Kofax plc Preliminary Results for the Financial Year Ended 30 June 2009
BASINGSTOKE, England, Sep 07, 2009 (BUSINESS WIRE) --
Company: Kofax PLC (KFAXF)
Kofax plc (LSE: KFX) ('Kofax' or the 'Company'), the leading provider of document driven business process automation solutions, today announces audited Preliminary Results for the 12 months ended 30 June 2009.
Kofax's results were clearly impacted by adverse economic conditions, which became worse as the financial year progressed. Despite these challenges, the Company experienced good progress in implementing its strategic initiatives, and now has a solid foundation to build upon and leverage.
Financial Highlights
-- Turnover up 9% to GBP 185.8m (2008: GBP 169.7m)
-- Software business grew 10% (declined 8% in constant currencies) to GBP 105.5m (2008: GBP 95.7m), with 26% growth in software services and 6% growth in software licences
-- Adjusted* operating profit down 16% to GBP 14.1m (2008: GBP 16.8m)
-- Adjusted* pre-tax profits down 20% to GBP 13.9m (2008: GBP 17.4m)
-- Adjusted* earnings per share of 12.1p (2008: 14.4p)
-- Positive operating cash generation of GBP 9.2m (2008: GBP 20.3m) with closing net funds of GBP 28.3m
* For definitions of "adjusted" earnings measures, please see the Chief Financial Officer's review
Operating Highlights
-- Upgraded much of our executive management team and senior sales leadership
-- Added almost 1,700 new customers, including Colgate Palmolive, DHL and France Telecom
-- Received widespread recognition for our market position and products
-- Successfully released eight new software products
-- Acquired OptiInvoice Digital Technology AB
Post Financial Year End Event
-- Acquired 170 Systems for a total consideration of $32.9m, net of cash held by the company
-- Strengthens Kofax's position in the rapidly growing invoice processing market
Reynolds C. Bish, Chief Executive Officer of Kofax said: "Management and the Board are pleased with our progress in implementing Kofax's strategic initiatives during this last financial year and the Company remains solidly cash generative with a strong balance sheet. In addition, the adverse economic conditions negatively affecting our business appear to have stabilized toward the end of this past financial year. Nonetheless, market conditions have been and continue to be challenging and difficult to predict. As a result and excluding the effect of the 170 Systems acquisition, management and the Board expect low to mid single digit organic revenue growth in the Company's software business and flat revenues in its hardware business during the current financial year in U.S. dollars.
Webcast
There will be a webcast of Kofax's analyst presentation available on the Company's website (http://www.kofax.com) from 2:00 pm today.
About Kofax plc
Kofax plc (LSE: KFX) is the leading provider of document driven business process automation solutions. For more than 20 years, Kofax has provided award winning solutions that streamline the flow of information throughout an organization by managing the capture, transformation and exchange of business critical information arising in paper, fax and electronic formats in a more accurate, timely and cost effective manner. Kofax solutions provide a rapid return on investment to thousands of customers in financial services, government, business process outsourcing, healthcare, supply chain and other markets. Kofax delivers these solutions through its own worldwide sales and service organizations, and a global network of more than 1,000 authorized partners in more than 60 countries throughout the Americas, EMEA and Asia Pacific.
Chief Executive Officer's Review
Financial Performance
Like many other companies, Kofax had a challenging financial year ended 30 June 2009. Total revenues grew 9% to GBP 185.8m (2008: GBP 169.7m) but our adjusted operating profit declined 16% to GBP 14.1m (2008: GBP 16.8m) and our adjusted operating profit margin declined to 7.6% (2008: 9.9%). These results benefited from favourable exchange rate movements and in constant currencies total revenues actually declined 6% and adjusted operating profit 38%.
This performance was clearly disappointing and below our expectations at the start of the financial year. Realizing the benefits of our previously implemented strategic initiatives took longer than expected, and progressively weaker global economic conditions negatively affected much of our business. In response to these developments we tightened hiring and expense controls but the resulting cost savings were insufficient to offset the lower revenues. We chose to not take more aggressive action to further reduce costs in order to continue investing in our strategic initiatives and improve the Company's future operating leverage and prospects.
On 9 February 2009 we did announce further actions to reorganize our finance, accounting and logistics functions as a result of the successful deployment of a standard global order entry and financial accounting system, and to facilitate greater efficiencies and productivity in our product development, management and marketing areas. As a result of these actions, we will have affected over 100 redundancies, some of which were replaced as we consolidated certain functions into fewer locations, and we recorded an exceptional charge of GBP 3.4m in the second half of the financial year. These changes will lead to net cost savings of approximately GBP 1.7m per year beginning in the new financial year.
Our software business revenues grew 10% to GBP 105.5m (2008: GBP 95.7m) but declined 8% in constant currencies, and we had an adjusted operating profit of GBP 8.6m or 8.2% in this area. In the applications software and services portion of this business we experienced significant success in implementing our hybrid go-to-market strategy, with an increasing portion of revenues coming from direct engagements as the year progressed. We also experienced improving sales execution and performance in the Asia Pacific region, which has historically struggled. However, we saw weakness in orders flowing from our broad channel of smaller value added resellers and system integrators and, during the second half of the financial year, economic conditions in the Americas and EMEA lead to a lengthening of sales cycles and delays in decision making. These adverse trends resulted in lower than expected revenues in these important regions. Furthermore, deteriorating economic conditions throughout the year even more severely impacted sales of digital scanners on a global basis and resulted in significantly lower than expected OEM / POS software revenues.
Our hardware business revenues grew by 9% to GBP 80.3m (2008: GBP 74.0m) but declined 4% in constant currencies, and we had an adjusted operating profit of GBP 5.5m or 6.8% in this area. As in our OEM / POS software business, economic conditions severely impacted sales of digital scanners on a global basis. This, combined with the increasingly competitive and price sensitive nature of the distribution portion of this business, resulted in significantly lower than expected revenues.
