 -4%
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Gross profit 15.5 15.5 -
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Group ARR(1) 30.6 28.6 +7%
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North America Data Security Solutions
ARR(1) ($m) 16.8 13.8 +22%
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Adjusted EBITDA(3) 4.9 5.0 -3%
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Adjusted operating profit(4) 4.0 4.2 -4%
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Adjusted profit before taxation(4) 4.1 4.2 -1%
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Profit before taxation 1.5 2.9 -47%
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Basic earnings per share 0.43 0.77 -44%
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Adjusted diluted earnings (pence
per share)(5) 1.01 1.03 -2%
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Net cash 7.3 4.4 +2.9
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Total contracted business(6) 24.6 17.6 +40%
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Strategic highlights
-- Record levels of contracted business with a high proportion of multi-year renewals
-- Our successful drive to transition clients to cloud-based
SaaS solutions is tempering short term revenue growth but
delivering improvements in recurring revenue, operating margins and
quality of earnings
-- New global commercial strategy progressing well, with focus
on the large North America addressable market
-- Positive reception from existing clients to our new and expanded Secure Engagement Suite
-- Record North America pipeline includes several contracts
where Eckoh is selected vendor, but longer than expected sales and
contracting cycles are delaying completion and therefore
revenue
-- Cost and efficiency benefits from the transition to a SaaS
business model will deliver over GBP1m of savings in FY25
-- New updated PCI DSS v4.0 standard effective from April 2024
will increase complexity and cost of compliance for merchants,
which is likely to drive higher levels of sales engagement for
Eckoh's solutions
Financial highlights
-- Trading for the period in line with Board expectations, as
announced in the Trading Update on 1 November 2023
-- Group ARR(1) GBP30.6 million, up 7% year-on-year or 9% at constant currency
-- North America performing strongly with Security Solutions
ARR(1) up $3m or 22% to $16.8m (H1 FY23: $13.8m)
-- Record level of total contracted business(6) at GBP24.6m, up
40% (H1 FY23 GBP17.6m), driven by strong multi-year renewals and
successful cross-selling and up-selling of new products
-- Group revenue GBP18.8m, (H1 FY23: GBP19.6m), reflecting the
already announced loss of a large (non-security) UK client in FY23
and the on-going transition to cloud delivery which removes
hardware fees and reduces set up costs
-- Recurring revenue(2) increased to 83% (H1 FY23: 79%),
reflecting strong renewals and the continued shift to the cloud
-- Gross profit margin 83% (H1 FY23: 79%), an increase of 330bp
-- Adjusted operating profit(4) GBP4.0m (H1 FY23: GBP4.2m),
includes a GBP0.1m FX versus a FX gain of GBP0.7m in H1 FY23
-- Adjusted operating profit margin flat at 21.4% (H1 FY23:
21.4%), masks an underlying improvement of 410bp (excluding FX loss
in H1 FY24 21.8% and FX gain in H1 FY23: 17.7%)
-- Strong cash generation with net cash of GBP7.3m at period
end, up GBP1.6m from GBP5.7m at year end (H1 2023: GBP4.4m)
-- Eckoh's balance sheet remains robust, with no debt or drawdown on credit facilities
Current trading and Outlook
-- The Board is encouraged by the record level of business
contracted, the successful implementation of the new commercial
strategy and the sales pipeline with large deals which are in a
progressed position
-- Whilst longer than expected sales cycles have delayed revenue
progression in the year to date, the Board is confident that the
Company is on track to meet expectations for the full year (7)
-- Optimally positioned as market leader for an increased
outsourcing trend driven by regulatory change (PCI DSS v4.0),
increasing complexity and security challenges for businesses
-- It is expected that the strong positive trend of growth in
contract value and ARR will continue in the second half and with
the ongoing transition to cloud and SaaS, this underpins the
expected growth in FY25
1. ARR is the annual recurring revenue of all contracts billing
at the end of the period. Included within Group ARR is all revenue
that is contractually committed and an element of UK revenue that
has proven to be repeatable, but not contractually committed. H1
FY23 has been restated to include NA Coral revenue.
2. Recurring revenue is defined as on-going revenue, rather than
revenue derived from the set-up and delivery of a new service or
hardware.
3. Adjusted earnings before interest, tax, depreciation and
amortisation (EBITDA) is the profit before tax adjusted for
depreciation of owned and leased assets, amortisation of intangible
assets, expenses relating to share option schemes and exceptional
costs.
4. Adjusted operating profit and adjusted profit before tax are
adjusted for amortisation of acquired intangible assets, expenses
relating to share option schemes and exceptional costs.
5. Adjusted earnings pence per share - calculated using an
effective tax rate of 25% in both years.
6. Total contracted business includes new business from new
clients and from existing clients as well as renewals with existing
clients.
7. Consensus market expectations for the full year is revenue of
GBP39m and Adjusted Operating Profit of GBP8.2m
Nik Philpot, Chief Executive Officer, said: "We have made
excellent progress with our strategic goals in the first half of
the year with continued improvement in the proportion of revenue
coming from cloud, increased levels of cross-selling and upselling
from our client base and higher operating margins.
Our cloud and SaaS transition journey, which is progressing
well, will continue to increase revenue visibility, improve margin
and quality of earnings, as well as giving clients easy access to
our full Secure Engagement Suite of products. While the shift to
cloud inevitably tempers revenue growth in the short-term, it
brings longer-term benefits, which we can already see with
recurring revenues up 360 basis points to 83% and underlying
operating profit margin up 410 basis points to 21.8%. It has also
been a driver behind the increase in ARR of 7% to GBP30.6m.
