RNS Number:2001P
AFA Systems PLC
01 September 2003
1st September 2003
AFA Systems plc
Interim results for the six months ended 30 June 2003
AFA Systems plc, the AIM listed global provider of advanced
software solutions for the Banking and Asset Management
industries, today announces its interim results for the six
months ended 30 June 2003.
Highlights
> Turnover of #2.9m (2002: #3.1m), reflecting continued
tough market conditions
> 86% of revenues derived from existing customers of which
55% were contracted recurring support and maintenance fees
> Group operating losses before exceptional items and
goodwill amortisation unchanged at #1.2m (2002: #1.2m)
> Costs (before exchange rate movements) reduced by
approximately #500,000 versus the equivalent period last year
> New products released in Banking and Asset Management
divisions
> Initial signs of recovery in customer spending began in
second quarter of current financial year, with new DART sales
benefiting most from the up-turn
> AFA raised #2.0 million (#1.8 million net of expenses)
through a placing in January 2003
> In January 2003 the Company's entire issued share capital
was moved from the Official List to AIM
Mike Hart, Chairman & Chief Executive, commented:
"The Group has experienced some of the worst trading conditions
in memory in the first six months of 2003. However, with some
recovery evident since May, we anticipate a more favourable
market for the remainder of the year driven by an upturn in
spending by existing customers and improvements in the sales
pipeline.
"Despite this, we caution that markets for new customer sales
remain tough. In the second half of the current year, we
therefore believe it is now more likely that some smaller new
customer sales will be made, but that, due to the lead-time
involved in securing them, major sales to new customers are
less likely.
"Our aim, while large new product sales remain difficult to
complete, remains to break even on both a cash flow and
profitability basis. Overall, we believe that the Group's
increased range of products and extended customer base, backed
by excellent implementation and support, will deliver improved
results."
For further information, please contact:
AFA Systems plc www.afa-systems.com
Mike Hart, Chairman & Chief Executive 020 7337 7250
Henry Sallitt, Finance Director
Weber Shandwick Square Mile
Reg Hoare/Sara Musgrave 020 7067 0700
CHAIRMAN'S STATEMENT
The Business
AFA Systems develops, implements and supports a broad range of
integrated financial software solutions that enable banks,
institutional investors and financial intermediaries to manage,
trade, invest and monitor their financial assets competitively
and reduce costs. To date, more than 100 financial
institutions in over 20 countries around the world have
invested in our systems.
Introduction
It is disappointing to report further losses for the first half
of the current financial year, but not surprising given that
the period once again included some of the worst trading
conditions in memory for companies selling software products to
financial institutions.
We are hopeful, however, that the worst of these conditions is
now past and as we indicated at the time of the Group's Annual
General Meeting on 29 May 2003, there has been some initial
evidence of recovery, demonstrated by an increase in the
activity of prospective customers and the commencement by
existing customers of new projects. Whilst this is encouraging,
there is still reluctance amongst customers to commit to large
or new projects. The pick up in activity was too late to
benefit significantly the first half results reported today,
but should progressively benefit the second half and 2004.
Despite the tough market background, the Group continues to
make progress in developing its business for the future through
continued investment in product development and sales and
marketing. Successful product implementations were undertaken
during the period including one at Norinchukin International
described below.
Results
Group revenues for the six months to 30 June 2003 were #2.9
million (2002: #3.1 million). Total revenues from existing
customers has been in line with our expectations and similar to
the same period last year, with recurring revenues increasing
by around 15% reflecting the benefit of license sales made over
the last year. However new customer revenue has once again
been below expectations reflecting the fact that financial
services companies were reluctant to commit IT spend while
international markets remained so fragile.
Operating loss before goodwill amortisation for the six months
was similar to last year at #1.2 million (2002: #1.2 million).
The loss after taxation of #1.8 million (2002: #2.2 million) is
stated after goodwill amortisation of #577,000 (2001:
#990,000).
The Group underwent a loss reduction programme in the second
half of 2002, through which staff numbers were reduced from 160
to 139. However, the South African cost savings of 2.5 million
South African Rand were offset by the recovery in the South
African Rand from #1:15.9 in June 2002 to 12.9 at the end of
June 2003. We continue to monitor our costs closely and a
further redundancy programme was completed in August 2003,
which will deliver additional annual savings of approximately
#350,000 in 2004. The cash cost of these redundancies has been
approximately #110,000.
Staff costs of #300,000 were eliminated in the UK and
consequently the total costs in the period reduced to #3.9
million (2002: #4.2 million).
Adjusted losses per share, reflecting the underlying
performance of the Group and more fully described in Note 2
below, were 3.4 pence (2002: 4.6 pence).
