| Mon 3 Sep 2001, 0:00 | | Ixchange Technology Holdings Limited - Audited Res |
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IXCHANGE TECHNOLOGY HOLDINGS LIMITED
(Registration number 97/09928/06) ISINNo.: ZAE000016879 Status: C
SHARENAME: Ixchange Technology Holdings LIMITED SHARECODE: XCH
AUDITED RESULTS
FOR THE YEAR ENDED 30 JUNE 2001
Year ended Year ended
30 June 2001 30 June 2000
Audited Audited Change
Consolidated Income Statement R'000 R'000 %
Revenue 750,532 541,475 38.6
- Continuing operations 661,625 486,775 35.9
- Discontinuing operations 88,907 54,700
(Loss)/profit from operations (324,489) 1,395
- Continuing operations (206,428) 2,953
- Discontinuing operations (118,061) (1,558)
Goodwill amortisation (38,893) -
Net finance income 23,768 20,369
Exceptional (loss)/gain (138,420) 387,123
- Capital (113,824) 364,993
- Non-capital (24,596) 22,130
(Loss)/profit before taxation (478,034) 408,887 (216.9)
Taxation (charge)/credit (129,419) 34,168 (478.8)
(Loss)/profit after taxation (607,453) 443,055 (237.1)
Outside shareholders` interest 142,763 (21,127) (775.7)
(Loss)/profit attributable to
ordinary shareholders (464,690) 421,928 (210.1)
Add/(subtract):
Headline adjustments (after outside
shareholders' interest) 196,604 (364,993)
- Goodwill amortisation 27,448 -
- Write-off of deferred tax asset 85,687 -
- Exceptional items - capital 83,469 (364,993)
Headline (loss)/earnings (268,086) 56,935
Number of shares in issue (000's) 157,401 156,651
Weighted average number of shares
on which EPS and HEPS is
based (000's) 157,198 150,197
(Loss)/earnings per share
(cents) "EPS" (295.61) 280.92
Headline (loss)/earnings per
share (cents) "HEPS" (170.54) 37.91
Weighted average number of shares
on which diluted headline earnings
per share is based (000's) 163,881 172,222
Diluted headline (loss)/earnings
per share (cents) (163,59) 33.06
Amortisation and depreciation
for the period 69,578 14,183
Consolidated Balance Sheet
Equities and liabilities
Ordinary shareholders' interest 345,969 719,778
Vendor for acquisition - 488
Outside shareholders' interest 51,107 184,868
Deferred taxation - 17,051
Long-term liabilities 768 1,904
Current liabilities 250,006 202,954
Deferred revenue 76,361 86,140
Trade payables 52,962 61,491
Accruals and other payables 120,683 55,212
Taxes payable - 111
647,850 1,127,043
Assets
Non-current assets
Goodwill 102,248 -
Property, plant and equipment 91,295 69,584
Other long-term assets 23,385 27,990
Deferred taxation - 195,119
Investments 1,324 3,473
Current assets 429,598 830,877
Inventories 10,011 3,811
Accounts receivable 163,401 125,143
Prepayments 46,720 38,616
Deferred costs 734 1,291
Taxes receivable 42,500 20,986
Cash and cash equivalents 166,232 641,030
647,850 1,127,043
Net tangible asset value per
share (cents) 154.84 459.48
Consolidated Cash Flow Statement R'000 R'000
Cash (utilised)/generated by
operations (217,652) 368,795
- Continuing operations (89,209) 368,263
- Discontinuing operations (128,443) 532
Cash utilised for investing
activities (180,936) (250,562)
- Continuing operations (180,248) (247,032)
- Discontinuing operations (688) (3,530)
Cash flows (utilised for)/from
financing activities (76,209) 430,671
- Continuing operations (75,159) 429,555
- Discontinuing operations (1,050) 1,116
Net movement in cash position
for the year (474,797) 548,904
Cash and cash equivalents -
beginning of the year 641,029 92,125
add: Net movement in cash position
for the year (474,797) 548,904
Cash and cash equivalents -
end of the year 166,232 641,029
The Board of Ixchange presents the audited abridged financial statements for
the group for the 12 months to 30 June 2001. In the year under review the
group has made an important transition in a very tough global market place.
Following a significant technology market collapse, the rationale for the
Group's continued investment in start-up businesses housed in the Incubator
Division was no longer justifiable. Associated with the economic slowdown,
the launch of Ability's international expansion programme on the back of the
acquisition of MasterPack and the aggressive investments made in FrontRange
Solutions had a major impact on the company performance during the reporting
period.
