| Wed 24 Aug 2005, 9:05 | | IDION - Unaudited financial results for the six mo |
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IDION - Unaudited financial results for the six month period ended 30 June 2005
IDION TECHNOLOGY HOLDINGS LIMITED
Registration number 1998/ 013846/ 06
(`IDION` or `the Group` or `the Company`)
ISIN Code: ZAE000022513
Share code: IDI
Unaudited financial results for the six month period ended 30 June 2005
Results denominated in United States (`US`) Dollars (`$`)
OVERVIEW
- Group headline loss $1,1 million (Headline Loss Per Share
(`HLPS`) of 1.0 US cent), compared to Group headline earnings
for the six months ended 30 June 2004 of $270 000 (Headline
Earnings Per Share (`HEPS`) of 0.2 US cent);
- Total revenue increased by 2% and annuity-based income,
representing 59% of total revenue, increased by 5% to
$8,5 million;
- Total operating expenses increased by 14% from $13,7 million
to $15,6 million as the Group began implementing its growth
strategy through additional investment in sales and marketing
activities, new product initiatives and the acquisition of UK-
based OS Solutions Limited (`OSS`);
- Completion of the acquisition and successful integration of
OSS;
- The OSS results have been included from 1 April 2005, the
acquisition date.
- Cash flow from operating activities of $1,3 million and net
cash position remained strong at $8,8 million after $2,6
million of initial cash payment for the acquisition of OSS
(31 December 2004: $10,3 million);
- EBITDA loss of $923 000 (30 June 2004: EBITDA of $865 000);
- Further expansion of the ORION offering, through the release of its UNIX
solution, ORION for AIX.
IDION is a technology investment holding company listed on the JSE Limited. Its
operating subsidiary, Vision Solutions International, Inc. (`Vision`), is a
leading vendor of High Availability (`HA`) software and services principally for
the IBM eServer iSeries platform. Vision is also extending its reach through
ORION, the industry`s first multi-platform solution to support application and
data availability on additional IBM eServer platforms (excluding zSeries). HA
software enables an enterprise`s applications and information to be continuously
accessible without interruption across separate computing platforms and database
boundaries. Vision`s range of innovative products is used to maintain the
integrity and availability of data and of mission critical applications in a
wide variety of industries such as banking, finance, government, education,
healthcare, distribution, manufacturing, transportation and telecommunications.
Vision has a presence in North and South America, Europe, Africa and the Asia-
Pacific region.
IDION TECHNOLOGY HOLDINGS LTD
CONSOLIDATED INCOME STATEMENT Unaudited Unaudited Audited
Period/year ended: 30 Jun 05 30 Jun 04 31 Dec 04
% 6 months 6 months Year
change $`000 $`000 $`000
Revenue 2 14,394 14,146 31,298
Licences (3) 4,838 5,008 12,799
Maintenance 5 8,491 8,116 16,737
Services 4 1,065 1,022 1,762
Cost of revenue (3) 3,443 3,537 6,140
Licences 3 86 83 181
Maintenance and services (3) 3,357 3,454 5,959
Gross profit 3 10,951 10,609 25,158
Expenses 9 12,238 11,249 24,655
Administrative and general 37 3,049 2,229 5,488
Research and development 10 3,612 3,271 7,092
Distribution and marketing 18 5,476 4,631 9,838
Amortisation (91) 101 1,118 2,237
Profit/(Loss) from 101 (1,287) (640) 503
operations
Interest paid (1) (2) (64)
Interest received 99 25 99
Foreign exchange (207) 24 124
gains/(losses)
Net profit/(loss) before 135 (1,396) (593) 662
taxation
Taxation expense/(benefit) (286) 248 1,503
Net loss for the period/year 32 (1,110) (841) (841)
Reconciliation to headline
earnings/ (loss):
Net loss for the period/year 32 (1,110) (841) (841)
Add back:
Amortisation of goodwill - 1,111 2,223
Loss on disposal of - - 28
subsidiary
Headline earnings/ (loss) (511) (1,110) 270 1,410
Loss per share -basic (1.0) (0.8) (0.8)
(cent)
-diluted (1.0) (0.7) (0.8)
(cent)
Headline -basic (1.0) 0.2 1.3
earnings/(loss) (cent)
per share
-diluted (1.0) 0.2 1.1
(cent)
6.17 6.62 6.42
Weighted average conversion
rate (R:$)
IDION TECHNOLOGY HOLDINGS LTD
CONSOLIDATED BALANCE SHEET Unaudited Unaudited Audited
At: 30 Jun 05 30 Jun 04 31 Dec 04
$`000 $`000 $`000
ASSETS
Non-current assets 14,975 11,875 9,582
Equipment 709 900 820
Goodwill 8,087 6,113 5,001
Intangible assets 2,031 14 7
Deferred taxation 4,148 4,848 3,754
Current assets 17,236 17,759 20,398
