| Thu 3 May 2001, 0:00 | | Ixchange - Update For Fy2001 Third Quarter To 31 M |
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IXCHANGE TECHNOLOGY HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1997/009928/06)
("Ixchange")
UPDATE FOR FY2001 THIRD QUARTER TO 31 MARCH 2001
1. Introduction
Ixchange, the JSE-listed software development company, in an effort to enhance
disclosure, presents a review of operations for the third quarter of fiscal
2001. This review is provided to the investment community in terms of
Ixchange's commitment to provide timely feedback and guidance between the
formal interim and full-year results.
The intention of this review is to provide updated information on the progress
of Ixchange's operating divisions. This review therefore does not contain
financial statements.
2. Group outlook at interims
At the release of interim results in February 2001, Ixchange stated its goal
was to be operating profitably by June 2001. To this end, the group's strategy
has been to:
* Manage operations appropriately in the light of prevailing trading conditions
* Retain and attract the highest quality people; and
* Proactively identify and eliminate inefficiencies.
Management has addressed each of these imperatives in Ixchange's operating
divisions: FrontRange Solutions, Ability and Xponential Enterprises.
3. FrontRange Solutions
FrontRange Solutions develops market-leading customer relationship management
(CRM), and service and support software. Marketed under the award-winning
GoldMine(r) and HEAT(r) brands, FrontRange Solutions provides CRM, e-business
and e-commerce solutions to small to medium-sized organizations.
3.1 Third quarter performance
FrontRange achieved its internal budget for the three months ended 31 March
2001with satisfactory growth in revenue over the comparable quarter last year.
The restructuring announced at interim results bore early fruit as improved
efficiency and cost containment resulted in reduced operating expenses when
compared to the previous quarter. The combined effect of this revenue growth
and reduction in operating expenses was to further reduce the operating loss in
FrontRange, compared with the previous quarter.
Cash and cash equivalents would amount to $31-million at 31 March 2001 after
the $19-million buy back of 16,8% of FrontRange shares from minorities (details
of this was announced on 24 April 2001).
Revenue growth was particularly strong in international operations outside of
the United States. The Europe, Middle East and Africa (EMEA) region and the
Asia Pacific (APAC) region reported 53% and 93% increases in revenue
respectively compared to the same period last year.
3.2 Third quarter highlights
The restructuring of FrontRange was initiated in the latter part of 2000 as a
result of a thorough investigation and input received from customers, partners
and research institutions. The restructuring exercise is expected to be
completed by 30 June 2001. Management believe the financial benefits derived
from the restructuring will materialise in less than two quarters.
Two new product releases were announced during March 2001. HEAT Asset Tracker,
a new module for IT helpdesk asset management was launched, and GoldMine 5.5,
an update to FrontRange's leading sales force automation solution, was
released.
The appointment of a new marketing team has enabled FrontRange to achieve a
notable increase in its marketing effectiveness. With marketing spend constant,
leads generated rose by 33% in this quarter compared to the previous quarter.
As mentioned above, FrontRange reached an agreement with certain minority
shareholders to purchase their 16,8% holding (9,531,405 shares) at a price of
$2 per share.
3.3 Updated outlook for six month to 30 June 2001
FrontRange anticipates revenue growth of 20% to 30% for the six months to 30
June 2001 over the comparable period in FY2000. (FrontRange's revenue for the
six months to June 2000 was $37,97-million.)
It is also expected that the operating loss will improve by 35% to 45% over the
first six months of FY2001. (FrontRange's operating loss for the six months to
December 2000 was $14-million.)
It is anticipated that FrontRange will be operating at break-even from June
2001 onwards.
4. Ability
Ability is a leading provider of Supply Chain Optimisation and eCommerce
Fulfillment solutions. Ability's solution set includes the Ability(tm) -
eCommerce Fulfillment, Ability(tm) - Inventory Optimization and Ability(tm) -
Financial Management solutions.
4.1 Third quarter performance
By the end of the first half of FY2001 Ability had completed the
internationalisation of its product set. This entailed considerable expense as
detailed in Ixchange's interim results announced in February 2001.
With the groundwork in place, Q3's performance expectation was for higher
revenue generation from new product sales in all regions without significant
additional expenditure. However, actual revenues for Q3 have come in 25% below
forecast and, although expenditure was below forecast, the result has been a
higher than expected operating loss for Ability.
