Dialog Corporation - 2nd Quarter & Interim Results

RNS No 4157f
DIALOG CORPORATION PLC
24 August 1999

                    The Dialog Corporation plc
     Second quarter results and Interim results for the three
             and six month periods ended 30 June 1999
                                 

            IMPROVED Q2 REVENUES REFLECTS GROWTH IN NEW
                WEB-BASED PRODUCTS AND TECHNOLOGIES

London, England/ Cary, N.C., 24 August 1999: The Dialog
Corporation plc (LSE: DLG, NASDAQ: DIAL), a leading provider of
Internet-based information, technology and eCommerce solutions to
the corporate market, today announced its second quarter results
for the three month period ending 30 June, 1999 and interim
results for the six months ending 30 June 1999.

Financial Highlights

*    Q2 revenues of #44.7 million - up 4.6% on Q1
     
*    Group Internet revenues increased by 20% to over $60 million
     for the first half of the year (1998: $50 million)
     
*    Q2 operating profit of #5.9 million - up 20% on Q1
     
*    Improved gross profit margin of 61% - up 7% on Q1
     
*    Q2 net profit increased to #1.3 million - up 200% over Q1
     
*    Web based products in Information Services Division rose 20%
     Q2 over Q1
     
*    Closing cash balance of #9.0 million
     
*    Fujitsu contracted revenues in Q3 expected to be in excess of
     #10 million
     

Allen Thomas, Chairman of The Dialog Corporation plc, commented:

"The first half of 1999 has seen a quarter on quarter improvement
in overall revenues, favourably assisted by growth in our web
based products and initial revenues from Fujitsu. Current trading
demonstrates that this has continued, assisted by our alliance
partners and in particular Fujitsu, whose contracted revenues in
Q3 will be in excess of #10 million, and by the continuing growth
of our new web based information and software solutions.

The quality of Dialog's key assets, including the World's largest
database of online information, its global infrastructure and
alliance partner relationships, and its leading edge knowledge
management and eCommerce technology, means that the Group enjoys
significant market opportunities.

"Discussions continue regarding refinancing of the Group's debt so
as to release internally generated cash from operations to further
accelerate high growth market opportunities and this process is
proceeding to plan. Our newly appointed financial advisors, The
Chase Manhattan Bank and Salomon Smith Barney, are currently in
discussions with a number of parties."

Overview

During the first half, we completed the process of developing and
releasing Internet and Intranet access to all of Dialog's
services, incorporating user-friendly interfaces and appropriate
price plans. Whereas the Group's traditional client relationships
have been with information professionals such as corporate
librarians, we are now positioned to sell all of our products to
end users directly and in collaboration with information
professionals, both within the companies we currently serve and to
new customers around the world.

We have therefore recently expanded our sales operations to focus
on increasing sales into the end-user market, the benefits of
which we expect to become more apparent in the second half.  In
fact, revenues from our Web based products have already been
achieving double-digit growth, derived from both new and existing
customer accounts.

The widespread adoption of the Internet has also stimulated a far
greater demand for efficient search and structuring technologies
such as those used by Dialog to deliver its professional online
services for many years.  In February 1999 the Company established
its Web Solutions division to sell and promote its proprietary
technology, notably its InfoSort structuring and Muscat search
technologies. These products have been successfully deployed in
client organisations for the management of both internal and
external data and have also been incorporated into a pre-packaged
corporate Intranet solution that was launched at the beginning of
this year. Most recently, the global alliance with Fujitsu for the
licensing of InfoSort, announced in June, represents a very
powerful endorsement of the Division's knowledge management
software and expertise.

Revenues

Our increased emphasis on technology based sales has meant that
the proportion of our revenues derived from these higher margin
areas has more than doubled in the first half, when compared to
1998 as a whole, and now account for approximately 8% of revenues
overall.  With the Internet based product range and pricing now in
place, the Group is currently investing in sales and marketing to
further increase revenues for the second half of 1999 and beyond.

The Company is now organized into three divisions, each of which
has substantial growth opportunities; the Information Services
Division, the Web Solutions Division and the eCommerce Division.

INFORMATION SERVICES DIVISION (ISD)

ISD represents the largest division within Dialog and provides
business, research and academic users with access to the world's
largest database collection through its Dialog, DataStar and
Profound brands.

Revenue comparisons affected by 10% price reduction; sales
infrastructure recently enhanced

Sales in ISD for the half-year were #80.6 million, down by 6.5% on
prior half-year revenues.  This reduction reflects the impact of
the planned overhaul of the traditional pricing model following
the acquisition of KRII in November 1997 and necessitated by the
move of all products to the Internet.