As a result of solid operating cash flow generation of GBP 9.2m (2008: GBP 20.3m), we ended the year with net funds of GBP 28.3m (2008: GBP 34.9m) after spending GBP 7.8m on capital expenditures to upgrade our aging and in many cases unsupported information systems, technology and telephony infrastructure and moving to new operating headquarters. In addition we spent GBP 4.4m to buy back 2,923,000 of the Company's ordinary shares.
Although disappointed with these results, we were nonetheless pleased with our progress in implementing and beginning to realize the benefits of our strategic initiatives and believe we have made some significant positive changes to the business. We look forward to building on this stronger foundation and delivering better results in the current and future financial years.
Operating Highlights
During this past financial year we continued implementing the strategic initiatives first announced in February of 2008. These included:
1. Renaming the Company to better leverage our best known brand and emphasize the focus on our software business,
2. Restructuring the company into vertically aligned, worldwide functions under global managers to facilitate developing and driving a comprehensive corporate strategy in a more consistent, productive and cost effective manner and
3. Reorganizing the Company's sales resources into three distinct groups better aligned with our products, markets and customers -- applications software and solutions, OEM / POS software and hardware distribution and maintenance in EMEA -- and thereby better focus our selling efforts, create clearer lines of authority, responsibility and accountability and, over time, improve sales management and productivity.
Substantially all of the actual work needed to fully drive these changes into the Company on a global basis and begin realizing the related benefits was accomplished in this most recent financial year. To support these efforts we in parallel also upgraded much of our executive management team and senior sales leadership with seasoned professionals possessing extensive enterprise software experience. This included the addition of Jim Nicol as our Executive Vice President of Products, Gene Lynes as our Chief Accounting Officer, Michael Mincieli as our Chief Information Officer, Steve Johnson as our Senior Vice President of Software & Solution Sales in the Americas, Thomas Senger and Peter Murray in that same position for EMEA and Asia Pacific, respectively, Jim Vickers as our Senior Vice President of OEM & Partner Strategy and Jim Hendrickson as our Vice President of Technical Support Services.
While transforming our business we managed to successfully add almost 1,700 new customers during this past financial year. Major customer wins during the period included Belgium's Ministry of Finance, Colgate Palmolive, Credit Agricole, DHL, Euro Information, France Telecom, Statistics Indonesia, Italy's Guardia de Finanza, Mailsource, New South Wales Department of Health, US Bureau of the Census and Schering Plough.
During the year we were also pleased to again receive widespread recognition for our market position and products. This included:
-- A "Top Trend-Setting Product of 2008" award for our Kofax Capture 8.0 software from KMWorld Magazine,
-- A "Capture Product of the Year" award for Kofax Capture 8.0 at the 2008 Annual DM Awards sponsored by Document Manager Magazine,
-- Our Kofax Communication Server software being recognized as the global leader in the production fax market by Davidson Consulting, with nearly a 30 percent market share,
-- Kofax being named as the Outstanding Public Company of the Year at TechAmerica's 2009 High-Tech Innovation Awards,
-- The Company being recognized as one of the "100 Companies That Matter in Knowledge Management in 2009" by KMWorld Magazine,
-- The Company being named to Software Magazine's 26th Annual "Software 500" ranking of the world's largest software and service providers and
-- Kofax again being recognized as the global leader in the capture software and services market by Harvey Spencer Associates, with a 30 percent share of the batch image capture segment and ten percent share of the overall market.
In this past financial year we also successfully released eight new software products in support of our strategic initiatives and revenue growth strategies:
-- Kofax Transformation Modules 3.5 and 4.0, new releases that combine the Company's Ascent Xtrata Pro and INDICIUS products under one re-branded platform and now offer the world's most complete and versatile solution for automated document classification and data extraction.
-- Kofax Document Exchange Server 2.0, a new release of the Company's enterprise ready solution for extending back-office capture to front-office environments with enhanced ease-of-use, administration and performance.
-- Kofax Monitor, a new module that provides real time, enterprise level monitoring and metrics to better optimize the performance of Kofax software and solutions.
-- Kofax Express, a new, all-in-one application that offers the world's most advanced scan-to-archive solution with the fast, easy-to-use capabilities needed to address basic batch image capture requirements.
-- Kofax Desktop, a new, entry-level desktop scanning product that makes scanning as easy as printing by seamlessly embedding these capabilities within Microsoft Office 2007 applications and thereby extending our offerings to address personal productivity and collaboration needs.
-- Kofax Communication Server 8.1 and Kofax Communication Server -- FoIP 3.0, two new releases that offer the enhanced receipt, exchange and output of business critical information between applications, devices and people and improved FoIP capabilities, and re-brand the Company's TOPCALL Communication Server products.
To augment our internal product development we acquired OptiInvoice Digital Technology AB, a Scandinavian company that developed software to facilitate the processing of electronic invoices, in October of 2009 for GBP 1.67 million in cash and further conditional payments subject to certain performance criteria and the retention of certain employees. Processing electronic invoices has become more important as companies and government agencies migrate from paper to electronic invoices in order to improve efficiency and lower costs. The OptiInvoice and Kofax software products were successfully integrated and released as Kofax e-Transactions shortly following the acquisition.
Following the close of this past financial year in September of 2009 we also acquired 170 Systems, Inc., a U.S. based company and leading provider of financial process automation software, for a total consideration of $32.9m (GBP 20.2m), net of cash held by the company. The company's flagship product, the 170 MarkView(R) Financial Suite, is a proven workflow solution for invoice processing and accounts payable functions that is fully integrated and certified for use with both SAP's and Oracle's enterprise resource planning (ERP) software. This is complemented by 170 MarkView Advisor, the industry's first real time financial process performance management and cash flow optimization software, and SupplierExpress, a hosted software application that streamlines supplier interaction and enables timely, accurate payments. As long time business partners, the 170 Systems and Kofax software products have been successfully integrated for some time now and deployed at numerous customer sites.