Trade and other receivables 7,931 7,044 9,580
Prepayments and deposits 509 501 567
Cash and cash equivalents 8,796 10,214 10,251
TOTAL ASSETS 32,211 29,634 29,980
EQUITY AND LIABILITIES
Capital and reserves 13,526 12,938 12,761
Issued share capital and 48,377 48,286 48,312
premium
Warrants issued for 1,500 - -
acquisition of OSS
Currency translation reserve 13,093 12,987 12,783
Accumulated losses (49,445) (48,335) (48,335)
Outside shareholder`s interest 1 - 1
Non-current liabilities 1,631 2,022 1,899
Long-term liabilities 223 303 265
Deferred taxation 27 44 41
Deferred revenue: long-term 1,381 1,675 1,593
Current liabilities 17,054 14,674 15,320
Trade and other payables 2,630 1,942 2,496
Provisions 1,239 1,128 1,289
Acquisition consideration due to 837 - -
vendors
Short-term borrowings 57 203 54
Taxation 312 603 756
Deferred revenue: short-term 11,979 10,798 10,725
TOTAL EQUITY AND LIABILITIES 32,211 29,634 29,980
Net asset value per share 12 12 11
(cents)
Tangible net asset value per 3 6 7
share (cents)
Closing conversion rate (R:$) 6.63 6.46 5.62
IDION TECHNOLOGY HOLDINGS LTD
CONSOLIDATED CASH FLOW STATEMENT Unaudited Unaudited Audited
Period/year ended: 30 Jun 05 30 Jun 04 31 Dec 04
6 months 6 months Year
$`000 $`000 $`000
OPERATING ACTIVITIES
Cash generated from operations 1,760 26 499
(note 1)
Interest received 99 49 99
Interest paid (1) (2) (24)
Income taxes paid (515) (230) (359)
Net cash generated from/(used 1,343 (157) 215
in) operating activities
INVESTING ACTIVITIES
Additions to equipment (165) (156) (359)
Proceeds from sale of business - 18 18
Amounts paid for purchase of (2,597) - -
business
Net cash used in investing (2,762) (138) (341)
activities
FINANCING ACTIVITIES
Proceeds from issue of ordinary - - 1
shares in subsidiary
Increase/(Decrease) in short- 15 92 (60)
term borrowings
Net cash from/(used in) 15 92 (59)
financing activities
NET DECREASE IN CASH AND CASH (1,404) (203) (185)
EQUIVALENTS
CASH AND CASH EQUIVALENTS AT 10,251 10,412 10,412
THE BEGINNING OF PERIOD/YEAR
Effect of exchange rate changes (51) 5 24
CASH AND CASH EQUIVALENTS AT 8,796 10,214 10,251
THE END OF PERIOD/YEAR
Note 1
Net profit/(loss) before (1,396) (593) 662
taxation; adjusted for:
Amortisation 101 1,118 2,237
Depreciation 264 387 671
Loss on disposal of - - 28
subsidiary
Decrease in provisions - - (583)
Net interest and foreign 109 (47) (159)
exchange gains/losses
Provision for equity-settled 33 32 70
share option expense
Operating cash flows before (889) 897 2,926
working capital movements
Working capital movements 2,649 (871) (2,427)
Trade and other receivables 1,888 1,665 (965)
Trade and other payables 64 (2,182) (916)
Net movement in deferred 697 (354) (546)
revenue
Cash from operations 1,760 26 499
IDION TECHNOLOGY HOLDINGS LTD
CONSOLIDATED STATEMENT OF
CHANGES IN EQUITY Unaudited Unaudited Audited
Period/year ended: 30 Jun 05 30 Jun 04 31 Dec 04
6 months 6 months Year
$`000 $`000 $`000
Balance at the beginning of the 12,761 13,787 13,787
period/year
Net loss for the period/year (1,110) (841) (841)
- previously stated (1,110) (809) (771)
- 2004 net loss adjusted for - (32) (70)
IFRS 2
Provision for equity-settled 33 32 70
share option expense (after
tax)
Consolidation of share trust - - 20 -
movement in share capital and
premium
Share options exercised 35 - 8
Shares issued in subsidiary - - 1
Warrants issued for acquisition 1,500 - -
of OSS
Exchange differences on 307 (60) (264)
consolidation of foreign
entities
13,526 12,938 12,761
ADDITIONAL INFORMATION
Share information (million):
Number of shares in issue 113,4 113,4 113,4
Number of shares in issue (less 112,1 111,6 111,6
treasury shares)
Weighted average number of 111,7 111,6 111,6
shares
Fully diluted number of shares 113,9 114,6 114,9
GROUP OVERVIEW
The Board of directors presents the unaudited results for the six months ended
30 June 2005 (`the period`). The Group`s first half results reflect the
historical revenue seasonality where the majority of the Group`s licence revenue
is recorded during the second half of the year. In addition, the Group made
strategic investments in the first half of 2005, primarily around sales and
marketing activities and new product initiatives designed to enhance the Group`s
strategic position as a leader in the IBM eServer High Availability (`HA`)
market. These planned investments impacted the Group`s short-term
profitability, but are expected to solidify the foundation for future revenue
and profit growth.
