| Wed 22 Mar 2006, 7:00 | | Idion Technology Holdings Limited - Audited financ |
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IDI
IDI
Idion Technology Holdings Limited - Audited financial results for the
financial year ended 31 December 2005
IDION TECHNOLOGY HOLDINGS LIMITED
1998/ 013846/ 06
("IDION" or "the Group" or "the Company")
ISIN Code: ZAE000022513
Share code: IDI
Audited financial results for the financial year ended 31 December 2005
("the period")
Results denominated in United States Dollars ("$")
OVERVIEW
* Group headline earnings $663,000 (Headline Earnings Per Share ("HEPS")
of 0.6 US cent), compared to Group headline earnings for the twelve
month period ended 31 December 2004 of $1.41 million (HEPS of 1.3 US
cent as restated);
* Total revenue increased by 6% and licence revenues increased 9% to
$14.0 million;
* Total operating expenses (excluding amortisation and cost of sales)
increased by 15% from $22.44 million to $25.75 million as the Group
implemented its investment strategy, through additional investments in
sales and marketing activities, new product initiatives and the
acquisition of the net assets of UK-based OS Solutions Limited ("OSS");
* Cash generated from operations of $1.20 million (2004: $499,000) and
net cash position remained strong at $7.94 million (2004: $10.25
million), following cash payments of $2.73 million for the acquisition
of OSS;
* EBITDA of $1.38 million (2004: EBITDA of $3.41 million);
* Successfully integrated the acquisition of the net assets acquired
from OSS, effective 1 April 2005, the acquisition date.
IDION is a technology investment holding company listed on the JSE Limited
South Africa. Its operating subsidiary, Vision Solutions International,
Inc. ("Vision"), is a leading vendor of High Availability ("HA") software
and services principally for the IBM eServer System i5 platform
(previously known as iSeries). Vision is also extending its reach through
ORIONT, 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 innovative
products are used to maintain the integrity and availability of data and
of mission critical applications and systems in a wide variety of
industries such as banking, finance, government, gaming, healthcare,
distribution, manufacturing, transportation and telecommunications. Vision
operates through offices in the United States, Europe and Asia-Pacific
markets, with more than 2,000 customers and 12,000 licences in 70
countries.
CONSOLIDATED INCOME STATEMENTS (Restated)
Audited Audited
For the years ended: % 31 Dec 05 31 Dec 04
Change $"000 $"000
Revenue 6 33,257 31,298
Licences 9 13,952 12,799
Maintenance 3 17,191 16,737
Services and consultation 20 2,114 1,762
Cost of sales 9 6,661 6,123
Licences (4) 174 181
Maintenance, services and 9
consultation 6,487 5,942
Gross profit 6 26,596 25,175
Operating expenses 5 26,023 24,672
Administrative and general 16 6,358 5,484
Research and development 8 7,702 7,106
Distribution and marketing 19 11,690 9,845
Amortisation of goodwill (88)
and intangible assets 273 2,237
Operating profit 14 573 503
Interest paid (37) (64)
Interest received 227 99
Foreign exchange
(losses)/gains (114) 124
Profit before tax 649 662
Income tax (benefit)/expense (80) 1,503
Profit/(loss) for the year 729 (841)
Earnings/(loss) per share (cents):
- basic (as previously stated) 0.6 (0.7)
- basic (restated) 0.6 (0.8)
- diluted (as previously stated) 0.6 (0.8)
- diluted (restated) 0.6 (0.8)
Weighted average conversion rate (R:$) 6.33 6.42
IDION TECHNOLOGY HOLDINGS LTD
RECONCILIATION TO HEADLINE EARNINGS (Restated)
Audited Audited
For the years ended: % 31 Dec 31 Dec 04
05
Change $"000 $"000
Reconciliation to headline
earnings:
Profit/(loss) for the year 729 (841)
Add back:
Amortisation of goodwill - 2,223
Loss on disposal of
subsidiary - 28
Gain on sale of equipment (66) -
Headline earnings (53) 663 1,410
Headline earnings per share (cents):
- basic (as previously stated) 0.6 1.3
- basic (restated) 0.6 1.3
- diluted (as previously stated) 0.6 1.2
- diluted (restated) 0.6 1.1
Weighted average conversion rate (R:$) 6.33 6.42
IDION TECHNOLOGY HOLDINGS LTD
CONSOLIDATED BALANCE SHEETS
(Restated)
Audited Audited
At: 31 Dec 31 Dec 04
05
$"000 $"000
ASSETS
Non-current assets 13,602 9,582
Equipment 865 820
Goodwill 7,169 5,001
Intangible assets 1,434 7
Deferred tax assets 4,134 3,754
Current assets: 17,767 20,398
Trade and other receivables 9,379 9,580
Prepayments and deposits 451 567
Bank balances and cash 7,937 10,251
TOTAL ASSETS 31,369 29,980
