PRESS RELEASE

A period of transition for Spectrum as Internet services business booms

SPECTRUM INTERACTIVE PLC

(“Spectrum” or “the Company”)

Interim Results for the 6 months ended 31 December 2005

A PERIOD OF TRANSITION FOR SPECTRUM AS INTERNET SERVICES BUSINESS BOOMS

Spectrum Interactive plc, (LSE:SIN), a leading digital services and payphone provider, announces its interim results for the 6 months ended 31 December 2005.

Financial highlights:

·         Turnover rose 14% to £9.6m (£8.4m, H1 2004/5)

·         EBITDA up 4% to £2.5m(£2.4m, H1 2004/5)

·         Turnover in the internet business rose over 400% to £2.1m (£0.4m H1 2004/5)

·         Turnover from payphones fell by 6% to £7.5m (£8.0m, H1 2004/5)

·         Underlying gross profit margins remained steady at 48% (48% H1 2004/5)

·         Profit before tax remained steady at £1.2m (£1.2m, H1 2004/5)

·         Cash reserves of £1.03m

·         Basic earnings per share of 3.72p per share (H1 2004/5, 7.46p)

·         Interim Dividend of 0.6p per share (H1 2004/5, nil)

Operational highlights:

·         Company is delivering on strategy outlined at IPO

·         Internet business growing rapidly now with over 1,200 fixed internet units and 300 wireless units in key hotel, retail and airport locations

·         Spectrum now operates over 9,400 payphones

·         ATM machines gradually being rolled-out: 30 units installed as of February 2006

·         Two small acquisitions in the period June-December, 2005. Total cost of the two acquisitions was £0.7m:

o        Broadreach – over 400 new internet and wi-fi sites

o        Cardtel – 638 payphone sites

·         Key strength of the company continues to be its relationship with site owners, eg BAA, Deutsche Bahn, Virgin Megastores and Travelodge as well as important partnerships such as with T-Mobile, Travelex and TRM.

Commenting on the results, Lord Young of Graffham, Chairman, said:

“This has been a period of consolidation and steady growth for Spectrum Interactive as we have sought to deliver on the strategy outlined at IPO. While the turnover from our payphone division is disappointing, our internet offering is growing fast both through acquisitions and exciting deals within the hotel, travel and retail sectors. I remain confident that Spectrum will continue its successful transformation from a payphone business into a provider of high-quality digital services.”

Spectrum Interactive plc – Interim Results
Six months to 31^st December 2005

Chairman’s Statement

I am pleased to announce the first half results for the financial year 2005-6. This has been a period of transition and investment for the company, with turnover up 14% on the comparative period and EBITDA (earnings before interest, taxes, depreciation and amortisation – see note 4) up 4%. The company made two small acquisitions in the first half, both of which are expected to enhance earnings in the second half. The company continued its transformation from a payphone business to a provider of interactive digital services, focusing on public fixed and wireless internet access services in airports and hotels.

Financial Results

Turnover was £9.6m in the period, 14% up on the same period last year.

Turnover in the interactive business grew over 400% to £2.1m, reflecting the acquisition of UK Explorer in February 2005. On a pro forma basis (i.e. including the turnover of UK Explorer in the equivalent period last year), the interactive business grew by 58%. We are pleased with this acquisition and see significant future growth in our interactive business, both in the UK and abroad.

Turnover in the payphone business fell by 6% to £7.5m, despite an increase in the number of units installed. A decline in the average call revenue per unit had been expected, but the level of the decline, over 20% per unit year-on-year, is significantly greater than had been anticipated, and as a result the current market expectations for the full-year profit will not be met. This decline is caused by increases in mobile phone usage and in particular by lower charges for international calls from some mobile operators. This is a trend we expect to continue. A third short-term factor has been an unexpected but significant increase in theft from street payphones, an endemic but minor problem for many years. Industry-wide action, in which we are participating, should, we expect, bring this rapidly within more acceptable limits

Within the overall fall of 6% on payphone turnover there was a steady increase in non-call revenue, which includes advertising, ATM revenues and other income streams, reflecting the strategy of developing other services and brand relationships linked to the core payphone estate. This is an exciting growth area for us.

Gross profit rose 13% on the prior period to £4.6m. As a percentage of sales it remained at 48%, the same as the prior period. We are in the process of integrating several acquisitions and  we believe that over the next few months gross profit margins will tend to improve as we realize the expected economies of scale from this integration process.