As part of its strategy to add complementary technologies to its core HA
offerings, Vision completed the acquisition of UK-based OS Solutions Limited
(`OSS`) in April 2005. OSS is a leading provider of advanced systems management,
disk and data optimisation utilities and Small to Medium Business (`SMB`) HA for
the IBM eServer iSeries platform. Through the acquisition, Vision has not only
expanded its existing product range, but now offers price-competitive and
feature-rich HA, data and systems management solutions to the SMB market. OSS
had been successfully integrated into the Group during the period and its
products are expected to make an increased contribution to revenues in the
second half of the year. During the period Vision continued to post solid growth
in its customer base through the addition of more than 115 new customers.
FINANCIAL REVIEW
Overall revenue increased by 2% over the comparable period, although licence
revenues declined by 3% as a result of continued softness in Vision`s North
American market where competitive pricing pressures continued. Vision`s
challenging North American results were partially offset by a strong performance
in its EMEA region as well as licence revenues from several OSS deals during the
period. Corrective action was taken early in 2005 to rectify the performance in
the North American market, including the recruitment of additional resellers and
the restructuring of underperforming sales territories. The Group is pleased to
report that licence revenues in North America improved towards the end of the
first half of 2005 and this is expected to continue for the remainder of the
year.
Maintenance revenue increased by 5% as a result of solid customer retention
rates and new customer additions. Service revenues saw modest growth over the
prior year as Vision continued to deliver on several large contracts in North
America.
Geographical revenue breakdown per product type:
Revenue breakdown (%)
Revenue Americas EMEA Asia- Total
type/Region Pacific
Licences 11,5 17,8 4,3 33,6
Maintenance 36,7 16,5 5,8 59,0
Services 5,4 1,3 0,7 7,4
TOTAL 53,6 35,6 10,8 100,0
Gross profit margin was 76% for the period, slightly higher than the 75% for the
comparative period.
Administrative and general, research and development (`R&D`) and distribution
and marketing costs, saw an overall increase of 20% to $12,1 million. This
increase is primarily the result of the additional investment in sales and
marketing activities and new product initiatives as well as the increased
headcount and operating costs associated with OSS which was acquired and
included in the Group`s results effective 1 April 2005. In addition, the
comparative period expenses included a once-off benefit of a reversal of a
provision for referral fees ($332 000). The Group maintained its commitment to
R&D, which increased to $3,6 million (25% of revenue) as investment in ORION
continued.
SEGMENTAL ANALYSIS
($`000) Vision Solutions IDION Corporate
(incorporating OSS
from 1 April 2005)
30 June 05 30 June 30 June 05 30 June
04 04
Revenue 14,394 14,146 - -
Net loss after (800) (771) (310) (70)
tax
EBITDA (822) 957 (101) (92)
EBITDA: `Earnings Before Interest, Tax, Depreciation and Amortisation`.
Note: Inter-company transactions have been eliminated in the above table.
Net investment expense increased to $109 000 (June 2004: Net investment income
of $47 000) and consists of interest received, interest paid and unrealised
foreign exchange losses. The Group incurred an unrealised foreign exchange loss
on inter-company loan balances outstanding at the end of the period of $207 000
in comparison to the $24 000 foreign exchange gain of the comparative period.
This is a direct result of the weakening of the Rand against the US Dollar.
The effective tax rate of the Group (before amortisation of goodwill) amounted
to 22% (June 2004: 45%). The decrease in the tax rate was due to certain tax
losses not being recognised in the Group`s South African holding entity. Vision
was also allowed to record certain US tax credits.
