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Registration number: 1977/002304/06
(ISIN): ZAE000012316
Share code: SFT
Financial highlights
* Headline earnings per share 12,1 cents, up 21%
* Cash balance R133 million
* Operating cash conversion ratio 141%
* Revenues derived offshore 55%
* Operating profit generated offshore 60%
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 a
market leader in South Africa and Australia, and is well established in the
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
Softline achieved revenue of R337 million compared to R231 million in the
comparable period. The increase of 46% is attributable to a combination of sound
organic growth and the inclusion of MicrOpay (Australia) for the first time.
South Africa contributed 45% of revenues and offshore 55% as follows: Australia
33% and North America 22%. Revenues derived from maintenance and services
continued the positive upward trend to represent 72% of total revenues (FY02:
66%). Selling, general and admin expenses (SG&A) represented 56% of revenues, an
improvement from 58% at the March year end.
Operating profit (excluding the amortisation of intellectual property and
goodwill and the impairment of the share trust loan in the comparable period),
increased by 32% from R48 million, in the comparable period, to R63 million.
Operations in Australia, Canada and the USA contributed 60% of operating
profits, whilst operations in South Africa contributed 40%. The operating margin
improved from 17,2% at the year end to 18,6% for the interim period. The group
expects this positive trend to continue as management`s attention remains
focused on cost containment and revenue growth. Operating profit after the
amortisation of intangibles (and impairment of the share trust loan in the
comparable period) increased from R17 million to R39 million.
Research and development (R&D) remains an integral component of Softline`s
business and key to growing the group`s market share. During the interim period
the group invested R25,4 million in R&D, equating to 7,5% of group revenues
(FY02: 10,1%). R&D charged to the income statement was R21,6 million, 6,4% of
revenues (FY02: 6,7%), relating to ongoing investment to add features and
functionality, which amount includes amortisation of R2,7 million of previously
capitalised expenditure. R6,5 million, 1,9% of revenues (FY02: 3,4%), was
capitalised as a result of our investment in new or substantially improved
product.
The effective tax rate for the period was 27,2% compared to 29,2% in the
comparable period.
In respect of investments carried on the balance sheet (primarily SVI), the
board considered it prudent to impair the value of these investments by R155
million, from R232 million at the March year end to R77 million. The impairment
in SVI is based on a continuing decline in global economic conditions, primarily
in the USA, with the consequence of deferred IT expenditure and negative
perception in IT stocks. After the impairment, the group`s net asset value per
share is 104,3 cents, compared to 140,3 cents at the year end.
After accounting for the impairment of investments of R155 million, the group
recorded a loss after tax of R127 million. Excluding the impairment of
investments the group made an attributable profit after tax of R27 million as
compared to R8 million in the comparable period and R38 million for the full
financial year FY02. This provides a clear reflection of the trading performance
of the business.
Headline earnings per share increased 21% from 10 cents in the comparable period
to 12,1 cents. Fully diluted basic loss per share was 32,4 cents compared with
earnings of 2 cents per share in the comparable period, reflecting the
impairment of investments, and amortisation of goodwill and intellectual
property.
A detailed reconciliation of the basic and headline earnings per share
calculation has been presented in order to provide clarity on the business
performance achieved. In this respect the table provides a detailed breakdown of
the effect of non-trading items on the earnings per share calculation.
Softline`s cash position increased from R108 million at the March year end to
R133 million at the end of the interim period. The cash balance, of R133
million, is after having paid out R42 million in respect of investing
activities, primarily attributable to cash paid for MicrOpay. The acquisition of
MicrOpay was funded through a combination of cash and interest bearing debt
which is reflected on the balance sheet at R13,2 million. The R30 million non-
interest bearing debt relates to source code acquired by MicrOpay prior to the
acquisition.
Cash generated by operations in the period remained strong and equated to 141%
of operating profit, reflecting the seasonality of annual license fees collected
in Softline`s Australian operations. The group anticipates that cash generated
by operations for the full year to March 2003 will be in line with the group`s
targeted objective of 100%.