Depreciation rose by 61% to £0.8m reflecting the increased charge associated with the interactive business- mainly from the UK Explorer acquisition - where assets are being depreciated over three years rather than eight years in the payphone business. Amortisation of goodwill rose by 30% to £0.2m, again because of the UK Explorer and other acquisitions. Other administrative expenses were £2.1m, an increase of 26%, 18% on a pro forma basis (as explained above), reflecting costs associated with the integration of the acquisitions which we expect to diminish over the next few months, as well as the additional costs associated with being a public company which were not incurred a year ago. As a result of the above factors administrative expenses in total were up 34% on the prior period.

Net interest payable is down 60% on the prior period, reflecting the lower debt levels than a year ago.

As a result of the above, profit before tax in the six month period was £1.2m, flat with the reported number for the prior period.

The taxation charge in the period is zero for both current and deferred tax. This is likely to be maintained for the full year, but there is expected to be a tax charge in the next financial year.

On the balance sheet, we repaid a further £0.3m of debt leaving total debt at the end of December at £6.7m, and net debt (i.e. total debt less cash balances) at £5.7m. Capital expenditure was relatively high in the period at £1.1m, due to the final phase of the IPN roll out which was completed in September 2005. Going forward, capital expenditure will be almost entirely related to growth in the interactive business and will be at a lower level – we do not expect to invest significantly in further payphone assets.  The completion of the IPN project also had an impact on working capital, with approximately £0.5m of related creditor balances being paid off.  Going forward, we expect the movement on working capital to be relatively small.

Operational Review

The interactive business is showing healthy growth. We now have over 1,200 interactive terminals and 300 wireless access points in key airport, hotel and retail locations. During this period we have been integrating three different interactive terminal systems, accumulated as a result of our legacy business and the acquisition first of UK Explorer and then the assets of Broadreach Networks. We are implementing new software across all the terminals and expect considerable economies of scale to result from this. We expect to have the bulk of the terminals running on the new system by June 2006.

We have recently signed an agreement with NEC to roll out interactive terminals and WiFi services to Premier Travel Inns and Travelodge, and we currently have installed these services in 40 hotels. We are also working with T-Mobile to bring its branded WiFi service to some of our existing customers. WiFi income, hitherto a small part of our business, is expected to grow significantly.

We have expanded our street payphone units considerably over the last year with the additional 750 street sites acquired from IPN in August 2004 and subsequently refurbished. This project, which was completed in September 2005, involved over £2m of capital expenditure and has increased our street payphone estate to almost 2,000 units, over half of which are in London. On current estimates, even with the declines we have seen in payphone revenues, this project should show a payback period of just over two years. These additional sites are important for our strategy of obtaining payphone-related income such as ATMs, advertising, WiFi and mobile phone microcells. In addition, we acquired 638 phones through Cardtel Technologies, mostly in hotels, a strategic sector for us in the development of interactive digital services. This brings the number of phones installed at the end of December to 9,600, of which 7,900 are in the UK and the remainder in Germany.

We are pleased with the overall progress in the development of ATMs co-located in our payphone kiosks. Whilst we have met some resistance from local authorities, we already have 30 units installed as of the end of February 2006, and this number continues to climb. We currently have two agreements in place with ATM operators and have recently agreed a pilot scheme with a major high street bank for free-to-use ATMs.

Our German business has had a difficult half year, with fierce competition from mobile phones as a consequence of a price war between the mobile operators. Nevertheless in the period we won an order for 92 units in the Stuttgart Underground system, which was installed in early 2006.  We believe that there continue to be opportunities for selective expansion in payphones in Germany as well as  considerable potential in the interactive business.

Acquisitions

We made two small asset acquisitions in the period. The first was the public fixed and wireless interactive business of Broadreach Networks. This brought approximately 400 new sites and some strategic customer relationships with groups such as Moto, NEC, Virgin Retail and QMH. The second was the Cardtel acquisition which brought 638 payphone sites, which are expected to pay back within a year and will also give the possibility of cross-selling interactive services to the customer base, which includes hotel groups such as Thistle, Copthorne and Holiday Inn.  The total cost of these two acquisitions including fees was £0.7m.