EQUITY AND LIABILITIES
Capital and reserves 14,529 12,761
Share capital 130 130
Share premium 49,018 48,182
Foreign currency translation
reserve 12,986 12,783
Accumulated losses (47,606) (48,335)
Minority interest 1 1
Non-current liabilities 1,957 1,899
Long-term borrowings 192 265
Deferred tax liabilities 39 41
Deferred revenue 1,726 1,593
Current liabilities 14,883 15,320
Trade and other payables 3,430 2,496
Provisions 1,214 1,289
Acquisition consideration due
to vendors 232 -
Short-term borrowings 39 54
Tax liabilities 377 756
Deferred revenue 9,591 10,725
TOTAL EQUITY AND LIABILITIES 31,369 29,980
Net asset value per share
(cents) 13 11
Closing conversion rate (R:$) 6.32 5.62
IDION TECHNOLOGY HOLDINGS LTD
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the years ended 31 December 2005 and 2004
Foreign
currency
transla- Accumu-
Share Share tion lated Minority
capital premium reserve losses interest Total
$"000 $"000 $"000 $"000 $"000 $"000
Balance at 1 130 48,077 13,047 - 13,787
January 2004 (47,467)
Adjustment for - 27 - (27) - -
IFRS 2
Balance at 1 130 48,104 13,047 - 13,787
January 2004, (47,494)
restated
Exchange - - (264) - - (264)
differences
Net income - - (264) - - (264)
recognised
directly in
equity
Net loss for - - - (841) - (841)
the year
Total - - (264) (841) - (1,105)
recognised
income and
expense for
the year
Share-based - 70 - - - 70
compensation
Share options - 8 - - - 8
exercised
Shares issued - - - - 1 1
in subsidiary
Balance at 31 130 48,182 12,783 (48,335) 1 12,761
December 2004
Exchange - - 203 - - 203
differences
Net income - - 203 - - 203
recognised
directly in
equity
Net income for - - - 729 - 729
the year
Total - - 203 729 - 932
recognised
income and
expense for
the year
Share-based - 146 - - - 146
compensation
Share options - 59 - - - 59
exercised
Issuance of - 631 - - - 631
warrants for
acquisition
Balance at 31 130 49,018 12,986 (47,606) 1 14,529
December 2005
2005 2004
ADDITIONAL INFORMATION
Share information (million):
Number of shares in issue 113,4 113,4
Number of shares in issue (less treasury shares) 112,4 111,6
Weighted average number of shares 112,2 111,6
Fully diluted number of shares 114,4 114,9
IDION TECHNOLOGY HOLDINGS LTD
CONSOLIDATED CASH FLOW STATEMENTS
Audited Audited
For the years ended: 31 Dec 31 Dec
05 04
$`000 $"000
OPERATING ACTIVITIES
Cash generated from operations (see
note 1) 1,203 499
Interest received 227 99
Interest paid (37) (24)
Income taxes paid (377) (359)
Net cash generated from operating
activities 1,016 215
INVESTING ACTIVITIES
Additions to equipment (582) (359)
Proceeds from sale of equipment 68 -
Proceeds from sale of business - 18
Net cash paid for acquisition (2,730) -
Net cash used in investing
activities (3,244) (341)
FINANCING ACTIVITIES
Net proceeds from exercise of share
options 59 1
Net decrease in short-term
borrowings (54) (60)
Net cash provided by/(used in)
financing activities 5 (59)
NET DECREASE IN CASH AND CASH
EQUIVALENTS (2,223) (185)
CASH AND CASH EQUIVALENTS AT THE
BEGINNING OF YEAR 10,251 10,412
Effect of foreign exchange rate
changes (91) 24
CASH AND CASH EQUIVALENTS AT END OF YEAR 7,937 10,251
Note 1
Net profit before taxation as
previously stated 649 732
IFRS 2 adopted - (70)
Adjusted for:
Amortisation of goodwill and
intangibles 273 2,237
Depreciation of equipment 531 671
Loss on disposal of subsidiary - 28
Gain on sale of equipment (66) -
Decrease in provisions (75) (583)
Net interest and foreign exchange
gains/losses (76) (159)
Share-based compensation 146 70
Operating cash flows before working
capital movements 1,382 2,926
Working capital movements (179) (2,427)
Trade and other receivables 478 (965)
Trade and other payables 642 (916)
Deferred revenue (1,299) (546)
Cash generated from operations 1,203 499
GROUP OVERVIEW
The Board of Directors is pleased to present the audited results to
shareholders for the twelve months ended 31 December 2005. IDION recorded
headline earnings for the year of $663,000 (2004:$1.41 million), as it
continued to make investments at Vision in order to solidify the
foundation for future revenue and profit growth. In addition to the
Group"s continued commitment to research and development, several other
investments were made at Vision during the year on sales and marketing
initiatives, new product development and integration costs of the OSS
acquisition. These investments were designed to further expand the
Group"s core multi-platform HA, system and data management products, with
a dedicated focus on the IBM eServer platform.
