| Company : | Kewill Systems PLC |
| TIDM : | KWL |
| Headline : | Final Results |
| Released : | 07:00 07-Jun-05 |
| Number : | 2186N |
Embargoed for release, Tuesday 7 June 2005 - 07.00am (BST)
KEWILL SYSTEMS PLC
Preliminary results for the year ended 31 March 2005
Kewill Systems plc ("Kewill" or "the Company" or “the Group”), a leading provider of Supply Chain Execution software and services, announces its preliminary results for the year ended 31 March 2005.
Financial Highlights:
Andy Roberts, Chairman, commented:
"These are excellent results for Kewill and are testament to the chosen strategy of a clear focus on supply chain execution. This approach, combined with the judicious acquisition and integration of two valuable companies and strong operational management, has resulted in profitable growth. The outlook is set fair for another successful year for Kewill."
Paul Nichols, Chief Executive Officer, commented:
“These results show Kewill’s continued progress and the strengthening of our operational performance and the associated profitability of our Group. Despite slow markets in Europe and the impact of the weak dollar, we have more than doubled operating profit before amortisation of intangibles since last year. This has been achieved through the improved second half revenues in our shipping management solutions, as our newly acquired products became established, the addition of new customers through roll-outs of trading communities in the UK, the continued strong growth of TradePoint in international trade management and further cost control assisted by the growing use of our offshore development facility in India.
“The strengthened cash position will enable us to make further investments to extend our geographic reach and add new components to our supply chain execution portfolio. While economic conditions remain difficult to predict, we have seen improving sales in the US and strong order pipelines in all our businesses. The large opportunity to offer more components of the Kewill supply chain execution suite to our 12,500 existing users gives us confidence in Kewill’s continued growth in 2006 and beyond.”
For further information please contact:
| Kewill Systems plc | Tel. 020 7831 3113 (on 7/6/2005) |
| Paul Nichols, Chief Executive | Tel. 01784 495 722 (thereafter) |
| Guy Millward, Finance Director | |
| Financial Dynamics | Tel. 020 7831 3113 |
| Edward Bridges / Juliet Clarke |
ANNUAL REVIEW
Overview
Once again I am pleased to report the continued progress of Kewill and the strengthening of both our operational performance and the associated profitability of our Group. This has taken place alongside the integration of two acquisitions across three continents as part of our strategy to enhance our global supply chain execution suite. Despite slow markets in Europe and the impact of the weak dollar on the revenues of our US businesses we have more than doubled operating profit before amortisation of intangibles since last year. This has been achieved through improved second half revenues in our shipping management solutions, as our newly acquired products became established, the addition of new customers through roll-outs of trading communities in the UK, the continued strong growth of TradePoint in international trade management and further cost control assisted by the growing use of our offshore development facility in India.
We continue to focus on cost and cash management and have, for the third year in a row, improved our cash generation from operating activities. We have improved our year-end net funds position, after acquisition costs, and this will enable us to make further investments in extending our geographic reach and adding new components to our supply chain execution portfolio, with a view to enhancing shareholder value through increased sales and profitability.
Kewill is 100% focused on supply chain execution and is involved in enabling customers to improve the efficiencies in their supply chains, whether it be through connecting a supplier base for electronic orders, shipping parcels or moving goods across international borders. Kewill’s order management solutions facilitate electronic communication with all suppliers irrespective of physical location, our parcel shipping solutions now include many international carriers and our international trade offerings help ensure a client’s compliance with the increasingly complex rules relating to customs and border controls. We continue to see very active interest in these markets as world trade increases with all sizes of companies starting to adopt the increased trading potential of internet-based commerce and the cost savings to be realised through sourcing goods from overseas. We see these market drivers increasing into the future and opening up new opportunities across industries and countries for the sale of our products.
