| Tue 26 Feb 2002, 0:00 | | Idion Technology Holdings Limited - Audited Financ |
|
ended 31 December 2001
IDION TECHNOLOGY HOLDINGS LIMITED
1998/ 013846/ 06
("IDION" or "the Group")
Audited financial results for the year ended 31 December 2001 ("the period")
Key points:
Pro-forma results have been used for ease of comparison to reflect the full
12-month reporting period January to December 2000.
* Revenue up by 12% to R249,8m (pro-forma: R223,4m)
* Headline loss per share of 31,8 cents (pro-forma: headline profit per
share 4,5 cents)
* Cash position strengthened to R43,4m (pro-forma: R29,6m)
* Debtors days reduced by 22%
* Annuity-based income up 71% to R88,7m
* Deferred revenue up 111% to R93,2m (pro-forma: R44,1m)
* R&D spend R50,8m (pro-forma: R37,3m)
Nicolaas Vlok, CEO of IDION, commented:
"The past year has been particularly challenging with disappointing
revenues. In spite of the difficult market realities, the Group achieved
notable progress in its strategic objectives and has ended the year in a
strong cash position. The business fundamentals are sound and the Group
remains committed to the execution of its strategic plan, achieving
profitability and future growth."
OPERATING ENVIRONMENT
The market, economy and resulting operating environment experienced by IDION
Technology Holdings (IDION) during the period was particularly challenging.
Continued weakness in worldwide economic conditions was compounded by tragic
world events resulting in further limited capital expenditure across the IT
market and significant delays in corporate buying decisions, all of which
had a combined impact on the Group's earnings.
Notwithstanding the prevailing economic realities, the Group grew its
annuity-based income and improved cash collections, whilst maintaining a
commitment to ongoing Research and Development (R&D). In addition, the Group
further developed its sales and marketing initiatives, strengthened its
distribution channel, attracted seasoned management expertise and retained
its key intellectual capital.
FINANCIAL REVIEW
In line with the seasonal nature of the business, a significant portion of
the Group's revenue is traditionally generated during the fourth quarter of
the financial year. As noted in the Group's profit warning announcement on
10 January 2002, the Group experienced a lower than expected fourth quarter
resulting in a loss for the year ended 31 December 2001.
The Group recorded a headline loss per share (HLPS) of 31,8 cents (pro-forma
headline earnings per share: 4,5 cents). Group revenue during the period
increased by 12% to R249,8m (pro-forma: R223,4m). However, excluding
currency differentials, revenue decreased by 8% to R205,4m and HLPS to 27,9
cents.
Licence revenues decreased 5% to R128,6m, maintenance revenues increased
71% to R88,7m and services revenues declined 17% to R38,1m, on the pro-forma
period. The decrease in licence revenues is largely attributable to weaker
licence sales in the fourth quarter and the weaker services sales within the
South African operation.
The geographical revenue breakdown per product type is illustrated in the
following table:
Breakdown of Group Revenue (R'000)
Americas EMEA Asia-Pacific Total
Licences 77 189 44 880 6 585 128 654
Maintenance 62 996 19 498 5 208 88 702
Services 12 986 19 167 276 32 429
TOTAL 153 172 83 545 13 069 249 785
During the period under review, cost of revenue increased by 95% to R67,3m.
However the Group's dollar based cost of revenue increased only by 31%. The
most notable reason for this increase was due to direct personnel costs
associated with services in the South African operation now being included
in cost of revenue. Furthermore, cost of revenue rose as a result of the
necessary strengthening of staff and infrastructure specifically within end-
user support (customer care centre) and the finalisation of expenses
relating to non-recurring project management difficulties.
Operating expenses increased by 33% to R244,8m. However, the Group's dollar
based expenses increased only by 8%. Given the tough economic climate,
specific emphasis was placed on minimising operating costs and preserving
the Group's cash resources. While the Group continued its investment in
strategic initiatives, discretionary expenditure was contained and, in some
areas, reduced. Areas of continued investments were in R&D, distribution
and marketing, and infrastructure enhancements necessary to support the
Group's growing customer base. These strategic investment initiatives
contributed to higher costs and the Group's loss was compounded by the weak
fourth quarter revenue performance.
