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In its third quarter results reported on Friday, the company said it will make a cash payment of EUR4 million to buy out the remaining 45 percent stake in its UK subsidiary, 118 Limited, from Sonera Media Holdings. Conduit will also repay some EUR3.3 million in loans from Sonera over a period of three years beginning in March 2003.
Liam Young, chief executive officer of Conduit, told ElectricNews.Net that the purchase was strategically important for Conduit as it looks to expand in the UK. In the UK Conduit handles directory enquiries business for other telcos, such as Orange, but it is awaiting full deregulation there before it can offer services under its own brand, expected this autumn.
"We reckon we already have close to 10 percent market share in the UK and we would expect to build that to 20 percent within 18 months to two years when we launch our own brand," he said. "There are 700 million directory enquiries calls a year there, compared to 55 million in Ireland. Our aim is to do there what we did in Ireland, and do it bigger and better."
Conduit is now expected to focus its advertising spend on the UK market instead of in Ireland, where it said it maintained market share even after substantially reducing its ad spend during the past quarter.
During the third quarter ended 31 December, Conduit's revenues totalled EUR13.5 million, up from EUR13 million the previous quarter, and its operating loss fell by more than half to EUR1 million. Overall its net loss was EUR1.1 million, or EUR0.06 per share during the quarter, compared to a loss of EUR0.14 per share the previous quarter.
The company achieved an important break-through during the quarter by reaching an EBITDA positive level. Its earnings before interest, tax, depreciation and amortisation were EUR0.3 million. Conduit, which is quoted on Germany's Neuer Markt and Ireland's ITEQ, beat its own schedule for attaining EBITDA profitability, having said it would reach that target before the end of the fourth quarter.
Young was also bullish for Conduit's prospects in the current quarter and full year. He said Conduit would beat its full-year revenue targets of EUR50 million.
WIND DOWN OF SOFTWARE SALES
Also on Friday Conduit announced a major change to its strategy that will see it wind down the external sales business of its Conduit Software subsidiary. That division was formed to market and sell software developed by Conduit to third parties. At its height it employed more than 40 people but it struggled in the face of long lead-times and sluggish sales, and staff numbers have been cut to just 14.
The company said on Friday that Conduit Software's chief executive officer Shane Buckley had resigned effective immediately, and the company's director in charge of Conduit Software sales and marketing in the US, Paul Coghlan, has also resigned.
Young said Conduit would refocus the subsidiary's efforts back to developing core technology to benefit Conduit and its customers.
"We have lowered the risk profile of the group," Young said. "The risks associated with directory enquiries are low. But with software, you need to invest a lot of money in the beginning for some return a long time into the future. That's not the profile we want to have, and it's not the profile investors have been investing in Conduit for."
Young also said that despite selling its stake in the UK business, Sonera is still a minority shareholder in Conduit. Young said that Sonera had considered selling its 10 percent stake in Conduit, a move that boosted Conduit's share price briefly last autumn, but had decided to hold on to its investment until Conduit's share price improves.
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