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21 June 2000

Vocalis Group plc Preliminary Results


For the Year Ended 31st March 2000

Vocalis Group plc ("Vocalis"), the international speech technology group, announces today its preliminary results for the year ended 31st March 2000.

Key Business points:

  • Exclusive deal signed with MCI Worldcom during period for telephony revenues derived from SpeecHTML and SpeechMail
  • Increased take–up by ISPs for Internet services: Over 70 ISP's signed up in the UK, US based ISPs: WT.net and Shared Network Services (SNS) signed up since the end of the period and first ISP signed in South Africa with World Online in May 2000
  • SPEECHtel orders from Embratel (Brazil), Eircom (Ireland), Stet Hellas (Greece) and Arico (Sweden)
  • International expansion in The Americas, South Africa and Asia Pacific including new global partners

Key Financial points:

  • Operating expenditure increased to £6.6m (1999: £3.7m) as a result of increased investment in marketing, R&D and staff
  • Sales of £2.7m (1999: £4.8m)
  • Loss before tax of £4.5m (1999: £1.1m)
  • Year end Cash balances of £4.8m

Charles Halle, Chief Executive Officer, commented:

"In the last year Vocalis has played a pioneering role in developing innovative speech–based applications that can be combined with the information revolution being brought about by the Internet, mobile communications and other rapidly advancing technologies. Following the steps we have taken, we are now well positioned to capitalise on the expected rapid expansion of these markets and create volume businesses. As a result we view the future with enthusiasm and confidence. "


REVIEW OF RESULTS

In April we announced that the Company had taken a decision to maintain ownership of future revenue streams from Internet products rather than selling exclusive licences for these products. As a result a large proportion of the revenues from contracts signed in March 2000 will be recognised over the term of the contracts. In addition equipment orders for our Speechtel product have not come as quickly as anticipated and as a result total sales for the year ended 31 March 2000 were down to £2.7m (1999: £4.8m).

In May 1999, the Group raised £9.3m (£8.7m net of expenses) through the issue of 10,920,202 ordinary shares by way of a placing and open offer. As noted in the Prospectus issued at the time, the net proceeds were raised to market and develop enhanced functions of Vocalis' Internet services as well as financing the on–going development and marketing of its Telephony Solutions.

Operating expenditure increased from £3.7m to £6.6m reflecting the increased investment in staff, systems and infrastructure in order to launch the Internet products and to develop and market the Telephony Solutions. Included within this expenditure, research and development increased to £2.2m, during the year under review, compared with £933,000 in 1999. This increase reflected continuing development of the core SpeechWare technology, together with the costs of bringing the Internet products to market.

As a result the loss before taxation on ordinary activities increased from £1.1m to £4.5m.

During the period, the Group purchased £1.9m of fixed assets, which were funded by cash generated from the placing and open offer in May 1999. £1.5m of the fixed asset additions were represented by the purchase of development and managed services machines, the latter to be used in the UK and the US to support the trading of the Internet services.

As a result of trading activity during March, trade debtors at the year end increased to £1.4m (1999: £822,000). At 31 March 2000 84% of Trade Debtors were represented by March invoices. Trade Creditors increased by a similar ratio reflecting the financing of the cost of sales at the year end.

Cash and short term deposits at the year end amounted to £4.8m which were held in short term sterling deposits of under one month maturity. As a result of the trading performance there was a net cash outflow from operating activities of £5.1m compared to an outflow of £217,000 in 1999.

This was a year of substantial change for the company, change that reflects important advances in the way speech technologies are being used, namely the provision of voice access to the Internet and the use of speech recognition in the rapidly expanding automated telephony services market. Substantial investment has been made in people, systems, and infrastructure and a series of important commercial partnerships have been established. This has laid a solid foundation to attack the Speech Recognition and Internet Services markets.

With these foundations in place, our objective is to exploit fully the commercial potential that the Internet and advanced telephony represent for speech recognition and related technologies. The potential has already been clearly illustrated by the widespread take–up by many leading Internet Service Providers (ISPs) of our SpeechMail system.