At 30 June 2003 the Group had a net cash position of #860,000.
The cash outflow during the first half reflected the losses
incurred by the Group during the period and the seasonality of
the Group's recurring revenues. This cash flow seasonality
results from the fact that Musketeer recurring revenues are
invoiced annually in advance on 1 January, whereas the higher
level of recurring revenues from the DART and Asset Management
product ranges are invoiced on 1 July. Thus it is anticipated
that there will be a cash inflow in the second half.
The Group completed a fund-raising in January 2003, raising
#1.8 million net of expenses, at which time we welcomed a
number of new shareholders onto the share register. This fund-
raising was accompanied by a move of the Company's entire
issued share capital from the Official List to AIM.
The Board is not recommending the payment of an interim
dividend.
Review of the first half
The Market
With the beginnings of a recovery in financial markets now more
evident, we expect this to translate into an upturn in
purchases of new systems by our customers, rather than them
just accelerating their existing budget spend. Over the medium
term we believe that these institutions must invest in their
systems to create competitive advantage and achieve reductions
in their administrative costs.
Our experience since May is that the market for the lower cost,
highly discretionary products such as the Group's DART product
has bounced back rapidly following the cessation of the Iraq
war and the recovery in stock markets from their lows in March
2003, whilst the market for higher cost, mission critical
systems such as the Group's Musketeer product will inevitably
take much longer to recover due to the more complex nature of
the purchasing decision for these type of products.
We believe that we are well positioned to take advantage of any
upturn. This is due both to our continued investment in sales
and marketing resource, which has strengthened our presence in
our chosen markets and the quality of the product range in our
two core markets of Banking and Asset Management, which has
been enhanced considerably by product acquisitions and
launches.
Banking products
As stated above, sales of Musketeer have been the most affected
by the global slowdown in financial software product sales.
During the first half of 2003 Norinchukin International Plc,
one of Japan's leading banks and a new client in 2002,
successfully implemented Musketeer STP, a new securities
straight through processing module of Musketeer. This new
product opens new opportunities in the international securities
houses, which we are now actively pursuing. A number of
development projects were undertaken for other clients during
the year and we continue to seek ways of maximising revenues
from our installed Musketeer base, whilst enhancing the
product.
Prospects for new name sales remain sluggish although we
continue to talk to a number of potential customers. We are
confident of making some smaller new customer sales in the
second half of the current year, but that the larger sales are
unlikely until 2004.
DART sales most dramatically reflect current market conditions,
given the low cost and discretionary nature of the product. In
the first quarter sales were severely impacted by weak
securities market trading conditions, but following the
recovery in the stock market in April, sales bounced back
strongly in the second quarter. Prospects for the second half
look more encouraging. New product releases are also ensuring
that DART remains a very competitive product as evidenced by
successful sales of DART to new customers in a variety of
different sectors and countries.
Asset Management products
Our Asset Management products have been built up by acquisition
in recent years and our strategy has been to increase sales of
these products into international markets out of the South
African market, where they were originally developed. We have
a strong pipeline of opportunities in the UK. In South Africa
activity has focussed on selling new products into our
substantial customer base and converting Smacsoft's investment
management customers onto the Group's new AIMS platform.
During the first half we completed our first two UK sales of
Common Knowledge, our knowledge management product, to Martin
Currie Investment Management and Standard Life Assurance
Company. We currently have two further pilots with major UK
customers under consideration.
Distribution agreements
It is the Group's policy to seek to grow its sales via
distribution agreements with third party regional distributors.
During the period we signed agreements with two new
distributors, both focused on Eastern European markets. We
believe these markets offer attractive long-term opportunities
because financial institutions will upgrade systems in
anticipation of EU entry.
We are also hopeful that our agreement with ITS, which provides
systems in 12 Middle Eastern countries, will see an improvement
in trading conditions following the end of the Iraq war.
London Bridge Software
During the period, as part of our agreement with London Bridge
Software Holdings plc, announced in December 2002, we helped
them set up their own development facilities in Cape Town, and
look forward to developing a successful long-term relationship
with London Bridge and, to that end, I was delighted to accept
an invitation to join their board as a non- executive director
in April 2003.
We have long believed that the Group's development facility in
South Africa is a significant asset and, whilst the revenue
generated from assisting London Bridge was modest, we have
demonstrated the ability to relocate development to South
Africa. This is an activity that we hope to exploit further in
the future.
Product Development
The majority of the Group's products continue to be developed
in South Africa, taking advantage of its very substantial cost
advantages. This has allowed us to maintain product
development at high levels throughout the long downturn and
gives us the confidence that we can deliver organic growth as
the market improves.
