| Tue 17 Aug 2004, 9:22 | | FRONTRANGE LIMITED - REVIEWED RESULTS |
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FRONTRANGE LIMITED - REVIEWED RESULTS
FRONTRANGE LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1997/009928/06)
Share code: FRO ISIN: ZAE000035325
(`FrontRange`)
REVIEWED RESULTS
for the year ended 30 June 2004
- Sequential revenue growth achieved
- Operating cash inflow up 42% to $8,6-million
- Closing cash of $21,3-million
- Headline earnings up 120% to $6,9-million
- Major advances in product development
CONSOLIDATED BALANCE SHEET
30 June 2004 30 June 2003
US$`000 Reviewed Reviewed
Equities and liabilities
Ordinary shareholders` interest 18 358 16 361
Current liabilities 28 181 24 917
Trade and other payables 9 566 8 400
Taxation owing 219 -
Provisions 2 705 2 828
Vendors for acquisition 1 198 -
Deferred revenue 14 493 13 689
46 539 41 278
Assets
Non-current assets
Goodwill and other intangibles 7 516 7 558
Deferred tax asset 3 819 -
Property and equipment 4 188 5 591
Other long-term assets 530 173
Current assets 30 486 27 956
Inventories - merchandise
for resale 127 201
Trade and other receivables 9 029 13 043
Cash and cash equivalents 21 330 14 712
46 539 41 278
Net tangible asset value per
share (US cents) 4,5 5,7
CONSOLIDATED INCOME STATEMENT
Restated*
Year ended Year ended %
30 June 2004 30 June 2003 Increase/
US$`000 Reviewed Reviewed (decrease)
Revenue
- Licences 28 950 37 226
- Services 8 256 7 694
- Maintenance 36 675 32 329
73 881 77 249 (4,4)
Cost of sales (16 976) (17 469)
Gross profit 56 905 59 780
Operating costs
- Sales and marketing (32 884) (38 594)
- Research and development (11 325) (12 306)
- General and administrative (8 385) (8 840)
Operating profit before finance
income and amortisation 4 311 40 10 677,5
Exchange gains 2 159 3 794
Net finance income 185 11
Profit after exchange gains
and interest 6 655 3 845
Goodwill amortisation (2 755) (2 382)
Exceptional loss (4 072) (901)
- Onerous contracts in
discontinued operations (564) (44)
- Onerous contracts in
continued operations (1 785) -
- Other (1 723) (857)
(Loss)/profit before taxation (172) 562
Deferred taxation credit 3 547 -
Taxation (charge)/credit (98) 4
Profit after taxation 3 277 566
Outside shareholders` interest - (32)
Profit attributable to ordinary
shareholders 3 277 534 513,7
*-Refer to `accounting policies
and independent review` note
contained in the commentary.
Profit attributable to
ordinary shareholders 3 277 534
Add: Headline adjustments
(after tax and outside
shareholders` interest) 3 574 2 574
- Goodwill amortisation 2 755 2 320
- Onerous contracts in
discontinued operations 564 44
- Other 255 210
Headline earnings 6 851 3 108 120,4
Number of shares in issue
(000`s) 155 294 155 607
Weighted average number of
shares on which EPS and HEPS
is based (000`s) 155 654 157 485
Earnings per share (US cents)
(`EPS`) 2,1 0,3 520,9
Headline earnings per share
(US cents) (`HEPS`) 4,4 2,0 123,0
Weighted average number of
shares on which diluted earnings
per share is based (000`s) 171 462 159 428
Diluted earnings per share
(US cents) 1,9 0,3 470,6
Diluted headline earnings per
share (US cents) 4,0 1,9 105,0
Weighted average number of
shares on which diluted
earnings per share is based
(including all options) (000`s) 207 493 176 239
Fully diluted earnings per
share (including all options)
(US cents) 1,6 0,3 421,2
Fully diluted headline earnings
per share (including all options)
(US cents) 3,3 1,8 87,2
Amortisation and depreciation
for the year 4 748 5 615
CONSOLIDATED CASH FLOW STATEMENT
Year ended Year ended %
30 June 2004 30 June 2003 Increase/
US$`000 Reviewed Reviewed (decrease)
Cash generated by operations 8 585 6 046 42,0
Cash utilised for investing
activities (1 495) (2 645) (43,5)
Cash utilised by financing
activities (556) (658) (15,5)
Net movement in cash position
for the year 6 534 2 743
Cash and cash equivalents -
beginning of the year 14 712 11 872
Add: Foreign exchange effect on