As part of its strategy to add complementary technologies to Vision"s core
HA offerings, the Group completed the acquisition of the net assets of UK-
based OSS in April 2005. Through this acquisition, the Group expanded
Vision"s existing product range to address customer requirements related
to IBM System i5 management and data-archiving, as well as HA for the
Small to Medium Business IBM System i5 market. This acquisition also
provides the Group with offices and staff located in the United Kingdom
that will be used to support Vision"s growing European operations.
In addition, Vision signed several partnership agreements with major
independent software vendors during the year which will enhance the
distribution of Vision"s products.
FINANCIAL REVIEW
Overall revenue increased by 6% over the prior year as a result of a 9%
increase in licence revenues. The increase in licence revenues was
largely driven by continued new customer gains in Vision"s European and
Asia-Pacific markets, as well as several large transactions with existing
Vision customers. In addition, revenues were enhanced by approximately
$921,000 in licence revenues from data-archiving and system management
products that Vision acquired in the OSS acquisition.
In contrast to Vision"s European market, the North American System i5 HA
market continued to remain under pricing pressures during the year due to
discounting of licence fees by Vision"s primary competitors. However,
Vision"s superior customer support, product quality and product
performance are key differentiators in the market and have allowed Vision
to compete on a basis other than price. Nevertheless, the results for 2005
showed that the North American market continued to perform below
expectations, and the Group will be making further changes in Vision"s
sales and marketing model in 2006 to better serve this very competitive
market.
Vision"s recurring maintenance revenue stream continued to be strong
relative to total revenues in 2005 growing at 3% over prior year. While
pricing pressures in North America have impacted Vision"s support
business, as well as its competitors, excellent customer satisfaction
ratings have resulted in high customer retention rates. Furthermore,
Vision"s maintenance revenues were positively impacted by additional
maintenance customers acquired from OSS. Vision"s service business also
had a solid year, growing 20% as Vision focused on delivering on larger
service agreements for several multi-national clients.
Geographical revenue breakdown per revenue type:
2005 Revenue breakdown (%)
Revenue type/Region Americas EMEA* Asia- Total
Pacific
Licences 14.1 20.7 7.1 41.9
Maintenance 32.4 14.3 5.0 51.7
Services 3.8 1.1 1.5 6.4
TOTAL 50.3 36.1 13.6 100.0
2004 Revenue breakdown (%)
Revenue Americas EMEA* Asia- Total
type/Region Pacific
Licences 15.6 17.2 8.1 40.9
Maintenance 34.7 13.7 5.0 53.4
Services 4.9 0.6 0.2 5.7
TOTAL 55.2 31.5 13.3 100.0
* Europe, Middle East and Africa
Despite pricing pressures in Vision"s North American market, gross profit
margin was 80% for the year consistent with the prior year, resulting from
increased efficiencies in Vision"s customer support centre, as well as
better utilisation of service staff over the prior year. In addition, the
increase in licence revenues as a percentage of total revenue in the 2005
year resulted in the Group maintaining its profit margins.
Operating expenses, comprising administrative and general, research and
development ("R&D") and distribution and marketing costs, saw an overall
increase of 15% to $25.75 million, in line with the Board"s and
management"s expectations. The increases were a result of planned
investments at Vision, primarily related to initiatives in research and
development and sales and marketing activities as well as additional
headcount associated with Vision"s acquisition of the net assets of OSS.