We estimate the cost of development in South Africa to be
approximately 20% of that in the UK, despite the significant
recent strengthening of the South African Rand versus Sterling
referred to above.
Following the successful relocation of all our activities to
the Group's Cape Town development centre last year, a further
35 man-years of additional development was invested in AFA's
products during the first half, all of which is expensed
through the profit and loss account under the Group's
accounting policies.
Strategy
The Group's strategy has been to complement its organic
software product development with strategic acquisitions of
software products for global financial markets. This strategy
is supported by low cost offshore development based in South
Africa backed by a strong management team. In recent years, as
a result of acquisitions and investment, the Group has
successfully built up an attractive portfolio of proven
products for the Banking and Asset Management sectors.
Following the strategic review undertaken last year, our focus
has been to ensure that the Group remains financially robust
whilst continuing to invest in its business. This was achieved
by means of the #2.0 million fund raising (#1.8 million net of
expenses) completed on 30 January 2003 and an accompanying move
of the Company's entire issued share capital from the Official
List to AIM.
We continue to believe that there is a strong need for
consolidation in our industry albeit many of the options open
for consideration have been closed given the performance of the
stock market and the lack of significant recovery in our market
place.
Current Trading and Outlook
The period under review was a disappointing one given another
loss making performance by the Group, but should be set against
the context of exceptional market conditions.
Signs of recovery in customer spending began in the second
quarter of the current year, with sales of the Group's DART
products benefiting most from the upturn. Levels of sales
enquiries and our pipeline of tenders are improving. Despite
this, we caution that markets for new customer sales remain
tough, which is frustrating at a time when we have acquired,
developed and launched many new products which have positioned
our offering very strongly for a market upturn. In the second
half of the current year, we therefore believe it is now more
likely that some smaller new customer sales will be made, but
that, due to the lead-time involved in securing them, major
sales to new customers are less likely.
Overall we therefore expect that revenues for the second half
of the current year will increase compared to the first half.
Our aim remains to break even on both a cash flow and
profitability basis, while large new product sales remain
difficult to complete. We believe that the Group's increased
range of products and extended customer base, backed by
excellent implementation and support, will deliver improved
results.
Mike Hart
Chairman & Chief Executive
1 September 2003
AFA SYSTEMS PLC
GROUP PROFIT AND LOSS ACCOUNT
Unaudited Unaudited Audited
six months six months Year
ended ended ended
30 June 30 June 31December
Notes 2003 2002 2002
#000 #000 #000
Turnover 2,850 3,137 6,013
Staff costs (2,963) (3,228) (6,415)
Depreciation and other amounts written off
tangible and intangible assets (686) (1,094) (8,175)
Other external charges (950) (1,005) (2,117)
Operating Loss (1,749) (2,190) (10,694)
Operating loss excluding exceptional items
and goodwill amortisation (1,172) (1,200) (2,376)
Goodwill amortisation (577) (990) (1,980)
Exceptional goodwill impairment - - (6,000)
Exceptional operating costs - - (338)
---------------------------------------------
Operating Loss (1,749) (2,190) (10,694)
Interest receivable 23 28 57
Interest payable (2) (1) (1)
---------------------------------------------
Loss before taxation for the financial period (1,728) (2,163) (10,638)
Tax on loss on ordinary activities (33) - (38)
---------------------------------------------
Loss after taxation for the financial period (1,761) (2,163) (10,676)
=============================================
Basic loss per share 2 (5.0p) (8.5p) (42.0p)
=============================================
Adjusted basic loss per share 2 (3.4p) (4.6p) (9.3p)
=============================================
Fully diluted loss per share 2 (5.0p) (8.5p) (41.9p)
=============================================
AFA SYSTEMS PLC
GROUP BALANCE SHEET
Unaudited Unaudited Audited
30 June 30June 31 December
2003 2002 2002
#000 #000 #000
------------------------------------------------------------------------------------------------------------
Fixed assets
Intangible assets 8,781 16,296 9,343
Tangible assets 378 420 413
------------------------------------------------------------------------------------------------------------
9,159 16,716 9,756
------------------------------------------------------------------------------------------------------------
Current assets
Debtors 1,677 2,524 1,644
Cash at bank and in hand 860 1,620 861
------------------------------------------------------------------------------------------------------------
2,537 4,144 2,505
Creditors: amounts falling due
within one year (1,004) (1,488) (1,498)
------------------------------------------------------------------------------------------------------------
Net current assets 1,533 2,656 1,007
------------------------------------------------------------------------------------------------------------
Net assets 10,692 19,372 10,763
------------------------------------------------------------------------------------------------------------
Capital and reserves
Called up share capital 6,943 6,002 6,002
