The VoIP Migration Company™

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The VoIP Migration Company™

  1. 1. The VoIP Migration Company™ 18 July 2007 Citel plc (“Citel” or the “Company”) Preliminary results for the period ended 31 March 2007 Citel designs, develops and markets a range of VoIP solutions for the business telephone market that enable enter- prises to migrate their telephone systems from the traditional voice network to an IP-based data network, without replacing existing handsets and wiring infrastructure. These are Citel’s first full year results since its admission to trading on AIM in July 2006. Financial Highlights • Turnover of £2.5 million • Portico™ TVA™ (formerly Handset Gateway) revenue impacted by Tier 1 delayed roll outs but increased focus on Tier 2 and 3 Carriers yielding results • Gross margin as a percentage of turnover improved to 62% from 58% in the prior year • Operating charges pre goodwill impairment and share option expenses decreased year-on-year • Strong balance sheet with cash of £4.6 million Operational Highlights • Secured supply agreements with two of the world’s largest Carriers, AT&T and Sprint • Both Carriers have revealed strong pipeline of potential VoIP customers, drawn from principally government and education markets • Smaller Carriers aggressively rolling out hosted VoIP, orders received and installed. Recent orders from Centen- nial Business Solutions and Phonoscope • Implementation of direct selling strategy towards the latter half of the fiscal year has resulted in significant increased sales of the Portico product in FYE 2008 Product and Technology Enhancement • Portico now certified with Avaya’s next generation SIP IP platform • Internet Telephony magazine has named the Citel EXTender™ IP6000 recipient of the 2006 Product of the Year • Introduction of private-label low density PBX EXTender for NEC and Panasonic • Two patents and two seminal patents pending Commenting on the preliminary results Mike Robinson, CEO of Citel, said: “The VoIP migration market is extremely active. We have expanded our direct sales force as well as increased our focus on Tier 2 and 3 Carriers which have resulted in more unit sales of Portico in the first quarter of FYE 2008 than in all of FYE 2007, a trend which we believe will continue throughout this year. While Tier 1 Carriers have been slower to roll-out their hosted VoIP programs than expected, we expect significant progress to be made this fiscal year. There continues to be no significant competitor to Citel’s solution for VoIP migration and we remain confident of the strength of Citel’s market position. ”
  2. 2. Contact Details: Citel Mike Robinson, CEO +1 206 965 8920 Jose David, CFO +1 206 965 8925 Panmure Gordon Dominic Morley +44 (0)20 7459 3600 Giles Stewart Andrew Collins Cardew Tim Robertson +44 (0)20 7930 0777 Shan Shan Willenbrock Chief Executive Officer’s and Chairman’s Statement We are pleased to present our results for the 12 months to 31 March 2007. This represents our first year as a quoted company since our Admission to AIM on 7 July 2006. Our strategy remains focused on providing a leading VoIP migration solution directly to end users, carriers, and Internet Service Providers in order to capitalise on the substantial growth in the VoIP marketplace. With the North American VoIP services market forecast to grow to $23.4 billion in 2009, Citel’s entry has been timed to capitalise on the growing migration of voice communication from legacy circuit-switched networks to new voice-enabled data networks. Growth in the VoIP market is being driven by end-users seeking to capture the feature and cost benefits that VoIP offers and by telecommunications service providers seeking to profit from the margin enhancement opportunities provided by the switch to IP communications. In the period under review, we have secured agreements with Sprint and AT&T to supply our Portico product, formerly called Handset Gateway. Both companies are currently undertaking testing on Citel’s products which is progressing satisfactorily and we have been encouraged by the carriers’ indication that the potential market size for our VoIP migration solutions has increased. As the exact timing of the roll-out to customers via Sprint and AT&T is difficult to predict we have expanded our focus on smaller carriers and Internet Service Providers and as a result, we have won a number of contracts including: Centennial Business Solu- tions, Universal Connectivity and Phonoscope. In addition, we are now selling directly to the end user which we believe should lessen the sale cycles and drive more immediate revenues. Recent customer wins include the supply of Portico to Sam Houston State University. We shipped more units of