North America is our most significant target market, and with
such large enterprises creating significant new opportunities that
also brings longer sales cycles, which have been especially
noticeable in this period. However, North American ARR is still up
22%, validating our strategic decision to have one global
commercial team focused on this growth opportunity, and our
pipeline is at a record level here with Eckoh selected as the
preferred supplier on several deals that are expected to close in
H2.
As market leader, we are well placed to benefit from increased
outsourcing in the contact centre environment as complying with
data regulation is becoming ever more costly and challenging to
achieve, especially with a hybrid workforce. As consumers demand
greater choice across digital payment channels and artificial
intelligence enters contact centres, Eckoh's solutions will
continue to make personal data arising from customer engagement
more secure. With compelling growth drivers, a robust strategy and
a strong balance sheet, we are on track to deliver full year
expectations(7) and our growing ARR and improved total contracted
business provides further revenue visibility into FY25 and
beyond."
For more information, please contact:
Eckoh plc Tel: 01442 458 300
Nik Philpot, Chief Executive Officer
Chrissie Herbert, Chief Financial Officer
www.eckoh.com
FTI Consulting LLP Tel: 020 3727 1017
Ed Bridges / Emma Hall/ Valerija Cymbal
/ Emily Bowen
eckoh@fticonsulting.com
Singer Capital Markets (Nomad & Joint Tel: 020 7496 3000
Broker)
Shaun Dobson / Tom Salvesen / Alex Bond
www.singercm.com
Investec Bank plc (Joint Broker) Tel: 020 7597 5970
Patrick Robb / Nick Prowting / Shalin Bhamra
www.investec.com
About Eckoh plc
As a global provider of Customer Engagement Data Security
Solutions, Eckoh is all about making the world of data more
secure.
Our vision is that everyone should be able to trust every brand
and engage without risk to their personal information. We're on a
mission to set the standard for secure interactions between
consumers and the world's leading brands, and our innovative
products build trust and deliver value though exceptional
experiences.
We're trusted by many of the world's leading brands to help them
manage the personal data from customer enquiries and transactions
safely. Our solutions enable payment transactions to be performed
securely and help protect sensitive personal data across any
customer engagement channel and device the customer chooses.
Protected by multiple patents, our solutions remove sensitive
personal and payment data from contact centres and IT environments,
as the best way to secure data is not to collect it. This allows
organisations to be not just compliant but secure, increase
efficiency, lower operational costs, and provide an excellent
customer experience. This is our specialism.
Our sol utions are delivered globally through multiple cloud
platforms or can be deployed on the client's site. They offer
merchants a simple and effective way to reduce the risk of fraud,
secure sensitive data and become compliant with the Payment Card
Industry Data Security Standards ("PCI DSS") and wider data
security regulations. Eckoh has been a PCI DSS Level One Accredited
Service Provider since 2010, and our extensive portfolio of
typically large enterprise clients spans a broad range of vertical
markets including government departments, telecoms providers,
retailers, utility providers and financial services
organisations.
For more information go to www.eckoh.com or email
MediaResponseUK@eckoh.com .
Chief Executive Officer's statement
I'm pleased to report Eckoh performed in line with Board
expectations in the period and is on track to deliver to market
expectations for the full year.
We have made excellent progress with several of our key
strategic objectives during the first half of the year:
-- Cloud-first - the share of ARR in the North American (NA)
market coming from cloud deployments grew 30% year-on-year and now
represents the majority of overall NA ARR
-- Expanding existing clients - the new commercial strategy is
showing early encouraging signs with levels of cross selling and
upselling to existing clients up 40% on the previous year to
GBP4m
-- North America focus - the strategic decision to focus our
commercial resources on the NA market is validated by a 22% growth
in ARR to $16.8m and a record sales pipeline
-- Scalable growth - the cost and efficiency benefits from our
ongoing move to cloud and SaaS solutions is driving improved
adjusted operating profit margins with an underlying improvement of
410 basis points to 21.8%
Eckoh's mission is to set the standard for secure interactions
between consumers and the world's leading brands. We make that
happen through our innovative and patented suite of secure
engagement products, which are used by some of the largest brands
globally. Evolving regulatory change, notably the impending update
to the PCI DSS, is increasing compliance complexity and creating
new security challenges for businesses; Eckoh is optimally
positioned to capitalise from an increased level of outsourcing
from Enterprises with contact centre operations who are looking to
permanently address this challenge.
At the end of the period Group Annualised Recurring Revenue
(ARR) was GBP30.6 million, (H1 FY23: GBP28.6 million), with growth
being driven by our increased focus on the North America territory,
with North America Data Security Solutions ARR at $16.8 million, a
22% increase year-on-year from $13.8 million.
Revenue for the first half was GBP18.8 million (H1 FY23: GBP19.6
million), the decrease reflecting the loss of a large
(non-security) UK client, which we disclosed in our FY23 final
results, together with the on-going transition to cloud-based
delivery of our solutions and the successful renewal of a number of
large North American clients. These North America contracts were
for solutions deployed on-premise, where the hardware revenue and
implementation fees typically represent typically 25-35% of
contract value and are, fully recognised at the point of the
initial renewal. This transition to cloud-based solutions has the
effect of tempering revenue growth in the short term but is
increasing the quality and visibility of future earnings. Almost
all new client contracts are now for cloud delivery and the element
of non-recurring charges in this model drops to only 10-15%.
The on-going shift of our new business and existing clients to
the data security solutions that comprise our cloud-based Secure
Engagement Suite continues to improve the strength of our business
model, with improving recurring revenue margins in the North
America Territory and on a Group basis an improving operating
profit margin. Adjusted operating profit was GBP4.0 million, which
includes an FX loss of GBP0.1m (H1 FY23: GBP4.2 million, included a
FX gain of GBP0.7 million), with underlying operating profit margin
of 21.8%, an underlying improvement of 410bp on last year when
excluding the respective FX movements. As most new business is now
expected to be deployed in the cloud on a SaaS basis (we expect 90%
of new North America business to be cloud), these key performance
indicators will continue to improve.