Without the necessary support for the re-capitalisation of the Ability
business the company decided in May 2001 to restructure itself by disposing
of all of Ixchange's interests outside of its core focus of FrontRange
Solutions.
The company has had to act aggressively and decisively in order to maintain
its shareholder value. The process and steps taken are described in this
notice under the heading of Corporate Activity.
As a result of this activity the Board is pleased to be able to announce
that post the restructuring Ixchange effectively consists of its 84%
interest in FrontRange Solutions and in due course, intends to change the
name of the entity listed on the JSE Securities Exchange South Africa from
Ixchange Technology Holdings to FrontRange Solutions.
The Board believes that this is a major step forward for shareholders
towards unlocking the full value of the company. In addition to being easier
to evaluate and understand, it will also ensure that the full force of focus
and attention will be correctly aimed at the core values of the Group.
The Board expects this next financial year to hold exciting possibilities
going forward.
Comments on Financial Statements
Income Statement
1. Discontinuing operations
Previous trading updates have already announced that Ixchange's
JustEnough.com division was closed during April 2001, Ability Solutions' UK
and Asia Pacific ("APAC") operations were closed with effect from 1 May
2001, and the two other significant divisions in Ixchange's Incubator,
NeuraTech and Fraxion, were disposed of shortly after year-end. Further to
this, Ability Solutions' remaining South African business was disposed of
with effect from 1 September 2001.
The revenue, operating losses and cash flows emanating from these
enterprises for the year have been disclosed as discontinuing operations.
2. Revenue from continuing operations - up 36% over the previous year to
R661.6m
As a result of the discontinuing operations, detailed above, the only major
continuing operation is represented by the activities of FrontRange
Solutions.
In tough economic conditions, FrontRange Solutions achieved revenue of
$86.2m (R656.3m), representing an approximate 16% US dollar growth over the
comparable 12 month period in which revenue was $74.1m (R469.7m).
Of the total R661.6m, 97% was earned from Ixchange's international
operations.
3. Operating loss from continuing operations - R206,4m
This financial year was characterised by the aggressive investment strategy
embarked upon in the earlier part of 2000. This saw further investment in
FrontRange Solutions' sales and marketing, and research and development.
FrontRange's expenditure on these categories was respectively 61.6% and
18.2% of its revenue, compared to 51.1% and 10.7% of revenue for the
equivalent period the previous year. Due to this expenditure and revenue
growth for the year falling short of target, FrontRange Solutions made an
operating loss for the year of $26.9m (R205.1m). However, continuing the
strong revenue momentum of the fourth quarter saw FrontRange Solutions
achieving its stated objective of breaking even in the month of June 2001.
4. Goodwill amortisation of R38.9m
South African accounting standards require goodwill arising on the group's
acquisitions that occurred after 1 July 2000 to be capitalised and amortised
to income on a systematic basis over its estimated useful life. With effect
from 1 July 2000, FrontRange Solutions acquired two subsidiaries, CCC and
Maestro, and in so doing realised goodwill of R137.4m ($20.3m on the date of
transaction). R37.6m of the R38.9m goodwill amortised in the year stemmed
from these acquisitions.
5. Exceptional loss - R138.4m
Both CCC and Maestro traded short of expectations. CCC was sold in January
2001 for a loss and the goodwill for Maestro was written-down to its
estimated net present value, leading in total to an impairment in the
goodwill of R107.7m.
Of the R30.7m balance of exceptional items, R21.0m relates to costs incurred
by FrontRange Solutions when it merged certain functions of its Los Angeles
operations into its headquarters in Colorado Springs. FrontRange also
incurred R3.1m of exceptional severance costs when it restructured its
operations, and a loss of R6.7m when it sold its subsidiary CCC. Ixchange
incurred a write-down of R4.2m on the write-down of certain investments.
Offsetting these costs is a gain of R4.3m that arose when Ability's UK and
APAC subsidiaries were liquidated.
6. Taxation charge - R129m
At the beginning of the year, Ixchange recognised on its balance sheet
substantial deferred taxation assets. The losses made in the various
companies in the year ended 30 June 2001 gave rise to further taxation
losses. Although management is satisfied that FrontRange will become
profitable, a conservative accounting methodology has been adopted and the
full net deferred tax assets have been written off.
Balance Sheet
1. Cash at R166.2m
As at 30 June 2001, Ixchange had cash on hand of R166.2m.
2. Fixed assets of R91.3m
The R91.3m of fixed assets is all represented by tangible fixed assets. No
capitalised development costs were included in fixed assets at year-end.