In addition, growth was held back earlier in the year by a lower
level of investment than we would have wished in ISD sales and
marketing.  However, following receipt of funds in May from the
new facility from The Chase Manhattan Bank, Q2 saw increased
investment in this area which has already supported revenue growth
of the new Internet-based products (20% Qtr on Qtr) and will
further drive revenues through Q3 and Q4 1999.

Q2 sales of new Internet-based solutions advanced 20% over Q1

DialogSelect, a new Internet product focused at the growing end
user community, grew 24% over Q1 1999.  DialogWeb and
DialogClassic.com, Internet solutions targeted at the information
professional and corporate/academic librarian community, have
grown 18% quarter on quarter and now represent 8% of total ISD
revenues. Sales of The Dialog Intranet Toolkit, designed to
facilitate the creation of customized corporate intranet solutions
using Dialog professional commands, have grown strongly since its
release in February of this year, and this solution is expected to
be a key revenue driver over time.  As a whole, new Internet-based
ISD solutions grew 20% over Q1 and now represent 23% of total ISD
revenues.

Growth in the Internet based solutions is due to two factors.
Firstly, our Internet products are attracting existing users due
to enhanced functionality, ease of use and customisation that
previously could not be offered via the traditional Dialog
products and is not currently offered by other services available
on the Internet. Secondly, our Internet based products are
appealing to new users already familiar with the Internet who have
come to recognise that our comprehensive content offering,
reliability, speed of response and accuracy significantly enhance
their information gathering needs.

Fujitsu contracted revenues for Q3 to exceed #10 million

As part of the agreement reached in June 1999, Fujitsu is
redistributing all of Dialog's information products as part of
their solutions to customers worldwide. Revenues generated from
this alliance (principally up front payments) are expected to be
in excess of #10 million in Q3 1999 and will further enhance
growth for this division in the future.

WEB SOLUTIONS DIVISION (WSD)

WSD is a provider of knowledge management and search technologies
and services, comparable entities in the market being Autonomy
(EASDAQ: AUY), Verity (NASDAQ: VRTY), and Excalibur (NASDAQ:
EXCA), amongst others.  The division develops and sells InfoSort
indexing and categorization solutions and Muscat search technology
to corporations and partners.

Revenues increased 287% year on year

Revenues in WSD for the half-year of #6.0 million were 287% up on
prior year comparable revenues. This division continues to benefit
from its software licensing arrangements with the BBC and the DTI
and revenues towards the end of Q2 were significantly enhanced by
the Fujitsu technology license of InfoSort.  Prospects for the
division will continue to be enhanced by the worldwide
redistribution activity undertaken by Fujitsu and the development
by Fujitsu of a Japanese version of InfoSort.

Development of powerful new Internet search engine  - WebTop.com

By combining the indexing and structuring capabilities of InfoSort
together with the 'linguistic inference' search capabilities of
Muscat, WSD is currently developing a web search engine to enable
quick, efficient access to free web-based information.  The
Group's client base will be able to benefit from this enhanced web
search service to ensure that they have gathered all external
knowledge relating to any specific search on the ISD database
products.  WebTop.Com will showcase InfoSort and Muscat
capabilities and will also generate advertising revenues and
enable business communities to share information and trade using
Dialog eCommerce tools (see below). Industry comparables to
WebTop.com include About.com (NASDAQ: BOUT), VerticalNet (NASDAQ:
VERT) and Ask Jeeves (NASDAQ: ASKJ) amongst others. WebTop.Com
will be showcased at the International Online show in December
1999.

ECOMMERCE DIVISION (ECD)

ECD is comprised of two businesses: OfficeShopper, an Internet
based commercial office products marketer and distributor, and
Sparza, which sells and markets the underlying eCommerce software
to allow other companies to develop their own eCommerce
businesses.

OfficeShopper - UK growth to accelerate and US launch early Q4

Following the launch of OfficeShopper in December 1998, eCommerce
revenues have grown quarter on quarter by 34% to achieve #714,000
for the half year.  We expect the growth of this business in the
UK will be accelerated by our recent investment in sales staff
since the period end, and by the addition of 10,000 new product
items in the software and computer consumables area.

The Division is preparing for the launch of the US site,
anticipated before year-end.  US vendors have already been signed,
providing over 30,000 products at launch, and the service is
currently in the final stages of preparation. The US office supply
market is currently worth $225 billion and is highly fragmented
with over 90% serviced by small local dealers. The Board believes
this market offers significant opportunity for the Group by
disaggregating traditional retailers through the Internet. Chemdex
(NASDAQ: CMDX) is the closest publicly listed comparable due to
the similar Internet based procurement features of their online
chemical supply service.