cash and cash equivalents 84 97
Cash and cash equivalents -
end of the year 21 330 14 712
STATEMENT OF CHANGES IN EQUITY - REVIEWED
Share
capital Non-
and Accumulated distributable
US$`000 premium loss reserve Total
Balance at
30 June 2002 18 596 (8 561) 7 340 17 375
Issue of shares
during the year
(net of issue
expenses) (6) - - (6)
Write-off of share
issue expenses 7 - (7) -
Treasury shares held
in FrontRange Share
Trust (488) - - (488)
Foreign exchange
effect on share
capital and share
premium 7 219 - - 7 219
Foreign currency
translation reserve - - (8 273) (8 273)
Net loss attributable
to ordinary
shareholders - 534 - 534
Balance at
30 June 2003 25 328 (8 027) (940) 16 361
Issue of shares
during the year (net
of issue expenses) 350 - - 350
Treasury shares held
in FrontRange Share
Trust (1 109) - - (1 109)
Share premium arising
on consolidation of
FrontRange Share
Trust 204 - - 204
Foreign exchange
effect on share
capital and share
premium 4 750 - - 4 750
Foreign currency
translation reserve - - (5 475) (5 475)
Net profit
attributable to
ordinary
shareholders - 3 277 - 3 277
Balance at
30 June 2004 29 523 (4 750) (6 415) 18 358
PRIMARY SEGMENTAL REPORT - REVIEWED
Europe,
Middle- Total Research
East Asia operating and deve-
US$`000 Americas and Africa Pacific companies* lopment Total
Revenue -
year ended
30 June
2004 45 421 22 967 5 493 73 881 - 73 881
Revenue -
year ended
30 June
2003 51 054 21 864 4 331 77 249 - 77 249
Operating
profit -
year ended
30 June
2004 9 824 5 191 621 15 636 (11 325) 4 311
Operating
profit -
year ended
30 June
2003 8 205 3 682 459 12 346 (12 306) 40
*Before research and development, $11,3 million of which was incurred in the
Americas (2003: $11,6 million).
COMMENTS
FrontRange Limited, the JSE Securities Exchange SA (`JSE`)-listed holding
company owning 100% of US-based FrontRange Solutions, Inc., is a global leader
providing software to the mainstream business market to enable users to manage a
wide variety of business relationships and provide exceptional service. It
employs 376 people in ten countries, with a base of more than 150000 customers
worldwide.
The group`s core and integrated mid-market business relationship management
product sets include HEATTrade Mark, a leader in customer service and support
software, and GoldMineTrade Mark, a leader in business contact management and
sales and marketing automation software. HEAT and GoldMine are well-established
products and strong brands in their global markets.
FINANCIAL HIGHLIGHTS FOR THE YEAR ENDED 30 JUNE 2004
FrontRange continued to improve significantly on the financial results seen in
previous periods. Compared with the year ended June 2003, it generated:
- operating profit before finance income and amortisation of $4,3-million
compared with $40000;
- headline earnings of $6,9-million, compared with $3,1-million; and
- operating cash inflows of $8,6-million compared with $6,0-million.
US DOLLAR FINANCIAL REPORTING
Although listed on the JSE, only about 4% of the group`s revenue is transacted
in South Africa. The volatility in the rand/dollar exchange rate seen over the
years has resulted in significant distortions arising when comparing year-on-
year group results in South African rands. Accordingly, the group has changed
its presentation currency from South African rands to US dollars with effect
from the current financial year, with comparative information being restated
accordingly. Presenting financial information in US dollars will also be more
meaningful to international investors.
The policy of reporting in US dollars has been and will be applied in future
using the following bases:
- assets and liabilities for balance sheets (including comparatives) have been
translated at the closing rate ruling at the date of each balance sheet; and
- income and expense items for all years presented (including comparatives) have
been translated at an average rate that approximates the actual exchange rates
at the dates of transactions.