Financial Results - Operating Performance
Despite a weak dollar, overall group sales have risen 20% to 26.7 million (2004: 22.1 million). Profits are up substantially year on year, with operating profit for the year before amortisation of intangibles of 2.3 million, up from 1.0 million last year. We have benefited from a full year’s revenue and profits from the TradePoint acquisition and this business has grown its like for like revenues by 12% on the previous year to 7.6 million (2004: 1.7 million for 3 months of ownership) with operating profits of 0.9 million before amortisation of intangibles of 0.7 million (2004: 0.2 million before amortisation of intangibles of 0.2 million for 3 months of ownership). The Order Management business has more than doubled its profits on last year to 1.1 million (2004: 0.5 million) as a result of an increased customer base. Shipping Management achieved revenues of 10.8 million (2004: 11.9 million) despite currency losses of 0.9 million and a one-off product transition in the first quarter. Cost savings achieved through the Indian development centre helped support the division’s operating profit of 1.5 million before amortisation of intangibles of 0.3 million (2004: 1.6 million before and after amortisation of intangibles). Central overheads have been further reduced to 1.2 million (2004: 1.3 million). Operating profit was 1.2 million (2004: 0.8 million). Profit after tax was 2.8 million (2004: 2.1 million). Earnings per share were 3.5p (2004: 2.7p).
Financial Results - Balance Sheet and Cashflow
The acquisition of the assets of Shipnow and the Indian development centre (Paral Systems) have increased goodwill by 3 million. The annual amortisation charge for goodwill is 1.0 million. Next year we are required to restate our figures in accordance with International Financial Reporting Standards (IFRS), which require that goodwill is not amortised but is, instead, subjected to annual impairment reviews. This change, along with the expensing of share options and deferred tax changes, will be the main impacts that investors can expect to see in Kewill’s accounts as a result of IFRS. Group net assets now amount to 23.3 million (2004: 20 million).
Net cash inflows from operating activities increased to 2.2 million (2004: 1.3 million). We generated 0.7 million in interest received on our cash balance after payments for acquisitions of 1.8 million. This, combined with strong working capital management, has resulted in a balance of cash and short term deposits of 20.2 million at 31 March 2005 (2004: 19.1 million). No corporation taxes have been paid due to the availability of tax losses carried forward from prior years on both sides of the Atlantic.
Success of our Acquisitions
We are particularly pleased with the first year success of our acquisitions. TradePoint, acquired during January 2004, is now operationally integrated into Kewill and has delivered in line with our expectations at the time of the acquisition. Revenues from this business have grown 12% over the previous period as we have added over 25 customers for our export and import solutions. We have also seen the first examples of joint sales between the Kewill and TradePoint teams using our integrated international shipment offerings in both the US and UK.
The acquisition of the new enterprise level shipping solution in April 2004 resulted in a temporary slowing of sales in the first half as we converted our sales pipelines over to the new Javalin product. However, as predicted in our interim report, the increased sales volumes late in the first half and throughout the second half have led to a 11% growth (in constant currency) in H2 over H1. We continue to focus our direct sales people on winning large enterprise deals and have closed 21 of these in the year compared to 14 in 2004. The average order value of these contracts has also risen from $122,000 to $220,000 as a result of the new products and technology and the improved value proposition.
The associated acquisition of Paral of India (now Kewill Solutions India) has enabled us to continue to control costs whilst growing the volume of business and continuing to develop new products. During the year we have invested in new premises, technology and staffing in our Indian offshore facility and have grown the headcount from 25 at the time of acquisition to 65 at year-end.
Order Management and Visibility
Our Order Management and Visibility division, maintained revenues at 8.3 million during 2005 (2004: 8.5 million) despite tough economic conditions within the UK retail sector and delivered a 1.1 million operating profit, including operational profitability every month of the year, compared to 0.5 million in the previous year.
Increasing the base of suppliers to retailers was a primary focus in 2005 and we saw a 9% increase in suppliers with an additional 659 suppliers being EDI enabled, growing the client base to 8,356. During 2005 more than 3.84 billion of purchase order value was managed via 18 million order transactions from 3,200 on-line suppliers through Kewill’s hosted managed services. This growth in suppliers ensures a strengthening of our annual subscription, maintenance and transactional recurring revenues.
2004 saw UK retailers concentrate their prime focus on in-store systems and implementations of the new chip and pin payment technology to meet end of year deadlines for retailers to have upgraded, or face issues with credit card fraud. According to Martec Research this switch in 2004 saw a drop in IT spend (1.3% of retail sales from 1.4% previous year) as retailers viewed store systems as their number one priority, with supply chain solutions as the second most important area of focus. With the deadline passing for the chip and pin implementations Kewill predicts a return to supply chain execution expenditure in 2005.
