Strong performance from UK operations
Strong performance from UK operations
underpins Software of Excellence profit
SUMMARY – Year to March 31, 2005
(Comparisons with year to March 31, 2004)
- Revenues up 20.2% to $20.794 million (2004: $17.297 million).
- Group EBITDA of $2.515 million (2004: $0.904 million)
- Net profit after tax of $0.204 million (2004: $0.750 million loss).
- Result includes the capitalisation of development expenses of $0.876 million (2004: $0. 857 million).
- Operating Cash Flow unadjusted for capitalised development expenditure up from $1.861 million to $3.395 million
- Recurring revenue increased by 19% to $9.206 million, accounting for 44.26% of total revenue.
- Increase in interest charges to $0.889 million (2004: $0.498 million), reflecting the company’s $9.235 million issue of 7% mandatory convertible notes in September.
- Increase in interest received to $0.239 million (2004: $0.048 million) primarily coming from interest on funds raised via the 9% mandatory convertible notes.
- Interest costs will reduce through the conversion of the company’s 9% convertible notes to ordinary shares in December 2005.
- Further strong revenue and margin gains in UK, with the outlook for UK Professional remaining strong.
- Extended roll-out of Enterprise software for the Republic of Ireland Health Board.
- Working with IBM and Logica on UK Military contract (decisions continue to be delayed).
- Integration of General System Design, Inc. (GSD) on schedule. Four US dental schools are transferring to SOEI’s technology.
- Cost reduction in the US following the integration of SOEI activities with GSD.
- US Group Chains and Public Health markets continue to be slow – strategic review of growth options underway.
- New management team in place.
Listed dental software company Software of Excellence International (SOEI) today announced a net profit after tax of $204,215 for the year to March 31, 2005, representing a turnaround of just short of $1 million from the previous year’s $750,106 loss.
Revenue for the year rose 20.2 per cent to $20.7 million in NZ$ terms, Recurring revenues accounted for 44.26% of the total compared with the previous year’s 44.71%. EBITDA rose from $0.904 million to $2.764 million after capitalisation of $0.876 million of software development expenses.
Operating cash flow for the year increased from $1.861 million to $3.395 million. This, combined with the issue of convertible notes completed in September, meant the company finished the year with $9.221 million cash on hand.
Chief executive Brian Weatherly says:
“The turnaround in the result reflects a continued strong performance by the company’s UK operations and the successful conclusion of a number of larger Enterprise contracts.
The company’s gains in the United States were complemented by the successful acquisition and integration of GSD in July last year. The decision of four US dental schools to upgrade to a SOEI product, incorporating enhancements from the GSD product, is a significant milestone.
Progress in the United States public health and group chains markets has been slower than expected. This has been addressed by cost control and a strategic review of options for growth in the non-dental school US market, including both organic growth and growth by acquisition.”
The company’s UK business has continued to grow strongly and to improve its operating margins.
The company’s Professional product achieved in excess of 50% share of new software sales in the second half of the year, according to Dental Practice Board statistics. This position now gives SOEI 37% percent of practices that transmit NHS claims electronically. The UK Professional order book continues to be strong, with outstanding orders on hand at the end of the year amounting to £0.960 million.
On a local currency basis the company’s UK revenues increased by 18.06% to £5.686 million and EBITDA, as a percentage of revenue, increased from 38% to 49% (before head-office costs and research and development costs) (2004: £1.820 million).
The company’s UK operations generated 76% of group revenues, and delivered a number of milestones:
- continued sales to Primary Care Trusts, which are at the centre of the Government’s IT heath reforms. The company now has 25 PCT customers in the in an estimated UK market of 300.
- the roll-out of the company’s software to the Republic of Ireland Health Board and the agreement by Optical Express to acquire SOEI licences for the former Boots DentalCare sites it acquired;
- major dental chain, Oasis, has also agreed to switch 40 sites from the company’s main competitor to SOEI;
- continuing work with both IBM and Logica on the UK Defence Force IT health pilots (the decision on who will be the successful prime supplier for this contract has been delayed);
- the contract to supply software to the Portsmouth School of Dentistry, the first dental school in the UK to purchase software since the launch of the British Government’s Health IT initiative;
- continuing engagement with the prime contractors appointed to handle the NHS IT roll-out across the five UK regions identified by the Government’s Options for Change. While progress has been slower than expected, the NHS reform process has already benefited the company’s Professional business in the UK in that many dentists have now prioritised the upgrading of their systems and software; and
- SOEI’s Professional product continues to be the fastest-selling dental software product in the UK and this trend is expected to be enhanced with the launch of EXACT version 9 in the UK
The United States
On a local currency basis the company’s USA revenues increased by 25.3% to US$0.776 million and EBITDA declined by US$0.456 million to a loss of US$0.736 million (before head-office, research and development costs) (2004: US$0.280 million loss). The EBITDA includes a number of one off costs totalling $0.309m associated with the acquisition of GSD and the duplication of resources, including having two offices.