Both of these acquisitions are consistent with Kofax's stated acquisition strategy and position the Company for leadership in the important and rapidly growing invoice processing market. The combination of OptiInvoice, 170 Systems and our existing Kofax Capture and Transformation Modules software will now allow us to provide a complete invoice processing solution that incorporates paper as well as electronic invoice capture and accounts payable workflow capabilities.
Corporate Mission & Strategies
During this past financial year we've come to realize that "intelligent capture and exchange solutions" doesn't best describe what our products actually do, the benefits we provide to our customers or our future direction. After reflecting on this as well as underlying trends in the broader enterprise software market we've restated Kofax's mission as follows: To be the leading provider of document driven business process automation solutions.
All the solutions we've historically provided automate what were previously manual paper based business processes. As evidenced by the acquisitions described above, we're now also focused on enhancing our solutions to incorporate electronic sources of those very same documents while also automating related, synergistic business processes. In essence, to provide more complete solutions that better meet our customers' needs and provide an even higher value proposition. This will ultimately lead us into the more mainstream business process automation market and significantly expand our opportunities.
As a result, our corporate objectives are to:
1. Deliver organic software business revenue growth that meets or exceeds capture market growth rates while maintaining our hardware business revenues,
2. Continue transforming both our software and hardware business models to improve their profit margins,
3. Control costs to meet or exceed Company profit objectives and
4. Augment our organic revenue growth with carefully selected, strategic acquisitions of software companies and products.
Specific revenue growth strategies include:
1. Growing our market share in the "back office" or batch image and transaction capture market segments by better leveraging our channel partners and large installed base of customers,
2. Establishing a top five position in the "front office" or ad hoc image and transaction capture market segments by further leveraging our channel partners and installed base of customers,
3. Expanding our overall market reach by accelerating the transition to a hybrid go-to-market model,
4. Increasing our OEM / POS software revenues by introducing new product offerings and
5. Exploiting growth opportunities in our hardware distribution business by adding to our existing product offerings.
We've made a great deal of progress during this past financial year and have created a solid foundation for more aggressively pursuing these strategies during the new and future financial years.
Board Changes
On 1 April 2009 John Alexander retired as a Non-Executive member of the Board of Directors and was replaced by Joe Rose, who was subsequently appointed as a member of the Remuneration and Nominating Committees. Along with the rest of the Board, I thank John for his many years of service as a Director and wish him well in his other activities.
Outlook
Management and the Board are pleased with our progress in implementing Kofax's strategic initiatives during this last financial year and the Company remains solidly cash generative with a strong balance sheet. In addition, the adverse economic conditions negatively affecting our business appear to have stabilized toward the end of this past financial year. Nonetheless, market conditions have been and continue to be challenging and difficult to predict. As a result and excluding the effect of the 170 Systems acquisition, management and the Board expect low to mid single digit organic revenue growth in the Company's software business and flat revenues in its hardware business during the current financial year in U.S. dollars.
Thank You
Our performance is the direct result of the dedication and hard work of our valued employees, channel partners and suppliers, and the continued support of our customers and shareholders. I would like to sincerely thank all of these stakeholders for their ongoing contributions to our success.
Reynolds C. Bish Chief Executive Officer 3 September 2009
Chief Financial Officer's Review
Overview
This last financial year was full of changing market conditions and operational challenges. The general economic situation around the globe deteriorated as the year progressed, resulting in a more difficult sales environment with generally lower levels of capital expenditures, increased project cancellations and longer sales cycles. While our solutions provide a very fast return on investment, we were certainly not immune to the impact of these changing circumstances. As a result, we did not achieve the level of revenues and profits anticipated at the start of the year; but met the revised targets communicated in early May 2009.
As we continued transforming the Company, we made significant progress with our hybrid go to market strategy as evidenced by substantially increasing revenues from direct sales. To support this transition, we invested significant amounts in upgrading our corporate infrastructure as planned and announced last year. We successfully deployed a standard global accounting and order entry system which will result in many significant benefits for the Company in the coming years, including reductions in our general and administrative expenses and much greater visibility as well as faster access to key financial metrics. These changes have also enabled us to reduce and centralise our accounting staff into fewer offices and reduce our hardware warehouses from 19 to 6 locations while maintaining our existing rapid delivery times. This should lead to better inventory management and lower administration costs in the future as a result.
On top of this we implemented a global treasury and cash management function which provides greater cash visibility, easier access to our global funds and better cash management. Finally we relocated and expanded our operating headquarters in Irvine into two new buildings. This relocation allowed us to expand our operations at a lower cost per square foot than what we previously paid due to the very weak commercial real estate market in most of the United States.
All of the above mentioned changes will result in a much stronger and more stable basis for the Company's future growth.
The results for the last financial year were as follows: Total revenues grew by 9% during the period. Our software business grew 10% during the period, much of which was achieved through favourable exchange rate movements, as both the US dollar and Euro appreciated substantially against the Pound Sterling, and a 26% increase in services revenues. The hardware business achieved a growth rate of 9% for the period, solely as result of favourable exchange rate movements.
Mainly as a result of weaknesses in our OEM / POS software business coupled with the effects of realigning the organization and investing in our corporate infrastructure, our adjusted operating profits declined by 16% to GBP 14.1m. Cash flow from operations, although lower, remained solid at GBP 9.2m before restructuring costs.