The split of ARR between on-premise and cloud delivery has for
the first time seen cloud become the largest share at 52%, which is
a threefold rise over 3 years (H1 FY21 17%). We would expect this
cloud share to continue rising, but some of the largest North
America clients continue to choose to have on premise solutions and
it may take them several years to migrate, therefore we continue to
support both deployment methods and will continue to do so for the
foreseeable future.
At the start of the year, we implemented a new commercial
strategy by unifying the UK and US commercial teams (sales,
technical pre-sales, marketing, account management and client
success), into a single global team focused predominantly on the
largest market of North America. There are no US-based competitors
for Eckoh's software solutions and by allocating more resource to
the North American market, we have been able to identify and target
potential new clients more effectively and set ourselves up to
maximise the cross-selling and upselling opportunity within
existing accounts by segmenting them into tiers of opportunity
value. Whilst it is still only a short time since this commercial
strategy was implemented, the early signs are encouraging. Total
Contract Value (the combined value of both new contracts and
renewals) was at an all-time high for a single period at GBP24.6m,
a 40% increase on the previous year and the level of cross-selling
and upselling in the period was GBP4m, also some 40% higher than
the previous year. The strength of the order level is expected to
continue in the second half, with the North America new business
pipeline at a record level. Encouragingly, the number of
opportunities that have been identified with existing clients since
the start of the year is also at a level never seen before.
In the half, strong levels of both cross-sell and up-sell
initiatives to existing clients has been executed through our new
global commercial team but supported by our enhanced Secure
Engagement Suite and the ongoing shift to cloud. Recent new product
additions such as Secure Call Recording and our updated Secure
Digital Payments platform have been extremely well received and we
expect several clients to go live with these and other additional
products from our Suite in the second half.
Our record pipeline of new business opportunities in the North
American market validates the strategic decision to move to a
single global commercial team that focuses on this market, where
the scale of opportunity for Eckoh's solutions is most compelling.
The Company is, like others, experiencing a lengthening of sales
cycles with new clients, especially in the contracting phase,
driven by increased levels of management oversight and more onerous
budgetary approval processes. Consequently, the completion of
contracts is taking longer, and has meant that several sizeable
enterprise deals where Eckoh is the chosen supplier, which were
expected to close in the period, will now shift to the second
half.
Operational Review
North America (NA) Territory (47% of group revenues)
The North American territory continues to deliver growth and the
Data Security Solutions ARR(1) at the end of the first half was
$16.8 million, a year-on-year increase of 22% (H1 FY23 $13.8
million). This represents a CAGR of 44% over the past 2 years.
Revenue for the period was $11.2 million. At a total revenue
level this is an increase year-on-year of 5% (H1 FY23: $10.6
million), however, recurring revenue has increased by 18%
year-on-year and is now 82% of revenue (H1 FY23 73%). This increase
is as expected and comes from new contracts being delivered through
the cloud with a higher recurring revenue percentage than for an
on-premise solution.
During the first half several clients with large enterprise
deals have renewed their contracts for the first time. At the point
of renewal, the hardware fees and implementation fees from the
initial term of the contract are fully recognised. This combination
of new cloud deals and large renewals in the first half has seen a
21% decline in this one-off revenue year-on-year.
Despite this shift in revenue the North America territory has
continued to grow and increase its share of Group revenue and now
accounts for a 47% share (H1 FY23: 44%). In FY24, we expect North
American revenue will be of equal size to revenue from the UK and
Ireland territory.
Total and New Contracted Business
-- The total contracted orders for the first half is $14.7
million (H1 FY23: $9.8 million), a 50% increase year-on-year
-- Data Security Solutions new contracted business of $4.1
million (H1 FY23: $7.1 million) with 56% of this coming from
existing clients
Contract Renewals
-- Seven clients have renewed their contracts in the first half,
these include Costco, Lowes, Conifer, TDS and Deluxe. These
renewals underpin the future ARR. Five of the contracts were
renewed for multi-year contracts, which provides far better
opportunity for developing the client relationship and enabling
cross-selling.
-- In the second half we have a further five sizeable renewals,
one of which has already been completed successfully with the
others due in our final quarter of the year. Of these five clients
due for renewal, four of the clients are looking to migrate to the
cloud and two are actively considering additional products as part
of this transition
Coral
In the period, Coral had revenue of $1.1 million (H1 FY23: $1.0
million Coral & third-party Support). Coral is a browser-based
agent desktop for contact centres, that aids the following:
-- to increase efficiency by bringing all the contact centre
agent's communication tools onto a single screen;
-- to enable organisations, particularly those grown by
acquisition, to standardise their contact centre facilities;
and
-- to be implemented in environments that operate on entirely different underlying technology
Coral contracts are few but high in value when they occur, and
they have a very long sales cycle (usually years) as the decision
has long term implications for the client. This makes the timing of
any new agreements both lumpy and hard to predict. There is a proof
of concept planned with a large global financial services company,
however, this is currently on hold.
UK & Ireland (UK & I) Territory, and Rest of World (ROW)
Territory (53% of group revenues)
The UK & Ireland and Rest of World territories are reported
on a combined basis due to the small proportion of ROW revenue at
this stage. Over time and as the new global strategy drives more
international mandates and activity arising from new markets, this
share will be large enough to report separately.
ARR at the end of the period was GBP16.4 million (H1 FY23:
GBP16.5 million), with growth hindered by the loss of a significant
(non-security) client in the first half last year. During the first
half of FY24 a non-security client entered administration, the full
year impact will be GBP0.5 million.
The business continues to transition to a Data Security
Solutions only proposition, with 91% of revenue now coming from
clients who take these solutions as part of their overall
proposition. We continue to see churn levels in this base of
clients to be extremely low.
