Softline, the international accounting and payroll software developer, today reported an 18% growth in revenue for FY02, to R487-million. Headline earnings per share increased by 31% from 16.3c to 21.3c and basic earnings per share increased 61% from 6.1c to 9.8c.
"Over the past year Softline has increasingly concentrated on growing its core accounting, payroll and tax software operations, integrating international acquisitions and streamlining the business. This focus has allowed us to leverage our research and development and intellectual capital across the group and utilise common metrics that allow for greater visibility and enhanced measurability of the business," comments Ivan Epstein, Softline's chief executive officer.
Softline's cash position increased substantially from R39 million to R108 million, with cash generated by operations constituting 102% of trading profit. "The group has improved its cash generative ability by focusing on implementing a recurring revenue model across all operations, facilitating greater customer loyalty which in turn enhanced our ability to convert sales to cash. We are especially pleased to report that our free cash flow per share amounts to 10.3c a share, representing 105% of basic earnings per share. This is a true indication of the high quality of Softline's earnings and much improved from the 4.1c or 68% achieved in FY01."
The focus on tighter cash management across the group also contributed to the improved operating cash conversion ratio.
Maintenance and services contributed 66% of total revenues, up from 62% in FY01, as a result of the continued concentration on shifting business models across the group to build an increasingly solid base of recurring revenue to underpin profitability.
The geographic breakdown of revenues continues to show a strong international contribution, with South Africa accounting for 58% of revenues, and Australia and North America contributing 13% and 29% respectively. The proportion of operating profit derived from operations in Australia, the USA and Canada represented 34% in FY02, vs. 33% in FY01. "Furthermore, the growth of our core offshore operations has resulted in a large portion of our cash residing offshore at this year end," comments Epstein.
Although the results reflect healthy cash generation, the large increase in selling, general and admin (SG&A) costs, and accordingly the reduction in the operating margin from 27.7% to 17.3%, is principally as a result of the consolidation of international acquisitions. In particular the inclusion of AccountMate (USA) for the full 12-month period, compared to the five-month period in FY01, had a dilutionary effect on results. AccountMate's SG&A expenses increased due to the investment in the sales and marketing infrastructure, with exchange rate movements in this respect further impacting the margin. In addition the higher overall spend on SG&A expenses, in comparison to turnover growth, further diluted the operating margin. Management consider this investment to be a necessary component in fuelling the group's future growth and continue to monitor overhead efficiency and optimisation on a monthly basis. Taking the above into account Softline reported an operating profit, excluding exceptional items, of R84 million in FY02.
Softline's tax rate reduced to 22% from 29% in FY01 and no dividends have been declared for this period as the board continues to consider it advantageous to shareholders to retain funds within the group for further growth.
The balance sheet strengthened considerably during the period moving from a net current liability position of R26 million in FY01 to a net asset position of R65 million in FY02, a positive increase of R91 million.
"These results reflect the consolidation in the business over the past year, as well as the fact that our focus on implementing recurring revenue models across the group is on track and gaining acceptance from both our user and reseller audiences," comments Epstein. "The recent acquisition of MicrOpay (Australia), extending the reach of our core business around the globe, established Softline as one of the largest software vendors in Australia. It not only matches Softline's business criteria, but fits the model which is shaping the future of the software industry."