Trading Results
For the year revenues grew by 9% to GBP 185.8m (2008: GBP 169.7m). In constant currency terms, total revenues declined by 6%. The software business grew by 10% but in constant currency terms declined by 8%. Our application software licence revenues increased 6% (a 10% decrease in constant currencies) and our applications software services revenues increased by 26% (a 4% growth in constant currencies). The growth in services was largely driven by an increase in software maintenance revenues. As mentioned during the year, our OEM / POS software business was substantially impacted by the poor economic environment. Revenues declined 16% (a 32% decrease in constant currencies). Our total software business revenues now amount to GBP 105.5m and represent 57% of total revenues. The remaining revenue is derived from our hardware distribution and maintenance business which grew 9% (a 4% decrease in constant currency terms).
Adjusted operating profit declined by 16% from GBP 16.8m to GBP 14.1m (a decrease of 38% in constant currencies). As most of our profits arise in the US, we benefitted from the strengthening of the US dollar against the Pound Sterling causing our US profits to be translated into higher Pound Sterling amounts. Our net operating profit decreased to GBP 7.1m (GBP 9.4m in the previous financial year). Cost of sales increased to GBP 88.5m from GBP 75.8m due to exchange rate movements and a changing composition. Total operating expenses increased from GBP 84.6m to GBP 90.1m, up 7% due to increased personnel expenses and exchange rate movements. Amortisation of acquired intangible assets, included under operating expenses, increased to GBP 2.7m from GBP 2.3m due to the acquisition of OptiInvoice Digital Technology AB. Share based payment charges increased to GBP 0.8m compared to GBP 0.3m in the previous year. The prior year charge was comparably low as forfeitures of share-based incentives increased as a result of our reorganization. In addition, we incurred an exceptional charge of GBP 3.4m in the second half of the year ended 30 June 2009 (2008: GBP 4.8m) related to restructuring the organization. The restructuring affects our sales function as we transition to a more direct sales model, our research and development functions as we realign the related resources and finally our general and administrative functions as a result of centralising various back office services. These reorganisations and related headcount reductions will be completed in the second half of the new financial year. The charge is approximately GBP 1.2m higher compared to what we previously indicated at the time of the Interim Results announcement in February 2009. The difference is mainly due to the fact that our reorganisation expands into the current financial year and includes more headcount, especially within R&D and Sales.
In the first half of this past financial year, adjusted operating profit was GBP 6.6m, a margin of 7.3% on total revenues of GBP 89.7m. Results in the second half contributed an adjusted operating profit of GBP 7.5m or 7.8% on total revenues of GBP 96.1m. This split reflects our seasonal sales pattern with a slow first quarter followed by significantly stronger subsequent quarters.
Reconciliation of Adjusted Profit 2009 2009 2008 2008
Year Ended 30 June EPS in GBP '000 EPS in GBP '000
pence pence
Profit for the period attributable to the equity holders of the 6.2 5,136 4.0 3,356
parent
Amortisation of acquired intangible assets 3.4 2,746 2.7 2,309
Restructuring costs 4.1 3,398 5.7 4,808
Financial instruments expense 0.3 264 3.2 2,657
Tax effect of above (1.9) (1,561) (1.2) (1,005)
Adjusted profit for the period attributable to the equity holders 12.1 9,983 14.4 12,125
of the parent*
Note: charge for share-based payments deducted in arriving at 1.0 821 0.3 286
adjusted profit
*Adjusted operating profit adds back the share based payment expense for the year, however adjusted profit after tax for the purposes of adjusted earnings per share includes the share based payment charge.
Adjusted earnings per share (EPS) decreased by 16% to 12.1p (2008: 14.4p). A reconciliation of adjusted profit is provided in the table above.
Basic earnings per share increased to 6.2p (2008: 4.0p). Diluted earnings per share increased to 6.2p (2008: 3.9p).
Software Business Revenue Breakdown
The table below provides a breakdown of the total software business revenues which are split into application software and OEM / POS software.
Software Business Revenue 2009 2008 % Using
Year Ended 30 June GBP m GBP m constant
currency
Application Software Licences 44.5 42.0 6% (10%)
Application Software Services 47.4 37.6 26% 4%
Total Application Software 91.9 79.6 15% (3%)
OEM / POS Software Licences 13.6 16.1 (16%) (32%)
Total Software Business 105.5 95.7 10% (8%)
Total application software revenues grew 15% for the year, but the increase is mainly due to favourable exchange rate movements.
The OEM / POS business experienced a decline of 16%. This is attributable to two factors. First, several years ago we started to transition sales of VRS from a POS to an OEM model and to date the increase in revenue from our OEM customers has not yet offset the decline in POS sales. Secondly, the overall market for capital expenditures has declined, thus reducing scanner sales being shipped with VRS and the related OEM royalties.
Hardware Business Revenue Breakdown
Hardware revenues in total grew 9%. Similar to the Software business the increase is mainly due to favourable exchange rate movements. Hardware product revenues grew 9% and Hardware service revenues grew 7%. The performance of the Hardware business has certainly been negatively affected by the lower level of capital expenditures as a result of the recession. However based on data available to us we have substantially increased our market share with all key suppliers and therefore have strengthened our market position.
Hardware Business Revenue 2009 2008 % Using
Year Ended 30 June GBP m GBP m constant
currency
Hardware Products 57.7 52.8 9% (4%)
Hardware Services 22.6 21.2 7% (3%)
Total Hardware Business 80.3 74.0 9% (4%)
Revenue by Geographic Segments
Revenue in the Americas increased overall by 12%. Applications software revenues grew 18% (a decrease of 2% in constant currencies), driven by a 26% increase in related services. The decline in OEM / POS revenues, most of which are included in this region, amounted to 3% (27% in constant currencies).
Total revenue in EMEA grew by 8% (a decrease of 5% in constant currencies) with a 13% growth in application software revenues (a 4% decrease in constant currencies) and 9% growth in hardware revenues (a 4% decrease in constant currencies). The performance in EMEA varied greatly by region. Revenues in the south grew, both in the software and hardware businesses and benefitted from strong execution and an increasing portion of direct sales. However we experienced substantial weakness and execution issues in the central region where we historically depended to a great extent on our channel partners, which experienced a sharp decline. The north had very strong performance, across both the software and hardware business, also benefitting from an increased focus on direct sales. Overall we believe that this was a respectable performance by our EMEA sales organization given the number of changes implemented and impact of the economic downturn.