Depreciation was previously disclosed as an expense by nature in the income
statement. From 2004, depreciation was allocated by function in the income
statement with a resulting reclassification of the comparative amounts. This
reclassification had no effect on the Company`s results for the period ended 30
June 2004.
On 1 January 2005, the Group applied the requirements of International Financial
Reporting Standards (`IFRS`) 2 Share-based Payments. In accordance with the
transition provisions, IFRS 2 has been applied to all grants after 7 November
2002 that were unvested as at 1 January 2005. The Group issues equity-settled
share-based payments (share options) to certain employees from time to time.
These share-based payments are measured at fair value at the date of grant. The
fair value determined at the grant date is expensed on a straight-line basis
over the vesting period, based on the Group`s estimate of shares that will
eventually vest. Fair value is measured by use of the Black-Scholes method.
The comparative income statements and equity for 2004 have been adjusted
according to the requirements of the statement. The Group recognised total
expenses of $33 000 and $32 000 related to equity-settled share-based payment
transactions for the 2005 and 2004 interim periods, respectively.
Previously Adjustment: Adjustment: Reclassified
stated depreciation Share-based
payments
$`000 $`000 $`000 $`000
Income statement for the period ended 30 June 2004
Cost of revenue: 3,308 135 11 3,454
Maintenance and
services
Administrative 2,171 55 3 2,229
and general
expenses
Research and 3,170 97 4 3,271
development
expenses
Distribution and 4,517 100 14 4,631
marketing
expenses
Amortisation and 1,505 (1,505) - -
depreciation
Amortisation - 1,118 - 1,118
14,671 - 32 14,703
Balance sheet at 30 June 2004
Issued share 48,227 - 59 48,286
capital and
premium
Accumulated (48,276) - (59) (48,335)
losses
(49) - - (49)
Income statement for the year ended 31 December 2004
Cost of revenue: 5,937 - 22 5,959
Maintenance and
services
Administrative 5,481 - 7 5,488
and general
expenses
Research and 7,081 - 11 7,092
development
expenses
Distribution and 9,808 - 30 9,838
marketing
expenses
28,307 - 70 28,377
Balance sheet at
31 December 2004
Issued share 48,215 - 97 48,312
capital and
premium
Accumulated (48,238) - (97) (48,335)
losses
(23) - - (23)
The Group adopted the requirements of IFRS 3 Business Combinations on 1 January
2005 and ceased the amortisation of goodwill in accordance with the provisions
of the statement. Goodwill is recognised as an asset and had previously been
amortised on a straight-line basis following an assessment of its useful life.
Goodwill arising on consolidation represents the excess of the cost of
acquisition over the Group`s interest in the fair value of the identifiable
assets and liabilities of a subsidiary at the date of acquisition.
Vision acquired selected assets and assumed certain liabilities of OSS on 1
April 2005. OSS is a leading provider of advanced systems management, disk and
data optimisation utilities and SMB High Availability for the IBM eServer
iSeries platform market. The new technology addresses specific market segments
and requirements that complement Vision`s industry-leading ORION offerings.
The components of the purchase consideration of the acquisition are:
- $2,5 million in cash at closing subject to 20% of such amount
held in escrow to cover standard representations and
warranties on behalf of the sellers;
- up to $1,0 million in additional contingent cash consideration
to be paid upon the achievement of defined revenue targets for
a period of 12 months after closing; $837 000 thereof has been
provided for in the 30 June 2005 financial statements based on
management`s current estimates; such amount will be adjusted
in future financial statements based on actual results.
- warrants to purchase 1 312 571 Vision ordinary shares at an
exercise price of $1.67 per share; and
- $97 000 had been spent up to 30 June 2005 on third party
legal and accounting costs and were included in the purchase
price.
The total fair value placed on the warrants amounts to $1,5 million, calculated
by applying Black-Scholes methodology. The assumptions used in the calculation
include:
- the weighted average share price of $1.67;
- the weighted average exercise price of $1.67;
- the expected volatility of 54,02%;
- the expected life of 10 years;
- the risk free rate of 4,15%; and
- no expected dividends.
The warrants may be exercised in whole or in part and from time to time and
carry a 10-year expiration.
Goodwill arose on the OSS acquisition. The goodwill reflects the following
factors:
- Vision placed considerable value on the acquisition`s
potential contribution to the Group`s long-term strategy of
achieving sustainable profit growth and improved shareholder
value; and
- Vision placed significant emphasis on the value of a strategic
acquisition that adds new products, enabling Vision to
significantly extend its solution portfolio and the ability to
offer these complete solutions to the market that will result
in a significant time-to-market benefit.