3. Goodwill - R102.2m
As disclosed in the interim results, in terms of a Shareholders` Agreement
between Ixchange and certain vendor minority shareholders and staff holding
9,942,655 shares (17.5%) of FrontRange, if FrontRange failed to consummate
an Initial Public Offering on or before 31 December 2000, these minority
shareholders had the right to require either FrontRange or Ixchange to
purchase their shares at a negotiated purchase price. This option was put
to FrontRange in March 2001 in respect of 9,531,405 shares and a price of $2
per share was agreed upon. This gave rise to goodwill of R80.1m.
The goodwill arising from this transaction, the balance of Maestro and
another FrontRange subsidiary, AVG, is being amortised in line with
anticipated future earnings. The R102.2m balance is comprised of FrontRange,
R78.7m, AVG, R15.3m, Maestro, R7.8m and other, R0.4m.
4. Capital commitment
On 29 June 2001, Ixchange sold back to FrontRange 1,739,057 of its shares at
a price of $2 per share, resulting in a reduction in its shareholding from
84.42% of FrontRange to 83.83%. This offer to buy back 4.35% of its shares
has been extended to all minority shareholders of FrontRange. Although at
this stage it is not yet certain what the total take-up of this offer will
be, the maximum cash amount payable to minorities under this offer is
$600,000.
5. Contingent liability
Certain obligations for Ability's international operations had been
guaranteed by group companies. Although it is anticipated that the total
obligations will be settled for well less than this, the maximum liability
that will arise as a result of these guarantees is R7.4m.
Exchange rate for conversion
The results and financial position of Ixchange's international operations
have been converted respectively at the average and closing exchange rates
for the period. These were R7.61 = $1 for the income statement and R8.05 =
$1 for the balance sheet.
Accounting policies
The accounting policies used in the results announcement, with the exception
of goodwill, are consistent with those applied in the previous financial
year ended 30 June 2000. The financial results and position comply with
South African statements of Generally Accepted Accounting Practice.
Independent audit
The abridged financial statements set out in this notice have been audited
by Deloitte & Touche. Without qualifying their report, attention has been
drawn to the directors' statement on going concern.
Going concern
The Board has taken positive steps to restore the Group to profitability.
These include the sale or closure of loss-making operations, the
implementation of cost-cutting initiatives, and the rationalisation of the
Group's structure to focus solely on FrontRange Solutions.
Based on these steps, together with the intention to achieve reasonable
forecasts in light of the revenue momentum established in the second half of
2001, and cash on hand of R166.2m, the Board of directors are satisfied that
Ixchange will continue as a going concern.
Dividend
In line with Group policy, no dividend has been declared.
Corporate activity
Following the decision taken at the Board meeting in May 2001, Ixchange
entered into negotiations with various parties for the disposal of
subsidiaries and investments other than FrontRange Solutions.
In order to ensure due process was followed, independent advisors were
appointed to assist with the disposal of the Ability group of companies
(Inventory Optimisation, eCommerce Fulfillment, Financial Management),
SaleAbility and NeuraTech.
Disposal proceeds
Proceeds Effective Stake
Subsidiary R'000 date retained Acquirer
Neuratech 3,700 21 Aug 01 0% SASoftware Co.
Fraxion 2,863 1 01 Aug 01 15% MBO
Ability
Inventory
Optimisation 4,500 01 Sept 01 0% MBO
eCommerce
Fulfillment 4,800 2 01 Sept 01 20% MBO
SaleAbility 4,200 01 Sept 01 0% Letter of Intent
from SA IT Co.
20,063
Less: Contributions
listed below 950
Net proceeds R19,113
Notes
1. ITH contribution R450,000 (15% of R3m) towards working capital.
2. ITH contributing R500,000 (20% of R2.5m) towards working capital.
The above proceeds do not take into account liabilities in the form of rent
and IT equipment leases which will be taken over by the acquiring parties.
NeuraTech
NeuraTech was sold for R4.7m with Ixchange receiving R3.7m for its 72%
stake.
Fraxion
Independent venture capital and private equity investors were approached
during March 2001 with a view to making an investment in Fraxion. The
parties declined for varying reasons.
An offer for 85% of the business was received from a consortium of Fraxion
management and two Ixchange directors, Messrs Kreunen and Buxton.
Due to the size of the transaction (less than 2% of Ixchange's market
capitalisation) due process was performed in-house. The due process is
available for inspection.
The opinion of the terms and conditions of the management buy out were
deemed to be fair and reasonable and accepted as such by the Board, with
Messrs Kreunen and Buxton having recused themselves from the vote.
Ability
Independent advisors were mandated with effect from 11 June 2001 to perform
the following functions:
- Obtain a thorough understanding of the Ability businesses.