Softline generated R100 million cash in the operations compared to R35 million
in the comparable period. The notable improvement is attributable to enhanced
organic profitability backed by cash, improved working capital management, the
closure of loss making start-up operations and the inclusion of MicrOpay.
The high cash conversion rate highlights the health and quality of Softline`s
profits. Furthermore these results demonstrate the group`s ability to continue
to generate strong cash flows.
In line with the continued drive to generate cash, the group has focused on
effective working capital management. The result has been a decrease in
debtor`s days from 52 days at year end to 47 days. Trade and other payables of
R161 million is in respect of deferred revenue for license and support
contracts, trade payables and other sundry creditors.
No dividends have been declared for the period. In current market conditions the
group wishes to retain flexibility and intends to utilise its cash to fund
future growth opportunities. This decision will be reviewed at the year ending
March 2003.
Accounting standards
The same accounting standards as used by the group in the previous financial
year have been applied. These practices are in compliance with South African
Statements of Generally Accepted Accounting Practice.
Comment
These results underscore the sustainability of Softline`s business and strength
of the business model. The continued drive to develop and grow the strong base
of recurring revenue underpinned the group`s performance. In addition the
crucial role of the accounting, payroll and taxation software applications
developed by Softline, as well as the focus and established position in the
small and medium size business market, affords the group a measure of protection
from volatile economic conditions.
Operationally the results for the period were driven by good performance in all
of Softline`s Australian operations. MicrOpay (Sydney), acquired in May 2002, is
performing marginally ahead of expectations. The integration of MicrOpay has
been smooth, highlighting the benefits of acquiring a company in the group`s
core area of business. Due to the similarity of their businesses, MicrOpay
management have been able to realise a number of synergies with Softline`s VIP
Payroll (SA).
Overall the South African operations performed well. Although this region`s
proportional contribution to revenues and operating profit is lower than year
end, this is due to the increased contribution from the Australian operations.
In North America market conditions remain challenging however all operations
performed in line with budgeted expectation. AccountMate`s (USA) results were in
line with the business plan and objectives outlined for the period.
Subsequent to the end of the interim period Softline concluded an agreement with
UCS Group Limited ("UCS") for the sale of retail solutions provider VST to UCS.
This transaction falls in line with the group`s strategy to increasingly focus
and strengthen Softline`s core area of business. The sale is effective 1 October
2002.
For and on behalf of the board
Ivan Epstein Steven Cohen Rob Wilkie
Chief executive Chief operating Chief financial
officer officer officer
20 November 2002
Group income statement
6 months 6 months Year
ended Ended ended
30 Sep 2002 30 Sep 2001 31 Mar 2002
(unaudited) (unaudited) (audited)
R`000 R`000 R`000
Revenue 337 540 231 933 486 829
- Software 95 715 71 650 167 398
sales
- Maintenance 241 825 160 283 319 431
and services
Gross profit 279 240 199 062 413 730
Operating 240 560 182 428 373 983
expenses
- Selling,
general and
administration 189 135 134 355 283 243
- Research and 21 591 11 901 36 683
development
- Depreciation 5 564 5 029 9 606
- Amortisation
of
intellectual
property
and goodwill 24 270 14 676 24 025
- Impairment - 16 467 20 426
of share trust
loan