Total revenue for the period was GBP9.9 million, a decrease of
10% (H1 FY23: GBP10.9 million), recurring revenue remains high at
83% (H1 FY23:84%). The UK & I territory's revenue in the period
has been impacted by the loss of the two non-security clients and
the growth going forward is expected to be modest, with the global
commercial team's focus on the more lucrative and larger North
America market. We will, however, continue to look to grow and
expand in our existing client base and compete for the largest new
enterprise contracts in the region.
Gross profit in the period was GBP8.4 million, (H1 FY23: GBP8.9
million) and gross margin was 85%, an increase of 4%, with Security
Solutions driving a higher margin.
New contracted business
-- Total contracted business was GBP12.8 million up 32% compared
to GBP9.7 million in the prior year, largely due to high conversion
of renewals and timing of large renewals
-- New contracted business was GBP2.4 million (H1 FY23: GBP2.5 million)
Contract renewals
-- Total contracted business was driven by the four largest
renewals in H1 FY24 worth a combined GBP6.9 million all containing
Data Security Solutions and all multi-year. These were Capita O2,
Tenpin, Premier Inn and Vanquis (through Maintel)
Growth Drivers - new PCI DSS standard
One of the key drivers for the adoption of our solutions is the
Payment Card Industry Data Security Standard ('PCI DSS'), which all
merchants need to comply with to help protect their customer's
data, to avoid higher payment processing charges and to reduce the
risk of substantial fines. Eckoh has maintained continual PCI DSS
compliance at level 1, the highest level, since 2010.
The Standard has evolved over time to try and address the
ever-increasing threat of fraud and hacking and the most meaningful
change to the standard since 2016 comes into force from April 2024,
when v4.0 becomes applicable. From this date any organisation who
is audited for compliance with the Standard will be expected to
comply with the new regulations that were first published in March
2022.
There are 60 new requirements that have been added, and 71 that
have been changed in v4.0 and the implications for merchants who
are currently compliant is that these changes are numerous and
complex and will drive up compliance costs and increase the
resources required to complete 'business as usual' processes. It is
also probable that a percentage of companies will fail their audits
due to the scale and challenge of the changes. With PCI DSS still
being the regulatory standard that drives most sales conversations
for Eckoh, it is anticipated that the challenges (and increased
risk) associated with implementing v4.0 by merchants will lead to
an increase in sales opportunities for Eckoh's solutions.
Secure Engagement Suite
Since acquiring Syntec two years ago we have consolidated our
products into a suite that is delivered through a common cloud
platform (our Secure Voice Cloud), that is based on a new, more
powerful and proprietary Secure Voice Appliance.
Eckoh's Secure Engagement Suite comprises several complementary
data security products that can be delivered to a client either
individually or as a solution set. Over time it is expected that
more new clients will take multiple products as part of their
initial contract and that existing clients will add further
products because of our cross-selling initiatives. This is already
beginning to bear fruit in the results we have seen in the period
and the pipeline that is building.
It is our intention and strategy to continue to grow our Secure
Engagement Suite over time, and at the beginning of the financial
year, we launched our new Secure Call Recording product. In
contrast with aging contact centre technology that only enables
calls to be recorded for compliance and quality purposes, our new
product automatically secures sensitive customer data and
incorporates the ability to transcribe calls into text at a highly
accurate level, unlocking the business intelligence and insight
that these conversations contain. The reception to the product has
been excellent and we already have clients deployed and live, with
an increasing number expected to take the service over time as
their existing call recording contracts come up for renewal, or
they move to the cloud.
Shortly after period end, we launched a significant update to
our Secure Digital Payments product, offering enhanced digital
payment choice and convenience within contact centres. Via the
updated product, customers now have the freedom to combine their
preferred contact channel with their favourite payment method:
Apple Pay over WhatsApp, Pay by Bank via live chat, pay-later apps
over the phone, or a wide variety of other combinations. In
particular, the Secure Digital Payments product will enable contact
centres to better serve customer needs, extend their services to
social media and third-party channels, increase payment volumes and
speed, provide greater choice with pay-now or pay-later options and
provide stronger authenticated security through methods such as
fingerprint or facial recognition.
The Real-time Transcription and AI product which was originally
scheduled for the end of this financial year has been split into
two separate phases. The first phase (which we still expect to be
delivered in that time frame) will see the release of the insight
tool which will allow our client real-time visibility of their
agent activity across their contact centre facilities and agent's
home locations. Monitoring performance of a hybrid agent workforce
is challenging, and security concerns are heightened, so this tool,
which can be used in combination with the Voice Security, Secure
Call Recording or the Real-time Transcription & AI products
will be a valuable addition to our clients' ability to drive both
service quality and security. Phase two, which we expect to launch
in the first half of FY25, will deliver real-time transcription and
sentiment analysis to enable managers or supervisors to view active
conversations between agents and customers to aid or assess
performance. The AI engine will be able to guide the agent to the
next best action, based on its knowledge of previous historic
outcomes, enabling less experienced agents to perform at a higher
standard increasing both customer and agent satisfaction.
Outlook and financial position
The Board is very encouraged by the continued cloud transition,
the record level of business contracted in the first half and the
successful implementation of our new commercial strategy. Whilst
the shift to cloud and longer than expected sales cycles marginally
impacted top line growth, Eckoh enters the second half with a
strong sales pipeline which includes some large deals which are in
a progressed position. This gives us the confidence that the strong
positive trend of growth in total contract value will continue in
the second half and the Board is confident that the Company is on
track to meet market expectations for the full year and the growth
expectations for FY25.
