REG - Eckoh PLC - Half-year Report
21/11/2023 07:00
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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 H1 FY24 H1 FY23 Change
£m (unless otherwise stated)
Revenue 18.8 19.6 -4%
Gross profit 15.5 15.5 -
Group ARR(1) 30.6 28.6 +7%
North America Data Security Solutions ARR(1) ($m) 16.8 13.8 +22%
Adjusted EBITDA(3) 4.9 5.0 -3%
Adjusted operating profit(4) 4.0 4.2 -4%
Adjusted profit before taxation(4) 4.1 4.2 -1%
Profit before taxation 1.5 2.9 -47%
Basic earnings per share 0.43 0.77 -44%
Adjusted diluted earnings (pence per share)(5) 1.01 1.03 -2%
Net cash 7.3 4.4 +2.9
Total contracted business(6) 24.6 17.6 +40%
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 £1m 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) £30.6 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 £24.6m, up 40% (H1
FY23 £17.6m), driven by strong multi-year renewals and successful
cross-selling and up-selling of new products
· Group revenue £18.8m, (H1 FY23: £19.6m), 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) £4.0m (H1 FY23: £4.2m), includes a
£0.1m FX versus a FX gain of £0.7m 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 £7.3m at period end, up
£1.6m from £5.7m at year end (H1 2023: £4.4m)
· 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
£39m and Adjusted Operating Profit of £8.2m
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 £30.6m.
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 (http://www.eckoh.com)
FTI Consulting LLP Tel: 020 3727 1017
Ed Bridges / Emma Hall/ Valerija Cymbal / Emily Bowen
eckoh@fticonsulting.com (mailto:eckoh@fticonsulting.com)
Singer Capital Markets (Nomad & Joint Broker) Tel: 020 7496 3000
Shaun Dobson / Tom Salvesen / Alex Bond
www.singercm.com (http://www.n1singer.com)
Investec Bank plc (Joint Broker) Tel: 020 7597 5970
Patrick Robb / Nick Prowting / Shalin Bhamra
www.investec.com (http://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 solutions 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 (http://www.eckoh.com/) or email
MediaResponseUK@eckoh.com (mailto: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 £4m
· 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 £30.6
million, (H1 FY23: £28.6 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 £18.8 million (H1 FY23: £19.6 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 £4.0
million, which includes an FX loss of £0.1m (H1 FY23: £4.2 million, included
a FX gain of £0.7 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 £24.6m, a 40%
increase on the previous year and the level of cross-selling and upselling in
the period was £4m, 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 £16.4 million (H1 FY23: £16.5 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 £0.5 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 £9.9 million, a decrease of 10% (H1 FY23:
£10.9 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 £8.4 million, (H1 FY23: £8.9 million) and
gross margin was 85%, an increase of 4%, with Security Solutions driving a
higher margin.
New contracted business
· Total contracted business was £12.8 million up 32% compared to £9.7
million in the prior year, largely due to high conversion of renewals and
timing of large renewals
· New contracted business was £2.4 million (H1 FY23: £2.5 million)
Contract renewals
· Total contracted business was driven by the four largest renewals in
H1 FY24 worth a combined £6.9 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 £18.8 million (H1 FY23: £19.6 million), a
decrease year-on-year of 4% or at constant exchange rates a 3% decrease
year-on-year. Group recurring revenue was £15.5 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 £4.0 million, which includes a foreign currency
loss in the period of £0.1m, this is compared to an adjusted operating profit
last year of £4.2 million, which includes a FX gain of £0.7 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 £0.8 million. In the period there is an
exceptional cost of £0.9 million for legal fees and restructuring costs.
Group ARR was £30.6 million, an increase of 7% on prior year or at constant
exchange rates an improvement of 9% (H1 FY23 £28.6 million).
Total contracted business for the period at the Group level was £24.6
million, (H1 FY23: £17.6 million), a year-on-year increase of 40% or an
increase of 41% at constant exchange rates. New contracted business was £5.7
million (H1 FY23: £8.2 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 £8.9 million (H1 FY23: £8.7
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 £9.9 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 £15.5 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 £14.0 million (H1 FY23:
£12.6 million). Adjusted administrative expenses for the period were £11.5
million, an increase year-on-year of 4% (H1 FY23: £11.3 million). Exceptional
costs in the period were £0.9 million (H1 FY23 £nil million). Included in
administrative expenses is a trading FX loss of £0.1 million (H1 FY23: £0.7
million gain).
Profitability Measures
Adjusted Operating profit(4) for the period was £4.0 million (H1 FY23: £4.2
million). Included in the first half profit for the current period was a FX
loss of £0.1 million (H1 FY23: £0.7 million). Adjusted EBITDA(3) for the
period was £4.9 million (H1 FY23: £5.0 million).
Six months Six months Year
ended ended ended
30 Sept 2023 30 Sept 2022 31 March 2023
£'000 £'000 £'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 £4.1 million (H1 FY23: £4.2m) and is after
including in the adjusted operating profit, the net interest income of £93k
in the current period and the net interest charge of £18k in H1 FY23 adjusted
operating profit.
Finance charges
For the financial period ended 30 September 2023, the net interest income was
£93k (H1 FY23: £18k charge). The interest income is made up of bank
interest receivable of £111k (H1 FY23: £11k), offset by interest on leased
assets of £18k (H1 FY23: £29k).
Taxation
For the financial period ended 30 September 2023, there was a tax charge of
£0.3 million (H1 FY23: £0.7 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 £8.4 million (H1 FY23: £11.9
million) included in this balance are £5.1 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 £1.8 million from
March 2023. Contract assets as at 30 September 2023 were £1.7 million
compared to £2.4 million at March 2023 (H1 FY23: £3.3 million).
Cashflow and liquidity
Net cash at 30 September 2023 was £7.3 million, an increase of £1.6 million
from the year end at 31 March 2023 and an increase of £2.9 million to the
previous year. The £1.6 million cash inflow from 31 March 2023 includes a
net cash outflow for trade debtors, trade creditors, inventory and tax of
£1.6 million (H1 FY23: cash outflow £1.9 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 ended 30 September Six months ended 30 September Year ended
2023 2022 31 March
2023
£'000 £'000 £'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 1,357 2,226 4,248
of the Company
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
£'000 £'000 £'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 up share capital Share premium Capital redemption reserve Merger reserve Currency reserve Retained earnings Total Shareholders' equity
£'000 £'000 £'000 £'000 £'000 £'000 £'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 up share capital Share premium Capital redemption reserve Merger reserve Currency reserve Retained earnings Total Shareholders' equity
£'000 £'000 £'000 £'000 £'000 £'000 £'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 Year ended
ended ended 31 March
30 September 2023 30 September 2022 2023
£'000 £'000 £'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 £2.2m 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
£'000 £'000 £'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
£'000 £'000 £'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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