Application software revenues in Asia Pacific increased by 18% (a decrease of 1% in constant currencies), driven equally by increases in license and software service revenues. This is even more notable as we experienced a substantial decrease in revenues during the first half of the financial year. Our new sales leadership achieved increasingly strong results, especially in the second half of the financial year and despite difficult economic circumstances.
Geographical Americas % EMEA % Asia- % Total % Regions GBP m GBP m Pacific GBP m Year Ended 30 June GBP m Application Software Licences 18.8 11% 22.4 - 3.3 18% 44.5 6%- Application Software Services 18.3 26% 25.8 27% 3.3 18% 47.4 26% Total Application Software 37.1 18% 48.2 13% 6.6 18% 91.9 15% OEM / POS Software Licenses 11.4 (3%) 2.1 (46%) 0.1 (75%) 13.6 (16%) Total Software Business 48.5 12% 50.3 8% 6.7 12% 105.5 10% Hardware Products 57.6 10% 0.1 (50%) 57.7 9% Hardware Services 22.4 7% 0.2 - 22.6 7% Total Hardware Business 80.0 9% 0.3 (25%) 80.3 9% Total Revenues 2009 48.5 12% 130.3 8% 7.0 9% 185.8 9% Total Revenues 2008 43.2 120.1 6.4 169.7
The indicated percentage growth rates are in comparison to the previous financial year.
Research and Development Expenditures
We continued to invest in our market leading software products through research and development but have taken steps to reduce our expenditures in line with other cost reductions made in the business. For the period, research and development costs totalled GBP 18.1m (2008: GBP 17.4m) which represents a 4% increase compared to 14% in 2008. This increase is solely due to exchange rate movements. The majority of our research and development expenses are incurred in US dollars and as such result in higher Pound Sterling amounts due to the strengthening of the US dollar. On a constant currency basis R&D expenses decreased 12%, and represented 17% of total software revenues (18% in 2008). We plan to further reduce these expenses as a percent of total software revenues during the new financial year.
Taxation
The tax charge for the year ended 30 June 2009 of GBP 2.3m reflects a tax rate on profit before tax of 31% (2008: 55%). This decrease is largely due to the benefits of a more efficient tax structure having been put in place. The amortisation of intangible assets, financial instruments expense and the share based payment expense are, for the most part, not deductible for tax purposes. The effective tax rate on adjusted profit before tax is reported at 28% and is generally what can be expected on a sustainable level considering the group's earnings mix and taking advantage of prior year tax losses. Adjusted profit before tax is defined as profit before tax adding back the amortisation of acquired intangible assets, reorganisation charges and financial instruments expense.
Balance Sheet
The consolidated balance sheet remained strong with shareholders equity reported at GBP 102.3m (2008: GBP 97.4m). The net funds position was GBP 28.3m (2008: GBP 34.9m), with cash and cash-equivalents of GBP 29.9m (2008: GBP 36.4m) held at year end.
Cash Flow
Operating cash flow generation also remained solid, although not as strong as in the prior year. During the year ended 30 June 2009, Kofax generated positive operating cash flows of GBP 9.2m (2008: GBP 20.3m), turning 66% (2008: 121%) of adjusted operating profit into operating cash flow. As a result of the reorganisations previously effected, the Company incurred a cash outflow of GBP 3.2m. The remaining provision amounts to GBP 2.3m, of which the majority will be settled in the new financial year.
Total investments in property, plant and equipment amount to GBP 7.8m. As described earlier, the company deployed a standard global accounting and sales order entry system, which was a much needed improvement for the company, and made other significant investments to upgrade its corporate infrastructure. Therefore capital expenditures will be substantially less in future years. We also spent GBP 1.7m on the acquisition of OptiInvoice. This, coupled with interest received and the disposal of fixed assets, results in a total cash outflow from investing activities of GBP 8.8m.
Cash outflows from financing activities amount to GBP 3.6m, principally due to GBP 4.4m spent buying back 2,923,000 of our ordinary shares.
As the majority of our net cash is held in US dollars and Euros, our net cash position benefitted from retranslating those funds into Pound Sterling at favourable exchange rates.
Treasury Management
The Company has continued to generate solid cash flows. Kofax's policy has been to fund its operations centrally through the use of retained earnings, equity and bank facilities. Material bank borrowing arrangements are negotiated by management and approved by the Board of Directors. Positive cash balances earn floating rate interest based on relevant national interbank rates.
During the year the Company has signed a credit facility of GBP 10m with a major European bank. The credit facility remains in place until September 2011 and is unsecured.
The Company has significant overseas subsidiaries, which operate principally in their local currencies. Where appropriate, intra group borrowings are arranged in local currencies to provide a natural hedge against exchange rate movement risks.
During the year, Kofax discontinued the use of foreign currency swaps. In the prior year, Kofax used foreign currency swaps to convert the foreign currency exposure on a $25m intercompany loan to Euros. The swaps did not qualify for hedge accounting and therefore gains or losses were recorded in the income statement, and shown along with the gains or losses arising on the translation of the intercompany loan. The loss recorded in the income statement in financial year was GBP 0.3m (GBP 2.7m in 2008), which was more than offset by substantial gains of GBP 4.8m (GBP 7.3m in 2008) on currency asset translation in reserves.
Ordinary Share Matters
At the Annual General Meeting on 11 November 2008 the shareholders approved the Board's authority to buy back up to ten percent of Kofax's issued share capital for a period of one year or the next Annual General Meeting should it occur at an earlier date. During this past financial year the Company bought back 2,923,000 of its ordinary shares at a cost of GBP 4.4m and added those shares to the shares already held in treasury.
