| Thu 23 May 2002, 0:00 | | SOFTLINE LIMITED - Group audited results FOR THE Y |
|
Click CODE for more details on the companySOFTLINE LIMITED - Group audited results FOR THE YEAR ENDED 31 MARCH 2002
Softline Limited
registration number 1977/002304/06
international security identification number (ISIN) ZAE000012316
highlights
* Headline earnings per share 21,3 cents, up 30,7%
* Cash balance R108 million, up from R39 million
* operating Cash conversion ratio 102%, up from 83%
* Operating profit generated offshore 34%, up from 33%
COMMENTARY
The business
Softline is a developer of accounting, payroll and taxation software
applications for the small and medium-size business community. The group is
well established in the South African, Australian, United States and
Canadian markets. More than 340 000 businesses, encompassing approximately
5,5 million individual users, utilise Softline`s technology to operate their
businesses on a day-to-day basis.
Review of group results
The detailed income statement has been presented in accordance with South
African Statements of Generally Accepted Accounting Practice (GAAP), and
with international accounting standards, with exceptional items reported in
the body of the income statement. This format provides clarity in
determining Softline`s operational performance as distinct from non-
operational and non-cash items. The accounting policies are also consistent
with those used in the annual financial statements for the year ended 31
March 2001.
Softline`s strategy to increasingly focus on the growth and expansion of its
core business - accounting, payroll and tax software - has benefited the
group. The high degree of focus and therefore the similarities that exist
across operations has given management the ability to roll out methodologies
and utilise common metrics that provide greater visibility and enhanced
measurability of the business. The positioning of the various business units
is expected to derive benefits in the form of synergies and other operating
improvements.
The results for the past year reflect a period of internal focus by Softline
with activities centred on: consolidating international acquisitions;
enhancing the performance of operations; streamlining the business; and
further improving cash generation.
Whilst some benefits have begun to be evident and headline earnings per
share increased by 31%, a number of factors, related principally to the
consolidation of international acquisitions, have resulted in a decrease in
Softline`s operating margin. The primary reasons are as follows:
* AccountMate (USA) - In line with expectations AccountMate reported a
breakeven performance for FY02. The inclusion of AccountMate for the full 12-
month period in FY02, compared with a profitable 5-month period in FY01,
impacted on the group`s SG&A expenses, operating margin and earnings per
share (EPS). The movement in the exchange rate exacerbated the impact of the
inclusion of AccountMate`s results, notably in SG&A expenses where it has a
proportionately higher spend, and as a result had a greater dilutionary
effect on group operating margins than anticipated. In addition the full
inclusion of shares issued for the acquisition had a larger dilutionary
effect in FY02 compared with FY01.
* Sybiz Software (Australia) - Sybiz Software reported a pleasing
improvement in performance during the last quarter of FY02 becoming
profitable and cash generative. However, this improvement was not sufficient
to fully compensate for the business`s weak performance in prior periods,
thus resulting in a small loss for the full year. As with AccountMate, the
movement in the exchange rate impacted SG&A expenses, further diluting group
operating margins.
* AccountMate and Sybiz have, throughout the past period, remained self-
funding with no reliance on ZAR cash flows.
* Softline`s real growth in turnover was 8% excluding the effect of exchange
rate movements. The investment in SG&A spend during the year grew at a
higher rate than turnover growth, which negatively impacted the operating
margin, however this investment was considered to be a necessary component
in fuelling the group`s future growth. Management continue to monitor
overhead efficiency and optimisation on a monthly basis.
Softline`s revenues increased by 18% from R412 million in FY01 to R487
million in FY02. The geographic breakdown of revenues continues to show a
strong international contribution, and was as follows: South Africa 58%,
Australia 13%, North America 29%.
Revenues from maintenance and services continued the upward interim trend
constituting 66% of revenues, from 62% in FY01. This is reflective of the
group`s continued concentration on shifting business models across the group
to build an increasingly solid base of recurring revenue, underpinning
profitability.
Selling, general and admin (SG&A) expenses represented 60% of revenues, up
from 49% in FY01. It is anticipated that this spend on SG&A will lead to
benefits through increased sales in the future.