Amortisation of goodwill and intangible assets amounted to R75,3m (pro-forma
R110,8m). This amortisation charge is consistent with the Group's policy of
amortising goodwill and intangible assets over periods ranging from
immediate write-off to seven years. A prolonged decline in market
conditions within the technology industry prompted an assessment of the
carrying value of goodwill. Following the outcome of an independent
valuation conducted, it was decided to reduce the carrying value of goodwill
by a further R192,9m.
During the period, the Group also made provision for a diminution in the
value of the original share purchase scheme of R8,3m.
Taxation
The Group's effective tax rate, calculated on an earnings before
amortisation of goodwill and intangible assets and impairment charges basis,
was 29%.
Debtors and cash reserves
At year-end, trade debtors were lower at R106,9m (31 December 2000:
R109,5m), which was largely attributable to a concerted effort to collect
outstanding debtors combined with lower sales in the fourth quarter. As a
result of strong cash collections, the Group ended the period with cash
reserves of R43,4m. Debtors' days (weighted) decreased 22% from 125 to 98
days.
Deferred income
Although the Group's licence revenues came under pressure, the maintenance
revenues derived from its increased customer base continued to strengthen.
Deferred income, primarily representing contracted future maintenance fees,
increased by 104% to R76m. This is particularly pleasing as it underlines
the quality of the Group's customer base, its solutions offering and its
high level of customer satisfaction.
The Group's segmental contribution to revenue and HLPS is illustrated in the
following table:
Managed Availability Solutions Solutions and Services
based on Microsoft Technology
31/12/2001 31/12/2000 31/12/2001 31/12/2000
12 months 12 months 12 months 12 months
Audited Pro-forma Audited Pro-forma
Revenue (R'000) 230 858 189 891 24 387 35 900
HLPS (cents) -20,6 1,3 -11,2 3,7
Note: Inter-company transactions have not been eliminated in the above
analysis
OPERATIONAL REVIEW
Vision Solutions
Vision Solutions, and its range of managed availability solutions, continues
to be the Group's largest source of revenue. Despite some signs of an early
recovery in the second and third quarters, Vision Solutions' fourth quarter
was negatively impacted by the events of 11 September and a continuing
slowdown in the worldwide economy, especially in its key North American
market.
The fourth quarter was characterised by delayed customer buying decisions,
which resulted in lengthened sales cycles. The combined impact of these
factors led to lower-than-expected revenues. Notwithstanding these
challenging conditions, Vision Solutions still managed to win 229 new
customers during the year, including several large multi-national
organisations and increased its customer base to over 1 750.
Operating expenses increased in certain areas as a result of Vision
Solutions' continued investment in the business. This investment included
improving the distribution channel, strengthening the sales presence in key
markets, recruiting key management which were appointed towards the end of
the period, implementing a highly improved customer care centre and
broadening solutions and customer service offerings and R&D, which led to a
marked progression in the development of Vision Solutions' multi platform
managed availability initiative "Project ORION".
The period saw a strong increase in cash collections providing Vision
Solutions with sufficient cash resources to fund ongoing operational
requirements for the foreseeable future. Debtors' days decreased
substantially from the pro-forma period. In line with the current operating
environment, expenses have been reduced and cost containment will continue
to remain a key focus of the business.
Vision Solutions' strategic relationship with IBM continues to grow,
providing important support in sales, marketing and R&D. This relationship
has resulted in development synergy between the companies and has produced a
number of innovative product initiatives, particularly within the multi
platform managed availability environment. Due to the nature of the solution
sets, product quality remains a key focus area.
Vision Solutions Prospects
The market has witnessed a heightened awareness and need for managed
availability solutions, especially since the events of 11 September. As a
result, and despite challenging economic conditions, it is expected that
this industry will continue to grow in the medium to long term, not only in
Vision Solutions' traditional IBM iSeries space, but across all platforms
within an organisation; making Vision Solutions' commitment to multi-
platform solutions a significant competitive advantage.
IDION Solutions
Notwithstanding the difficult trading environment, IDION Solutions made
significant progress towards its strategic initiatives during the year. The
strategy involved the appointment of key management and the alignment to
Microsoft's .NET solutions strategy.
In addition, value added partnerships, the generation of annuity income, a
return to R&D and specific market focused solutions remained areas of focus.
During the period, the name IDION.BSG was changed to IDION Solutions.