At the beginning of this financial year Kofax had 89.8m ordinary shares issued. During the year 0.7m shares were issued to satisfy the exercise of stock options. On 30 June 2009, the Company therefore had 90.5m ordinary shares issued, of which 5.1m were held in treasury and 3.6m were held in the Company's employee benefit trust.
Change in Reporting Currency
A relatively small portion of the Company's revenues arise in Pounds Sterling and very little of its cash is held in that currency. In addition, most of Kofax's management is located in and manages the business from the United States. As a result, after due consideration of these and other relevant factors, management and the Board have decided to report Kofax's financial results in US dollars on a go forward basis and, as a result, this Annual Report will be the Company's last public financial report in Pounds Sterling.
Stefan Gaiser Chief Financial Officer 3 September 2009
Kofax plc
Consolidated Income Statement
Year to Year to
30 June 2009 30 June 2008
audited audited
Note GBP '000 GBP '000
Revenue 4 185,757 169,742
Cost of sales (88,522) (75,784)
Gross profit 97,235 93,958
Operating expenses (90,136) (84,557)
Adjusted operating profit before(1)): 14,064 16,804
Amortisation of acquired intangible assets (2,746) (2,309)
Restructuring costs (3,398) (4,808)
Share-based payment expense (821) (286)
Operating profit 7,099 9,401
Share of results of associated undertakings 108 87
Finance income 892 1,130
Finance expense (628) (2,987)
Profit before tax 7,471 7,631
Tax expense (2,335) (4,235)
Profit for the year 5,136 3,396
Profit after tax attributable to
Equity holders of the parent 5,136 3,356
Minorities interests - 40
5,136 3,396
Earnings per share
> Basic 2 6.2p 4.0p
> Diluted 2 6.2p 3.9p
> Adjusted basic 2 12.1p 14.4p
> Adjusted diluted 2 12.1p 14.2p
1) Adjusted operating profit is a KPI (key performance indicator)
used by the Group to help in assessing the underlying trading
results of the Group.
Consolidated Statement of Recognised Income and Expense
Year to Year to
30 June 2009 30 June 2008
audited audited
GBP '000 GBP '000
Exchange gains arising on retranslation of foreign operations 4,797 7,332
Actuarial losses on defined benefit pension plans (497) (668)
Tax on items taken directly to or transferred from equity (125) (388)
Net income recognised directly in equity 4,175 6,276
Profit for the year 5,136 3,396
Total recognised income and expense 9,311 9,672
Net income recognised directly in equity attributable to
Equity holders of the parent 9,311 9,680
Minorities interests - (8)
9,311 9,672
Kofax plc
Consolidated Balance Sheet
At At
30 June 2009 30 June 2008
audited audited
Note GBP '000 GBP '000
Non-current assets
Intangible assets 77,971 70,237
Property, plant and equipment 5,941 4,684
Deferred tax assets 5,112 3,437
Investments 1,364 1,186
90,388 79,544
Current assets
Inventories 9,632 9,164
Trade and other receivables 57,918 40,277
Investments - current 211 227
Current tax assets 1,316 1,689
Cash and cash-equivalents 6 29,857 36,413
98,934 87,770
Total assets 189,322 167,314
Current liabilities
Trade and other payables (37,723) (31,713)
Deferred income - current (28,497) (20,475)
Other financial liabilities (1,533) (1,541)
Current tax liabilities (1,306) -
Provisions - current (3,350) (2,714)
(72,409) (56,443)
Non-current liabilities
Other payables (1,848) (1,974)
Deferred income - non current (6,134) (6,739)
Deferred tax liabilities (6,223) (4,785)
Provisions - non current (434) -
(14,639) (13,498)
Total liabilities (87,048) (69,941)
Net assets 102,274 97,373
Capital and reserves
Called up share capital 3 2,262 2,245
Share premium account 3 2,130 1,370
Currency translation adjustment 3 10,176 5,338
Merger reserve 3 1,717 1,717
ESOP shares 3 (7,637) (7,518)
Treasury shares 3 (8,443) (4,068)
Retained earnings 3 102,069 98,289
Shareholders' equity 102,274 97,373
Kofax plc
Consolidated Cash Flow Statement
Year to Year to
30 June 2009 30 June 2008
audited audited
Note GBP '000 GBP '000
Cash flows from operating activities
Profit before tax 7,471 7,631
Share results of associated undertakings (108) (87)
Finance income (892) (1,130)
Finance expense 628 2,987
Depreciation and amortisation 5,421 4,769
Share-based payment expense 554 286
Movement in provisions 3,246 1,340
Gain/(loss) on disposal of property, plant and equipment 27 (62)
Movement in working capital (7,124) 4,540
Cash generated from operations before restructuring 9,223 20,274
Payments under restructuring (3,248) (4,123)
Cash generated from operations 5,975 16,151
Income tax paid (1,200) (7,162)
Net cash inflow from operating activities 4,775 8,989
Cash flows from investing activities
Purchase of property, plant and equipment, licences and similar (7,792) (3,679)
rights
Disposal of property, plant and equipment, licences and similar 95 198
rights
Acquisition of a subsidiary, net of cash acquired (1,670) (721)
Acquisition of minorities interests - (624)
Disposal of subsidiaries, net of cash disposed - (18)
Interest received 588 745
Net cash outflow from investing activities (8,779) (4,099)
Cash flows from financing activities
Issue of share capital 777 1,581
Increase/(decrease) in short term borrowings 535 (177)
Share buy back (4,375) (11,220)
Dividends paid to shareholders (1,366) (1,890)
Dividends paid to minorities interests - (79)
Currency Swap 1,010 (1,976)
Interest paid (190) (141)
Net cash outflow from financing activities (3,609) (13,902)
Net decrease in cash and cash-equivalents in the period (7,613) (9,012)
Cash and cash-equivalents at start of the period 35,117 38,566
Exchange rate effects 1,610 5,563
Cash and cash-equivalents at the end of the period 29,114 35,117
Cash and cash-equivalents consists of:
Cash and cash-equivalents 29,857 36,413
Overdrafts (743) (1,296)
29,114 35,117
Announcement of Preliminary Audited Results Notes (IFRS)
1 Basis of preparation
The preliminary announcement was approved by the Board of Directors on 3 September 2009.