Operating profit net of the amortisation of intangible assets and impairment
of the share trust loan, hereto referred to as exceptional items, decreased
to R40 million from R51 million in FY01. Softline achieved an operating
profit, excluding exceptional items, of R84 million in FY02 compared to R114
million in FY01. The proportion of operating profit derived from operations
in Australia, the USA and Canada represented 34% in FY02, (FY01: 33%). This
decreased from the interim period due to the seasonally weighted
contribution from HandiSoft (Australia) in the first half of FY02. As a
result of increased SG&A expenses and the impact of AccountMate and Sybiz,
the group`s operating margin declined from 27,7% in FY01 to 17,3% in FY02.
Net cash generated from operations increased by 17%, exceeding operating
profit, underscoring the quality of profits reported and Softline`s focus on
cash generation.
The investment in research and development (R&D) continues to form an
integral component of Softline`s strategy and is essential in sustaining and
enhancing the group`s positioning in a highly competitive global software
environment. In FY02 Softline invested R49 million in R&D, comprising 10,1%
of revenues, (FY01: R30 million, 9%). The inclusion of AccountMate for the
full period contributed to the increased R&D expenditure. R32,6 million, or
6,7% of revenues (FY01: R14,1 million, 3,5%), was expensed relating to
ongoing product enhancement and development. R16,4 million or 3,4% of
revenues (FY01: R16 million, 3,9%), was capitalised as a result of the
investment in new or substantially improved product. Additionally R4,1
million relating to capitalisation from FY01 was amortised for product
having gone to market. This is in line with accounting standards and
Softline`s policy to amortise such expenditure over the useful life of the
product.
In accordance with international accounting standards, a further impairment
of the share trust loan has been made in order to reflect the loan at market
value of shares issued to the trust. During the year, the option holders
were given the option of waiving all their existing options in return for
new options (issued on a one-for-one basis) exercisable at a price and in a
manner determined in accordance with Softline`s approved share option
scheme. All new options carry the normal five-year vesting period from the
date of issue, regardless of the date on which the original options would
have or had vested, and all option holders elected to waive their existing
options. As such, this confers a benefit on management and/or option
holders. The benefit has been linked to business performance in accordance
with the recommendations of King II.
Softline`s tax rate decreased from 29% in FY01 to 22% in FY02 primarily as a
result of the recoupment of tax losses in start-up operations closed, and
additional allowances on offshore intellectual property rights.
Profit after tax, including the effect of exceptional items, was R37,7
million in FY02, compared to R37 million in FY01. Sustainable earnings,
which excludes exceptional items, was R77,7 million in FY02. Sustainable
earnings per share was 20,1 cents in FY02 compared to 28,3 cents reported in
FY01, however Softline`s headline earnings per share grew by 31% from 16,3
cents to 21,3 cents in FY02, and basic earnings per share increased 61% from
6,1 cents to 9,8 cents in FY02. The weighted average number of shares in
issue increased by 17 million to 387 million.
A detailed reconciliation of the sustainable, headline and basic earnings
per share calculation has been presented in order to provide clarity on the
business performance achieved, excluding the effect of exceptional items. In
this respect the table provides a detailed breakdown of the effect of
exceptional items on the earnings per share calculation.
Softline`s cash position increased substantially from R39 million to R108
million during the period. The group is satisfied to report that cash
generated by operations constituted 102% of trading profit. The achievement
reflects the improved cash generative ability of the group as more
operations concentrate on implementing a recurring revenue model which
facilitates greater customer loyalty and enhances the ability of the
operations to convert sales to cash. Tighter cash management across the
group also contributed to the improved cash conversion ratio. In excess of
60% of the group`s cash resided offshore at year-end. The improved cash
generation and contribution to operating profit from offshore operations is
representative of Softline`s growing success offshore in its core area of
business.
Free cash flow per share, excluding exchange rate gains on overseas cash
balances, amounts to 10,3 cents a share, representing 105% of basic earnings
per share, and is indicative of the high quality of Softline`s earnings.
This is much improved from the 4,1 cents or 68% achieved in FY01.
The working capital position of the group has improved and debtor days have
decreased from 55 to 52 days. The balance sheet has strengthened from FY01
moving from a net current liability position of R26,3 million to a net asset
position of R65,3 million in FY02. In addition all vendor liabilities have
been settled in full.
No dividends have been declared for the period. The board continues to
consider that it would be advantageous to shareholders to retain funds
within the group for future growth.
