Softline, the international accounting, payroll and taxation software developer, has reported a 46% increase in revenue on the comparable period, to R337 million. Operating margin has grown from 17.2% at year-end, to 18.6% for the interim period and headline earnings per share improved 21% to 12.1c.
"Softline's results for the interim period reflect a solid performance from our operations in all geographic regions. We are pleased with our progress in working towards our primary financial objectives of reducing SG&A as a percentage of turnover, increasing the operating margin and converting 100% of operating profits to cash," comments Ivan Epstein, Softline's chief executive officer.
Softline's cash position increased from R108 million at the March year-end to R133 million at the interim period, after having paid out R42 million in respect of investment activities, primarily in respect of the acquisition of MicrOpay, Softline's Australian payroll company, in May 2002.
Softline generated R100 million cash in operations during the period, equating to 141% of operating profit. The high conversion rate was influenced by the seasonality of software licence fees collected in the group's Australian operations, however, Softline anticipates that it will meet its target of 100% for the full year. The high cash conversion rate underscores the health and quality of Softline's profits.
"These results clearly demonstrate the group's ability to continue to generate strong cash flows, as well as the sustainability of Softline's business and the strength of the business model. Softline's established base of recurring revenue, and our focus on growing this base, provides the group with a strong foundation that effectively underpins performance. In addition, the crucial role our accounting, payroll and taxation software applications play in our clients businesses, as well as our focus on the small and medium-size business market has afforded the group a measure of protection from volatile economic conditions."
The smooth integration of MicrOpay highlighted the benefits of acquiring a company in the group's core area of business and contributed to an increased proportion of revenues, profits and cash being derived from Australia. Softline now derives 55% of its revenues offshore, with Australia and North America contributing 33% and 22% respectively. SA's contribution makes up the remaining 45% of revenue. In addition 60% of operating profits were derived from Australia and North America.
In accordance with accounting guidelines an impairment of investments, primarily in respect of SVI, was considered necessary. Due to the continued decline in global economic conditions, the investments were impaired by R155 million from R232 million at the March year-end to R77 million. The impairment resulted in the group reporting a loss after tax of R127 million, and a fully diluted basic loss per share of 32.4c compared with earnings of 2c per share in the comparable period. Headline earnings per share increased 21% from 10c in the comparable period to 12.1c.
"The loss after tax, as a result of the impairment, does not provide a clear reflection of the trading performance of the business," comments Epstein. "Excluding this non-trading item the group made an attributable profit after tax of R27 million compared to R8 million in the comparable period and R38 million for the previous full financial year. Additionally, operating profit increased by 32% from R48 million to R63 million."
Softline attributes the solid trading performance of the business to enhanced organic growth in revenues and profits backed by cash, improved working capital management, the closure of loss-making start-up operations and the inclusion of MicrOpay in the period.
"We recently concluded an agreement for the sale of retail solutions provider VST to the UCS group, in line with our strategy to focus on our core area of business," explains Epstein. "We have over the years continually narrowed our focus, strengthened our business model and defined our objectives. As a homogenous group with clearly evolved business methodologies, Softline is well positioned to increase market share and leverage technology into our large and growing user base."
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Softline (JSE: SFT) is a developer of accounting, payroll and tax software applications for small and medium size businesses. Softline is a market leader in SA, Australia, and is well established the US and Canadian markets. More than 340 000 businesses, encompassing approximately 5.5 million individual users, utilise its applications on a daily basis to run their business. Research and development is core to Softline's business ensuring that Softline is able to further its position in an increasingly competitive global software environment. The group maintains sole ownership of its software, which is continuously being developed to deliver optimum functionality to the user. For more information about Softline and its operations, visit http://www.softline.co.za.