With no new large Kewill Trade sales in the year our focus has been on mid-tier enablement using our MessageBroker solution. We have had successes at BHS, Butchers Petcare, Findel, Mulberry and had our first sale in local government with an implementation for the Glasgow City Council. We also saw significant investments being made to existing Kewill Trade installations at Mothercare and Littlewoods Home Shopping. This demonstrates the continued investment and business benefit being derived from our existing client base.
Our professional services revenue continued to grow with over 1.7 million of services delivered in 2005, up 26% from the previous year (2004: 1.4 million) and we delivered new AS2 encrypted internet connectivity to over 50 clients in the year.
During the course of the year we strengthened our management team with the addition of a senior development manager and a new VP of marketing and product management to focus on the growth of our business in other vertical markets and geographic regions and to enhance our partnership strategy.
With more than 8,350 clients within the retail sector, the focus for financial year 2006 (FY06) is to expand on the functionality we deliver within order management with enhanced visibility and event management capabilities and to work with partners to sell additional products and services to our existing client base. These solutions will continue to focus on areas with a tangible Return on Investment (ROI) and include Global Data Synchronisation (GDS), an offering that has a strong alignment to our existing product portfolio.
Shipping Management
Although the Kewill shipping management business experienced slow sales in the first quarter as we trained sales people and converted pipelines across to the newly acquired Javalin product, in the second and third quarters we saw our strong pipelines turn into orders, which translated to 11% constant currency growth in revenue. Included within this growth we saw a 55% year on year increase in software licence sales as customers returned to spending increased amounts on supply chain solutions. In particular we have seen improved demand from new multi-channel retailers, such as Drugstore.com and ShopNBC (global internet sales have risen to $150 billion, up 56% on 2004, according to Visa International). Our sales continued to improve in Q4 2005 with the result that we enter the new financial year with the largest order book for many years. This will ensure we continue to grow during the first half of this year and with a healthy pipeline we expect to see strong sales continue and growth in the second half of this financial year as well.
Historically Kewill’s shipping management solutions have mainly sold to US-based customers for domestic parcel shipments. However, in line with the growth in the global nature of many of our enterprise level clients, we have seen an increasing number of sales that involve installation of systems in distribution centres in Europe and Asia. We currently have systems installed, or in deployment, in over 20 countries across multiple continents. This ability to sell solutions internationally was one of the main drivers for the acquisition of the Javalin technology and during this year we will use this as the platform to build carrier compliance for the leading parcel and LTL carriers in most major European and some Asian countries.
We are also pleased to announce that, as discussed in the interim statement, we have won our first two contracts with global clients who will be using the Javalin shipping solution integrated with the international compliance offerings of TradePoint, one of the goals we set when we made the acquisitions. In the case of MKS Instruments, they will be using our products integrated with their Oracle 11i ERP solution to control shipments globally. The Body Shop have also placed orders for the integrated product and will be rolling these out as part of their global SAP implementation in the UK, USA and Singapore. We plan a concerted sales effort during this year to promote the integrated offerings through our direct and indirect sales channels in the US and Europe.
We have also invested during the year in adding to the expertise and experience of our management team through the acquisition and the recruitment of a new VP of Product Management and Director of Marketing, along with several senior project managers in our professional services and development organisations.
As Kewill enters FY06, we will continue to build on our successes through a multi-pronged, partner-focused strategy. Our strength in the Small to Medium Enterprise Business (SME) sector, with our industry-leading ClipperShip product, will be fortified through new partnerships with leading ERP and WMS solution providers. These partnerships will expand our existing indirect sales channel and will bring our mutual customers greater business value by providing turn-key supply-chain solutions that tightly integrate shipping management optimisation from Kewill with ERP solutions designed for the SME market.
As a complement to our SME solutions, we will leverage our direct sales force and key ERP partnerships to further penetrate the enterprise sector with our fully featured Javalin product line. Large companies require visibility and optimisation across their multi-divisional, multi-national operations and this means that our parcel and LTL shipment optimisation solutions will become a powerful asset to enterprise level shipping operations on a worldwide basis. Through our strategic ERP partnerships, parcel and LTL shipping optimisation becomes an embedded and powerful asset to enterprise-level shipping operations worldwide. We anticipate strong growth in Javalin penetration of the enterprise sector this year.