The financial information set out in this announcement does not constitute the Group's financial statements as defined by s435 of the Companies Act 2006 for the years ended 30 June 2009 or 2008. The results for the years ended 30 June 2009 and 2008 are extracted from the audited accounts of Kofax plc, on which the auditors have issued an unqualified opinion which did not contain a statement under s498(2) or (3) Companies Act 2006.
The Group's consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union ("EU"). The accounting policies have been consistently applied to all periods presented.
The audited financial statements for the year ended 30 June 2008 have been delivered to the Registrar of Companies. The Annual Report for the year ended 30 June 2009 will be mailed to shareholders in October 2009 and will be delivered to the Registrar of Companies following the Annual General Meeting which will be held on 5 November 2009 at the offices of Dechert LLP located at 160 Queen Victoria Street, London, EC4V 4QQ. Copies will be available to the public from the Company's registered office at 1 Cedarwood, Chineham Business Park, Basingstoke, Hampshire RG24 8WD, United Kingdom.
2 Earnings per share
Basic earnings per share of 6.2p (2008: 4.0p) for the year to 30 June 2009 have been calculated based on the profit attributable to shareholders of GBP 5,136,000 (2008: GBP 3,356,000) using the weighted average number of ordinary shares in issue totalling 82.4m (2008: 84.3m) during the period.
Adjusted earnings per share of 12.1p (2008: 14.4p) for the year to 30 June 2009 are based on profit of GBP 9,983,000 (2008: GBP 12,125,000), being adjusted for the expenses as stated below using the weighted average number of ordinary shares in issue totalling 82.4m (2008: 84.3m) during the period. The Board considers that adjusted EPS better reflects the underlying performance of the Group.
Reconciliation of adjusted profit Year to Year to Year to Year to
30 June 30 June 30 June 30 June
2009 2009 2008 2008
EPS in GBP '000 EPS in GBP '000
pence pence
Profit for the period attributable to the equity holders of the 6.2 5,136 4.0 3,356
parent
Amortisation of acquired intangible assets 3.4 2,746 2.7 2,309
Restructuring costs 4.1 3,398 5.7 4,808
Financial instruments expense 0.3 264 3.2 2,657
Tax effect of above (1.9) (1,561) (1.2) (1,005)
Adjusted* profit for the period attributable to the equity 12.1 9,983 14.4 12,125
holders of the parent
Note: charge for share-based payments deducted in arriving at 1.0 821 0.3 286
adjusted profit
*Adjusted operating profit adds back the share based payment
expense for the year, however adjusted profit after tax for the
purposes of adjusted earnings per share, includes the share based
payment charge.
Reconciliation of adjusted pre tax profit Year to Year to
30 June 30 June
2009 2008
GBP '000 GBP '000
Profit on ordinary activities before taxation 7,471 7,631
Amortisation of acquired intangible assets 2,746 2,309
Restructuring costs 3,398 4,808
Financial instruments expense 264 2,657
Adjusted* profit before tax 13,879 17,405
*Adjusted operating profit adds back the share based payment
expense for the year, however adjusted profit before tax for the
purposes of the adjusted effective tax rate includes the share
based payment expense.
Diluted earnings per share of 6.2p (2008 3.9p) for the year to 30 June 2009 have been calculated based on the profit after tax attributable to equity holders of the parent of GBP 5,136,000 (2008: GBP 3,356,000) using 82.8m (2008: 85.6m) ordinary shares, the difference to the basic calculation representing the additional shares that would be issued on the conversion of all the dilutive potential ordinary shares.
Adjusted, diluted earnings per share of 12.1p (2008: 14.2p) for the year to 30 June 2009 have been calculated based on profit of GBP 9,983,000 (2008: GBP 12,125,000), being adjusted for the operating expenses as stated above using 82.8m (2008: 85.6m) ordinary shares.
3 Reconciliation of movements in shareholders' equity
Year to Year to
30 June 30 June
2009 2008
GBP '000 GBP '000
Opening Shareholders' equity 97,373 99,191
Net profit for the period excluding minority interests 5,136 3,356
Dividends (1,366) (1,890)
Exchange differences arising on retranslation of foreign operations 4,797 7,380
Actuarial losses on defined benefit pension plans (497) (668)
Net proceeds from issue of share capital 777 1,054
Share-based payment expense 554 286
Tax on items taken directly to equity (125) (388)
Treasury shares acquired (4,375) (11,220)
Treasury shares issued - 272
Shareholders' equity at end of the year 102,274 97,373
4 Operating Segments
Following the restructuring effected in the second half of financial year ended 30 June 2008 the Group conducts its business along its software and hardware revenue streams and not on a geographical basis anymore. Therefore the Group changed its reporting segments, according to IFRS 8, from a geographic split to a split per business segment, reflecting the decision making process and resource allocation.
The two distinct operating and reportable segments are:
-- Software Business: Capture and exchange software automates business processes and improves business performance by capturing and transforming documents into digital format and delivering them into business applications and archives.
-- Hardware: The Group resells scanning and storage products to resellers. This business is only conducted in EMEA. The hardware segment includes revenue from the resale of hardware products and hardware related maintenance services.
The Group manages its two segments separately because their current or future sources of income derive from distinct markets and customers which require different manufacturing, distribution and marketing strategies.
The Group manages its business based on the key measures for resource allocation like revenue generation and adjusted operating profit. Gross Profit is not a key measure according to IFRS 8, but disclosed for additional information.