FINANCIAL PERFORMANCE FOR THE YEAR ENDED 30 JUNE 2004
Revenue: Total revenue for the year was $73,9-million, representing an
approximate 4% decrease from the comparable period ended June 2003.
As a testament to high levels of customer satisfaction and retention,
FrontRange`s recurring maintenance revenue streams continued the trend shown
over recent years, growing 13% to $36,7-million. Services revenue rose by 7% to
$8,3-million. Due to a lack of compelling new product launches until the second
half of the financial year resulted, overall revenue from licences fell by 22%
to $29,0-million. However licence revenue did recover from the first quarter of
the year to record consecutive quarter-on-quarter growth thereafter.
Sequential quarterly revenue growth achieved: Stronger management and a
revitalised business strategy resulted in FrontRange achieving sequential growth
in its quarterly revenue and operating income as follows:
- September 2003 - revenue of $16,9-million resulted in an operating loss of
$0,5-million;
- December 2003 - revenue of $18,2-million generated operating profit of $1,3-
million;
- March 2004 - revenue of $18,9-million generated operating profit of $1,7-
million; and
- June 2004 - revenue of $19,9-million generated operating profit of $1,9-
million.
This was the first time in the group`s history that it managed to grow revenue
in the seasonally weak March quarter over the traditionally strong December
quarter.
Operating profit: The group made an operating profit of $4,3-million, compared
with $40000 in the prior year comparable period. In addition, FrontRange
benefited from exchange gains of $2,2-million, which resulted from the dollar`s
decline against other world currencies.
Exceptional items: Stemming from a continued drive to generate maximum operating
efficiencies, FrontRange wrote off $4,1-million in the year. $3,4-million of
this was incurred in the first six months of the fiscal year.
Of the $4,1-million, $1,8-million relates to provisions for onerous lease
contracts at the group`s offices in the US cities of Los Angeles and Colorado
Springs and the Reading office in the United Kingdom. An additional $0,6-
million has been written off relating to onerous leases in Maestro Commerce, a
discontinued operation in Chicago. $0,7-million was incurred in the closure of
FrontRange`s French office. Severance costs associated with bringing the
group`s cost base in line with market conditions were $0,6-million and other
exceptional items totalled $0,4-million.
BALANCE SHEET
FrontRange`s balance sheet remains strong with no long-term debt. Property and
equipment consists entirely of tangible assets; no development costs are
capitalised. Current assets at period end exceeded current liabilities
(excluding the non-cash deferred revenue liability) by more than 122%.
Deferred revenue, primarily representing maintenance revenue received in
advance, amounted to $14,5million. This compares favourably with the June 2003
balance of $13,7-million, in line with the increase seen in FrontRange`s
customer base and its high customer retention rate.
Due to an improvement in trading conditions and operating results, FrontRange,
as required by the accounting statement of Income Taxes (AC 102), re-assessed
deferred tax assets that it previously had not recognised, and brought onto the
balance sheet $3,8-million worth of deferred tax assets. These relate to a
portion of the assessed losses in various of the group`s territories.
CASH
Cash flow continued to be managed ahead of the cash management plan`s best-case
scenario. Stringent working capital management resulted in FrontRange
generating operating cash inflows of $8,6-million in the period. Cash balances
closed at $21,3-million.
Cash was negatively impacted during the year by the FrontRange Share Trust
acquiring an additional 2,5-million FrontRange Limited shares for a total
consideration of $1,1-million. In addition, $0,4-million was spent in part
settlement of the acquisition of Cayo Communications, Inc., a company acquired
in June 2004.
ACCOUNTING POLICIES AND INDEPENDENT REVIEW
These abridged financial statements have been prepared in accordance with the
South African statement on interim financial reporting (AC 102), and have been
reviewed but not audited by Deloitte & Touche, whose report is available for
inspection at the company`s registered office. The accounting policies used in
the preparation of the results announcement, with the exception of the
classification of rebillable expenses and the consolidation of the FrontRange
Share Trust, are consistent with South African Statements of Generally Accepted
Accounting Practice and those applied in the annual financial statements for the
year ended 30 June 2003.