Profit before 38 680 16 634 39 747
finance income
Net finance 2 494 6 862 15 500
income
Profit before
taxation and
impairment
of investments 41 174 23 496 55 247
Impairment of 154 671 - -
investments
(Loss)/profit (113 497) 23 496 55 247
before
taxation
Income tax 13 780 15 557 17 551
expense
(Loss)/profit (127 277) 7 939 37 696
after taxation
Group cash flow statement
6 months 6 months Year
ended Ended ended
30 Sep 2002 30 Sep 2001 31 Mar 2002
(unaudited) (unaudited) (audited)
R`000 R`000 R`000
Cash flows
from
operating
activities 100 070 35 251 113 132
Taxation paid (24 519) (13 658) (25 732)
Cash flows (42 424) (13 053) (18 123)
from
investing
activities
Cash flows (7 876) 6 112 117
from
financing
activities
Net movement
in cash and
cash
equivalents 25 251 14 652 69 394
Cash and cash
equivalents
at
beginning of 108 203 38 809 38 809
year
Cash and cash
equivalents
at
end of period 133 454 53 461 108 203
Group balance sheet
30 Sep 2002 30 Sep 2001 31 Mar 2002
(unaudited) (unaudited) (audited)
R`000 R`000 R`000
Assets
Non-current 390 059 462 842 477 893
assets
Fixed assets 23 663 20 424 21 222
Intellectual 192 153 126 649 128 057
property and
goodwill
Capitalised 40 958 32 334 37 092
development
costs
Share 19 750 20 210 17 195
incentive
trust
Investments 77 221 145 333 231 892
Deferred 36 314 32 896 42 435
taxation
Loan - 84 996 -
receivable
Current 229 801 127 954 188 161
assets
Inventories 8 263 7 896 8 925
Trade and 88 084 66 597 71 033
other
receivables
Cash and cash 133 454 53 461 108 203
equivalents
Total assets 619 860 590 796 666 054
Equity and
liabilities
Capital and 409 141 482 173 543 201
reserves
Non-current 25 944 154 36
liabilities
Interest- 313 154 36
bearing debt
Non-interest- 25 631 - -
bearing debt
Current 184 775 108 469 122 817
liabilities
Trade and 161 705 75 147 98 498
other
payables
Vendor - 13 542 -
liabilities
Taxation 5 556 19 217 23 676
Interest- 13 226 563 643
bearing debt
Non-interest- 4 288 - -
bearing debt
Total equity 619 860 590 796 666 054
and
liabilities
Total number
of ordinary
shares
in issue 392 415 386 511 387 151
(000`s)
Net asset 104,3 124,8 140,3
value per
share (cents)
Group statement of changes in equity
30 Sep 2002 30 Sep 2001 31 Mar 2002
(unaudited) (unaudited) (audited)
R`000 R`000 R`000
Balance at 543 201 461 679 461 679
beginning of
year
Net (127 277) 7 939 37 696
(loss)/profit
for the year
Transfer
(from)/to non-
distributable
and (10 257) 12 555 39 358
translation
reserves
Issue of 3 474 - 4 468
share capital
Balance at 409 141 482 173 543 201
end of period
Other group
information
Capital - - -
expenditure
commitments
Earnings per share
6 months ended 6 months ended Year ended
30 Sep 2002 30 Sep 2001 31 Mar 2002
(unaudited) (unaudited) (audited)
R`000 Cents R`000 Cents R`000 Cents
Basic (127 277) (32,4) 7 939 2,1 37 696 9,8
(loss)/earnings
per share
(cents)
- Amortisation 20 227 5,1 14 303 3,7 24 025 6,2
of intellectual
property and
goodwill
- Impairment of 154 671 39,4 - - - -
investments
- Impairment of - - 16 467 4,2 20 426 5,3
share trust
loan
Headline 47 621 12,1 38 709 10,0 82 147 21,3
earnings per
share (cents)
Fully diluted (32,4) 2,0 9,8
basic earnings
per share
(cents)
Weighted 392 415 386 511 387 151
average number
of ordinary
shares in issue
(000s)
Fully diluted 392 415 388 096 387 151
number of
ordinary shares
in issue (000s)
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, 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
Registration number: 1977/002304/06
International security identification number (ISIN): ZAE000012316
Investor relations: Please e-mail Lara Jawitz - ljawitz@softline.co.za
Transfer secretaries: Computershare Investor Services Limited, 11 Diagonal
Street, Johannesburg, 2001, Tel: +27 11 370 5000
Sponsor: Cazenove
Date: 19/11/2002 05:05:00 PM Produced by the JSE SENS Department
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