Vocalis Group PLC

Preliminary Results for the Year ended 31 March 2001

Vocalis Group plc, the speech technology company, announces results for the year ended 31 March 2001.

Highlights

• Revenues for the year were £2.7 million
• Focus on provision of core technology, SpeechWare; and speech solutions based upon it
• New products launched and new customers won during the year
• The Group had cash balances of £3.5 million at the year end

Charles Halle, Chief Executive commented:

"These results reflect the challenges faced by Vocalis in all its markets. The slowdown in general economic conditions, together with specific difficulties being experienced in the Telecommunications, Media and Technology (TMT) sector, have created a harsh environment for companies offering new technology. As we described in the trading updates given during the year, in this environment the overall growth of the speech recognition industry was slower than expected and the market demand for our products was lower.

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Enquiries:

Vocalis Group plc today: 020 7601 1000

Charles Halle, Chief Executive thereafter: 01223 846177

Square Mile BSMG Worldwide 020 7601 1000

Nick Oborne or John Stanley [email protected]

Review of Operations

THE MARKET

The results for the year ending March 2001 reflect the challenges faced by Vocalis in all its markets. The slowdown in general economic conditions, together with specific difficulties being experienced in the Telecommunications, Media and Technology (TMT) sector, have created a harsh environment for companies offering new technology. In this environment, the overall growth of the speech recognition industry was slower than expected and the market demand for our products was lower. This change in the dynamics of the market, which has been described in the trading updates given during the year, has affected a small number of high value contracts which remain an area of focus for our sales team.

Our share price has suffered from the general volatility of TMT sector valuations, and whilst this is beyond our control on a day-to-day basis, we recognise that our ability to confirm adherence to our corporate targets is fundamental to renewing confidence in the Company’s market valuation.

Following the recent downturn in the Internet Services market, particularly in the "business to consumer" segment, we took the decision in March 2001 not to pursue the further development of the managed services business. This has resulted in a substantial reduction in operating costs. SpeechMail and SpeecHTML are still being developed and will continue to be offered to customers as a speech system.

RESULTS FOR THE PERIOD

Our results show turnover of £2.7m for this year compared to £2.7m last year and a loss after tax and interest and before cost of closure of managed service businesses of £5.7m, compared with a loss of £4.5m after tax and interest last year. As at 31 March 2001, the Group had cash balances of £3.5m compared to £4.8m last year.

In September 2000, the Group raised £5.1m (£5.0m net of expenses) through the issue of 2,198,700 ordinary shares by way of a section 95 placing of shares to existing and new institutional investors. This issue was made under the authority granted by Shareholders under Section 80 Companies Act 1985 at the Annual General Meeting on 19 July 2000.

Operating expenditure increased from £6.6m to £7.6m reflecting the opening of the US office the increased number of staff for the managed services operation, and continued investment in systems and infrastructure. Operating expenditure of the managed service businesses which was discontinued in March 2001 represented £2.2m of the Group’s overheads. Included within the Group operating expenditure, research and development increased to £2.7m during the year under review, compared with £2.2m in the financial year 2000. This increase reflected continuing development of the core SpeechWare technology, together with the costs of increasing the functionality and performance of the SpeechMail and SpeecHTML products.

On 28 March 2001 the Group announced that it would not pursue the further development of its managed service businesses The Talking Network (TTN). However, Vocalis continues to offer SpeechMail and SpeecHTML as applications to be incorporated into the Group’s range of Speech Recognition Systems for sale to corporate customers. Following this decision, 16 staff from the Group’s Cambridge and Houston offices were made redundant. The annual Group cost base, and associated cash burn was reduced by £2.1m as a result of this decision.

Closure costs for TTN of £1.4m were charged, as an exceptional item, to the Consolidated Profit and Loss Account. This charge includes accruals for future liabilities under supply contracts entered into for the managed service business.

WORKING CAPITAL

Trade debtors at the year end decreased to £600,000 (2000: £1.4m) as credit control processes were strengthened. At 31 March 2001, 50% of trade debtors were represented by March invoices (2000:84%). Trade creditors were also reduced and at 31 March 2001 represented 37 days (2000: 64 days). Cash and short term deposits at the year end amounted to £3.5m which were held in short term sterling deposits of under one month maturity. As a result of trading performance there was a net cash outflow from operating activities of £3.4m during the year compared to an outflow of £5.1m in financial year 2000.

