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Exact Software’s results 2005 in line with guidance |
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Decisive actions in the Netherlands led to strong recovery in the 2nd half 2005
DELFT, The Netherlands - February 9, 2006 - Exact Holding N.V. (EURONEXT: EXACT) today announced its financial results for 2005.
Financial Highlights- Total revenues increased 5.7% to € 224.5 million (2004: € 212.4 million). Negative trend in revenue reversed, demonstrating strong 2nd half 2005 growth at 10% compared to 2nd half 2004.
- Planned investments made in Personnel, Sales, Marketing and R&D resulted in an operating margin of 18.2% (2004: 23.7%)
- Net profit in line with guidance at € 32.0 million compared to € 39.8 million last year, as expected
- A Dividend Payout of 1.00 Euro per share in cash will be proposed to the Annual General Meeting of Shareholders. Despite lower net profit compared to previous year, the company proposes a dividend payment at the same level as 2004.
Strategic and Operational Highlights- Decisive action plan, as announced on August 12th 2005, to ensure Dutch operation “back on track” with expectations, successfully executed
- Important new customers like GITP International, Accor Hotels and UMCG (Universitair Medisch Centrum Groningen) confirm strategic investments made in the higher end of the Dutch Market
- Successful launch of Exact Online in the Netherlands targeting small companies and strengthening foothold in the accountancy sector
- Acquisition of Vanguard Solutions Group, specialized in business intelligence solutions and Modulair Easy Access B.V. specialized in warehouse and logistic management to complement the Exact e-Synergy offering
- Strategy of Exact International to become preferred 2nd tier supplier for multinationals confirmed by several new agreements like Egon Zehnder, Golden Tulip Hotels, Inns & Resorts in addition to the renewal of important frame contracts like Siemens and Degussa
- Direct distribution network in North America strengthened through the acquisition of Inspired Solutions; Exact now maintains 14 regional offices in North America , covering most major markets across the USA
- Number of Exact e-Synergy users sold increased substantially according to plan
Financial Outlook- Outlook for 2006: 7-9% autonomous revenue growth; operational margin between 18-20%
- Guidance for 2007 of € 300 million revenue and operating margin at a minimum of 20% reiterated
“After a disappointing 1st half, our key priority was to get our Dutch operations back on track which we have demonstrated by executing a decisive action plan. In addition, over the last 6 months we have established a global strategic plan, which will drive growth based on a sound product and technology roadmap and a clear M&A strategy. I am confident we will continue to accelerate in our execution power, leading to us re-iterating our guidance for 2007.”
Raj Patel
CEO Exact Holding N.V.
Key financial figures
| (in thousands of €) | 2005 | 2004 | Change | | Licenses | 66,347 | 65,035 | 2.0% | | Maintenance | 119,772 | 117,782 | 1.7% | | Services | 38,409 | 29,577 | 29.9% | | Total revenue | 224,528 | 212,394 | 5.7% | | Operatingincome | 40,788 | 50,265 | -18.9% | | As a % of revenue | 18.2% | 23.7% | -5.6% | | Net income | 32,033 | 39,776 | -19.5% | | As a % of revenue | 14.3% | 18.7% | -4.4% | | Earnings per share | 1.34 | 1.68 | | | Cash flow fromoperations | 32,124 | 42,120 | -23.7% |
Results 2005
As of January 1, 2005 Exact Holding N.V. (“Exact”) reports its financial results under International Financial Reporting Standards (IFRS). The 2004 comparative information in this press release has been converted from Dutch GAAP to IFRS. After the publication of the half year results, Euronext Amsterdam has asked the Listing and Issuing Rules Committee to review if Exact had announced the renewal of its guidance in time. Exact has stated it has done so. The recommendations of the Committee later on this year will be published on the Euronext website.