Net liabilities acquired, intangible assets identified and
goodwill on the OSS acquisition.
Fair
value
$`000
Purchase consideration 4,934
Intangible assets:
Complete Technology 1,487
In-Process Research and 145
Development
Non-Compete Agreement 89
Customer Relationships 408
2,129
Net liabilities acquired (280)
Accounts receivable, net of allowances for doubtful 165
accounts
Fixed assets 11
Accounts payable (67)
Deferred revenue (389)
Goodwill as at 30 June 3,085
2005
4,934
OSS has made a loss after taxation of $264 000 since the date of acquisition.
Pro forma information that includes the revenue information, profit or loss
after tax for OSS from 1 January 2005 as well as asset and liability balances
preceding the acquisition is not included because of the immateriality thereof.
FINANCIAL POSITION
After using $2,6 million in cash to fund the acquisition of OSS, the Group still
retained $8,8 million in cash reserves at 30 June 2005, compared to $10,3
million at 31 December 2004. The Group recorded strong cash flows from operating
activities during the period of $1,3 million, which was primarily as a result of
healthy debtors` collections. Debtor days (weighted) was 89 days (30 June 2004:
83 days), which is within an acceptable range. Upon the achievement of specific
revenue targets over a 12-month period ending 31 March 2006, an additional cash
payment of up to $1,0 million is payable to the sellers of OSS.
Total deferred revenue (primarily contracted maintenance revenue) increased to
$13,4 million (December 2004: 12,3 million). The Group`s deferred tax assets
mainly comprised of unused assessed losses acquired at the acquisition of
Vision, tax credits for research and development programmes in the US and
foreign tax credits. IDION`s balance sheet remains strong, with virtually no
debt.
ORION
Vision continued its investment in its cross platform solutions offering, ORION,
its channel development and sales programmes and will continue to diversify its
technology offering across the IBM eServer platform. ORION for AIX was released
as part of the ORION family of products. Vision now offers its IBM eServer
customers HA across multiple platforms and operating systems including Windows,
Linux and UNIX.
During the period Vision further strengthened its customer base through the
completion of a number of notable ORION transactions and is making progress on
the development of the next components of its ORION offering.
ACCOUNTING POLICIES
The unaudited consolidated interim financial statements have been compiled in
accordance with the statements on International Financial Reporting Standards
and in particular in compliance with the disclosure requirements of IAS 34:
Interim Financial Reporting. The accounting policies used in the preparation of
the consolidated financial statements are consistent with the policies applied
to the audited financial statements for the year ended 31 December 2004, except
for the policy changes regarding IFRS 2 and IFRS 3, noted in the Financial
Review section. In addition, the Group continued to recognise its software
revenue in terms of Statement of Position (`SOP`) 97-2: Software Revenue
Recognition issued by the American Institute of Certified Public Accountants, in
conjunction with IAS 18 - Revenue.
PROSPECTS
The Board is pleased with the progress made on the various strategic investment
initiatives in the first half of the year and believes that Vision`s focus on
the IBM eServer platform continues to present growth prospects. The Group`s long
term prospects remain positive as its ORION products continue to gain market
acceptance.
As part of the Group`s long-term growth strategy, it intends to continue to make
strategic investments for the remainder of 2005, primarily around sales and
marketing activities as well as new product initiatives in connection with OSS.
Whilst these investments will impact profitability during 2005, they are
expected to enhance the Group`s future strategic position as a leader in the IBM
eServer HA market and its ability to generate future sustainable revenue and
profit growth. Historic revenue seasonality is expected to continue in 2005
where the majority of the Group`s licence revenue and profits are likely to be
recorded during the second half of the year.
Given the strength of the business and the energy and capability of its people,
the Group is confident that it will emerge even stronger in 2005, as it executes
its multi-year growth strategy. IDION`s activities and decisions will be driven
by the pursuit of sustainable long-term profit growth and improved shareholder
value.
By order of the Board
Dave de Beer Nicolaas Vlok
Chairman Managing Director
Johannesburg
24 August 2005
EXECUTIVE DIRECTORS: N Vlok (Managing), C Arnold, TJ Keithahn*, JJD Vlok
NON-EXECUTIVE DIRECTORS: DD de Beer (independent), Dr DC Cronje (independent),
PJ Liddiard, L van der Bijl (independent)
COMPANY SECRETARY: JJD Vlok
REGISTERED ADDRESS: IDION House, 11 Naivasha Road, Sunninghill, 2157, Gauteng,
South Africa
* United States of America
Date: 24/08/2005 07:16:06 AM
Produced by the JSE SENS Department