SHAREHOLDERS’ RETURN

The loss per share for the financial year under review, which was also the diluted loss per share was 15.8p compared to a loss per share basic and diluted of 10.6p last year. The Directors do not propose a dividend. The loss per share before charging the cost of closure of the managed service businesses was 12.6p.

PRODUCTS AND SERVICES

Our core technology, SpeechWare, is established in the market place as a speech recognition solution that combines proven accuracy with the benefits of natural interaction. During the year we launched SpeechWare VRooM, our branded hardware speech recogniser, to meet anticipated market demand for large-scale speech recognition systems. Our latest developments include two versions of SpeechWare VRooM that provide solutions less than one-tenth the physical size of equivalent systems, making them more cost effective to run and easier to maintain.

To expand the market for our technology, we have integrated SpeechWare to a number of next-generation telephony interface cards and to Dialogic’s CT Media 2.0, a software tool for developing standards-based telecommunications solutions. This allows third party developers to incorporate SpeechWare’s sophisticated speech recognition into their own products quickly and easily.

The Intelligent Query engine (IQe) forms the basis of a number of Call Centre applications and is designed to increase productivity and reduce running costs. The first of these applications, Postcoder, was launched in September 2000, since when we have formed partnerships with a number of leading address management solution vendors, including QAS, Hopewiser and AFD.

A speaker verification research project, run in conjunction with Nationwide, was successfully completed during the year. We are currently developing a commercial product based on the results of this and other research projects.

PEOPLE

Michael Williams, Business Development Director, left the Company on 12 April 2001 to pursue other opportunities, and two long serving non-executive Directors, Roy Cotterill and Robert Hook, will retire from the Board at the AGM in July 2001. Roy Cotterill was Chairman of Vocalis from June 1994 until December 2000. We take this opportunity to thank them all for their major contributions to the Company.

On 27 March 2001 we announced three new appointments. Stephen Lawrenson and Colin Garrett were appointed as non-executive Directors. We welcome them to the Board and look forward to their contributions to the development of the Company. Ian Cockerill, who has many years of sales experience at a senior level within the IT industry, was appointed Sales Director of Vocalis Limited.

We also thank all our staff for their continued dedication, professionalism and hard work in this challenging environment.

THE CORPORATE FOCUS

Our strategy will be to focus on the provision of our core technology, SpeechWare, and of speech solutions based upon it. Accordingly, we will continue to target specific markets, such as Call Centres, and to develop market-led solutions tailored to their specific requirements. We will present speech recognition as the key component of a complete business solution, highlighting the benefits that differentiate our solutions from those of our competitors.

Recent successes have included upgrades to existing Vocalis systems by Abbey National and Telenor Mobil, Norway’s mobile communications network provider. We have also recently secured an order from Eircom, a leading Irish telephone network operator, which falls into the current financial year, ending 31 March 2002.

We will continue to concentrate our efforts on generating demand both directly, and indirectly through OEM and channel partner relationships.

PROSPECTS

Speech recognition is an area of enormous commercial potential. It is also an emerging market in which the issues of customer awareness, general market penetration and customer adoption remain significant. Underlying our strategy is the firm belief that voice is, and will increasingly be, the most natural way to interact with many internet and telephone-based services and that the global market for speech recognition will grow. Our revised corporate structure, new focus and control of costs will allow us to maximise the opportunities in today’s market and in the future.

Consolidated Profit and Loss Account

For the year ended 31 March 2001

Consolidated Statement of Total Recognised Gains and Losses

For the year ended 31 March 2001

Consolidated Cash Flow Statement

for the year ended 31 March 2001

NOTES:

• The financial information set out above does not constitute the Company's statutory financial statements for the year ended 31 March 2001 within the meaning of section 240 of the companies Act 1985 but is derived from those financial statements. The statutory financial statements for the Company for the year ended 31 March 2001 will be delivered to the Registrar of Companies after the Annual General Meeting. The auditors have reported on those financial statements and their report was unqualified.
• Loss per ordinary share is calculated with reference to the loss attributable to ordinary shareholders of £7,144,000 (2000: loss £4,467,000) and the weighted average number of ordinary shares in issue during the year of 45,153,500 (2000: 42,241,314).
• Copies of the 2001 Report and Accounts will be sent to shareholders in due course. Further copies will be available from the Company's offices at Chaston House, Mill Court, Great Shelford, Cambridge CB2 5LD.