The Group maintained its commitment to R&D, which increased by $596,000 to
$7.70 million (23% of revenue) as investment in ORION continued.
SEGMENTAL ANALYSIS
($"000) Vision Solutions IDION Corporate
31 Dec 05 31 Dec 04 31 Dec 05 31 Dec 04
Revenue 33,257 31,298 - -
Net income (loss)
after tax (2004
restated for IFRS 827 (286) (98) (555)
2)
EBITDA
(2004 restated for
IFRS 2) 1,334 3,779 43 (369)
EBITDA: "Earnings Before Interest, Tax, Depreciation and Amortisation"
Note: Inter-company transactions have been eliminated in the above table.
Net investment income amounted to $76,000 (2004: $159,000) and consists of
interest earned, interest paid and foreign currency gains/losses. The
effective tax rate of the Group (calculated on profit before amortisation
of goodwill) amounted to a benefit of 12% (2004: 52% expense). The
decrease in the effective tax rate in the current year was primarily due
to a one-time non cash benefit relating to foreign tax credits in the
Group"s US operations.
ADOPTION OF NEW ACCOUNTING STANDARDS
On 1 January 2005, the Group adopted 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 using 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
$146,000 and $70,000 related to equity-settled share-based payment
transactions for 2005 and 2004, respectively.
The following two tables set out the 2004 restatements:
2004 Adjustment 2004
Previously Share- Restated
stated based
compensati
on
$"000 $"000 $"000
Cost of sales: Maintenance and 5,937 5 5,942
services
Administrative and general 5,481 3 5,484
expenses
Research and development 7,081 25 7,106
expenses
Distribution and marketing 9,808 37 9,845
expenses
28,307 70 28,377
Adjustment Adjustment
2004 Share- Share- 2004
Previous based based Restated
ly compensati compensati
stated on- prior on- 2004
periods
$"000 $"000 $"000 $"000
Balance sheet at 31
December 2004
Issued share capital 48,215 27 70
and premium 48,312
Accumulated losses (48,238) (27) (70) (48,335
)
(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.
The Group also adopted all other revised and improved international
accounting standards in the current year.
ACQUISITION
As previously discussed, Vision acquired selected assets and assumed
certain liabilities of OSS on 1 April 2005. The components of the
purchase consideration of the acquisition are:
* $2.5 million in cash at closing, subject to $500,000 of such amount
being held in escrow to cover standard representations and warranties
on behalf of the sellers;
* up to $1.0 million in additional cash consideration to be paid upon
the achievement of defined revenue targets for a period of 12 months
after closing; approximately $365,000 of the additional purchase price
has been recorded in the 2005 financial statements based on
management"s current estimates of which approximately $232,000 is
unpaid;
* warrants to purchase 1,312,571 ordinary shares of Vision at an
exercise price of $1.67 per share; and
* approximately $97,000 for third party legal and accounting costs.
The total fair value placed on the warrants amounted to approximately
$631,000, calculated by applying the Black-Scholes pricing model. The
assumptions used in the calculation were:
* the weighted average share price of $0.86;
* 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 acquisition of the net assets of OSS. The goodwill
reflects the following factors:
* Value placed on the acquisition"s potential contribution to the
Group"s long-term strategy of achieving sustainable profit growth and
improved shareholder value;
* 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 3,593
Intangible assets:
Complete technology 1,487
In-process research and 145
development
Non-compete agreement 89
1,721
Net liabilities acquired (296)
Accounts receivable, net of allowances for doubtful 149
accounts
Equipment 11
Accounts payable (67)
Deferred revenue (389)
Goodwill at 31 December 2,168
2005
3,593
The Group"s subsidiary that operates the net assets acquired from OSS
incurred a loss before amortisation and taxation of $196,000 since the
date of acquisition to 31 December 2005. As discussed above, the sellers
of OSS are eligible to receive additional cash consideration based on
achieving certain revenue targets to 31 March 2006.
FINANCIAL POSITION
After using approximately $2.73 million to fund the OSS initial purchase
price and earn out, the Group still retained $7.94 million in cash
reserves at 31 December 2005 (2004: $10.25 million). The Group had strong
cash flows generated from operations during the year of $1.20 million
(2004: $499,000) as a result of effective debtors" collections at Vision.
Debtor days (weighted) were 77 (2004: 87).