Losses incurred during the year were largely attributable to poor sales, re-
organisation costs and the finalisation of expenses relating to non-
recurring project management difficulties. These projects have been
completed, allowing for a return to efficient resource allocation going
forward. Following the advent of the new sales and business development
team, the pipeline saw signs of strengthening in the third quarter, which
resulted in deal closure successes towards the end of the year which will
have financial benefit in the 2002 financial year.
While the short-to-medium term emphasis is on a return to profitability, the
division remains committed to future R&D. In line with the current operating
environment, expenses have been reduced and cost containment will continue
to remain a key focus of the business.
IDION Solutions' relationship with Microsoft continues to strengthen with
IDION Solutions being awarded a number of Microsoft accreditations most
notably the Microsoft Gold Certified Partner status.
IDION Solutions Prospects
As Microsoft .Net solution initiatives drive and shift the computing
industry, the challenge faced by companies will be to take advantage of new
Microsoft technologies for future benefits. As a result of this increased
awareness and IDION Solutions' alignment to Microsoft, the business is well
positioned for future growth.
GROUP PROSPECTS
While the current operating environment remains a concern with limited
economic recovery anticipated in the near future, the Group expects that the
business will continue to grow as new solutions are brought to market and
the demand increases.
In line with the current operating environment, expenses have been adjusted
to match anticipated revenue streams and cost containment will continue to
remain a key focus of the business. The Group remains dedicated to its long-
term strategy of building complete solutions particularly in multi platform
managed availability and seeking value added opportunities to improve the
business' strong annuity-based income stream.
The Board is of the opinion that while seasonality is likely to continue,
product diversification, solutions focus and non-licence revenue
opportunities will have a positive impact and seasonality of the business is
likely to decrease over the medium-to-long term. While the Group is
committed to a return to profitability, the Group expects to be loss making
at half year, due to the seasonal nature of the business.
Audited Financial Statements
The financial statements have been audited by Deloitte & Touche and are
prepared in accordance with the statements on international accounting
standards. The accounting policies adopted in the preparation of these
financial statements are consistent with the policies used in the previous
reporting period.
Forward-looking statements
This announcement contains certain forward-looking statements with respect
to the financial condition and results of operations of IDION Technology
Holdings, which by their nature involve risk and uncertainty because they
relate to events and depend on circumstances that may occur in the future.
By order of the Board
Chairman Group CEO
P.L. Mc Donald N. Vlok
26 February 2002
CONSOLIDATED INCOME STATEMENT
For the year ended 31 December 2001
(R'000) 31/12/01 31/12/2000 31/12/2000
12 months 12 months 10 months
Audited Unaudited Audited
"Pro-forma"
Revenue 249 785 223 408 196 366
- Licences 128 791 139 518 120 926
- Services and
maintenance 120 994 81 160 72 710
- Third party
products 2 730 2 730
Cost of sales 67 304 34 438 28 079
- Licences 1 827 1 924 1 451
- Services and
maintenance 65 477 30 401 24 515
- Third party
products - 2 113 2 113
Gross profit 182 481 188 970 168 287
Operating expenses 244 843 183 941 136 643
- General and
administrative costs 73 148 63 823 75 475
- Research and
development costs 50 777 37 245 28 815
- Sales and
marketing costs 120 918 82 873 32 353
Operating (loss)/
profit before
interest -62 362 5 029 31 644
Net investment
Income 12 066 2 718 3 088
Operating (loss)/
Profit -50 296 7 747 34 732
Amortisation of
goodwill and
intangible assets 75 339 110 807 114 986
Impairment
of goodwill 192 991 - -
Impairment of share
purchase trust 8 301 - -
Loss before taxation -326 927 -103 060 -80 254
Taxation - 20 110 2 553 3 672
Net loss for
the period -306 817 -105 613 -83 926
Calculation of Headline (Loss)/ Earnings:
Net loss for the
period
(Basic earnings) -306 817 -105 613 -83 926
Adjust for (net of tax):
+ Amortisation
of goodwill and
intangible assets 69 677 110 807 106 832
+ Impairment
of goodwill 192 991 - -
+ Impairment of
share purchase trust 8 301 - -
- Profit on
sale of business - -317 -
Headline
(loss)/ earnings -35 848 4 877 22 906
Number of
shares in issue 112 585 423 112 585 423 112 585 423
Weighted
average number
of shares 112 585 423 108 998 645 108 998 645
Fully diluted
number of shares 112 585 423 112 585 423 112 585 423
Loss per share (cents)
- Basic -272.5 -96.9 -77.0
- Fully diluted -272.5 -93.8 -74.5
Headline (loss)/earnings per share (cents)
- Basic -31.8 4.5 21.0
- Fully diluted -31.8 4.3 20.3
Note: Weighted average conversion rate: R9.21/ US$1 (pro-forma 12 months:
R7.16/ US$1; audited 10 months: R7.44/ US$1).
