| Tue 7 Aug 2001, 0:00 | | Ixchange Technology Holdings Limited - Profit Warn |
|
IXCHANGE TECHNOLOGY HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1997/009928/06)
("Ixchange")
PROFIT WARNING
1. Introduction
In the quarterly update issued to the investment community on 3
May 2001, management gave a range of guidance ("the range") for
expected revenues and operating losses for the FrontRange
Solutions and Ability divisions for the six months ended 30 June
2001.
FrontRange Solutions and Ability respectively constituted 87% and
12% of Ixchange's total revenue for the six months to June 2001.
Preliminary financial information indicates that while FrontRange
met its objective of breaking even in June 2001 and grew revenue
by approximately 20% in US dollar terms over the comparable six
months ended 30 June 2000, its operating loss was $3,3-million
outside the range.
2. FrontRange Solutions
2.1. Revenue
In tough economic conditions, FrontRange Solutions revenue for
the six months ended 30 June 2001 was $45,4-million, representing
an approximate 20% US dollar growth for the comparable six months
ended 30 June 2000 (during which revenue was $37,9-million).
In Rand terms, this translates into a 45% organic growth rate
over the comparable period.
Against the trend of the industry, FrontRange carried through its
sales momentum into the fourth quarter. Revenue for the fourth
quarter grew by approximately 24% in dollar terms over the same
quarter for the previous year, and approximately 20% sequentially
over its third quarter ended March 2001. To this extent, the
Americas region did particularly well by achieving their fourth
quarter targets.
2.2. Operating loss
The strong revenue momentum in the fourth quarter of the year
allowed FrontRange to achieve its stated objective of breaking
even by the month of June 2001.
Notwithstanding the revenue growth, the operating loss for the
six months ended June 2001 (excluding exceptional restructuring
costs) was $12,4-million, $3,3-million outside the range.
The additional losses were caused largely by costs of the
localisation of certain software coming in higher than expected,
coupled with softer than anticipated quarter-end markets in the
UK and Australia. Higher than anticipated discretionary spending
resulted in operating expenses in June exceeding budget.
On 10 July 2001, FrontRange announced a headcount reduction of
10% of the workforce (77 staff) that is expected to reduce
expenses by approximately $500,000 a month.
The consolidation of the Accounting, Internal IT and Product
Fulfillment operations of the Los Angeles office into the
Colorado Springs office was completed in June 2001. This will
allow for a further reduction in operating expenses of
approximately $250,000 a month.
3. Ability
Ability's revenue came in within the range for the six months
ended 30 June 2001 at $6,3-million, approximately 8% lower than
the previous six months ended 31 December 2000.
Ability made an operating loss of $3,2-million for the six months
ended 30 June 2001, in line with the range. This represents an
approximately 35% improvement in profitability over the previous
six months ended 31 December 2000.
Of the $3.2m loss, $2.4m was incurred in the third quarter ended
31 March 2001. The closure of the UK and APAC operations, which
was effective from May 2001, assisted in reducing losses to $0,8-
million in the fourth quarter ended 30 June 2001.
Headcount reductions in Ability's South African and US operations
effected during the period and the closure of the UK and APAC
operations will result in reduced costs, with an estimated return
to profitability in the year ending 30 June 2002.
4. Xponential Enterprises
As announced in the quarterly update issued on 3 May 2001,
JustEnough's operations were closed in April 2001. Ixchange is
in the final stages of negotiations for the disposals of Fraxion
and NeuraTech. These companies are not expected to be part of
continuing operations going forward, and their disposal will
culminate in the closure of this division.
5. Conclusion
Fiscal 2001 has been a difficult year for everyone. Management
continues to manage operations appropriate to prevailing trading
conditions.
In FrontRange Solutions, it is encouraging to see that the
investments made have established stronger sales momentum,
increasing our capacity to compete and execute in the markets we
operate in.
By leveraging this momentum and raising the priority of our
expense management programs, we will achieve our stated goal of
sustainable profitable growth.
Ixchange is due to announce its full audited year-end results on
or about 3 September 2001.
Derek Kreunen
Chief Executive
7 August 2001
Investment Bank and sponsor
Nedcor Investment Bank Limited