Financial Results
As a result of a strong 2nd half year, total revenue increased 5.7% to € 224.5 million in 2005 from € 212.4 million in 2004. Acquisitions made in 2005 contributed revenue of € 7.7 million or 3.5% of total revenue. Exchange rate fluctuations only had a minor impact, at constant exchange rates total revenue would have amounted to € 223.4 million. As a result of the planned investments made in Personnel, Sales, Marketing and R&D, the operating result has declined to € 40.8 million (2004: € 50.3 million). Exact’s cash and cash equivalents remain strong at € 117.6 million per 31 December 2005.
Revenue
The increase in revenue predominantly resulted from increased Service revenues. Service revenue increased by 29.9% to € 38.4 million in 2005 compared to € 29.6 million in 2004. All strategic groups experienced a significant growth of their Service revenues as result of increased focus on the more consulting intense higher end of the mid market, which is mainly addressed with the product line e-Synergy. License revenue increased 2% to € 66.3 million in 2005, as compared to € 65.0 million in 2004. Maintenance revenue increased 1.72% to € 119.8 million in 2005 compared to € 117.8 million in 2004.
Operating margin and net income
Exact´s operating margin for the year 2005 decreased to 18.2% (€ 40.8 million) as result of the planned investments made in Personnel, Sales, Marketing and R&D. These investments have been made in line with Exact’s mid to long term strategy and are expected to contribute to future revenue and margin growth. As a result of more active cash management, net financial income increased from € 2.6 million to € 3.8 million. 2005 effective Corporate Income Tax rate was 28.2%, compared to 25.3% in 2004. Net income decreased to € 32.0 million (14.3%) compared to € 39.8 million (18.7%) in 2004.
Balance Sheet
Intangible fixed assets increased by € 40.2 million as a result of the new acquisitions including earn out liability and currency translation effects. Trade receivables increased by € 7.7 million to € 47.5 million as result of acquisitions, strong Q4 sales and currency translation effects. Cash and cash equivalents decreased by € 12.5 million mainly due to the acquisitions and dividend payment. 2005 US acquisitions have been financed through a US$ term loan. The company has strong working capital and a balance of cash and cash equivalents of € 117.6 million. With this, Exact has a solid base to continue its investments in products and services for its customers, and in future growth, both autonomously and through acquisitions.
Management
Raj Patel, previously Vice-President Exact International and member of the Board of Managing Directors of Exact Holding N.V. since April 7, 2005, has been appointed by the Supervisory Board as the new CEO per July 1, 2005 being the successor of Eduard Hagens, who stepped down as CEO and member of the Board of Managing Directors as of July 1, 2005.
The Supervisory Board has appointed Ed Kraaijenzank as new CFO and member of the Board of Managing Directors of Exact Holding N.V. as per August 1, 2005.
The Supervisory Board has appointed Jim Kent, Vice-President Exact North America, as member of the Board of Managing Directors of Exact Holding N.V. as per April 7, 2005.
Jan Jaap Kolleman has been appointed as new Group Director Exact Netherlands as per March 1, 2006. He will take over the responsibly for the strategic group Netherlands from Raj Patel who is currently acting as Group Director Netherlands.
Products
Research and Development capacities in the main development centre in Kuala Lumpur, Malaysia have been substantially increased in 2005. The main development focus in 2005 has been paid to the product lines Exact Globe, Exact e-Synergy and Exact Online, whilst maintaining commitment to all other existing product lines.
In October 2005 a new version of our flagship ERP product Exact Globe 2003 has been launched. Next to providing more than 400 new functionalities in the Release 360, special attention has been paid to facilitate migrations from previous product lines.
Exact e-Synergy has set the foundation for Exact Software to win the prestigious Microsoft “Most Innovative Software Solution” partner award at the 2005 Microsoft Annual Worldwide Partner Conference in Minneapolis.
Exact e-Synergy is a browser based application which works in conjunction with traditional ERP applications and offers a platform for online communication and collaboration to share information around all resources of an organization covering areas like HRM, CRM, logistics and financials facilitated by document, workflow and project management. Employees, customers, suppliers and partners are provided with real-time access to information stored in a central, integrated database enabling customers to provide a single source of truth to all information workers and hence boost efficiencies as well as to extend the life cycles of their existing business software investments.