On 7 March 2002 the group announced a transaction with SVI whereby the debt
funding of SVI, carried at R91 million at the end of FY01, was repaid in the
form of an 11% investment in Integrity Software (Integrity), and the
conversion of the remaining balance to preference stock in SVI. In addition
a significant portion of ordinary stock in SVI was converted to preference
stock which yields a 7,2% annual dollar return. The transaction has elevated
Softline`s recoverability position of its investment, which is stated at a
written down book value, which is currently below market value. Softline`s
exposure to this investment is ring-fenced. The additional 11% investment in
Integrity is valued at $7 million based on a recent independent valuation
performed on the business and revenues and profits achieved to date.
Subsequent to year-end Softline has acquired MicrOpay (Australia) for A$9,89
million (approximately R55,5 million). Although Softline has sufficient cash
to fund the purchase it has elected to utilise a combination of cash and
debt to secure the appropriate measure of flexibility and balance sheet
efficiency. The debt funding will be serviced out of Australian cash flows
providing a natural hedge to the Australian dollar denominated debt.
Outlook
On 7 May 2002 Softline announced that it had extended the reach of its core
business around the globe by acquiring Australia`s leading payroll software
brand MicrOpay. MicrOpay is a direct fit with Softline`s core accounting,
payroll and tax software businesses, providing the group with rapid entry
into the market and further strengthening Softline`s existing penetration in
the Australian small and medium business market. MicrOpay together with
Sybiz and HandiSoft provides the group with a comprehensive, well branded
payroll, accounting and tax software offering for the Australian SME market.
As a result Softline is firmly established as one of the largest software
vendors in Australia.
Softline continues to focus attention on the development of business models
across the group to incorporate a greater content of recurring revenue. The
implementation of this strategy is on track as a result of growing user and
reseller acceptance, as well as widespread changes across the software
industry providing increased momentum.
Softline`s expansion over the past few years has provided the group with a
broad base of R&D resources around the globe. With the continued
consolidation of the software industry internationally it has become
increasingly important for vendors to combine resources to ensure
competitiveness. The ability of Softline to effectively deploy resources and
work collaboratively to develop more robust applications, as well as provide
group companies with access to white labelled technology, will benefit the
end user and further strengthen the group`s market position. In addition,
Softline`s strategy to go vertical, producing industry specific versions of
the group`s accounting and payroll software, will provide new growth
opportunities, as well as serve to further entrench Softline`s technology in
the customer.
Conditions in the software industry remain challenging, however the crucial
role of the accounting, payroll and tax software applications provided by
Softline in the day-to-day operations of small and medium-size businesses,
ensures that demand for these applications remains firm. Softline continues
to take advantage of the opportunities presented by an everchanging
technology landscape, new government legislation, penetration into vertical
markets, the existing base of customers and the sustained growth of the SME
market.
For and on behalf of the board
Ivan Epstein Steven Cohen Rob Wilkie
Chief executive officer Chief operating officer Chief financial officer
23 May 2002
GROUP INCOME STATEMENT
Definitions:
SVI Solutions Inc ("SVI")
Softline group excluding SVI Solutions Inc ("Softline")
SVI included in 2001 for 6 months only
2002 2001
R`000 R`000
Revenue 486 829 531 169
SVI - 118 705
Softline 486 829 412 464
- Software sales 167 398 154 060
- Maintenance and 319 431 258 404
services
Gross profit 413 730 406 129
SVI - 72 551
Softline 413 730 333 578
Operating expenses 373 983 380 806
SVI - 98 533
Softline 373 983 282 273
- Selling, general 292 849 201 031
and administration
- Research and 36 683 18 306
development
- Start-up - 25 527
operations closed