Financial Review
Overall the Group continues to progress with its cloud-based
SaaS transition and the progress made, particularly in the North
America Territory, can be seen in the improvements in annualised
recurring revenue, recurring revenue % and for the Group in the
Operating profit margin.
Revenue for the period was GBP18.8 million (H1 FY23: GBP19.6
million), a decrease year-on-year of 4% or at constant exchange
rates a 3% decrease year-on-year. Group recurring revenue was
GBP15.5 million level year-on-year, with recurring revenue 83% an
increase year-on-year of 360 basis points, the increase being
driven by the North America territory.
Adjusted operating profit was GBP4.0 million, which includes a
foreign currency loss in the period of GBP0.1m, this is compared to
an adjusted operating profit last year of GBP4.2 million, which
includes a FX gain of GBP0.7 million. The operating profit margin
for the period was 21.4%, level with the same period last year, but
an underlying improvement of 410 basis points excluding the
year-on-year net FX movement of GBP0.8 million. In the period there
is an exceptional cost of GBP0.9 million for legal fees and
restructuring costs.
Group ARR was GBP30.6 million, an increase of 7% on prior year
or at constant exchange rates an improvement of 9% (H1 FY23 GBP28.6
million).
Total contracted business for the period at the Group level was
GBP24.6 million, (H1 FY23: GBP17.6 million), a year-on-year
increase of 40% or an increase of 41% at constant exchange rates.
New contracted business was GBP5.7 million (H1 FY23: GBP8.2
million).
Basic earnings per share for the period was 0.43 pence per share
(H1 FY23: 0.77 pence per share). Adjusted earnings per share for
the period was 1.01 pence per share (H1 FY23 1.03 pence per
share).
Territory performance - NA, UK&I, & ROW
North America revenue represented 47% (H1 FY23: 44%) of total
group revenues and revenues increased in the period by 3% to GBP8.9
million (H1 FY23: GBP8.7 million), revenues in local currency
increased by 5% to $11.2 million (H1 FY23: $10.6 million).
Recurring revenue increased by 18% in the period to 82% of revenue
(H1 FY23: 73%). UK&I and ROW represented 53% of total group
revenues at GBP9.9 million, a decrease year-on-year of 10% and
recurring revenue of 83%.
Further explanations of movements in revenue between the North
America, UK & Ireland and ROW territories have been addressed
in the Operational Review above.
Gross profit
The Group's gross profit was GBP15.5 million level year-on-year,
with gross profit margin increasing by 330 basis points to 83% (H1
FY23: 79%). The UK & Ireland and ROW gross profit margin
increased to 85% year-on-year (H1 FY23: 81%). In the North America
territory, the margin in the period increased to 80% (H1 FY23:
77%). This increase in margin as previously indicated is as a
result of the continued deployment of the new Customer Engagement
Data Security Solutions in the cloud environment together with the
successful renewals of the earlier contracted on-premise solution
deployments, where the lower margin hardware component becomes
fully recognised at the point of renewal.
In the UK & Ireland and ROW territories, as the service is
hosted on an Eckoh platform, there is typically no hardware
provided to clients and the gross profit margin is expected to
remain at approx. 84 - 85%. In the North America territory, we
would expect the gross profit margin to continue to marginally
increase from 80% to approximately 81% - 82% over the next two
years. This is driven by the continued growth of the Security
Solutions being deployed as cloud solutions coupled with a small
number of clients with on-premise solutions who are due to renew
their contracts without additional significant hardware.
Administrative expenses
Total administrative expenses for the period were GBP14.0
million (H1 FY23: GBP12.6 million). Adjusted administrative
expenses for the period were GBP11.5 million, an increase
year-on-year of 4% (H1 FY23: GBP11.3 million). Exceptional costs in
the period were GBP0.9 million (H1 FY23 GBPnil million). Included
in administrative expenses is a trading FX loss of GBP0.1 million
(H1 FY23: GBP0.7 million gain).
Profitability Measures
Adjusted Operating profit(4) for the period was GBP4.0 million
(H1 FY23: GBP4.2 million). Included in the first half profit for
the current period was a FX loss of GBP0.1 million (H1 FY23: GBP0.7
million). Adjusted EBITDA(3) for the period was GBP4.9 million (H1
FY23: GBP5.0 million).
Six months Year
ended Six months ended
30 Sept ended 31 March
2023 30 Sept 2022 2023
GBP'000 GBP'000 GBP'000
---------------------------------- ----------- -------------- ----------
Profit from operating activities 1,455 2,958 5,020
Amortisation of acquired
intangible assets 1,237 1,237 2,473
Expenses relating to share
option schemes 412 (6) 40
Exceptional legal costs,
settlement agreements and
restructuring costs 916 - 203
Adjusted operating profit(4) 4,020 4,189 7,736
----------- -------------- ----------
Amortisation of intangible
assets 220 195 398
Depreciation of owned assets 316 354 643
Depreciation of leased assets 326 289 617
---------------------------------- ----------- -------------- ----------
Adjusted EBITDA(3) 4,882 5,027 9,394
---------------------------------- ----------- -------------- ----------
Adjusted profit before tax was GBP4.1 million (H1 FY23: GBP4.2m)
and is after including in the adjusted operating profit, the net
interest income of GBP93k in the current period and the net
interest charge of GBP18k in H1 FY23 adjusted operating profit.
Finance charges
For the financial period ended 30 September 2023, the net
interest income was GBP93k (H1 FY23: GBP18k charge). The interest
income is made up of bank interest receivable of GBP111k (H1 FY23:
GBP11k), offset by interest on leased assets of GBP18k (H1 FY23:
GBP29k).
Taxation
For the financial period ended 30 September 2023, there was a
tax charge of GBP0.3 million (H1 FY23: GBP0.7 million), an
effective tax rate of 18% (H1 FY23: 23%).