The number of Exact e-Synergy users has substantially increased in 2005 according to plan.
Exact Online is an internet based accounting solution where the application is provided as a service via the Internet (ASP). Easy to use and without initial investment necessary, Exact Online is an excellent offering for the lower end of the mid market and enables a more efficient collaboration between companies and their accountants. Exact Online has been launched in the 4th quarter of 2005 in the Netherlands with a solid migration path for Exact DOS customers and has already further improved the strong existing foothold of Exact in the accountancy sector.
Strategic business segmentation
Total revenue in the Netherlands increased 4.4% to € 99.7 million in 2005 compared to € 95.5 million in 2004. After a disappointing 1st half year, the execution of a decisive action plan in combination with the acquisitions made resulted in a strong revenue improvement with an increase of 15.3% over 2nd half of 2004. Operating Income in 2005 was impacted by the earlier reported investments in Personnel, Sales & Marketing and decreased by € 3.5 million compared to 2004.
Total revenue from International Markets increased 4.4% to € 71.7 million in 2005 (at constant currency rates this would have amounted to € 70.4 million) compared to € 68.7 million in 2004. Revenue increase in the International markets has been led by a strong increase in services of 25.3%. The operating margin has declined to 12.4% caused by additional investments in setting up a new organization targeting large multi-nationals (LPO), geographic expansion and marketing.
Total revenue from North American operations increased 10.2% to € 53.1 million in 2005 (at constant currency rates this would have amounted to € 53.2 million) compared to € 48.2 million in 2004. Acquisitions made in 2005 contributed € 1.3 million to the total revenue. License revenue increased by 9% and services revenue by 19.6%. An overall revenue growth of 10.2% in the North American operations has increased operating margins by 22% to 12.2%. This includes a one time charge of € 900.000 related to bad debts. Excluding this charge the North American operations are at a margin of 14.3%.
Acquisitions
Acquisition of local brands
As per June 1st, 2005 Kooijman Software, a leading software house in the construction and education sector in the Netherlands was acquired. In the same month a majority interest of 70% in AllSolutions was acquired, which specializes in software for service providers and non-profit organisations. These acquisitions are in line with Exact's strategy to target the higher end of the Dutch mid market in addition to its core business in the SME market.
Technology acquisitions
In October 2005 Exact has acquired a majority interest in software producer Modulair Easy Access B.V., specialized in warehouse and logistic management. The remaining shares will be held by the existing management and may be acquired by Exact in the future. As per November 1st, 2005 Vanguard Solutions Group, specialized in business intelligence solutions, has been acquired. These technology acquisitions enrich the functionality of Exact e-Synergy in solution areas beyond traditional ERP.
Acquisitions to strengthen our direct distribution and know how network
As per June 1st, 2005 SelectTech, a Malaysian business partner focusing on Exact’s manufacturing solutions has been acquired to strengthened the subsidiary network and know how base of Exact International.
Exact has also set up three new subsidiaries in Spain to strengthen its regional network to a total number of six offices to further improve the strong foundation of Exact to serve customers in the Spanish market.
As per December 1st, 2005 Inspired Solutions, an IT consulting and professional services firm and Exact business partner since 1996 based in Atlanta (US) has been acquired to strenghten the direct distribution network and know how base in North America.
All acquisitions were paid in cash.
Strategy and Outlook
Corporate Strategy
Exact will continue to focus on the mid market of the business software industry to provide fully integrated business solutions to small to medium sized companies that give all employees and stakeholders real-time access to relevant information based on one central data source.
This requires a volume driven approach for the lower mid market providing business software with simple functionality which is ready and easy to use either as packaged software (Exact Compact and several local brands) or as service via the internet (Exact Online). This approach is mainly executed in the Netherlands, other national markets like Belgium, Spain and Colombia as well as partly in North America.
The higher mid market requires a value driven approach and is focused on offering solutions to mid sized companies requiring extensive software support to automate and integrate business processes, taking the nature of the business and specific industry requirements into consideration. Such solutions are based on product lines like Exact e-Synergy, Exact Globe 2003 and Macola.