Outlook

The strategy of the company is to reinvest the cash flows from the payphone business into expansion of the interactive business.  We expect payphone income to decline over time but interactive revenues to continue to show strong organic growth. In addition, we are continuing to look for acquisition opportunities in the UK and overseas.

Dividend

While the company is actively reinvesting profits into our growth businesses, our policy is also to provide a reasonable return to shareholders through dividend payments.

The interim dividend is 0.6p per share, payable on 16^th June 2006.

Lord Young of Graffham

March 2006

Consolidated Profit and Loss Account for the
six months ended 31 December 2005

Consolidated statement of total recognised gains and losses

(a)    EBITDA is defined as earnings before interest, tax, depreciation, and amortisation – see note 4.

        Re-stated due to reversal of 30 June 2005 dividend. See note 3.

Consolidated balance sheet as at 31 December 2005

            Re-stated due to reversal of 30 June 2005 dividend. See note 3.

Consolidated cash flow statement as at 31 December 2005

Notes to the interim financial information

1. Segmental information

2. Earnings per share

The calculation of earnings per share is based upon the profit for the period after taxation and on the weighted average number of shares in issue during the period. For basic earnings per share this is 32,669,238, and for diluted earnings per share, this is 33,903,506 shares.  For the six months to 31 December 2004, the number of shares for the basic EPS calculation was 25,568,546. The number of shares used for the fully diluted EPS calculation was 26,914,259. The difference between the number of shares in the fully diluted and basic EPS calculations is due to employee share options for the period ending 31 December 2005 and the period ending 30 June 2005. The difference between the number of shares in the fully diluted and basic EPS calculations for the period ending 31 December 2004, is due to Investec warrants.

3. Prior year adjustment

In accordance with FRS21, the dividend provision shown in the June 2005 financial statements was reversed as the dividend was declared after the balance sheet date 30 June 2005. It did not represent a present obligation at the balance sheet date. The dividend of £353,676 is reflected in the movement of reserves.

4. Earnings before interest, tax, depreciation, and amortisation

5. Financial Information

These interim financial statements have been prepared under the same accounting policies as the financial statements for the year ended 30 June 2005, with the exception of the adjustment set out in note 3 above.

The comparative figures for the period 6 months ending 31 December 2004 were fully audited. This period was audited as part of a non-statutory audit for the purpose of the AIM listing in April 2005. The audit opinion for the financial statements at 31 December 2004 was issued to the directors and not the shareholders of the company.

These interim financial statements do not constitute statutory financial statements within the meaning of section 240 of the Companies Acts 1985. The results of the year ended 30 June 2005 have been extracted from the statutory financial statements, which have been filed with the Registrar of Companies and upon which the auditors reported without qualification.

INDEPENDENT REVIEW REPORT TO SPECTRUM INTERACTIVE PLC

Introduction

We have been instructed by the company to review the financial information for the six months ended 31 December 2005 which comprises the profit and loss account, the balance sheet, the cash flow statement and related notes 1 to 5.  We have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the financial information.

This report is made solely to the company, in accordance with Bulletin 1999/4 issued by the Auditing Practices Board.  Our work has been undertaken so that we might state to the company those matters we are required to state to them in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusions we have formed.

Directors' responsibilities

The interim report, including the financial information contained therein, is the responsibility of, and has been approved by, the directors. The directors are also responsible for ensuring that the accounting policies and presentation applied to the interim figures are consistent with those applied in preparing the preceding annual accounts except where any changes, and the reasons for them, are disclosed. 

Review work performed

We conducted our review in accordance with the guidance contained in Bulletin 1999/4 issued by the Auditing Practices Board for use in the United Kingdom.  A review consists principally of making enquiries of group management and applying analytical procedures to the financial information and underlying financial data and, based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed.  A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions.  It is substantially less in scope than an audit performed in accordance with International Standards on Auditing (UK and Ireland) and therefore provides a lower level of assurance than an audit.  Accordingly, we do not express an audit opinion on the financial information.

Review conclusion

On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the six months ended 31 December 2005

Deloitte & Touche LLP

Chartered Accountants 

Cambridge, United Kingdom                                                

21 March 2006

Notes: A review does not provide assurance on the maintenance and integrity of the

website, including controls used to achieve this, and in particular on whether any changes may have occurred to the financial information since first published.  These matters are the responsibility of the directors but no control procedures can provide absolute assurance in this area.

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