Earnings per share
Basic earnings per share was 0.43 pence per share (H1 FY23: 0.77
pence per share). Diluted earnings per share was 0.42 pence per
share (H1 FY23: 0.74 pence per share). Adjusted diluted earnings
per share was 1.01 pence per share (H1 FY23: 1.03 pence per share
(restated to use a tax rate of 25%)).
Client contracts
Client contracts are typically multi-year in length and have a
high proportion of fixed recurring revenues from the software
licences for our products. There are a smaller and declining number
of UK contracts that are underpinned by transactional minimum
commitments. In the NA territory we now have a greater proportion
of contracts being delivered through the cloud, so the initial set
up fees and hardware costs associated with larger customer premise
deployments have reduced. This has led to total revenue growth
being lower than recurring revenue growth. Recurring revenue as a
percentage of regional revenue in the NA territory has increased
from 52% in FY21 to 82% in the first half and gross profit margin
has increased in the same period from 71% to 80%. This trend is
also driving the improved Operating profit margin we are seeing at
a Group level. This has resulted in a reduction in contract
liabilities held on the Group's balance sheet and a net cash
outflow for working capital, this is expected to normalise in the
current year and onwards into FY25.
Contract liabilities and contract assets
Contract liabilities and contract assets relating to IFRS 15
Revenue from Contracts with Customers continue to decrease,
principally as new contracted business in North America has been
predominantly for cloud-based solutions. Where clients contract for
their services to be provided in the cloud or on our internal cloud
platforms, the level of hardware is significantly reduced and
implementation fees are typically lower. This reduces the level of
upfront cash received but drives a greater level of revenue
visibility and earnings quality. Total contract liabilities were
GBP8.4 million (H1 FY23: GBP11.9 million) included in this balance
are GBP5.1 million of IFRS 15 contract liabilities relating to the
Secure Payments product, hosted platform product or Syntec's
CardEasy Secure Payments product, a decrease of GBP1.8 million from
March 2023. Contract assets as at 30 September 2023 were GBP1.7
million compared to GBP2.4 million at March 2023 (H1 FY23: GBP3.3
million).
Cashflow and liquidity
Net cash at 30 September 2023 was GBP7.3 million, an increase of
GBP1.6 million from the year end at 31 March 2023 and an increase
of GBP2.9 million to the previous year. The GBP1.6 million cash
inflow from 31 March 2023 includes a net cash outflow for trade
debtors, trade creditors, inventory and tax of GBP1.6 million (H1
FY23: cash outflow GBP1.9 million), in principle due to the
unwinding of deferred revenue on the large enterprise on-premise
solutions.
Consolidated statement of comprehensive income
for the six months ended 30 September 2023
Six months Six months
ended 30 ended 30 Year ended
September September 31 March
2023 2022 2023
GBP'000 GBP'000 GBP'000
Continuing operations
Revenue 18,772 19,590 38,821
Cost of sales (3,268) (4,059) (7,578)
----------------------------------------------- ----------- ----------- -----------
Gross profit 15,504 15,531 31,243
Administrative expenses (14,049) (12,573) (26,223)
----------------------------------------------- ----------- ----------- -----------
Operating profit 1,455 2,958 5,020
----------------------------------------------- ----------- ----------- -----------
Adjusted operating profit 4,019 4,189 7,736
Amortisation of acquired intangible
assets (1,237) (1,237) (2,473)
Expenses relating to share option
schemes (411) 6 (40)
Exceptional costs - legal fees and
restructuring costs (916) - (203)
----------------------------------------------- ----------- ----------- -----------
Profit from operating activities 1,455 2,958 5,020
----------------------------------------------- ----------- ----------- -----------
Finance charges (18) (29) (53)
Finance income 111 11 53
----------------------------------------------- ----------- ----------- -----------
Profit before taxation 1,548 2,940 5,020
Taxation (274) (682) (383)
-----------
Profit for the period 1,274 2,258 4,637
=============================================== =========== =========== ===========
Other comprehensive income/(expense)
---------------------------------------------- ----------- ----------- -----------
Items that will be reclassified subsequently
to profit or loss:
Foreign currency translation differences
- foreign operations 83 (32) (389)
----------------------------------------------- ----------- ----------- -------------
Other comprehensive (expense)/ income
for the period, net of income tax 83 (32) (389)
----------------------------------------------- ----------- ----------- -----------
Total comprehensive income for the
period attributable to the equity
holders of the Company 1,357 2,226 4,248
=============================================== =========== =========== ===========
Profit per share expressed in pence
---------------------------------------------- ----------- ----------- -----------
Basic earnings per 0.25p share 0.43 0.77 1.58
Diluted earnings per 0.25p share 0.42 0.74 1.55
----------------------------------------------- ----------- ----------- -----------
Consolidated statement of financial position
as at 30 September 2023
30 September 30 September 31 March
2023 2022 2023
GBP'000 GBP'000 GBP'000
------------------------------- ------------- ------------- ---------
Assets
Non-current assets
Intangible assets 36,497 38,860 37,500
Property, plant and equipment 3,945 4,433 4,181
Right -of-use leased assets 668 1,282 995
Deferred tax asset 156 1,535 129
-------------------------------- ------------- ------------- ---------
41,266 46,110 42,805
------------------------------- ------------- ------------- ---------
Current assets
Inventories 223 295 254
Trade and other receivables 10,238 13,556 11,778
Cash and cash equivalents 7,278 4,358 5,740
-------------------------------- ------------- ------------- ---------
17,739 18,209 17,772
------------------------------- ------------- ------------- ---------
Total assets 59,005 64,319 60,577
-------------------------------- ------------- ------------- ---------
Liabilities
Current liabilities
Trade and other payables (13,294) (18,036) (16,190)
Lease liabilities (482) (609) (482)
-------------------------------- ------------- ------------- ---------
(13,776) (18,645) (16,672)