Expanding our operations internationally is a key strategy that is now underway, with offices opened or partnerships established around the globe, from the USA, Mexico, and Brazil to South Africa, and across the Asia Pacific markets.

As set out in previous reports a benefit of the greater emphasis on internet–related services will be to make our revenue streams less 'lumpy' than they have been in the past, since they will be paid for on a managed services, recurring revenue basis. This contrasts with the traditional high value solution sales, with unpredictable lead times typical of contracts for our SPEECHtel telephony platform. A further advantage of our diversification is to leverage our single core technology to make Vocalis products accessible and affordable to a broader customer base.

The financial performance of the company reflects the fact that the last 12 months have been focused on building foundations for the future. To enable us to best exploit the commercial opportunities within this market, we have formed two new business units, Internet Services and Telephony Solutions to increase the company's market focus.

Interest in the technical systems that Vocalis has developed is at an all–time high, and we have in the pipeline a record number of business opportunities with major potential. Projected business growth, and the need to extend our demonstration and customer support facilities, resulted in the opening of our second UK office at Barley House in Cambridge.


INTERNET SERVICES

Launched 9 months ago, SpeechMail allows people to access the content of their emails via the telephone, through a spoken interface, without the need for a PC. Furthermore, Vocalis' speech recognition allows them to perform various actions through spoken commands, such as replaying messages, replying, deleting them or skipping on to the next message.

In the UK, SpeechMail has attracted more than 70 ISP's, including such leading companies as BT Internet, Cable & Wireless, UUNET and Freeserve, as well as other organisations like the Royal National Institute for the Blind. Having proved the concept by concentrating primarily on the consumer market, focus is now being given to the corporate market where it can increase efficiency within organisations and allow mobile business users to access their email when away from the office.

Internationally, we have forged important agreements with commercial partners relating to both SpeechMail and SpeecHTML and have also added new features, including Short Messaging Service (SMS) and Calling Line Identity (CLI) capabilities.

Recently Vocalis announced an exclusive three–year deal with MCI Worldcom in the UK that significantly enhances the revenue potential of SpeecHTML and SpeechMail. MCI Worldcom has also agreed to purchase supply rights under licence, based on the successful growth of SpeecHTML and SpeechMail.

We have opened an office in Houston, Texas, USA, dedicated to marketing and customer support. In addition, we have signed agreements with Zebec Data Systems Inc., for the provision of SpeecHTML to the US Healthcare market, whereby Vocalis Inc. will share in the gross revenues derived from the on–going use of SpeecHTML in this market. The company is pursuing opportunities for SpeecHTML in other niche sectors of the US market.

In addition, the Houston ISP, WT.net, which has more than 40,000 subscribers, has signed a joint marketing contract for SpeechMail. Under the agreement with WT.net, customers will pay a subscription fee that will be split between Vocalis and WT.net.

Shared Network Services (SNS), of Lodi, California is also offering SpeechMail to its customers nationwide for a monthly fee to be shared between Vocalis and SNS. SNS is a fast growing provider of build–your–own Website tools and services to businesses, with an estimated 150,000 customers. Negotiations are in progress with other potential partners to provide SpeechMail as a managed service in the US.

Most recently, we signed our first Internet Service Provider contract in South Africa, with World Online, who will offer SpeechMail to its 100,000 subscribers across South Africa.


TELEPHONY SOLUTIONS

SpeechWare supports more than 20 languages and comes with a range of tools to assist with the development and configuration of speech–enabled applications, allowing telephone network operators, system integrators and other OEMs to integrate speech recognition facilities into their networks and products effectively.

The hardware version of SpeechWare is in the final stages of testing and is expected to come to market in the near future. We believe this will provide a unique opportunity in the speech recognition telephony market because of its power and flexibility. A global distribution channel has been put in place with partners including Dialogic and Natural Microsystems.

