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FrontRange LIMITED - Reviewed Results For The Period ended 31 October 2004
FRONTRANGE LIMITED
(Company registration number 1997/009928/06)
ISIN: ZAE000035325
Share code: FRO
- Licence revenue up 24%
- Increased investment in new products
- $2,3 million increase in headline earnings
- $1,4 million increase in trading profit
REVIEWED RESULTS FOR THE PERIOD ENDED 31 October 2004
CONSOLIDATED BALANCE SHEET
31 Oct 2004 31 Dec 2003 30 June 2004
US$`000 Reviewed Reviewed Audited
Assets
Non-current assets
Goodwill and intangibles 7 519 7 066 7 516
Deferred tax asset 4 311 662 3 819
Property and equipment 3 761 5 101 4 188
Other long-term assets 681 368 530
Current assets 30 391 27 158 30 486
Inventories - merchandise
for resale 118 146 127
Trade and other receivables 9 283 10 187 9 029
Cash and cash equivalents 20 990 16 825 21 330
46 663 40 355 46 539
Equities and liabilities
Ordinary shareholders`
interest 20 393 14 102 18 359
Current liabilities 26 270 26 253 28 180
Trade and other payables 7 563 7 606 9 565
Taxation owing 150 - 219
Provisions 2 002 3 461 2 705
Vendors for acquisition - - 1 198
Deferred revenue 16 555 15 186 14 493
46 663 40 355 46 539
Net tangible asset value
per share (US cents) 5,4 4,1 4,5
CONSOLIDATED INCOME STATEMENT
4 months 4 months 6 months
ended ended ended Year ended
31 Oct 31 Oct 31 Dec 30 June
2004 2003 Increase/ 2003 2004
US$`000 Reviewed Unaudited (decrease)Reviewed Audited
Revenue
- Licences 9 355 7 519 24,4% 12 946 28 950
- Services 2 265 2 995 (24,4%) 4 231 8 256
- Maintenance 12 717 11 620 9,4% 17 909 36 675
24 337 22 134 10,0% 35 086 73 881
Cost of sales (5 736) (5 627) (8 470) (16 976)
Gross profit 18 601 16 507 12,7% 26 616 56 905
Operational
expenditure
- Sales and
marketing (10 524) (11 471) (16 803) (32 884)
- Research and
development (4 712) (3 438) (5 087) (11 325)
- General and
administrative (2 950) (2 568) (3 947) (8 385)
Profit/(loss)
before exchange
movements, finance
income, amortisation
and exceptional
loss 415 (970) 779 4 311
Foreign exchange
(loss)/gains (123) 935 1 782 2 159
Net finance income 47 65 103 185
Profit after
exchange gains
and interest 339 30 2 664 6 655
Amortisation of
intangibles (164) (825) (1 273) (2 755)
Exceptional loss (63) (2 873) (3 408) (4 072)
- Onerous contracts
in discontinued
operations - (564) (564) (564)
- Onerous contracts
in continued
operations - (1 456) (1 456) (1 785)
- Other (63) (853) (1 388) (1 723)
Profit/(loss) before
taxation 112 (3 668) (2 017) (172)
Deferred taxation
credit 389 400 620 3 547
Taxation charge (20) - - (98)
Profit/(loss)
attributable to
ordinary
shareholders 481 (3 268) (1 397) 3 277
Profit/(loss)
attributable to
ordinary
shareholders 481 (3 268) (1 397) 3 277
Add: Headline
adjustments
(after tax) (64) 1 386 1 837 3 574
- Profit on disposal
of fixed assets (64) (3) - (166)
- Amortisation of
goodwill - 825 1 273 2 755
- Onerous contracts
in discontinued
operations - 564 564 564
- Other - - - 421
Headline earnings/
(loss) 417 (1 882) 440 6 851
Number of shares in
issue (000`s) 158 146 155 550 155 489 155 294
Weighted average
number of shares
on which EPS and
HEPS is based
(000`s) 156 221 155 523 155 352 155 654
Earnings/(loss) per
share (US cents)
`EPS` 0,3 (2,1) (0,9) 2,1
Headline earnings/
(loss) per share
(US cents) `HEPS` 0,3 (1,2) 0,3 4,4
Weighted average
number of shares on
which diluted
earnings per share
is based (000`s) 188 517 160 695 168 982 171 462
Diluted earnings/
(loss) per share
(US cents) 0,3 (2,0) (0,8) 1,9
Diluted headline
earnings/(loss)
per share (US cents)0,2 (1,2) 0,3 4,0
Weighted average
number of shares
on which fully
diluted earnings
per share is based
(including all
options) (000`s) 205 899 181 239 181 068 207 493
Fully diluted
earnings/(loss)
per share (including
all options)
(US cents) 0,2 (1,8) (0,8) 1,6
Fully diluted
headline earnings/
(loss) per share
(including all
options) (US cents) 0,2 (1,0) 0,2 3,3
Amortisation and
depreciation for
the year 769 1 603 2 370 4 748
PRIMARY SEGMENTAL REPORT
4 months 4 months 6 months
ended ended ended Year ended