------------------------------- ------------- ------------- ---------
Non-current liabilities
Lease liabilities (231) (740) (569)
Deferred tax liabilities (1,535) (3,014) (1,528)
-------------------------------- ------------- ------------- ---------
(1,766) (3,754) (2,097)
------------------------------- ------------- ------------- ---------
Net assets 43,463 41,920 41,808
-------------------------------- ------------- ------------- ---------
Shareholders' equity
Called up share capital 732 732 732
Share premium account 22,180 22,180 22,180
Capital redemption reserve 198 198 198
Merger reserve 2,697 2,697 2,697
Currency reserve 815 1,089 732
Retained earnings 16,841 15,024 15,269
-------------------------------- ------------- ------------- ---------
Total equity 43,463 41,920 41,808
-------------------------------- ------------- ------------- ---------
Consolidated interim statement of changes in equity
as at 30 September 2023
Called Capital
up share Share redemption Merger Currency Retained Total Shareholders'
capital premium reserve reserve reserve earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 1 April
2023 732 22,180 198 2,697 732 15,269 41,808
Total comprehensive
income for the period
Profit for the period - - - - - 1,274 1,274
Other comprehensive
expense for the period - - - - 83 - 83
------------------------- ---------- --------- ------------ --------- --------- ---------- --------------------
Contributions by and
distributions to owners - - - - 83 1,274 1,357
Shares transacted
through
Employee Benefit Trust - - - - - - -
Shares issued under
the share option scheme - - - - - - -
Shares purchased for
share ownership plan - - - - - (104) (104)
Share based payment
charge - - - - - 402 402
Transactions with
owners recorded
directly
in equity - - - - - 298 298
------------------------- ---------- --------- ------------ --------- --------- ---------- --------------------
Balance as at 30
September
2023 732 22,180 198 2,697 815 16,841 43,463
------------------------- ---------- --------- ------------ --------- --------- ---------- --------------------
Called Capital
up share Share redemption Merger Currency Retained Total Shareholders'
capital premium reserve reserve reserve earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------- ---------- --------- ------------ --------- --------- ---------- --------------------
Balance at 1 April
2022 732 22,180 198 2,697 1,121 12,815 39,743
------------------------- ---------- --------- ------------ --------- --------- ---------- --------------------
Total comprehensive
income for the period
Profit for the period - - - - - 2,258 2,258
Other comprehensive
expense for the period - - - - (32) - (32)
------------------------- ---------- --------- ------------ --------- --------- ---------- --------------------
Contributions by and
distributions to owners - - - - (32) 2,258 2,226
Shares transacted
through
Employee Benefit Trust - - - - - - -
Shares issued under
the share option schemes - - - - - - -
Shares purchased for
share ownership plan - - - - - (72) (72)
Share based payment
charge - - - - - 23 23
------------------------- ---------- --------- ------------ --------- --------- ---------- --------------------
Transactions with
owners recorded
directly
in equity - - - - - (49) (49)
------------------------- ---------- --------- ------------ --------- --------- ---------- --------------------
Balance at 30 September
2022 732 22,180 198 2,697 1,089 15,024 41,920
------------------------- ---------- --------- ------------ --------- --------- ---------- --------------------
Consolidated statement of cash flows
for the six months ended 30 September 2023
Six months Six months
ended ended Year ended
30 September 30 September 31 March
2023 2022 2023
GBP'000 GBP'000 GBP'000
--------------------------------------- -------------- -------------- -----------
Profit after taxation 1,274 2,258 4,637
Interest income (111) (11) (53)
Interest payable 18 29 53
Taxation 274 682 383
Depreciation of property, plant
and equipment 316 354 643
Depreciation of leased assets 326 289 617
Amortisation of intangible assets 1,457 1,432 2,871
Share based payments 412 26 40
Exchange differences 67 (719) (516)
--------------------------------------- -------------- -------------- -----------
Operating profit before changes
in working capital and provisions 4,033 4,340 8,675
--------------------------------------- -------------- -------------- -----------
Decrease/ (Increase) in inventories 31 (27) 14
Decrease/ (Increase) in trade and
other receivables 1,540 (1,273) 505
Decrease in trade and other payables (2,908) (252) (2,238)
--------------------------------------- -------------- -------------- -----------
Net cash generated from operating
activities 2,696 2,788 6,956
--------------------------------------- -------------- -------------- -----------
Taxation paid (292) (335) (178)
Interest paid on lease liability (18) (29) (53)
--------------------------------------- -------------- -------------- -----------
Net cash from continuing operating
activities 2,386 2,424 6,725
--------------------------------------- -------------- -------------- -----------
Cash flows from investing activities
Purchase of property, plant and
equipment (76) (501) (613)
Purchase of intangible fixed assets (408) (164) (570)
Interest received 111 11 53
Net cash utilised in continuing
investing activities (373) (654) (1,130)
--------------------------------------- -------------- -------------- -----------
Cash flows from financing activities
Dividends paid - - (1,959)
Principal elements of lease payments (338) (188) (564)
Shares purchased for share ownership
plan (103) (72) (120)
Net cash utilised in continuing
investing activities (441) (260) (2,643)
Increase in cash and cash equivalents 1,572 1,510 2,952
Cash and cash equivalents at the
start of the period 5,740 2,840 2,840
Effect of exchange rate fluctuations
on cash held (34) 8 (52)
--------------------------------------- -------------- -------------- -----------
Cash and cash equivalents at the
end of the period 7,278 4,358 5,740
--------------------------------------- -------------- -------------- -----------
Notes to the condensed consolidated interim financial
statements
For the six months ended 30 September 2023
GENERAL INFORMATION
Eckoh plc is a public Company limited by shares and is
incorporated in the United Kingdom and registered in England under
the Companies Act 2006 (Company Registration number 03435822). The
address of the Company's registered office is Telford House, Corner
Hall, Hemel Hempstead, HP3 9NH.