Sparza

Sparza, which supplies the underlying technology behind
OfficeShopper, offers business-to-business eCommerce solutions for
manufacturers, wholesalers and resellers. Its innovative
procurement management system greatly simplifies supply chains and
thus provides more effective integration, control and cost
savings.  Although only just launched, Sparza has now secured a
licence to Spicers UK and the Board believes that the prospects in
this market are considerable.  Industry comparables include Ariba
(NASDAQ: ARBA) and CommerceOne (NASDAQ: CMRC).

Operating results

The Group achieved Q2 operating profit of #5.9 million
demonstrating a 20% increase over Q1.

Gross margins improved to 61% in Q2 as a result of the increased
percentage of technology based sales, following the establishment
of the Web Solutions division.  The Company's cost base increased
in the second quarter as we started to focus our efforts on
supporting our new Internet range of services.

The Company generated positive cash flow from operations of #5.2
million for the half year reflecting significant improvement in
the company's cash flows in the second quarter. EBITDA of #10.2
million for the second quarter reflects an improvement of 12% over
Q1 1999. After interest charges of #4.6 million, the Company
achieved a net profit of #1.3 million for Q2 representing an
improvement of 200% over Q1 1999.

Debt refinancing

As previously announced, the Board is addressing the current debt
structure of the Group so as to permit more effective use of
business cash flows in the high growth market opportunities of
Information Services, Web Solutions and eCommerce.  Our current
debt obligations amount to $22 million of annual amortization on
our Senior debt facility plus interest. $13.5 million has already
been repaid so far this year.  It is the Board's intention to
refinance this facility, having appointed Chase Manhattan Bank and
Salomon Smith Barney to assist with this exercise. The Board
believes that it is in the interests of existing shareholders that
all financing options are fully investigated and this process is
proceeding to plan.

Outlook

Dialog continues to enjoy significant market opportunities
enhanced by it's investments in innovative products and solutions
which have considerable value albeit as yet not significantly
contributing to group revenues.  Dialog's key assets, including
the world's largest database of online information, its global
infrastructure and alliance partner relationships, its leading
edge data structuring, search and eCommerce technology assets have
historically been deployed to service and support the world's
largest companies' information needs.  Today, the advent of the
Internet has greatly increased general business awareness of the
value of relevant information and the importance of knowledge
management, which opens up even greater opportunities for Dialog
to reach a far broader audience.

Allen Thomas
Chairman
24 August 1999

For further information, please contact:

Dan Wagner, Chief Executive            0171 930 6900
The Dialog Corporation plc             [e-mail]
                                       
Kristian Talvitie, Investor Relations  0171 930 6900
The Dialog Corporation plc             [e-mail]
                                       
John Olsen                             0171 357 9477
Hogarth Partnership Ltd, for Dialog    [e-mail]
                                       
Consolidated Profit and Loss Account (unaudited) for the
6 months ended 30 June 1999

                                        1999             1998

                                       #'000            #'000

Turnover                              87,330            88,752
Cost of sales                        (35,562)          (38,262)
                                     --------          --------
Gross profit                          51,768            50,490

Distribution costs                   (10,874)          (10,706)
Administrative expenses              (25,638)          (22,038)
Amortisation of development
costs/goodwill                        (4,477)           (4,440)
Exceptional restructuring items            -               221
                                     --------          --------
Operating profit                      10,779            13,527

Exceptional item - gain on sale of
fixed asset investments/business           -             2,043
Net interest payable                  (9,080)           (8,581)
                                     --------          --------
Profit on ordinary activities
before taxation                        1,699             6,989
Taxation on profit on ordinary
activities                              (691)             (762)
                                     --------          --------
Profit on ordinary activities
after taxation                         1,008             6,227
Minority equity interests                  5              (127)
                                     --------          --------
Retained profit                        1,013             6,100
                                     ========          ========


Earnings per share (pence)               0.7               4.1


Earnings per share
excluding exceptional gain                                 2.9


Shares used in computing
earnings per share (thousands)       151,538           150,323


Consolidated Balance Sheet (unaudited)
as at 30 June 1999

                                  30 June        31 December
                                     1999               1998
                                    #'000              #'000

FIXED ASSETS
Intangible assets                  26,792            23,154
Goodwill                            7,557             7,676
Tangible assets                    16,808            17,870
Investments                        13,535            12,354
                                 --------          --------
                                   64,692            61,054
                                 --------          --------
CURRENT ASSETS
Stocks                                157               221
Debtors                            49,974            42,781
Cash at bank and in hand            9,019             4,494
Assets held for resale                  -               992
                                 --------          --------
                                   59,150            48,488

CREDITORS (amounts falling
due within one year)              (71,633)          (58,845)
                                  --------          --------

