Summary of preliminary results for the year ended 31 December 1998:
- Group Revenues increased by 31% to lb293 million(1997 - lb222 million)
- Professional Services Revenues increased by 54% to lb88 million (1997 - lb57 million)
- ERP Revenues increased by 25% to lb215 million (1997 - lb172 million)
- Pre-Tax Results fell to lb(1.7)million (1997 - lb5.2 million)
Chairman`s statement
Alan Vickery, Chairman of JBA Holdings Plc, said:
"A very poor December in 1998 stalled the considerable progress management had made in restructuring JBA. 1999 has started well and the results are ahead of budget. This, together with a more conservative and less back-end loaded revenue profile, gives us confidence the task will be completed in 1999."
Results
In line with most other ERP vendors, 1998 was very disappointing for JBA.
Traditionally, December has always been a very good month and achieving the budget in 1998 relied upon this trend continuing. In fact, it was a poor month and the expected lb40 million of product revenues were not achieved. December product revenues were in fact only lb23 million (a shortfall of lb17 million) leading to an underlying trading loss of lb6.5 million. In addition we have incurred one-off non-recurring costs of lb8 million, including reserves arising from a review of a number of existing customer contracts.
Despite this, some very positive things did happen in 1998. Overall ERP revenues were up 27% on the previous year due to a very strong worldwide professional service performance and our market position in key industries was enhanced through the year.
Our balance sheet is strong. The sale of our two-tier distribution division CSD in December 1998 to Avnet, a leading US electronics distribution group, gave rise to an exceptional one-off profit of lb12.8 million. We therefore have the comfort of knowing we have the resources to follow through with vigour on our 1999 budget.
Management and board changes
On 9th November 1998, Mr William Pratt Thompson was appointed a Non-Executive Director of the company. He has over 26 years board level experience within the IT, electronics and financial services industries.
On 4th January 1999, Andreas Müller became Geschäftsführer of JBA Germany and Frank Berger became President of our American organisation. Both come with a record of substantial experience and success at a senior level in the software industry and greatly increase our leadership in these regions.
David Williams and Kevin Jones stepped down from the JBA Board with effect from 30th March 1999, both having expressed a desire to return to the smaller, unlisted companies environment.
Ken Briddon moved to Chief Executive of the Group. It is clear to me after only 2 months as Chairman that the separation of the Chairman and C.E.O. roles can have a powerful and positive influence on the sense of balance and perspective of a Board and this is happening within JBA. I am of the opinion, with 20/20 hindsight of course, that such a separation in 1996/7 would have prevented or at least considerably lessened the pain JBA has gone through over the past 18 months.
Review
Professional Services Revenue growth from each Region was very strong in 1998 and each country exceeded their Services budget for Revenue and Margin.
Software Products Revenue performance was far more patchy with larger corporate deals in the UK and USA outside of our specialised industries proving elusive. This trend was bucked both by France and the Asia Pacific Region.
Within our specialised industries, some areas were relatively flat. However, Apparel, Footwear, Automotive and Electronics experienced substantial growth and resulted in AMR Research giving us the No.1 position Worldwide in Apparel and Footwear and No.3 in Automotive.
C.E.O.`s statement
In 1998 most major ERP vendors suffered from the impact of a drop in licence sales revenues in the last month of the year, traditionally a major contributor to full year figures. This has been reflected in their results and JBA was no exception, our licence sales in December 1998 being just over half those achieved in December 1997 leading to a trading loss of lb6.5million.
Our goal is to become the leading global, mid-market, ERP sector specialist by helping our customers extract more value from their ERP systems than any of our competitors. The unifying thread running through our strategy to achieve this goal is that of adding more value to our customer`s investment in IT. Already, we are acknowledged as leaders in a number of international industry market sectors.
To build on these strengths we have taken the following actions to change our business in key areas.
- The 1999 budget reflects an increased services content and a lower dependence on new licence sales, particularly towards the year-end.
- Having completed key product developments we have transferred people to revenue earning activities in the field.
- We have realigned resources throughout the business from sales through customer services, product management and development to pursue the most promising opportunities in our specialist market sectors.
- In order to improve service levels, reduce duplication and cost and achieve greater flexibility in our deployment of skills, we have created national service operations.
- We have introduced new products which leverage value from System 21.
- We have dedicated more resources to working closely with our customers to allow them to take advantage of these new products.
