By running leaner and focusing on the public sector, speech recognition and voice automation technology group Telephonetics dialled up a first-half turnaround in fortunes.

Interim results to the end of May from the speech applications group showed a 4% decline in sales to £4.62m, reflecting a 15% fall in managed service revenues. These are mainly derived from MovieLINE, the product used by 80% of the UK’s cinema multiplexes, where a dip in call volumes was attributable to the ongoing trend towards internet bookings as well as a dearth of blockbuster films. The board is currently exploring alternate strategies for the managed service market.

In spite of this setback, losses of £119,000 were converted into profits of £596,000 pre-tax, as earlier cost-cutting efforts combined with higher gross margins of 62% (2007: 59%). Margin gains reflected a rising proportion of packaged application and service income, as well as further service efficiencies. Within the packaged applications part of the business, where sales increased by 4% to just over £3m, recurring revenues have built to 60% of sales on a burgeoning client base.

Management sees a particularly large growth opportunity in the public and health sectors, where drives are afoot to better customer service and efficiency on a budget. Significantly, more than 100 NHS Trusts use Telephonetics’ products, while the company continues to make good inroads into local government and housing associations.

A small company, which has previously blotted its copybook with investors, Telephonetics appears to have turned a corner. Moreover, it boasts considerable balance sheet strength – the £688,000 cash generated during the first half left the debt-free concern flush with £4.7m of half-time net cash, equating to almost half the group’s market value. On that basis, the shares have a good degree of investment appeal.

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Telephonetics	AIM	£8.99m	8.25p	0.00p
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