Share capital to be issued - 353 353
Share premium account 12,581 11,409 11,409
Merger reserve 4,740 11,972 5,150
Profit and loss account (13,572) (10,364) (12,151)
------------------------------------------------------------------------------------------------------------
Equity shareholders' funds 10,692 19,372 10,763
------------------------------------------------------------------------------------------------------------
AFA SYSTEMS PLC
RECONCILIATION OF MOVEMENTS IN GROUP SHAREHOLDERS' FUNDS
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2003 2002 2002
#000 #000 #000
------------------------------------------------------------------------------------------------------------
Loss for the financial period (1,761) (2,163) (10,676)
Shares issued for cash net of expenses 1,760 15 15
Foreign exchange (loss)/profit (70) 75 (21)
------------------------------------------------------------------------------------------------------------
Net decrease in equity shareholders' funds (71) (2,073) (10,682)
Equity shareholders' funds brought forward 10,763 21,445 21,445
------------------------------------------------------------------------------------------------------------
Equity shareholders' funds carried forward 10,692 19,372 10,763
------------------------------------------------------------------------------------------------------------
AFA SYSTEMS PLC
GROUP CASH FLOW STATEMENT
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2003 2002 2002
#000 #000 #000
------------------------------------------------------------------------------------------------------------
Net cash outflow from operating activities (1,646) (508) (1,022)
Returns on investments 21 27 56
Taxation Paid (33) (6) (19)
Capital expenditure (27) (73) (187)
------------------------------------------------------------------------------------------------------------
Cash outflow before management of liquid
resources and financing (1,685) (560) (1,172)
Management of liquid resources (127) (201) 458
Financing 1,760 15 15
------------------------------------------------------------------------------------------------------------
Decrease in cash in period (52) (746) (699)
------------------------------------------------------------------------------------------------------------
Reconciliation of net cash flow to movement in net funds
Decrease in cash in period (52) (746) (699)
Increase/(decrease) in liquid resources 127 201 (458)
------------------------------------------------------------------------------------------------------------
Change in net funds arising from cash flows 75 (545) (1,157)
Effect of foreign exchange differences (76) 18 (129)
------------------------------------------------------------------------------------------------------------
Change in net funds (1) (527) (1,286)
Opening net funds 861 2,147 2,147
------------------------------------------------------------------------------------------------------------
Closing net funds 860 1,620 861
------------------------------------------------------------------------------------------------------------
AFA SYSTEMS PLC
Notes
1.This interim report has been prepared on a basis
consistent with the accounting policies stated in the
financial statements for year ended 31 December 2002.
2.The calculations of the loss per ordinary share are
based on the following: -
Loss per share Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2003 2002 2002
----------------------------------------------
Adjusted basic loss per share before exceptional
items and goodwill amortisation (3.4p) (4.6p) (9.3p)
Effect of exceptional items and goodwill amortisation (1.6p) (3.9p) (32.7p)
----------------------------------------------
Basic loss per share (5.0p) (8.5p) (42.0p)
==============================================
Loss #000 #000 #000
----------------------------------------------
Loss for adjusted basic loss per share calculation (1,184) (1,173) (2,358)
Operating exceptional items - - (6,338)
Goodwill amortisation (577) (990) (1,980)
----------------------------------------------
Loss for basic loss per share calculation (1,761) (2,163) (10,676)
==============================================
Number of shares Million Million Million
----------------------------------------------
Weighted average number of shares used in
basic loss per share calculation 35.17 25.39 25.40
Dilutive effect of share options - 0.17 0.08
----------------------------------------------
Weighted average number of shares used in diluted loss
per share calculation 35.17 25.56 25.48
==============================================
The weighted average number of shares used in the basic loss
per share calculation include all shares issued or to be
issued in connection with the acquisition of Smacsoft Group
Limited as if issued on the day of acquisition.
3.No dividend has been declared for the six months
ended 30 June 2003 (30 June 2002: nil).
4.The comparative results for the year ended 31
December 2002 are not the company's statutory accounts
for that financial year. Those accounts have been
reported on by the company's auditors and delivered to
the Registrar of Companies. The report of the auditors
was unqualified and did not contain a statement under
section 237 (2) or (3) of the Companies Act 1985.
5.The interim results for the six months ended 30 June
2003 will be posted to shareholders before 30 September
2003. Copies of this document are available from the
company's registered office, Bury House, 31 Bury Street,
London, EC3A 5AR.
This information is provided by RNS
The company news service from the London Stock Exchange
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