NET CURRENT LIABILITIES           (12,483)          (10,357)
                                  --------          --------

TOTAL ASSETS LESS CURRENT
LIABILITIES                        52,209            50,697

CREDITORS (amounts falling due
after more than one year)        (148,592)         (139,741)

Provisions for liabilities
and charges                        (3,094)           (4,697)
                                  --------          --------

                                  (99,477)          (93,741)
                                  ========          ========

CAPITAL AND RESERVES
Called up share capital             1,517             1,514
Share premium account             152,348           152,128
Shares to be issued                   967               967
Profit and loss account          (255,460)         (249,427)
                                 ---------         ---------
Ordinary shareholders' funds     (100,628)          (94,818)

Minority interest                   1,151             1,077
                                  --------          --------
Total shareholders' funds         (99,477)          (93,741)
                                  ========          ========

Consolidated Cash Flow Statement (unaudited) for the
6 months ended 30 June 1999

                                         1999              1998
                                        #'000             #'000
NET CASH INFLOW FROM OPERATING
ACTIVITIES                              5,207             8,295
                                      --------          --------
RETURNS ON INVESTMENTS AND SERVICING
OF FINANCE
Interest received                          88               302
Interest paid on bank loans and
overdrafts                             (8,956)           (8,285)
Interest paid on finance leases            (5)              (29)
                                      --------          --------
                                       (8,873)           (8,012)
                                      --------          --------
TAXATION PAID                            (393)              (56)
                                      --------          --------
CAPITAL EXPENDITURE
Payments to develop
intangible assets                      (6,197)           (4,552)
Payments to acquire tangible
fixed assets                           (2,379)           (1,161)
Receipts from sales of tangible
fixed assets                               65                23
                                      --------         --------
                                       (8,511)           (5,690)
                                     --------          --------

ACQUISITIONS AND DISPOSALS
Purchase of share in joint venture       (868)             (723)
Expenses in connection with
purchase of subsidiary undertakings      (494)             (407)
Proceeds from sale of investments         777             7,228
                                      --------         --------
                                         (585)            6,098
                                     --------          --------
CASH (OUTFLOW)/INFLOW BEFORE
THE USE OF LIQUID RESOURCES
AND FINANCING                         (13,155)              635
                                      --------         --------

MANAGEMENT OF LIQUID RESOURCES
Net receipts from sales of
investments with original
maturity date of less than one year         -               620
                                      --------         --------

FINANCING
Net proceeds on issue of
Ordinary share capital                      -               274
Short-term borrowings                  26,324                 -
Repayment of loans                     (8,692)           (6,907)
Repayment of capital element of
finance leases                           (197)             (276)
                                      --------          --------
                                       17,435            (6,909)
                                      --------          --------

INCREASE/(DECREASE) IN CASH             4,280            (5,654)


Consolidated Cash Flow Statement (unaudited) for the
6 months ended 30 June 1999 (continued)

RECONCILIATION OF NET CASH FLOW
TO MOVEMENT IN NET DEBT

                                          1999             1998
                                         #'000            #'000

Increase/(decrease) in cash in
the period                               4,280           (5,654)
Cash used to decrease lease financing      197              276
Cash acquired from short-term
borrowings                             (26,324)               -
Cash used to repay loans                 8,692            6,907
Increase in liquid resources and
cash deposits with original maturity
date of less than one year                   -             (620)
                                      --------         --------

Change in net debt from cash flows     (13,155)             909
Other non-cash changes                    (555)            (471)
New finance leases                      (2,082)               -
Effect of foreign exchange rate
changes                                 (8,446)           1,594
                                      --------         --------

Movement in net debt in period         (24,238)           2,032
Net debt at beginning of period       (144,197)        (145,904)
                                      --------         --------
Net debt at end of period             (168,435)        (143,872)
                                      ========         ========

Composition of turnover (unaudited) for the
6 months ended 30 June 1999

                                        1999               1998
                                       #'000              #'000

Information Services                  80,608             86,289
Web Solutions and Internet Software    6,008              1,553
eCommerce                                714                  -
Other                                      -                910
                                     -------            -------
                                      87,330             88,752
                                     =======            =======

These results are unaudited and do not constitute statutory
accounts within the meaning of Section 240 of the Companies Act
1985. The financial statements for the year ended 31 December 1998
have been reported on by the Company's auditors,
PricewaterhouseCoopers, and delivered to the Registrar of
Companies. The audit report was not qualified and neither did it
contain any statements under Section 237 (2) or (3) of the
Companies Act 1985. The unaudited results for the six months ended
30 June 1999 have been prepared in accordance with the accounting
policies stated in the 1998 Annual Report and Accounts.

END

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