We will also launch our desktop shipping and receiving solutions designed in concert with leading financial institutions. These solutions bring shipping optimisation to the campus environment, where parcel routing within the four walls of the enterprise is as core to a company’s supply-chain as the flow of goods from the dock to the customer.
Kewill maintains the broadest portfolio of domestic and international parcel and LTL carrier service offerings. We actively participate in formal certified partner programs with FedEx, UPS and DHL and will continue to build our portfolio of service offerings in 2006 through strategic partnerships with global and local carriers and with key international customers.
International Trade Management
The international trade division, formed through the acquisition of TradePoint, continues to grow as a result of increased demand from existing customers and new clients. For many years TradePoint has been the leading supplier to the customs house brokers and freight forwarders who handle international trade on behalf of importers and exporters, indeed 25% of all imports into the US are processed through Kewill systems. During financial year 2005 there has been a growth in the demand for our traditional products to customs brokers as a result of the general strength of global trade and the increased pressure by governments for more regulatory changes. Corporations of all sizes are increasing their outsourcing to the Far East, with particular emphasis in China, which is resulting in significant increases in shipment volumes.
Compliance is an important part of the work we do for our clients and we have dedicated teams on many accounts who work on client sites to ensure that they are able to deal with the myriad of changing customs regulations. During the year the Company has consolidated its position as the premier domain expert in the area of international trade rules and regulations. The Company now has nine certified US customs brokers on staff, compared to the average customs broker firm that usually has two certified customs brokers on staff. Some 84% (fees, maintenance and subscription) of trade management revenues come from maintenance contracts or project work undertaken on behalf of existing customers.
We continued to enhance our core solutions during the year and converted the Alliance product to enable it to run on a Unix platform and an Oracle database. During FY06 we will continue to invest in our technology platform by building new modular versions of our established products using open standards. We also released our new Import Compliance product that capitalises on our import competency while providing a complimentary product to our export compliance product set.
Increased government insistence on compliance, both for exports of goods leaving the US as well as imports into the US, has resulted in a vibrant market for our compliance and documentation products. TradePoint’s growing body of international trade content allows exporters and importers to ensure that they are complying with terrorist watch lists, submitting the correct licensing, understanding where embargoes are in effect and controlling their inventory costs through tight control of duties, fees and taxes associated with shipping internationally. In the US we have added 3 new sales staff and have seen the benefits with the first new sales of the compliance products to large shippers, this has included the addition during the year of National Instruments and MKS Instruments. In Europe we have over 450 clients on support and we have added extra sales effort in the UK and the Netherlands towards the end of the year. We are optimistic that the increased demands arising from the growing complexity of trade regulations and the addition of our extra sales focus will result in continued growth during this coming year.
Strategy
The Kewill Group continues to concentrate its activities on the supply of software and related services to the supply chain execution market. We automate many of the buying, selling and transportation processes of our customers, who buy our products because of the visible and rapid return on investment. We will continue to lead in the market of small to medium size businesses, which use new modular offerings, and by strengthening our channel and partner capabilities to address this broad geographic market. We will also focus our enhanced direct sales efforts at winning new enterprise level customers who are looking for integrated supply chain solutions for their growing global supply chain requirements. We will continue to seek further opportunities to make additions to our businesses that will strengthen our portfolio across geographies and application areas.
Current Trading and Prospects
While economic conditions remain difficult to predict, we have seen improving sales in the US and strong order pipelines in all our businesses. We also see a large opportunity to offer more components of the Kewill supply chain execution suite to our 12,500 existing users. We expect this to lead to continued growth in 2006 and beyond.
