ann out, page-2

Pretty dismal reading (afraid I'm going to be negative again...). This time last year there was talk of fat pipelines, plenty of committed revenue, the market gagging for Razor as a result of the credit crunch, etc., etc. This time there is very little in the way of positive sentiment being expressed, though after many years of blue sky predicitions it's refreshing to have a bit of realism creep back in. The only real news of substance would be the announced "major UK bank" Razor sale. However, there is no mention of who it is, the size of the contract and whether it is a global roll-out or just a small, single desk roll-out or such-like.

They defintely need to cut costs, de-list from the London exchange and sell off PTX and Monarque if they can get anything for them, because I suspect their major shareholders and the market in general are getting sick of rights issues. Surprising to see nothing in there from the CEO - just the chairman. Usually the CEO comes out with bullish predictions of profitability round the corner - after all, he's got to do something for his $350-400k p.a. price tag.

Again we see that there is precious little revenue from anywhere outside Australia. In fact, it doesn't make all that much sense given that most announcements in the past couple of years have concerned offshore deals. If we try to analyse the regional figures, we again have nothing from the UK. From America we have around $770k. American revenues in recent years have been steady on around $1.1m ever since they bought Monarque. I assume that was the Monarque annual maintenance contract revenue. Looks like a few users rolled off over the year. The rest is the round $12-13m from Autralia. It is a little hard to see why it is so much larger than the other regions and why it is so consistent from year to year. There would be the ANZ Razor and NAB and ANZ PTX maintenance contracts and perhaps customisation revenue streams. However, e.g., the NAB PTX up-front fee was reported to be about $3.5m (or maybe that was the total value of the initial project). At the standard 20%, a guesstimate of the annual maintenance fee would be $700k. ANZ Razor would perhaps be somewhat higher, but these alone don't explain a lot of the Aussie revenues. I would be very surprised if the ASX or T-Corp Vic would add much either. They take so little risk that their spend on it would surely be a lot lower than a major bank, perhaps 20%. My theory is that IT&e for a long time took most of their revenue from CBA looking after a couple of their key production systems. Those contracts were brought back in house by CBA (and the buying back of the team by CBA was the cause of IT&e's only half-yearly reported profited a while back). I think that the purchase of the IT consulting partnership (around the same time that the CBA contracts were lost, if I recall correctly), plugged the hole in the revenues. However, this did not add to the overall profitability as most of the revenue would continue to churn through to the partners. Hence IT&e can be sitting on $12m or so of Aussie revenue but still have to go to the market every 6 months or so to fund their Razor sales activities. Moreover, word is that the Professional Services division is being wound down. I don't know if that means the partnership (which, looking at their web page, had little to do with financial markets) or the original IT&e professional services division. If it is the former, then we would likely see a substantial revenue drop (with a commensurate drop in costs). Even the US$1m Razor license fee mentioned is a bit strange. Why exactly is that being amortised here if it has already been banked?

Another thing to note is that there is no information at all showing their revenue breakdown by licensing, maintenance, etc., versus non-product related consulting. This kind of information had been provided in previous reports, though not in enough detail to hazard a guess as to the intrinsic value of the software business. As it stands, I would not have a clue as to what is the intrinsic value of the company from the level of detail given.