- We have forged relationships with a number of consulting practices to add value to our business solutions and to gain access to new market opportunities.
- We have appointed new but experienced management to previously under performing operations in the Americas and Germany.
- We will continue to develop the value that our staff are able to bring to our customer`s businesses. In support of this we have introduced two programmes. The Personal Development Programme designed to assess the development of competencies of the individual and The Accreditation Programme to grow the core competencies in the areas of technical skills business knowledge and leadership. Developing and motivating our staff to better understand the business needs of our customers is, the most sustainable way of delivering continuous value to our shareholders.
Adding increasing value to our customers business means concentrating on the major areas which leverage additional value from the "ERP Backbone" or core system. In 1999, we will deliver solutions for two such areas that will enable JBA customers to stay one step ahead of their competition.
- Business Process Optimisation - Better and faster return on software investment by combining best practice business modelling with new workflow process management uniquely integrated into System 21 - JBA @ctive Process Series.
- Internet Trading Systems - Ordering, selling and purchasing safely over the Net via a new set of products developed on IBM`s e-business platforms to meet small and medium sized businesses e-commerce needs - JBA @ctive e-commerce.
USAIn 1998 our US unit operated without a president for much of the year. This had a negative impact on their performance with resources not being as focussed as intended in our premium markets.
Frank Berger joined in January 1999 from Baan where he was very successful in leading their Global Automotive Unit. He brings very valuable experience and leadership skills to the US and his presence can already be seen in the results for the first two months of 1999.
Asia Pacific
Sales revenues increased by 33% during the year including several significant orders in mainland China. Our business operations in the region continued to make good progress during 1998 despite a background of economic turmoil and the consequent substantial devaluation of currencies.
Our activities in the region focus on four key markets; Electronics, where inward investment in manufacturing from Japanese corporations has been a key driver for ERP solutions; Apparel and Footwear; Drinks and Food. Good progress has been made in all sectors.
Eastern Europe
In 1998, despite a difficult economic climate following the Russian crisis, JBA`s revenues in the region almost doubled and profits almost trebled. JBA is particularly strong in the drinks sector where it dominates the market for brewery ERP systems. As a result of its success in 1998, the business has a strong services order book and is well placed to improve its performance again in 1999.
Northern Europe
Profits generated by the UK operation fell below forecast as a result of disappointing product sales late in the fourth quarter. We underestimated the number of larger organisations which deferred decisions in respect of replacement projects due to their concerns over Y2K compliance.
The region`s Professional Services performance was particularly strong and well ahead of budget. New name business was strong in 1998 compared to 1997. As a substantial amount of these sales were made in the final quarter, the business has a large services order book entering 1999, giving a higher predictability to its revenues.
Central Europe
A new Managing Director joined JBA Germany after a successful career running his own software consultancy. He is already tackling the reasons for the poor 1998 performance and has trimmed and refocused his team into two of our core sectors (automotive and food) and we are confident the unit will return to profit in 1999.
Western Europe
France accounts for the majority of the revenues for this region. The French business performed very well during 1998 improving its profits substantially. It`s services order book is particularly strong with resource booking visibility stretching into the second half. The management team in France have demonstrated their ability to develop the business and we expect further good progress during 1999.
South Africa
Results for 1998 were disappointing and, as a result, the future direction of the business is under review.
Research and development
As a result of two years of increased effort and investment, 1998 saw the delivery of three major products:
- NT - System 21 NeT
- Process Optimisation - @ctive Process Series
- Internet Trading - @ctive e-commerce Series
All three products have been installed in customer sites and the reception has been very positive. In our specialist sectors, we have continued to invest in functions which will create significant value-add for our customers and further competitive advantage for JBA. Having successfully achieved these key objectives and by working increasingly with business partners to integrate their complimentary specialist products, JBA can now return to more appropriate and sustainable levels of investment.
Current trading
The cumulative results of January and February are very pleasing with revenues ahead by 24% to lb26million (1998 : lb21million). Product licences increased by 115% to lb4million (1998 : lb1.9million) and professional services increased by 74% to lb14.7million (1998 : lb8.5million).
Overall, the trading position although a loss, as the first quarter historically has always been weak, is a million ahead of budget and lb5million ahead of 1998.
A combination of cost control and management focus on our key areas leads me to be confident about JBA`s prospects in 1999.
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