Closing rate: R11.995/ US$1 (pro-forma 12 months and audited 10 months:
R7.56/ US$1)
CONSOLIDATED BALANCE SHEET
As at 31 December 2001
31/12/2001 31/12/2000
(R'000) Audited Audited
ASSETS
Non-current assets
Property, plant and equipment 30 404 14 768
Goodwill and intangible assets 190 138 345 044
Deferred taxation 58 496 17 236
Loans granted 733 8 835
279 771 385 883
Current assets
Trade and other receivables 107 547 109 549
Taxation - 5 261
Short term advances - 353
Prepayments and deposits 4 048 6 335
Cash and cash equivalents 43 361 29 570
154 956 151 068
Total Assets 434 727 536 951
EQUITY AND LIABILITIES
Capital and reserves
Issued share capital 422 605 422 606
Currency translation reserve 175 633 59 190
Accumulated losses -366 695 -59 878
231 543 421 918
Non-current liabilities
Long term liabilities 5 409 926
Deferred taxation 18 459 20 414
23 868 21 340
Current liabilities
Trade payables and accruals 64 845 35 022
Short term borrowings 17 849 12 008
Amounts due to vendors 1 348 2 500
Taxation 2 060 69
Net deferred income 93 213 44 094
179 315 93 693
Total Equity and Liabilities 434 727 536 951
Issued number of shares 112 585 423 12 585 423
Net asset value per share (cents) 206.2 374.8
Net tangible asset value
per share (cents) 19.8 36.8
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2001
Share Share Retained Non- Total
capital premium earnings/ distributable
(loss) reserves
(R'000)
Balance at 01/03/01 856 10 518 24 047 - 35 421
Net loss for the
period - - -83 926 - -83 926
Currency translation
reserve - - - 59 191 59 191
Issue of shares 338 427 894 - - 428 232
Preference shares
redeemed -68 -16 932 - - -17 000
Balance at
31/12/00 1 126 421 480 -59 879 59 191 421 918
Net loss for the
period 0 0 -306, 817 0 -306 817
Currency translation
reserve 0 0 0 116 443 116 443
Balance at 31/12/01 1 126 421 480 -366 696 175 634 231 544
IDION TECHNOLOGY HOLDINGS LIMITED
CONSOLIDATED CASH FLOW STATEMENT
For year ended 31 December 2001
(R'000)
31/12/2001 31/12/2000
12 months 10 months
Audited Audited
OPERATING ACTIVITIES
Cash generated/(utilised) by operations 16 167 -10 951
Income taxes (paid) -2 358 -1 652
Interest received/(paid) -1 686 1 554
Translation difference - 332
NET CASH FROM/(USED IN) OPERATING ACTIVITIES
12 123 -10 717
INVESTING ACTIVITIES
Additions to property, plant and equipment -15 913 -7 716
Loans granted 1 493 -6 475
Proceeds from sale of fixed assets 219 -
Acquisition of subsidiary - -365 268
NET CASH USED IN INVESTING ACTIVITIES -14 201 -379 459
FINANCING ACTIVITIES
Proceeds from issue of ordinary shares - 411 231
Proceeds from/(repayment of) long term
Borrowings 3 621 -1 780
Net decrease in short term loans -1 071 -
NET CASH FROM FINANCING ACTIVITIES 2 550 409 451
NET INCREASE IN CASH AND CASH EQUIVALENTS 473 19 275
Effect of exchange rate changes on cash
and cash equivalents 13 317 -
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 29 571 10 296
CASH & CASH EQUIVALENTS AT CLOSE OF PERIOD 43 361 29 571
Enquiries:
IDION Technology Holdings Ltd. Tel: +27 (0) 11 517 1500
Nicolaas Vlok, Group CEO
Willem Richard, Executive Director - Group Finance
Corn Arnold, Executive Director - Corporate Communications
ir@idion.com
www.idion.com
College Hill
Tel: +27 (0) 11 447 3030
Julia Kerr