Recent enhancements to SPEECHtel in terms of functionality makes the operation, administration and maintenance of SPEECHtel systems possible from a single centralised location, across a large geographical area.

Within the SPEECHtel business, we have implemented a new sales and distribution strategy, including both global and regional partnerships, to create a more predictable and regular revenue stream in the future and Vocalis enters the new financial year with a record prospect list from five continents.

We are expanding the global base and availability of SPEECHtel, through the expansion of operations in the USA, Singapore, Hong Kong and Mexico, and through the recruitment of new international partners, including CL Consortia in Brazil, and Diversified Gateway Sdn Bhd in Malaysia. Embratel, the Brazilian arm of MCI Worldcom, has installed SPEECHtel for the advanced handling of collect calls in their domestic and international markets. Other recent orders have come from Eircom (Ireland), Stet Hellas (Greece) and Arico (Sweden). We have also signed a co–operation agreement with Compaq in the UK. The installations already in operation are performing well and we are confident that we will continue to receive orders for upgrades and additional equipment.


THE FUTURE

In the last year, Vocalis has played a pioneering role in developing innovative speech–based applications that can be combined with the information revolution being brought about by the Internet, mobile communications and other rapidly advancing technologies. Following the steps we have taken, we are now well positioned to capitalise on the expected rapid expansion of these markets and create a major volume business.

The Board believes that the strategy to maximise future revenues generated by its internet–related services by retaining the rights to future recurring revenue streams is an important part of the future growth of the company. This, in addition to expected growth in Telephony Solutions allows the Board to view the future with enthusiasm and confidence.

Roy Cotterill
Chairman

Charles Halle
Chief Executive

Consolidated Profit and Loss Account
For the year ended 31st March 2000

2000
£’000

1999
£’000

Turnover
Cost of Sales

2,694
(913)

4,820
(2,395)

Gross profit
Other operating expenses (net)

1,781
(6,632)

2,425
(3,659)

Operating loss
Bank interest receivable
Interest payable

(4,851)
377
(33)

(1,234)
152
(16)

Loss on ordinary activities before taxation
Taxation

(4,507)
40

(1,098)
–   

Loss on ordinary activities after taxation being retained loss for the year

 

(4,467)

(1,098)

Loss per share, basic and fully diluted – pence

(10.57)

(3.36)


The loss for both years is derived from continuing operations.


Consolidated Statement of Total Recognised Gains and Losses
For the year ended 31 March 2000

2000
£’000

1999
£’000

Loss for the year
Loss on foreign currency translation

(4,467)
(7)

(1,098)
(18)

Total recognised losses for the year

(4,474)

(1,116)



Balance Sheet
As at 31 March 1999

   

Group
2000
£’000

Group
1999
£’000

Company
2000
£’000

Company
1999
£’000

Fixed assets
Intanglible assets
Tangible assets
Investments

 


76
2,051


92
650




1,761




1,761

   

2,127

742

1,761

1,761

Current assets
Stocks
Debtors
Cash at bank and short term cash deposits

 


803
1,688
4,778


377
1,058
2,704



13,402



4,614

   

7,269

4,139

13,402

4,614

Creditors: amounts falling due within one year

 

(2,351)

(2,271)

(512)

(512)

Net current assets

 

4,918

1,868

12,890

4,102

Total assets less current liabilities

 

7,045

2,610

14,651

5,863

Creditors: amounts falling due after more than one year
Net assets

 

(111)

6,934

(197)

2,413



14,651



5,863

Capital and reserves
Called–up share capital
Share premium account
Other reserves
Profit and loss account

 


2,199
12,452
1,070
(8,787)


1,638
4,225
1,070
(4,520)


2,199
12,452
-
-


1,638
4,225
-
-

Shareholders’ funds – equity interests

 

6,934

2,413

14,651

5,863



Reconciliation of movement in Group Shareholders' funds

   