This poor performance can mainly be attributed to higher than expected
cost-structures and the lack of sales in Ability's Asia-Pacific (APAC) region.
4.2 Third quarter highlights
Ability saw improved performance from its South African and US operations. In
both regions Q3 revenue was ahead of that achieved in Q1 and Q2. Also, despite
these higher activity levels, these regions maintained expenses within budget.
In the US, Ability secured a significant new customer for its Ability -
Inventory Optimization product - VPI, a major distributor of John Deere parts.
In South Africa, Ability has successfully completed implementation of the
Ability - eCommerce Fulfillment product at Siltek Distribution. In addition,
Ability's South African office has won new customers for its Inventory
Optimization product including Score, Mondi and Osram.
4.3 Ability restructuring
A key element of the Ixchange group's current strategy is to manage
appropriately for prevailing market conditions. In line with this strategy and
in view of Ability's recent poor APAC performance, it has been decided to close
Ability's APAC operation. This decision was made on the basis of the continued
poor trading and outlook in APAC in combination with the high cost
infrastructure of this region.
Ability has also decided to close its UK operation. Although this region
performed to target for this period, the outlook for this region is poor.
Therefore, while both the US and UK operations have performed according to
expectations, Ability considers it more strategic to retain its Atlanta
headquarters. Moreover, the short-term prospects are more positive for
Ability's US operation.
Ability has received funding during the current financial year from Ixchange
($2,5-million) and FrontRange Solutions ($2-million) for its
internationalisation program. Funding from Ixchange for the fourth quarter of
FY2001 for the ongoing operations of Ability in the United States will be
provided to the extent of $500 000 from FrontRange Solutions. During this
period Ability's South African operations will also be assisted by a further
R4-million loan from Ixchange's cash.
4.4 Updated outlook for the six months to 30 June 2001
At the interim stage it was anticipated that Ability would post a 20% to 30%
improvement in US dollar revenues. However, given Ability's Q3 performance
levels and the restructuring described above, it is now expected that without
the previously forecast UK and APAC revenues, Ability will post a revenue
decline of 5% to 15% for the six months to 30 June 2001 compared to the
previous six months. (Ability revenue for the six months to 31 December 2000
was $6,9-million.)
Ability's operating loss is now expected to show an improvement of 25% to 35%
compared to the previous six months.
It is anticipated that Ability will break-even by 1 July 2001.
5. Xponential Enterprises
5.1 JustEnough
At the outset of the venture, Ixchange management set a maximum investment of
$3-million with the understanding that JustEnough management would seek outside
investors for further funding. Outside investors have not been attracted due
to current market conditions and management believes that the risk of further
investment will not provide commensurate returns currently required by the
market. It has been decided to close JustEnough with immediate effect and
transfer and incorporate the technology developed by JustEnough into Ability's
products.
5.2 NeuraTech
NeuraTech, developer of the Common Knowledge application, is expected to be
profitable and self-sufficient by June 2001. In the three months to 31 March
2001, headcount at NeuraTech was reduced by 35% contributing to a 50% reduction
in monthly expenses from May 2001.
5.3 Fraxion
Fraxion has received an award of R1,49-million from the Department of Trade and
Industry's programme to foster innovation. This award is to be used to help
bring the product to market. A beta version of Fraxion was released in April
2001.
It is expected that Fraxion will be generating revenues by June 2001.
6. Ixchange review
Significant reductions have been made in head office costs. Vacancies left
unfilled include those of Chief Information Officer, Chief Technology Officer
and Corporate Marketing Executive, as all the operating divisions are now
self-sufficient in these areas. The Group Finance department has been
decentralized in order to better meet the operating divisions' needs.
Facilities management for all operations in South Africa has been outsourced,
while discretionary expenditure has been curtailed.
7. Ixchange outlook for 2001
The group will continue to be managed appropriately with regard to the
prevailing trading conditions. Further improvements in operating losses are
expected at FrontRange Solutions and Ability. Both FrontRange Solutions and
Ability are expected to be operating at break-even on a monthly basis by June
and July 2001 respectively. It is anticipated that the start-up operations of
NeuraTech and Fraxion will be at break-even and self-sufficient by June 2001.
Management of Ixchange has taken up the challenges posed by new developments
and changing circumstances. Our strong focus remains on the drive to reach
profitability and achieve continuing profitable growth.
Derek Kreunen
Chief Executive
3 May 2001
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