Portico in the first quarter of FYE 2008 than in all of FYE 2007, a result which proves the extended focus of our strategy has been effective in accelerating and increasing revenues for the Company. Financial Review Turnover for the 12 months ended 31 March 2007 was £2.5 million, against £4.0 million from the 12 months ended 31 March 2006. During the period, the Company experienced lower sales due to the delay in Tier 1 Carriers rolling out their hosted VoIP programs. Unit sales of Portico advanced in the final quarter of this year and the product is gaining significant traction this fiscal year. Gross margin increased from 58% to 62%. Operating expenses decreased year-on-year from £5.5 million to £5.2 million due to a £453,000 impairment charge in the year ended 31 March 2006. Without the charge, operating expenses increased 2.4% year-on- year. Expenses were in line with management’s expectations. The one-off charge of £741,000 related to the conversion of debt instruments just prior to the IPO. Basic and diluted earnings per share decreased from a loss of 31.8p per share to a loss of 21.0p for the year ended 31 March 2007. Our successful placing at the time of our admission to AIM on 7 July 2006 raised £7.2 million net of expenses. Cash at the period end was £4.6 million. In line with the Board’s stated strategy no dividend will be payable for this period. Sales and Marketing We believe our supply agreements with Sprint and AT&T should help establish further relationships with other Tier 1 Carriers. Our agreement with AT&T includes Portico as well as Citel’s PBXgateway™ and EXTender product lines. Once testing has been completed,the next step is for the carriers to formally roll out their hosted VoIP program with Citel an integral part of the market- ing push. We are working closely with their program managers and sales departments to achieve this goal. The Carriers have recognised that the Citel Portico can be a critical element in reducing their customers’ cost base and they are involving us with
  3. 3. their pipeline of opportunities, many of which are public or government entities that would benefit from a migratory VoIP solu- tion. Additionally, the cost benefit analysis of migrating their existing Centrex customers over to VoIP is very compelling. As previously mentioned towards the end of the financial year, the Company increased its focus and sales resources targeting Tier 2 and 3 Carriers and direct sales efforts to large public and private enterprises. To this end, we have established a strong direct sales team and as a result, increased our unit shipments of Portico and are beginning to see significant growth in our pipeline. Product Development We announced that Portico is now compliant with key Internet protocol (IP) telephony solutions from Avaya (NYSE:AV), a lead- ing global provider of business communications applications, systems and services. Portico has now been compliance-tested by Avaya for compatibility with Avaya Communication Manager IP telephony software and the Avaya Converged Communication Server, an application that enables SIP (Session Initiation Protocol) services and extends the value of a company’s investment in its network. Businesses with multiple locations and PBX handsets from multiple vendors can now connect seamlessly to Avaya’s robust SIP-based IP platform, reduce total costs and minimize the disruption to their business as they migrate to a VoIP network. Citel is a member of the Avaya Developer Connection Program, an initiative to develop, market and sell innovative third-party products that interoperate with Avaya technology and extend the value of a company’s investment in its network. As a member of the program, Citel is eligible to submit products for compatibility testing by the Avaya Solution Interoperability and Test Lab in Lincroft, N.J., USA. During the year, we also rolled out private-labeled low density EXTenders to two major PBX manufacturers, enabling the services of an existing PBX to be extended to branch offices, home-workers and mobile telephones, either over a wide area data network or external public telephone network. The solution centralises, across the distributed enterprise, control of call handling and man- agement of telephone services, including single dialing plan, voicemail services and customer relationship management services. We continue to strive to increase our intellectual property. We have two patents and two seminal patents pending. Our research and development team invests in the analysis, definition and subsequent documentation of the telephone interface information which Citel presents as the most significant barrier to entry into our market. Outlook Citel continues to pursue its strategy of securing supply