31 Oct 31 Oct 31 Dec 30 June
2004 2003 2003 2004
US$`000 Reviewed Unaudited Increase Reviewed Audited
Revenue
Americas 15 927 14 227 11,9% 22 066 45 421
Europe, Middle East
and Africa 6 829 6 366 7,3% 10 477 22 967
Asia Pacific 1 581 1 541 2,6% 2 543 5 493
Total 24 337 22 134 10,0% 35 086 73 881
Profit/(loss) before
exchange movements,
finance income,
amortisation and
exceptional loss
Americas 4 429 2 362 87,5% 4 568 9 824
Europe, Middle
East and Africa 642 92 597,8% 1 129 5 191
Asia Pacific 56 14 300,0% 169 621
Sub-total 5 127 2 468 107,7% 5 866 15 636
Less:
Research and
development (4 712) (3 438) 37,1% (5 087) (11 325)
Total 415 (970) 779 4 311
CONSOLIDATED CASH FLOW STATEMENT
4 months 6 months
ended ended Year ended
31 Oct 31 Dec 30 June
2004 2003 2004
US$`000 Reviewed Reviewed Audited
Cash (utilised)/generated
by operations (253) 2 517 8 585
Cash utilised by investing
activities (264) (426) (1 496)
Cash generated/(utilised) by
financing activities 166 (18) (555)
Net movement in cash position
for the period (351) 2 073 6 534
Cash and cash equivalents -
beginning of the period 21 330 14 712 14 712
Add: Foreign exchange effect on
cash and cash equivalents 11 40 84
Cash and cash equivalents -
end of the period 20 990 16 825 21 330
STATEMENT OF CHANGES IN EQUITY
Share Non-
capital and Accumulated distributable
US$`000 premium loss reserve Total
Balance at
30 June 2003 25 328 (8 027) (940) 16 361
Issue of shares
during the year
(net of share 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 4 751 - - 4 751
Foreign currency
translation reserve - - (5 475) (5 475)
Net profit attributable
to ordinary
shareholders - 3 277 - 3 277
Audited balance at
30 June 2004 29 524 (4 750) (6 415) 18 359
Issue of shares
during the year 1 375 - - 1 375
Foreign exchange
effect on share
capital and share
premium 703 - - 703
Foreign currency
translation reserve - - (525) (525)
Net profit attributable
to ordinary
shareholders - 481 - 481
Reviewed balance at
31 October 2004 31 602 (4 269) (6 940) 20 393
COMMENTS
FrontRange Limited, the JSE Securities Exchange SA (`JSE`)-listed holding
company owning 100% of US-based FrontRange Solutions, Inc., is the leading
independent provider of service management, CRM and communication applications
designed specifically for the SME and distributed enterprise markets. It employs
409 people in 10 countries, with a base of more than 150,000 customers
worldwide.
The group`s core and integrated mid-market business relationship management
product sets include HEATTM, a leader in customer service & support software and
GoldMineTM, a leader in business contact management and sales & marketing
automation software. HEAT and GoldMine are well-established products and strong
brands in their global markets.
FINANCIAL HIGHLIGHTS FOR THE FOUR MONTHS ENDED 31 OCTOBER 2004
The four months from July to October represent the seasonally weakest trading
months of the year, yet compared with the four months ended October 2003,
FrontRange generated:
- licence revenue of $9,4-million, 24% up on $7,5-million;
- total revenue of $24,3-million, 10% up on $22,1-million;
- trading profit (profit before exchange gains, finance income, amortisation and
exceptional loss) of $0,4-million compared with a loss of $1,0-million;
- headline earnings of $0,4-million, compared with a headline loss of $1,9-
million.
FINANCIAL PERFORMANCE FOR THE PERIOD ENDED 31 OCTOBER 2004
The half-year figures are for four months as the period was the first since
FrontRange changed its year-end from June to April.
Revenue: Total revenue for the period was $24,3-million, representing a 10%
increase from the comparable period ended October 2003.
An acceleration in the take-up of FrontRange`s products resulted in licence
revenue growing by 24% to $9,4-million. FrontRange`s recurring maintenance
revenue streams continued the trend shown over recent periods, growing 9% to
$12,7-million. Whilst services revenue declined by 24% to $2,3-million, $0,4-
million or 14% of the decline was attributed to a decline in rebillable expenses
and hence has no impact on overall operating profit.