- Amortisation of 24 025 15 346
intellectual
property and
goodwill
- Impairment of 20 426 22 063
share trust loan
Profit/(loss) before 39 747 25 323
finance income
SVI - (25 982)
Softline 39 747 51 305
Net finance income 15 500 11 369
SVI - (4 580)
Softline 15 500 15 949
Profit/(loss) before 55 247 36 692
taxation
SVI - (30 562)
Softline 55 247 67 254
Income tax expense 17 551 25 201
SVI - (4 974)
Softline 17 551 30 175
Profit/(loss) after 37 696 11 491
taxation
SVI - (25 588)
Softline 37 696 37 079
Attributable from - (11 105)
minorities
Profit attributable 37 696 22 596
to ordinary
shareholders
Earnings per share
2002 2002 2001 2001
R`000 Cents R`000 Cents
Sustainable 77 695 20,1 104 802 28,3
earnings per
share (cents)
Reconciled to
basic
earnings per
share as
follows:
- Start-up - - (25 527) (6,9)
operations
closed
- Notional 4 452 1,2 (4 613) (1,2)
deferred tax
on trademarks
- SVI losses - - (14 483) (3,9)
net of
amortisations
Headline 82 147 21,3 60 179 16,3
earnings per
share (cents)
- Impairment (20 426) (5,3) (22 063) (6,0)
of share
trust loan
-
Amortisation
of
intellectual
property and (24 025) (6,2) (15 520) (4,2)
goodwill
Basic 37 696 9,8 22 596 6,1
earnings per
share (cents)
Fully diluted 9,8 5,9
basic
earnings per
share (cents)
Weighted
average
number of
ordinary
shares in 387 151 370 327
issue (000s)
Fully diluted
number of
ordinary
shares
in issue 387 151 380 215
(000s)
GROUP BALANCE SHEET
2002 2001
R`000 R`000
Assets
Non-current assets 477 893 488 240
Fixed assets 21 222 20 350
Intellectual 128 057 129 830
property and
goodwill
Capitalised 37 092 24 781
development costs
Share incentive 17 195 36 798
trust
Investment in SVI 124 333 111 504
Other investments 107 559 33 829
Deferred taxation 42 435 40 055
Loan receivable - 91 093
Current assets 188 161 107 699
Inventories 8 925 7 004
Trade and other 71 033 61 886
receivables
Cash and cash 108 203 38 809
equivalents
Total assets 666 054 595 939
Equity and
liabilities
Capital and reserves 543 201 461 679
Non-current 36 243
liabilities
Interest-bearing 36 243
debt
Current liabilities 122 817 134 017
Trade and other 122 174 120 025
payables
Vendor liabilities - 13 542
Interest-bearing 643 450
debt
Total equity and 666 054 595 939
liabilities
Total number of 387 151 386 511
ordinary shares in
issue (000`s)
Net asset value per 140,3 119,4
share (cents)
GROUP CASH FLOW STATEMENT
2002 2001
R`000 R`000
Cash flows from 87 400 66 983
operating activities
Cash flows from (18 123) (119 976)
investing activities
Cash flows from 117 (106 763)
financing activities
Net movement in cash 69 394 (159 756)
and cash equivalents
Cash and cash 38 809 206 305
equivalents at
beginning of year
Net cash obtained - (3 348)
from operations
acquired/disposed of
Cash effect on - (4 392)
deconsolidation of
SVI
Cash and cash 108 203 38 809
equivalents at end
of year
GROUP STATEMENT OF CHANGES IN EQUITY
Capital Capital
and And
reserves Reserves
2002 2001
R`000 R`000
Balance at beginning 461 679 497 146
of year
As previously 461 679 447 156
reported
Change in accounting - 49 990
policy in terms of
AC102 - deferred
taxation
Net profit for the 37 696 22 596
year
Transfer to/(from) 39 358 (106 796)
non-distributable
and translation
reserves
Issue of share 4 468 68 973
capital
Decrease in vendor - (20 240)
liabilities
Balance at end of 543 201 461 679
year
other group
information
Depreciation 9 606 14 072
Capital expenditure - -
commitments
The same accounting policies as used by the group in the previous financial
year, have been applied. These policies are in compliance with South African
Statements of Generally Accepted Accounting Practice.
DIRECTORATE
I M Epstein - Chief executive officer, S M Cohen - Chief operating officer,
R P Wilkie - Chief financial officer,
M J A Golding* - Chairman, J A Copelyn*, C S dos Santos*, E Ellerine*, S R
Maharaj*, G B Rubenstein*
* Non-executive
business address
and registered office
Softline Technology Park
Softline House
151 Katherine Street
Atholl Ext 12
Sandton, 2031
PO Box 76182
Wendywood, 2144
contact numbers
Tel: +27 11 292 8200
Fax: +27 11 292 8202
investor relations
For further information, please e-mail Lara Jawitz -
ljawitz@softline.co.za
TRANSFER SECRETARIES
Computershare Services (Pty) Ltd
11 Diagonal Street
Johannesburg, 2001
Tel: +27 11 370 5000
sponsor
Cazenove
www.softline.co.za
Date: 23/05/2002 07:30:00 AM Produced by the SENS Department