Total deferred revenue (primarily contracted maintenance revenue)
decreased to $11.32 million (2004: $12.32 million) primarily due to timing
differences in maintenance contract billing cycles. 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. The Group"s balance sheet remains
strong, with no third-party debt.
MANAGEMENT APPOINTMENTS
Don Scott was promoted to the position of chief financial officer at
Vision during January 2006. He replaced Tim Keithahn who has been
appointed IDION group financial director and who will remain an executive
vice president at Vision. Also, during January 2006, Vision appointed
Norm Williams as executive vice president of sales and marketing.
VISION"S PRODUCT OFFERINGS
Vision develops and distributes leading software solutions which offer
business continuity of mission critical applications and the management of
data. Many enterprise software applications have become so critical to
business operations that even minor downtime is unacceptable. Slow recovery
from planned or unplanned downtime can have serious consequences for a
business, which generally leads directly to significant lost revenue and/or
increased expense. With increased regulatory pressures, such as Sarbanes-
Oxley and Basel II, and the significance of this business issue, HA and
disaster recovery are now board level issues as businesses have become
increasingly dependent on their critical systems.
Vision"s products ensure that data and applications are available and
accessible 24x7 by replicating and backing up applications and data from
one server to another and by providing reliable and extremely fast restart
or failover in the event of planned or unplanned downtime. In addition,
Vision offers system management (OS Director) and data-archiving (OS Data
Manager) products that further enhance the quality of the end-user"s
highly available applications.
At the core of Vision"s product offerings is its ORION HA solution which
enables customers to provide real-time redundancy and availability at the
data and application layers to ensure continued operations for mission
critical, transaction intensive on-demand applications. The solution
enables enterprises to maximize systems availability on multiple computing
platforms namely i5/OS, Windows, Linux, and AIX.
ORION"s unique value proposition is that all functionality from data
replication through HA is delivered through a common interface, which
results in lower costs to operate and administer the products. This
translates into a lower total cost of ownership and improved return on
investment ("ROI") for companies that adopt the solutions and value
propositions that resonate in today"s market place.
Vision plans to actively market its newly released UNIX version for the
IBM AIX operating system (ORION for AIX) as well as its newly acquired OS
Director and OS Data Manager products during 2006. The Group believes
that these new product offerings represent significant market
opportunities in the medium to long-term, depending on market acceptance.
ACCOUNTING POLICIES
The consolidated abridged 2005 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 IAS34: 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 new accounting standards adopted in
the current year. The 31 December 2004 results have been restated for the
new accounting standards where required. 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.
AUDIT REPORT
The consolidated financial statements for the year ended 31 December 2005
have been audited by Deloitte & Touche and their accompanying unqualified
audit report as well as their unqualified audit report on this set of
summarised financial information is available for inspection at IDION"s
registered office.
PROSPECTS
The Board is satisfied by the progress in key investment initiatives at
Vision, and believes that the Group"s focus on the IBM eServer platform
continues to present growth opportunities. The Group"s long-term prospects
remain positive as Vision"s ORION products and its newly acquired OSS
products continue to gain market acceptance.
As part of the Group"s growth strategy, it will continue to make
investments in Vision in order to solidify the foundation for future
revenue and profit growth. Some of the operating costs related to these
investments will continue to be incurred in advance of corresponding
revenues particularly in the first half of 2006. As a result of the
historic business model of the Group, revenue seasonality is expected to
continue in 2006 where the majority of the Group"s revenue and profits are
likely to be recorded during the second half of the year.
The Board will continue to assess the market and if deemed appropriate
will consider additional investment opportunities. As always, the Board"s
activities and decisions will be driven by the pursuit of sustainable
profit growth and improved shareholder value.
During 2005 the Group introduced various aspects of its long-term growth
strategy with initial successes in revenue growth evident. The Board is
confident that the Group will reflect growth in profitability during 2006.
By order of the Board
Dave de Beer Nicolaas Vlok
Chairman Managing Director
Johannesburg
22 March 2006
EXECUTIVE DIRECTORS: N Vlok (Managing), C Arnold,
TJ Keithahn (US citizen), 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: Building 6, Central Park, 13 Esdoring Street, Highveld
Techno Park, Centurion
SPONSOR: PricewaterhouseCoopers Corporate Finance (Pty) Ltd.
Date: 22/03/2006 07:00:17 AM Produced by the JSE SENS Department