Eckoh plc is a global provider of Customer Engagement Data
Security Solutions.
These condensed consolidated interim financial statements for
the six months ended 30 September 2023 comprise the Company and its
subsidiaries (together the "Group").
1. Basis of preparation
These condensed consolidated interim financial statements for
the six months ended 30 September 2023 have been prepared in
accordance with IAS 34 Interim Financial Reporting as adopted for
use in the UK. This report does not include all of the information
required for full annual financial statements and should be read in
conjunction with the consolidated financial statements of the Group
as at and for the year ended 31 March 2023, which have been
prepared in accordance with United Kingdom Generally Accepted
Accounting Practice (United Kingdom Accounting Standards,
comprising FRS 101 "Reduced Disclosure Framework" and applicable
law).
The unaudited condensed consolidated interim financial
information for the period ended 30 September 2023 does not
constitute statutory accounts as defined in Section 435 of the
Companies Act 2006. The comparative figures for the year ended 31
March 2023 are extracted from the statutory financial statements
which have been filed with the Registrar of Companies, on which the
auditor gave an unqualified report, which made no statement under
section 498(2) or (3) respectively of the Companies Act 2006 and
did not draw attention to any matters of emphasis.
The preparation of interim financial statements requires
management to make judgements, estimates and assumptions that
affect the application of accounting policies and the reported
amounts of assets and liabilities, income and expense. Actual
results may differ from these estimates.
In preparing these condensed consolidated interim financial
statements, the significant judgements made by management in
applying the Group's accounting policies and the key sources of
estimation uncertainty were the same as those that applied to the
consolidated financial statements as at and for the year ended 31
March 2023.
In reporting financial information, the Group presents
alternative performance measures ("APMs"). The Directors consider
that disclosing alternative performance measures enhances
Shareholders' ability to evaluate and analyse the underlying
financial performance of the Group. They have identified adjusted
operating profit and adjusted EBITDA as measures that enable the
assessment of the performance of the Group and assists in
financial, operational and commercial decision-making. In adjusting
for these measures, the Directors have sought to eliminate those
items of income and expenditure that do not specifically relate to
the underlying operational performance of the Group in a specific
year.
These condensed consolidated interim financial statements were
approved by the Board of Directors on 20 November 2023.
The accounting policies adopted in these interim financial
statements are consistent with those of the previous financial year
and the corresponding interims period.
Going concern
The Directors have, at the time of approving the condensed
consolidated interim financial statements, a reasonable expectation
that the Company and the Group have adequate resources to continue
in operational existence for the foreseeable future. Thus, they
continue to adopt the going concern basis of accounting in
preparing the financial statements.
New standards and interpretations not yet adopted
Amended standards and interpretations not yet effective are not
expected to have a significant impact on the Group's consolidated
financial statements.
2. Dividends
The proposed dividend of GBP2.2m for the year ended 31 March
2023 of 0.74p per share was paid on 20 October 2023.
3. Earnings per share
The basic and diluted earnings per share are calculated on the
following profit and number of shares. Earnings for the calculation
of earnings per share is the net profit attributable to equity
holders of the parent.
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2023 2022 2023
GBP'000 GBP'000 GBP'000
------------------------------------------ -------------- -------------- ----------
Earnings for the purposes of basic
and diluted earnings per share 1,274 2,258 4,637
------------------------------------------ -------------- -------------- ----------
Earnings for the purposes of adjusted
basic and diluted earnings per share(1) 3,084 3,128 5,802
------------------------------------------ -------------- -------------- ----------
1. Calculated using tax rate of 25% in all years
Reconciliation of earnings for the purposes of adjusted basic
and diluted earnings per share
H1 FY24 H1 FY23 FY23
GBP'000 GBP'000 GBP'000
------------------------------------------- -------- -------- --------
Earnings for the purposes of basic and
diluted earnings per share 1,274 2,258 4,637
Taxation 274 682 383
Amortisation of acquired intangible
assets 1,237 1,237 2,473
Expenses relating to share option schemes 412 (6) 40
Exceptional legal and restructuring
costs 916 - 203
------------------------------------------- -------- -------- --------
Adjusted profit before tax 4,112 4,171 7,736
Tax charge based on standard corporation
tax rate of 25% (2023: 25%) (1,028) (1,043) (1,934)
------------------------------------------- -------- -------- --------
Earnings for the purposes of adjusted
basic and diluted earnings per share 3,084 3,128 5,802
------------------------------------------- -------- -------- --------
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2023 2022 2023
Denominator '000 '000 '000
---------------------------------------- -------------- -------------- ----------
Weighted average number of shares in
issue in the period 292,909 292,893 292,893
Shares held by employee ownership plan (2,608) (2,062) (2,338)
---------------------------------------- -------------- -------------- ----------
Number of shares used in calculating
basic earnings per share 290,302 290,831 290,555
Dilutive effect of share options 13,819 12,428 9,210
Number of shares used in calculating
diluted earnings per share 304,121 303,259 299,765
----------
H1 FY23 H1 FY22 FY23
Profit per share pence Pence Pence
Basic earnings per 0.25p share 0.43 0.77 1.58
Diluted earnings per 0.25p share 0.42 0.74 1.55
Adjusted earnings per 0.25p share 1.05 1.07 1.98
Adjusted diluted earnings per 0.25p
share 1.01 1.03 1.94
4. Subsequent events to 30 September 2023
As at the date of these statements there were no such events to
report.
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END
IR KBLFLXFLFFBB
(END) Dow Jones Newswires
November 21, 2023 02:00 ET (07:00 GMT)
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