Management’s focus has been on the integration of GSD, which was acquired in July 2004. This acquisition gave the company a total of 16 dental school customers in the United States market of 54, which is the key influencer of international dental teaching practices.
The company’s USA operations generated 11% of group revenues. Milestones included:
- the successful integration of GSD with SOEI’s US operations, resulting in the pending closure of SOEI’s office in Los Angeles, and a number of related cost reductions. SOEI’s main office in the US is now located at the former office of GSD at Cedar Rapids in Iowa;
- the appointment of Chris Notman-Smith to run the company’s US operations following the resignation of the company’s former US manager, Bob Beck. Chris has transferred from the company’s UK operations, where as Sales Manager he was instrumental in securing a number of material enterprise contracts;
- since balance date, four US dental schools - Loma Linda, Louisville, San Antonio and Florida - have contracted to upgrade to SOEI’s new generation of dental software. The SOEI product, incorporating enhancements from the GSD product, will commence implementation in June 2006. Income from these upgrades will contribute to earnings in the next financial year.
The acquisition of GSD has provided SOEI with a much deeper understanding of the requirements of the US market, as well as a niche customer base, experienced personnel and an improved operating infrastructure.
Directors and management remain of the view that the US market holds considerable potential for SOEI. The company’s primary focus during FY 2005 has been to optimise the development of the US dental schools market through building on the combined SOEI and GSD customer base. Development of this market segment is proceeding according to plan.
The Group Chain and Public Health market segments have produced slower-than-anticipated organic growth, and it has become apparent that these market segments require a new stimulus. Working with external consultants, the company is undertaking a review of growth initiatives outside of the dental school market segment. This review involves evaluation of both organic growth, and acquisition opportunities.
The company’s Asia-Pacific revenues increased by 1.4% to NZ$2.818 million and EBITDA increased by 4.5% to NZ$1.325 million (before head-office, research and development costs) (2004: NZ$1.268 million).
During the year the company continued to make further progress in the region, consolidating its position in the New Zealand market at both the Professional and Enterprise levels.
- the acquisition of the school dental and software business of EPi in 2004 has given SOEI a customer base of four Dental Health Boards in New Zealand;
- the company is now the leading supplier to the Australian dental school and teaching school market, and at the end of the year won the contract to supply software to Griffith University Dental School, its first such sale in Queensland;
- Professional sales in Australia continued to be steady, and a change in the selling structure during the year has reduced costs and improved the profitability of this activity; and
- SOEI was the leading supplier of Enterprise dental software to the Australian public health system, with installations in Western Australia, Victoria, South Australia and Tasmania. This now gives SOEI four of the six dental schools Australia
Given the decision to focus the company’s resources on the UK, the Middle East and the USA, the company’s activities in Asia centred on servicing existing customers rather than securing new business.
During the year the company made the strategic decision to introduce a much stronger product focus to its development activity, forming development teams with product specific roles. This change recognised that the company is now in a much better position in the UK professional and USA dental school markets, where it has the critical mass required to introduce greater standardisation into its software.
The benefits of this change in approach are already becoming apparent, but it will take some time before they are fully realised.
During the year Brian Weatherly was appointed CEO, and Paul Weatherly became a Non-Executive Director of the company. Paul now consults to the company in the areas of strategy, market development and mergers and acquisitions.
Clare and Errol Kent recently announced their plans to retire as executives of the company. Clare and Errol played a pivotal role in the establishment and success of SOEI, particularly in the UK, where they were the driving force behind the establishment of the company’s Professional business.
The Kents are significant shareholders in SOEI, and Errol Kent will remain a Non-Executive Director of the company and both Clare and Errol will continue to be available to SOEI on an advisory and consultancy basis.
The Directors have decided that, consistent with the present policy of reinvesting earnings in international growth, no dividend will be paid in respect of the latest financial year.
March 31, 2005
NZ$ million March 31, 2004
Revenues 20.764 17.297 +20.2%
Earnings before interest, taxation, depreciation and amortisation (EBITDA) (1)
Operating Cash flow (2) 3.395 1.861 +$1.534m
Net profit after tax 0.204 (0.750) +$0.954
Basic earnings per share (cents) 0.009 (0.033) nm
EBITDA / revenues margin 12.11% 5.23% nm
*nm – not meaningful
(1) EBITDA as calculated capitalises $0.876 million of Software R&D expenses (2004: $0.857 million).