A professional level of services, industry and business process know how is essential and provided either directly or via highly qualified partners, who leverage Exact’s expertise to provide local service and support. This approach is mainly executed within Exact International, in North America and increasingly in the Netherlands , Spain and Germany .
To successfully operate in the complete range of the mid market Exact has established a multi level distribution strategy including different indirect channel types as well as a direct sales model.
Exact Software has the required service infrastructure, professional management and a strategic product portfolio in place to succeed with both market approaches. This is clearly demonstrated by a proven track record in the volume business segment as well as in the value business segment.
In addition to our autonomous growth strategy Exact will continue to emerge as a consolidator in the mid market segment of the business software industry.
Exact will finance its growth using its liquidity and healthy Balance Sheet.
Product & Technology
In order to ensure we can accelerate in our innovation, research and development, we have doubled our development capacity in Kuala Lumpur, Malaysia during 2005 which remains our main research & development centre. Innovation continues to be a corner stone of our strategy and to ensure we can accelerate in future technological transformations Exact will establish additional innovation centers during 2006.
Research & Development focus areas 2006:- Exact Online, our latest product line for the SME market will be further enriched in functionality as well as being prepared for the launch in additional countries.
- For the flagship ERP product line Exact Globe 2003, Exact will continue to enrich functionality, further facilitate migrations from previous product lines and provide additional legislations. This will allow customers to deploy the product in additional countries and Exact to enter new markets.
- Exact e-Synergy will undergo a technological upgrade to the most recent “.net”-platform. This will directly enable the availability of the complete functionality of Exact e-Synergy on Windows based mobile devices. Current functionality in areas beyond traditional ERP such as CRM, Project Management, HRM, Document Management and Electronic Workflow will be further enriched. Exact e-Synergy continues to be one of Exact’s main growth drivers as it enables customers to extend life cycles of their existing investments and provides a single source of truth to all information workers and hence boost efficiencies.
- Trends such as Service Orientated Architecture, business process platforms and service enabled components are continuously being addressed by our innovation centers, in order to ensure we continue to deliver state of the art solutions to our customers, allowing them a faster time to market, flexibility in their deployment and hence increasing their efficiencies.
M&A Strategy
As the business software industry continues to consolidate, Exact will continue to emerge as a consolidator in the ERP industry. Our acquisition strategy is targeted on the following areas:- Technology acquisitions to enrich functionality of Exact e-Synergy in solution areas beyond traditional ERP like the acquisitions of Vanguard Solutions Group, specialized in business intelligence solutions and Modulair Easy Access B.V. specialized in warehouse and logistic management in 2005
- Acquisitions to strengthen our direct distribution and know how network and extend our geographical presence
- Acquisitions of additional local brands with sizeable customer bases to leverage Exact e-Synergy and Exact Online with a focus on emerging markets
Outlook
We believe organizations are not seeking ‘killer applications’ but are focused on materializing their investments and extending their application life cycles. This trend is reflected in the low single digit growth of the traditional ERP market globally. Growth opportunities are in areas which allow customers to extend their ERP lifecycles by implementing applications which go beyond the traditional areas of ERP without jeopardizing their existing investments.
Taking these conditions into consideration we expect autonomous revenue growth of 7-9% in 2006 and an operating margin within the range of 18-20%.
We reiterate our mid term guidance for 2007 to achieve € 300 million revenue and an operating margin at a minimum of 20%.
About Exact Software
Exact Software, located in Delft, the Netherlands is a leading developer of state-of-the-art accounting, payroll, HRM, CRM, ERP and e-business software. The rapidly implemented solutions offer direct return on investment for small and medium-sized enterprises and divisions of multinationals by integrating critical business processes and creating real-time enterprises.
Since its establishment in 1984 Exact has become an international market leader. Exact’s global presence includes more than 60 subsidiaries and 20 distributors in over 60 countries. Revenues in 2005 amounted to € 224.5 million. Exact Holding N.V. has been listed on Eurolist by Euronext Amsterdam since June 1999.
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