- The preparation of two Information Memoranda, one in respect of the
Inventory Optimisation (IO) and eCommerce Fulfillment (eCF) business and the
other in respect of the SaleAbility business.
- The performance of a high level valuation of each of the businesses.
- The identification of financial and strategic investors who could be
interested in investing or purchasing the Ability business or part thereof.
- The establishing of contacts, with identified investors and the making of
presentations to the identified investors.
The mandated work was completed to the satisfaction of the Board of
directors. Notwithstanding the detailed work performed in an attempt to
secure an investor for the Ability businesses, none were forthcoming for the
IO and eCF business. Offers from two independent consortia comprising of
management and Ixchange directors were made and accepted.
Inventory Optimisation
A company owned and controlled by Messrs Kreunen and Buxton made an offer of
R4.5m for the entire South African business of IO and the Intellectual
Property (IP) of IO and JustEnough.
e-Commerce Fulfillment
Existing management of Ability, namely, Messrs Johan Buys, Cunnington,
Blunn, Patel, Olsson etc. made a proposal to acquire 80% of the business, on
a valuation of R6m for the total equity and shareholders claims. Subsequent
to the deal, each shareholder is to contribute their pro rata share of R2.5m
required for working capital.
While the offers for IO and eCF were below the initial expectations of the
Board, the following considerations were taken into account prior to
acceptance.
- Subsequent to the announcement of the closure of the Ability UK & APAC
offices and associated losses, revenues were severely impacted due to the
uncertainty of Ability's future.
- In the environment of uncertainty, the companies were at risk in terms of
their ability to retain staff, the most valuable component in the valuation
of these businesses.
- Ixchange has lengthy leases on premises, which will be supported by the
acquirers of IO and eCF respectively.
- The leases on IT equipment will be taken over by the respective parties.
SaleAbility
The Board is expecting an offer in the region of R4.2m, which it will in all
likelihood accept. Further terms and conditions will be released in the
future.
Business and Financial Highlights
FrontRange Solutions (all % calculations based on USD$)
Building one company
FrontRange started off the year as GoldMine Software Inc, running as two
divisions, with virtually all functions duplicated between Colorado and
California. The company had no offices in continental Europe nor Asia and a
skeleton management team in place. A year and significant effort and
investment later, the company is now completely integrated as FrontRange
Solutions Inc, with all duplication of effort eliminated and an
organisational structure in place that will scale well going forward. The
executive team has been shaken down, new systems and process put into place
and offices opened in France, Germany, Italy and Singapore.
The company has built a shared vision and has developed the key brand and
product strategies that will enable FrontRange Solutions to become the
leader for mainstream Customer Relationship Management solutions. Globally
there are more than 50 million businesses (comprised of small to medium
sized businesses, as well as divisions and departments of large
organisations) that make up the `Mainstream' market.
Record sales in fourth quarter
Against the industry trend, 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. The Americas region did particularly well by achieving their fourth
quarter targets.
Break even objective achieved in June 2001
FrontRange's previously stated objective was to achieve breakeven by the
month of June 2001. This objective was achieved on the back of strong fourth
quarter revenue. Traditionally fourth quarter revenue is FrontRange's
largest with FY2001 being no exception. Likewise the first quarter revenue
is traditionally FrontRange's weakest. Based on the current expectations we
foresee FrontRange reporting losses for the first half of the 2002 financial
year, subsequently followed with operating profit for the second half of the
2002 financial year.
Decisive response to operational challenges
While revenue growth was encouraging, operating losses remains a key area of
concern for the company. Decisive action has already been taken to ensure a
return to realising profitable sustainable growth.
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 Technical Support, Customer Care, 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.
Investment in Europe, Middle East & Africa (EMEA) & Asia Pacific (APAC)
FrontRange's decision to invest in the EMEA and APAC regions has been
vindicated by early success achieved, not withstanding these being nascent
markets for our product set. EMEA and APAC revenue grew by 41% and 16%
respectively over the previous year. These regions now represent
approximately 30% of FrontRange's revenue.
FrontRange products still users' favourite
The prestigious annual "Users Choice Awards" is an industry benchmark by
which CRM software vendors judge themselves. It is in effect an endorsement
by end users of software products. FrontRange is once again delighted that
for the second consecutive year its solutions, GoldMiner FrontOffice2000T
and HEATr were named "Gold Best-in-Class" mid-market category winners in a
poll of 8,000 US end user organisations. The Users Choice Awards is the
only awards programme in which customer relationship management products and
services are judged by the end user. In addition to the Users Choice
Awards, FrontRange products won numerous other awards during the year.