contracts for the provision of the Portico product with major Carriers. In addition, the Company has increased its sales and marketing resources targeting the Tier 2 and 3 Carriers as well as large public and private enterprises. We expect that revenues from existing supply agreements together with the results from the increased focus on Tier 2 and 3 Carriers and direct sales will be reflected in the current fiscal year. We have begun the new financial year positively with a significant increase in the level of the Portico shipments and we anticipate that our success through the direct sales channel will motivate Tier 1 Carriers to become more aggressive in selling Portico to their customers. Citel continues to have no significant direct competitor for this migratory VoIP solution. M Robinson C Heintzelman Chief Executive Officer Chairman
  4. 4. Citel plc Group Profit and Loss Account For the year ended 31 March 2007 2006 2007 £000s Note £000s (restated) Turnover 2 £ 2,492 £ 4,021 Cost of sales (948) (1,687) Gross profit 1,544 2,334 Other operating charges 2 (5,219) (5,555) Operating loss (3,675) (3,221) Interest receivable/(payable) 117 (104) Finance costs of conversion of debt (741) — Net interest (624) (104) Loss on ordinary activities before taxation (4,299) (3,325) Tax credit on loss on ordinary activities 213 107 Loss on ordinary activities £ (4,086) £ (3,218) Net loss per share on ordinary activities - basic and diluted 3 (21.0p) (31.8p)
  5. 5. Citel plc Group Balance Sheet At 31 March 2007 2007 2006 £000s £000s Fixed assets Intangible assets £ 548 £ 629 Tangible assets 153 177 701 806 Current assets Stocks 589 450 Debtors 1,231 1,469 Cash at bank 4,595 1,545 6,415 3,464 Creditors - amounts falling due within one year (2,136) (3,850) Net current assets/(liabilities) 4,279 (386) Total assets less current liabilities 4,980 420 Creditors: amounts failling due after more than one year — (1,463) Net assets/(liabilities) £ 4,980 £ (1,043) Capital and reserves Called up equity share capital £ 825 £ 384 Share premium account 8,723 20,545 Merger reserve 20,545 — Other reserve 741 — Profit and loss account (25,854) (21,972) Shareholders’ funds £ 4,980 £ (1,043)
  6. 6. Citel plc Group Cash Flow Statement For the year ended 31 March 2007 2007 2006 Note £000s £000s Net cash outflow from operating activities 4 £ (3,673) £ (1,384) Returns on investments and servicing of finance Net interest received/(paid) 102 (104) Taxation received 165 11 Capital expenditure Payments to acquire tangible fixed assets (39) (102) Acquisitions and disposals Purchase of a business (80) — Cash outflow before financing (3,525) (1,579) Financing Issue of equity share capital 8,208 — Expenses of issuing equity share capital (1,095) — Net (payments)/receipts of borrowings (864) 2,051 Net cash inflow from financing 6,249 2,051 Increase in cash £ 2,724 £ 472
  7. 7. Citel plc Statement of Total Recognised Gains and Losses For the year ended 31 March 2007 2006 2007 £000s £000s (restated) Loss on ordinary activities £ (4,086) £ (3,218) Currency losses on foreign currency net investments (24) (140) Prior year adjustment (17) — Total Loss £ (4,127) £ (3,358) Reconciliation of Movements in Shareholders’ Funds For the year ended 31 March 2007 2006 2007 £000s £000s (restated) Loss on ordinary activities £ (4,086) £ (3,218) Currency losses on foreign currency net investments (24) (140) Proceeds of ordinary shares issued for cash 8,200 — Associated expenses (1,095) — Conversion of convertible loan stock 2,705 — Exercised warrants associated with convertible loan stock 87 — Adjustment in respect of share-based payment 228 17 Exercise of share options 8 — Increase/(decrease) in shareholders’ funds 6,023 (3,341) Opening shareholders’ funds (1,043) 2,298 Closing shareholders’ funds £ 4,980 £ (1,043)
  8. 8. Citel plc Notes to the Financial Statements For the year ended 31 March 2007 1. Basis of presentation The financial statements have been prepared under the historical cost convention under United Kingdom Generally Accepted Ac- counting Practices and in accordance with the Companies Act 1985 and applicable United Kingdom accounting standards. A new parent company Citel plc, was incorporated on 28 January 2006 to be the vehicle for capital raising and admission to the Alternative Investment Market. This company acquired the whole of the issued share capital of the former parent company, Citel Technologies Limited, by way of a share for share exchange. This has been accounted for using merger accounting principles and accordingly the comparative figures have been prepared as if the Group had existed throughout that period. The effective date of the merger was 20 June 2006. The results of the Group comprise the results of Citel plc