Excluding rebillable expenses, total revenue increased by 12% over prior year.
Sequential quarterly revenue growth achieved: Revenue in the software industry
tends to increase in the last month of each quarter, and FrontRange recently
changed its year end away from a calendar quarter end in an attempt to mitigate
this. The period under review included the month of July as well as the three
months ended October.
In order to present a basis for comparison with the improving trend shown in
fiscal 2004, the results for the three months ended October 2004 have been
presented below, showing that FrontRange has now generated four consecutive
quarters of improvement in licences, total revenue and trading profit as
follows:
Quarter ended: Licence revenue Total revenue Trading profit/(loss)
September 2003 $6,0-million $16,9-million $(0,5)-million
December 2003 $6,9-million $18,2-million $1,3-million
March 2004 $7,5-million $18,9-million $1,7-million
June 2004 $8,5-million $19,9-million $1,9-million
October 2004 $8,7-million $20,3-million $2,2-million
Profit attributable to shareholders: For the four months ended October 2004, the
group made a trading profit of $0,4-million, compared with a trading loss of
$1,0-million in the prior year comparable period.
Due to an improvement in trading conditions and operating results, FrontRange,
as required by the accounting statement on Income Taxes (AC 102), continued to
re-assess deferred tax assets, and recognised in the period an additional $0,4-
million of deferred tax assets. These relate to a portion of the assessed losses
in several of the group`s territories.
Total attributable profit improved by $3,8-million to $0,5-million from a loss
of $3,3-million for the same period in 2003.
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 213%.
Deferred revenue, primarily representing maintenance revenue received in
advance, amounted to $16,6-million. This compares favourably with the June 2004
balance of $14,5-million, in line with the increase seen in FrontRange`s
customer base.
The $1,2-million liability to the vendors of Cayo Communications owing at June
2004 was dispensed of through the delivery to the vendors of 2,2-million
FrontRange Limited shares. The shares were bought back in the market prior to
the acquisition.
CASH
Cash flow continued to be tightly managed. Despite the group increasing its
spend on research and development in the period to $4,7-million and a $2-million
reduction in trade and other payables, overall cash dropped by only $0,3-million
from the balance at June 2004, closing at $21,0-million.
ACCOUNTING POLICIES AND INDEPENDENT REVIEW
These abridged financial statements have been prepared in accordance with the
South African statement on Interim Financial Reporting (AC127), and have been
reviewed but not audited by Deloitte & Touche, whose unqualified review 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 amortisation of goodwill (due to the adoption of AC140: Business
Combinations), 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 2004. This standard is applied
prospectively and therefore has no impact on opening balances or prior year
comparatives.
NEW PRODUCTS RELEASED AND DEVELOPMENT INITIATIVES
FrontRange has undertaken a product strategy aimed at producing products of
unrivalled appeal, and has focused its research and development activities on
building families of solutions for unique market segments within the small,
medium and distributed enterprise markets. To that end, total spend on research
and development increased in the period under review to $4,7-million, 37% up on
the comparable period in the prior year.
The majority of the benefits of this spend will be realised only in future
periods, as GoldMine version 6.7 and an upgraded version of the IP Contact
Center product were released only in November 2004.
Other releases scheduled for this quarter include IT Service Management, while
additional Infrastructure Management modules and further enhancements to the
HEAT and GoldMine products will follow in the next few months.
KEY CUSTOMER WINS
New customers during the period include:
North America - Electronics for Imaging, BRINKS, Connecticut On-Line, Standard
Motor Products, ASCO Valve, New York Jets, BWX Technologies, Debevoise &
Plumpton and NSI Software.
Europe, Middle East and Africa - Fiat/ Alfa, UCS Solutions, Central African
Building Society, Nissan Diesel, Sappi Kraft, Agricultural Research Council,
Daimler Chrysler Finance, Global Refund, ABN Ambro Poland, Peritrostok, Essex
Police, LSM Group, STA Travel, Oxford County Council and Vediorbis.
Asia Pacific - Shortcuts Software, Spirax Sarco, Level Up and PT Astra
International.
OUTLOOK FOR REMAINDER FISCAL 2005
FrontRange continues to view its outlook with confidence. The group is entering
a seasonally stronger period of its financial year, and with the new products
rolling out, FrontRange expects that it will be able to continue to build
sequentially on the revenue momentum achieved over the last five quarters.
Dana Buys Michael McCloskey
Chairman, FrontRange Limited Chief Executive Officer,
FrontRange Limited
Johannesburg
13 December 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
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