Group
2000
£'000

Group
1999
£'000

Company
2000
£'000

Company
1999
£'000

Retained loss for the financial
year

Issue costs written off
New shares issued
Foreign currency translation
Charge relating to Long Term Incentive Plan

(4,467)

(549)
9,337
(7)
207

(1,098)


54
(18)



(549)
9,337

207




54

Net (reduction)addition to shareholders' fund
Opening shareholders' funds

4,521

2,413

(1,062)

3,475

8,788

5,863

54

5,809

Closing shareholders' funds

6,934

2,413

14,651

5,863



Consolidated Cash Flow Statement
For the year ended 31 March 2000

   

2000
£'000

1999
£'000

Net cash outflow from operating activities
Returns on investments and servicing of finance
– interest received
– interest payable

(5,067)

377
(33)

(217)

152
(16)

Net cash inflow from returns on investments and servicing of finance
Capital expenditure and financial investment
– purchase of tangible fixed assets
– purchase of intangible fixed assets

344


(1,857)
(34)

136


(340)
(16)

Net cash outflow from capital expenditure and financial investment
Cash outflow before management of liquid resources and financing

(1,891)

(6,614)

(356)

(437)

Management of liquid resources
– (increase)/decrease in short term deposits
Financing
Funds received from sale and leaseback transaction
Issue of ordinary shares
Repayment of secured loan
Capital element of finance lease repayments


(2,400)


8,788
(5)
(95)


200

294
54
(2)
(25)

Net cash inflow from financing

8,688

321

(Decrease)/increase in cash in the year

(326)

84



Reconciliation of Operating Loss to Operating Cash Flows

   

2000
£'000

1999
£'000

Operating loss
Depreciation charges
Amortisation charges
(Increase)/decrease in stock
(Increase)/decrease in debtors
Increase in creditors
Exchange difference
Long term incentive plan charge

(4,851)
456
50
(426)
(630)
134
(7)
207

(1,234)
239
50
31
539
158

Net cash outflow from operating activities

(5,067)

(217)


Cash described in the balance sheet comprises cash and liquid resources. Liquid resources represent funds on short–term deposit.

The movements in working capital detailed above include exchange rate differences.


Reconciliation of Cash Flow to Movement in Net Funds

   

2000
£'000

1999
£'000

(Decrease)/increase in cash in the year
Cash inflow/(outflow) from decrease/(increase) in lease financing
Cash (outflow)/inflow from increase/(decrease) in liquid resources

(326)
108

2,400

84
(267)

(200)

Movement in net funds in the year

2,182

(383)

Net funds at the beginning of the year
Net funds at the end of the year

2,382
4,564

2,765
2,382

The financial statements have been prepared using consistent accounting policies throughout the year and the preceding year.

The financial information set out above does not comprise the company's statutory accounts. Statutory accounts for the previous financial year ended 31 March 1999 have been delivered to the Registrar of Companies. The auditors' report on those accounts was unqualified and did not contain any statement under section 237(2) or (3) of the Companies Act 1985. The statutory accounts for the year ended 31 March 2000 were approved by the directors on 20 June 2000. The auditors' report on those accounts was unqualified and did not contain any statement under section 237(2) or (3) of the Companies Act 1985. These accounts have not been delivered to the Registrar of Companies.



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About Vocalis

Vocalis works with organisations to create contact centre solutions that build the organisations business and brands. These solutions can turn your contact centre from a cost to a profit centre by ensuring it builds your brand, helps your business be more competitive, and increases customer loyalty through more effective and efficient service. Vocalis was formed in 1993, is publicly traded on FTSE Stock Market and has been listed since July 1996. Vocalis brings back the reassurance of the most personal human touch in business - putting voice to work.

The Vocalis Website is at

Email: [email protected]


For further Vocalis Group information, contact:

Philippa Buttle
Vocalis Group plc
Chaston House
Mill Court
Gt Shelford
Cambridge
CB2 5LD
Tel: 01223-846177
Fax: 01223-846178
Email:[email protected]


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