Idion invests in growth

Johannesburg, 23 Aug 2006

JSE-listed technology investment holding company Idion is seeing the fruits of its investments into its software pipeline.

The company today reported its interim results to end-June 2006. The group reported a headline loss of $777 000. In its previous half-year results, this loss was $1.1 million. Headline loss per share was 0.7 US cents, compared to 1 US cent.

MD Nicolaas Vlok says the second half is traditionally the company`s stronger quarter. In addition, a focus on licensing as a business unit is already starting to pay dividends. This, he says, should result in revenue growth in its bread-and-butter section, maintenance, as well as in its servicing division.

Total revenue increased 11% to $16 million from $14.4 million in the previous period. At the end of the last financial year, revenue was $33.3 million.

Revenue from licences grew 22% this half, moving up to $5.9 million. Executive director of group finance Timothy Keithahn points out that licence-derived revenue is usually stronger in the second half. Some 40% of annual revenue from licences is derived in the first half.

Maintenance revenue, which follows on from increased licensing revenue, moved up to $8.9 million from $8.5 million.

The company`s headline loss is as a result of higher costs, which is a seasonal effect, says Keithahn. These costs were mostly incurred in the first quarter, and include research and development spend of $4.6 million.

In addition, its major operating interest, Vision, saw staff additions over the last year as it expanded its Asian reach. This aided in pushing total operating expenses - excluding amortisation and cost of sales - up 9% to $13.2 million from $12.1 million. Inflation in the US, where Vision is based, is at about 4.5%.

Cash in hand

Idion, which also renewed its cautionary announcement, has cash in hand of $7.4 million. Vlok, due to the sensitive nature of such transactions, was not able to comment on whether the company is poised to do a deal.

However, its recent purchase of UK-based OS Solutions is bedding down well, he says. The company, which paid just under $3 million for the company, has already expanded OS`s reach through its global distribution network.

The company has, for the first time in a while, seen growth in all three revenue lines. Keithahn says the company would like to see revenue from licences, usually 40% of its income, grow to half of its income. This will ensure a future pipeline of maintenance and service work. In addition, licence-generated revenue also has a higher margin.

It has also made an initial investment in the Asia Pacific region - 17.2% of its income, and this is expected to pay off in the near future. Keithahn says this area usually accounts for about 11% of income.

Vlok points out that the region requires careful development and necessitates a longer lead-time than other regions due to differences in culture. "We see an opportunity in Japan and a few other countries."

Idion`s move a few years ago to diversify into multi platforms away from a single legacy suite has seen it spend into research and development. This is a move that has seen it develop a pipeline of products that should provide revenue into the future. However, Keithahn says this level of spend is unsustainable in the long run and will taper off.