The impact of the share trust consolidation is not material and therefore no
adjustments have been made to the comparative figures in that regard. The
reclassification of rebillable expenses had no impact on overall operating
profit as it increased both revenue and operating expenses by $1,0-million.
Revenue and operating expenses for the comparable year ended 30 June 2003 were
both increased by $1,1-million.
NEW PRODUCTS RELEASED AND DEVELOPMENT INITIATIVES
FrontRange continued to develop its product sets, and released two significant
upgrades to its HEAT and GoldMine applications midway through the fiscal year.
FrontRange also extended its product development capacity with the opening of an
office in Silicon Valley in order to fast-track certain initiatives.
Stemming from this was a refocus on delivering families of solutions developed
specifically for unique market segments within the small and medium enterprise
and distributed enterprise markets. Towards the end of the fiscal year,
FrontRange released initial versions of IP Contact Center, using Voice Over
Internet Protocol, and DiscoverNET, the first module of the new Infrastructure
Management product range.
The product development pipeline remains full, with releases scheduled within
the next few months including IT Service Management, an upgraded version of IP
Contact Center, additional Infrastructure Management modules, and further
enhancements to the HEAT and GoldMine products.
ACQUISITION OF CAYO COMMUNICATIONS
With effect from 17 June 2004, FrontRange acquired 100% of Cayo Communication,
Inc. (`CayoCom`). CayoCom is a California corporation with a branch in Moscow
employing 25 software developers that produced certain technology that
FrontRange had bundled under licence into its IP Contact Center product.
The acquisition of CayoCom secured the intellectual property of a product in
which the group sees tremendous potential, enhances FrontRange`s product
development capacity and also provides an opportunity for FrontRange to grow its
business in the rapidly expanding Eastern European market.
The acquisition was paid for with 2,2-million FrontRange Limited shares, which
were financed out of existing treasury stock (but which had not yet been
transferred at year-end). In addition, FrontRange paid $350800 in cash, giving
a total acquisition consideration of $1,6-million.
SIGNIFICANT NEW MANAGEMENT RECRUITS
FrontRange made some significant new management recruits in the year. Michael
McCloskey, who previously ran Genesys Telecom and Kana Communications, ran the
group as interim chief executive until April 2004, at which time he accepted the
position permanently. Dave Smith, the new vice-president of US Sales, joined
FrontRange from 3Com, where he was vice-president of US Sales. Keith Barr, the
new vice-president of Product Development, is a software development veteran,
having been the co-founder of Echopass, a hosted call centre solutions provider.
Patrice Tollenaere, the new Senior Director of Development, joined FrontRange
from Network Associates, where he was CTO and vice-president of Engineering of
its Magic Solutions Business Unit. John O`Brien, the new head of FrontRange`s
Asia Pacific region, brings a wealth of experience to the group, including a
history of success at Genesys Telecom where he established and built its Asia
Pacific region.
DIRECTORATE
Christo Nel, a non-executive director of FrontRange, has resigned from the board
with effect from 17 August 2004. The board thanks Christo for his contributions
over the last three-and-a-half years.
Change of year-end
In order to try to mitigate the seasonality of its licence revenue achievements,
FrontRange has changed its year-end so that it no longer coincides with the end
of a calendar quarter. The new year-end will be 30 April. FrontRange`s next set
of results will therefore be for the ten months ending April 2005, with an
interim period for the four months ending October 2004.
OUTLOOK FOR FISCAL 2005
FrontRange is entering fiscal 2005 with an improved level of confidence.
Expenses remain under control, the management and product development teams have
bedded down, and the sales and marketing teams are starting to take delivery of
the new products. FrontRange expects that it will be able to continue to build
on the revenue momentum achieved over the fiscal year just ended.
Dana Buys Michael McCloskey
Chairman, FrontRange Limited Chief Executive Officer,
FrontRange Limited
Johannesburg
17 August 2004
Directors: DJ Buys (non-executive chairman); M McCloskey (CEO)*; E Ekstrom (non
executive)*; G Heil (non-executive)*, JW Hillyard*; DC Kreunen (non-executive);
AJ Pienaar. *US citizen
Company secretary: AJ Pienaar
Date: 17/08/2004 09:00:12 AM Produced by the JSE SENS Department