Segment assets consist only of inventories. Other balance sheet items do not meet the criteria, according to IFRS 8, for inclusion under one of the two reporting segments.
GBP '000 Software Hardware Total Year to 30 June 2009 Revenue external 105,520 80,237 185,757 Segment revenue(1)) 105,520 80,237 185,757 Gross profit 81,183 16,052 97,235 Depreciation and amortisation (2,140) (535) (2,675) Adjusted operating profit(2)) 8,586 5,478 14,064 Amortisation intangible assets - - (2,746) Restructuring costs - - (3,398) Share-based payment expense - - (821) Share of results of associated undertakings - - 108 Finance income - - 892 Finance expense - - (628) Profit before tax - - 7,471
(1)) There were no intersegment revenues in the current year. (2) )Adjusted operating profit is stated before adding back amortisation of acquired intangibles, restructuring costs and the share-based payment expense. It is used by the Group as KPI to help in assessing the underlying trading.
GBP '000 Software Hardware Total 30 June 2009 Inventories 1,383 8,249 9,632 All other assets as per balance sheet 179,690 Total assets 189,322 GBP '000 Software Hardware Total Year to 30 June 2008 Revenue external 95,675 74,067 169,742 Segment revenue 95,675 74,067 169,742 GBP '000 Software Hardware Total 30 June 2008 Inventories 1,334 7,830 9,164 All other assets as per balance sheet - - 158,150 Total assets - - 167,314
The Group is not in a position to fully generate prior year numbers for segments as required by IFRS 8. The Group restates segment revenue and inventories for comparative disclosures, other prior year measures under the product reporting structure are not available. The Group therefore provides comparative information under the geographical structure as reported in the prior year.
GBP '000 America EMEA Asia-Pacific Total Year to 30 June 2009 Revenue external 48,561 130,250 6,946 185,757 Gross profit 32,568 60,913 3,754 97,235 Depreciation and amortisation (863) (1,635) (177) (2,675) Adjusted operating profit/(loss)* 15,546 (551) (931) 14,064 * Adjusted operating profit is stated before adding back amortisation of acquired intangibles, restructuring costs and the share-based payment expense.
GBP '000 America EMEA Asia-Pacific Total Year to 30 June 2008 Revenue external 43,199 120,117 6,426 169,742 Gross profit 30,833 60,301 2,824 93,958 Depreciation and amortisation (697) (1,624) (139) (2,460) Adjusted operating profit* 11,370 6,653 (1,219) 16,804 Amortisation acquired intangible assets - - - (2,309) Restructuring costs - - - (4,808) Share-based payment expense - - - (286) Share of results of associated undertakings - - - 87 Finance income - - - 1,130 Finance expense - - - (2,987) Profit before tax - - - 7,631 * Adjusted operating profit is stated before adding back amortisation of acquired intangibles, restructuring costs and the share-based payment expense.
Entity-wide Disclosures
Revenue split Year to Year to
in GBP '000 30 June 30 June
2009 2008
Revenue
Licences 58,106 58,048
Services 47,414 37,627
Hardware 57,692 52,849
Hardware Maintenance 22,545 21,218
185,757 169,742
Finance revenue 892 1,130
Total 186,649 170,872
GBP '000 America UK Germany Rest of EMEA Asia-Pacific Total Year to 30 June 2009 Revenue external 48,561 17,539 28,470 84,241 6,946 185,757 Non-current assets 37,422 611 7,769 36,105 3,369 85,276
The revenue information is based on the location of the customer.
Non-current assets for this purpose consist of property, plant and equipment, investment in associates and intangible assets.
GBP '000 America UK Germany Rest of EMEA Asia-Pacific Total Year to 30 June 2008 Revenue external 43,199 16,822 27,300 75,995 6,426 169,742 Non-current assets 41,743 1,248 4,365 28,375 376 76,107
5 Taxes
Tax charged to the income statement
GBP '000 Year to Year to
30 June 2009 30 June 2008
Current tax expense
Income tax on profits for the year 2,947 2,925
Adjustment for over provision in prior periods 181 292
3,128 3,217
Deferred tax expense
Origination and reversal of temporary differences (799) 1,084
Adjustment for (under)/over provision in prior periods 6 (66)
(793) 1,018
Total tax expense 2,335 4,235
Tax relating to items taken directly to equity
GBP '000 Year to Year to
30 June 2009 30 June 2008
Current tax expense
Net gain on share options exercised 67 119
Total 67 119
Deferred tax expense
Net loss on foreign exchange adjustments (209) (507)
Tax impact on actuarial gains 17 -
Total (192) (507)
Tax credit in the statement of recognised income and expense (125) (388)
6 Analysis of Net Funds
At At
30 June 30 June
2009 2008
GBP '000 GBP '000
Cash in hand, at bank 29,547 32,506
Current asset investments 310 3,907
Cash and cash equivalents 29,857 36,413
Overdrafts (743) (1,296)
Debt due within 1 year (769) (212)
Debt due after 1 year (2) -
Finance leases (2) (5)
Total debt and finance lease (1,516) (1,513)
Net funds 28,341 34,900
7 Analysis of exchange rates used for consolidation
At At
30 June 2009 30 June 2008
Average rate Closing rate Average rate Closing rate
US Dollar 1.61 1.65 2.00 1.99
Euro 1.17 1.17 1.37 1.26
Swiss Franc 1.80 1.79 2.23 2.03
SOURCE: Kofax plc
Kofax plc Investor Contact: Stefan Gaiser, +49 (0) 761 45269 193 Chief Financial Officer stefan.gaiser@kofax.com Media Contact: Michael Troncale, +1 949-783-1434 Director, Corporate Communications michael.troncale@kofax.com or Financial Dynamics James Melville--Ross or Matt Dixon, +44 (0) 20 7831 3113 kofax@fd.com
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Company: Kofax PLC (KFAXF)
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