Paul Nichols
Chief Executive Officer
6 June 2005
Consolidated profit and loss account for the year ended 31 March 2005
| 2005 | 2004 | |||
| £000 | £000 | |||
| Turnover | 26,680 | 22,147 | ||
| Cost of sales | 2,787 | 3,011 | ||
| Gross profit | 23,893 | 19,136 | ||
| Net operating expenses before amortisation of intangibles | 21,634 | 18,181 | ||
| Amortisation of intangibles | 1,034 | 179 | ||
| Total net operating expenses | 22,668 | 18,360 | ||
| Operating profit before amortisation of intangibles | 2,259 | 955 | ||
| Operating profit | 1,225 | 776 | ||
| Net profit on sale of properties in continuing operations | 179 | - | ||
| Net profit/(loss) on disposal of discontinued operations | 297 | (5) | ||
| Profit on ordinary activities before interest | 1,701 | 771 | ||
| Interest receivable | 742 | 758 | ||
| Profit on ordinary activities before taxation | 2,443 | 1,529 | ||
| Tax on profit on ordinary activities | 321 | 583 | ||
| Retained profit for the financial year | 2,764 | 2,112 |
| Earnings per share | 3.5p | 2.7p | ||
| Diluted earnings per share | 3.4p | 2.7p | ||
| Adjusted earnings per share before amortisation of intangibles | 4.8p | 3.0p | ||
|
Adjusted diluted earnings per share before amortisation of intangibles |
4.7p | 2.9p |
Statement of total group recognised gains and losses for the year ended 31 March
2005
| 2005 | 2004 | ||
| £'000 | £'000 | ||
| Retained profit for the financial year | 2,764 | 2,112 | |
| Exchange adjustments offset in reserves | (178) | 33 | |
| Total group profits recognised since last annual report | 2,586 | 2,145 |
Consolidated balance sheet as at 31 March 2005
| 2005 | 2004 | ||
| £'000 | £'000 | ||
| Fixed assets | |||
| Intangible assets | 8,993 | 6,968 | |
| Tangible assets | 523 | 923 | |
| 9,516 | 7,891 | ||
| Current assets | |||
| Inventory | 87 | 176 | |
| Debtors | 5,734 | 4,631 | |
| Bank balances and cash | 20,244 | 19,145 | |
| 26,065 | 23,952 | ||
| Creditors : amounts falling due | |||
| within one year | 10,715 | 11,067 | |
| Net current assets | 15,350 | 12,885 | |
| Total assets less current liabilities | 24,866 | 20,776 | |
| Provisions for liabilities and charges | 1,522 | 755 | |
| Net assets | 23,344 | 20,021 | |
| Capital and reserves | |||
| Called up share capital | 787 | 775 | |
| Share premium account | 38,239 | 38,212 | |
| Merger reserve | 976 | 278 | |
| Profit and loss account | (16,658) | (19,244) | |
| Equity shareholders' funds | 23,344 | 20,021 |
Consolidated cash flow statement for the year ended 31 March 2005
| 2005 | 2004 | ||
| £'000 | £'000 | ||
| Net cash inflow from operating activities | 2,184 | 1,271 | |
| Returns on investments and servicing of finance | 742 | 840 | |
| Taxation | 13 | (40) | |
| Capital expenditure and financial investment | 177 | (178) | |
| Acquisitions and disposals | (2,021) | (4,837) | |
| Cash inflow/(outflow) before use of liquid resources and financing | 1,095 | (2,944) | |
| Management of liquid resources | 2,321 | 3,324 | |
| Financing | 24 | 26 | |
| Net increase in cash | 3,440 | 406 |
| 2005 | 2004 | ||
| Reconciliation of net cash flow to movement in net funds | £'000 | £'000 | |
| Increase in cash in the year | 3,440 | 406 | |
| Cash inflow from movement in liquid resources | (2,321) | (3,324) | |
| Change in net funds resulting from cash flows | 1,119 | (2,918) | |
| Exchange movements | (20) | (105) | |
| Movement in net funds in the year | 1,099 | (3,023) | |
| Net funds at 1 April 2004 | 19,145 | 22,168 | |
| Net funds at 31 March 2005 | 20,244 | 19,145 |
Basis of preparation
The figures for the year ended 31 March 2005 are unaudited and are not full financial statements. The figures for the years ended 31 March 2005 and 2004 do not constitute statutory accounts within the meaning of Section 240 (5) of the Companies Act 1985. The figures for the year ended 31 March 2004 are extracts from the full financial statements delivered to the Registrar of Companies. The report of the auditors on those financial statements was unqualified and contained no statements under either Section 237 (2) or 237 (3) of the companies convention and in accordance with the Group's accounting policies as set out in the financial statements for the year ended 31 March 2004. This statement was approved by the Board of Directors on 6 June 2005.