consolidated with the results of the merged Group from 1 April 2006. The principal accounting policies of the Group have remained unchanged from the previous year, apart from the adoption of FRS 20 “Share Based Payments” FRS 20 requires companies that grant share options to their directors or employees to estimate the fair value of those options and to recognise that value as an expense over the period until the options can be exercised unconditionally by the director or employee. The company uses the Black Scholes Merton method and utilises an average volatility ratio for 5 comparable pub- licly traded companies. Forfeiture rates are based on history. Expense for the year ended 31 March 2007 is £228,000. Amounts expensed for the year ended 31 March 2006 of £17,000 have been treated as a prior year adjustment on the comparative figures. There is no impact on net assets or cash flows as a result of this adjustment. 2. Turnover and functional operating charges 2007 2006 £000s £000s The geographical split of turnover is as follows: North America £ 2,279 £ 3,579 Rest of the world 213 442 2,492 4,021 As the Group’s assets and other resources generate turnover across all geographic segments, the directors believe that any at- tempt to allocate either the loss before tax or net assets would be highly subjective and of limited value. Operating Charges Research and development 2,293 2,508 Administration and other 2,926 2,594 Exceptional item - impairment of goodwill — 453 5,219 5,555
  9. 9. 3. Loss per share The calculation of basic loss per share is based on Group loss on ordinary activities divided by weighted average number of outstanding shares during the year. The calculation of diluted loss per share adjusts both loss on ordinary activities and weighted average number of shares for dilutive effects of convertible debt subsequently converted and employee share option schemes. The calculations in respect of 2006 are restated to take account of the share consolidation as if such share consolidation had been undertaken as at 1 April 2006. The share consolidation occurred coincident with the merger on 20 June 2006. Each of the Compa- ny’s preference “A” shares was converted into one ordinary share, and every 38 ordinary shares of £0.001 each were consolidated into one ordinary share of £0.038 each. 2007 2006 £000s £000s Loss on ordinary activites (4,086) (3,218) No. No. Weighted average number of outstanding shares 19,403,103 10,117,913 Basic and diluted loss per share (ordinary loss/outstanding shares) (21.0p) (31.8p) 4. Notes to the statement of cash flows (a) Reconciliation of operating loss to net cash outflow from operating activities 2006 2007 £000s £000s (restated) Operating loss £ (3,675) £ (3,221) Depreciation 72 81 Amortisation and impairment 209 735 (Increase)/decrease in stocks (101) 231 Decrease in debtors 220 596 (Decrease)/increase in creditors (626) 177 Other non-cash charges - shared-based payments 228 17 Net cash outflow from operating activities £ (3,673) £ (1,384)
  10. 10. 5. Publication of non-statutory accounts The financial information set out in this preliminary report does not constitute statutory accounts as defined in section 240 of the Companies Act 1985. The figures for the year ended 31 March 2007 have been extracted from the Statutory Financial Statements of Citel Plc, will be filed with the Registrar of Companies. The auditor’s report on those financial statements is unqualified. The complete annual report will be distributed to all shareholders shortly and copies will be available from the Company’s website at Citel.com. The VoIP Migration Company™ Corporate Headquarters European Headquarters Canadian Headquarters For More Information 3131 Elliott Avenue Wheatcroft Business Park 4040 Bowness Road N.W. Contact Citel Directly Suite 250 Unit 4, Landmere Lane Calgary, Alberta sales@citel.com Seattle, Washington Edwalton, Nottingham T3B 3R7 Canada 98121 USA NG12 4DG United Kingdom +1877 248 3587 Phone: +1 403 247 9777 Phone: +1 206 957 6270 Phone: +44 (0)115 940 5444 Fax: +1 403 247 9078 citel.com Fax: +1 206 957 6275 Fax: +44 (0)115 940 5664 Regional Offices Atlanta, GA • Boston, MA • Chicago, IL • Columbus, OH • Dallas/Ft. Worth, TX • Denver, CO • Hartford, CT • Los Angeles, CA • Minneapolis, MN • Washington, DC • Wilmington, NC ©2007 Citel plc and Citel Technologies, Inc. All Rights Reserved. Citel and The VoIP Migration Company are trademarks of Citel plc. Other products and trademarks mentioned herein are property of their respective owners. Citel plc is traded on the London Stock Exchange AIM under the ticker symbol CITE.L. The information and products contained in this document are subject to change without notice.

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