GoldMine recurring revenue up
A FrontRange objective in the period under review was to increase service
and maintenance revenue as a percentage of total revenue. The provision of
professional services secures loyalty with the customer base and offers the
opportunity to sell additional product into the installed user base.
Maintenance revenue is typically recurring by nature and in effect funds
ongoing research and development (R&D). Historically the GoldMine product
set has not included the sales of maintenance contracts. FrontRange
management is pleased that service and maintenance revenue for the GoldMine
product set increased year on year from 7% to 22% of total revenue. A key
product in this regard, GoldMine FrontOffice, drove up maintenance renewal
rates from 29% in January 2001 to 63% in June 2001, during its first
maintenance renewal cycle.
FrontRange celebrates one-millionth licensed customer
FrontRange recorded the sale of its one-millionth software licence in the
United States in the final quarter of the year to 30 June 2001.
Business Outlook
FrontRange Solutions
Single-minded focus on realising profitable sustainable growth
It is encouraging that the investments made in FrontRange Solutions have
driven sales momentum, increasing the capacity to compete and execute in the
markets the company competes in. By leveraging this momentum we will
achieve our prime goal of realising profitable sustainable growth.
Rigorous cost reduction and budget process
Management has raised the priority of expense management programmes. All
staff of FrontRange are working to ensure that expenses and cash flow are
managed as tightly as possible, and that any waste or expenditure that does
not add value to the organisation is eliminated.
R&D and new product releases to maintain positioning
FrontRange is on track with development of the next generation of its
customer relationship management suite of applications for the mid-market.
These applications will be based on the Microsoft.NET framework.
In the existing FrontRange suites of products two new releases are due in
the next 6 months. The upcoming releases of GoldMine FrontOffice and HEAT
are aimed at maintaining product superiority in their respective markets,
and at extending FrontRange's record of user satisfaction.
Customer intimacy to drive strong channel organisation
Building on the sales momentum established in recent months, FrontRange has
launched a comprehensive channel strategy to focus on its Solutions
Partners. The goals of this strategy are to develop strong partners,
efficient processes, and increased profitability. This will reward
successful Solutions Partners, while enabling FrontRange to develop
resellers who have previously untapped potential or are new to the
FrontRange product lines.
Strong position in relation to peer group
FrontRange performed admirably in license sales in the fourth quarter
against the Nasdaq listed peer group. FrontRange recorded solid license
growth on a sequential and annual basis, whereas the comparable peer group
(Remedy, Pivotal and Onyx) had declining product license revenues.
Optimistic, yet realistic on economic growth and IT sector
With economic conditions continuing to tighten in both Europe and United
States, indications for sales growth in the first quarter of the new
financial year are limited. The company is well positioned in a growth
market where the barriers to entry are significant.
The cost of establishing the global brands, product sets, channels to
market, customer base, industry relationships and organisational knowledge
that FrontRange enjoys, makes it a unique company in the JSESecurities
Exchange South Africa. FrontRange derives only about 2.5% of its revenues
from South Africa.
While we continue to have confidence in the long-term prospects of this
sector the company will continue to be managed appropriately to market
conditions.
Changes to the Board
Consistent with the restructuring process, the following changes will take
place regarding the Board of Directors:
Effective 1 September 2001, Julian Pienaar was appointed as Financial
Director.
Effective immediately, Dana Buys takes over the role of CEO with Derek
Kreunen remaining as an executive director.
On the successful recruitment of a non-executive Chairman, Dana Buys will
resign as Chairman to focus solely on the position of CEO of the company.
The company expects to make further announcements regarding a restructuring
of the Board during October 2001.
For and on behalf of the Board
D J Buys, Chairman
D C Kreunen, Chief Executive Officer
3 September 2001
REGISTEREDOFFICE:Ixchange, Belvedere Place, 5 Eglin Road, Sunninghill,
Sandton
POBox 76080, Wendywood 2144, South Africa. Tel: +27 11 808 6000 Fax: +27 11
808 6001. e-Mail: info@ixchange.com
Transfer Secretaries: Computershare, 2nd Floor, Edura House, 41 Fox Street,
Johannesburg, POBox 61051, Marshalltown, 2107.
Directors: DJBuys (Chairman); DCKreunen (CEO); M E Buxton+; J VBuys;
ACunnington; A E Gear; JWHillyard*; D CarruthersX; C NelX
(*UScitizen, +British citizen, XNon-executive director)
An announcement containing more detail and an audio web cast of the IAS
presentation are available at www.ixchange.co.za
