Notification to the ASX21 August 2006Reckon Limited (RKN)Results...

Notification to the ASX
21 August 2006
Reckon Limited (RKN)
Results for announcement to the market
Please see the attached Highlights Commentary, Appendix 4D, and half year
financial report for the period ending 30 June 2006.
The information should be read in conjunction with the most recent annual
financial report.
For further information, please contact:
Mr Clive Rabie
Group CEO
Reckon Limited
(02) 9577 5946
Reckon Limited
Highlights Commentary
Half Year Ending 30 June 2006
Reckon is pleased to announce details of the company’s results to 30 June 2006.
6 months to
June 2006
6 months to
June 2005
% Growth
Operating
Revenue
$23.0 million $21.7 million Up 6%
EBITDA
$6.7 million $5.5 million Up 20%
NPAT
$4.3 million $3.4 million Up 27%
EPS
3.3c per share
2.5c per share
Up 33%
Dividend
2c per share
-
-
Group CEO, Mr Clive Rabie said:
“Reckon’s results for the period ending 30 June 2006 show very encouraging profit and earnings
per share growth. The acquisitions of the Elite and Desktop Super businesses during the halfyear
together with ongoing growth in the underlying Quicken and APS businesses all contributed
to the group result. We are also pleased to be in a position to pay an interim unfranked dividend
of 2 cents per share.”
Quicken sales continue to show growth
For the half-year period ending 30 June 2006 Quicken sales grew by 7% compared to the same
period last year.
Recurring revenue in Quicken sales now represents 55% of total Quicken revenue which is up
from 49% for the same period last year. Recurring and service revenue increased by 16% over
the first half in 2005. The underlying business contributed half of this growth with Elite being
responsible for the remainder.
Quicken sales through retail stores to 30 July 2006 have increased by 11% as against overall
retail sales growth in the market sector of only 4%. Consequently Quicken’s market share grew
by 3.4% in the period to 30 July 2006 (Source: GfK Australia Weekly Report - 30 July 2006).
Sales to retailers to 30 June 2006 were, however, not matched by actual sales through to end
customers which augurs well for sales to retailers in the second half of the year.
APS drives recurring revenue growth
Recurring revenue in the APS business increased by 25% over the period as a result of the
continued acquisition of new clients as well as existing clients expanding the range of APS
products used in their practice. The underlying growth in recurring revenue was 22% and Desktop
Super contributed 3%. Recurring revenue in APS now represents 60% of total APS revenue
which is up from 49% for the same period last year.
A full order book with the consulting division now fully resourced, means that APS new business
sales will be stronger in the second half of 2006. In addition the business is well placed to
continue to take advantage of the recurring revenue platform built to date.
Increased EBITDA
Group revenue growth has been achieved without an increase in expenses, resulting in an
increased EBITDA margin of 29% compared to 25% for the same period last year. The EBITDA
margin pre-royalties and development costs expensed, increased from 40% to 43%. The
contribution from the APS business was particularly strong following the recurring revenue growth
in the first half of the year.
Increased EPS
Earnings per share growth of 33% has been achieved for the half -year. This is higher than the
net profit after tax growth of 27% due to the capital reduction approved by shareholders in 2005.
Path to the future
Quicken – continued technology superiority
The Quicken business has consistently offered significant new product features each year. The
Quicken business will continue to enjoy the competitive advantage offered by Intuit Inc’s US$300
million annual research and development budget. This is reflected in the number of awards won
by the business annually.
The Quicken business in the future will exploit the broader market reach, better customer
retention and scalability benefits of reengineered software capable of using an SQL database.
The SQL database will allow a significantly larger number of users than the current range,
thereby allowing QuickBooks customers to grow their businesses without having to move to
another software product.
The development of a refreshed user interface will allow improved end user productivity,
enhancing further QuickBooks’ reputation for ease of use. The product is also being developed to
be ready for Microsoft’s new “Vista” platform.
Development and product enhancement is also in place for electronic supply chain collaboration,
improved on line back up services and overall seamless Internet integration.
Mr Gavin Dixon, CEO of Quicken, said: “The combined impact of product development and
market share means that the Quicken business is well placed for growth.”
APS – full service offering
The suite of products and services available to APS means it is well positioned to pursue growth
in the professional accounting and professional services markets, beyond the supply of just
software, in the form of a broader range of APS managed services.
Collectively the APS business can leverage off its existing software and services to deliver
software and consulting services to its clients covering: IT strategy, applications platforms and
infrastructure strategy, collaborative software analysis and implementation, training, software
updates, business intelligence, document management and customer relations management.
APS and Elite enjoy a 57% market share of the available practice management seats in the top
100 accounting firms in Australia (i.e. excluding the top 4 firms). They have 29% share of
accounting practices in the total Australian market.
All of the APS businesses added clients from their respective top ranking accounting practices
and prospects for further clients are promising. New Zealand especially has shown impressive
growth over previous years with 16 new firms coming on board in the first six months to June
2006, including two of our competitor’s largest clients. Over the same period, Australia added
another 33 new firms (including 4 new Top 100 firms) to an already impressive client list.
Global seat numbers from practice management now exceed 26,000.
Mr Brian Armstrong, MD of APS, said: “This market reach is an important platform for growth
through the supply of APS managed services to help build customer retention and loyalty by
servicing their growth aspirations.”
Growth foundations
Recent acquisitions have been bedded down easily and performed beyond initial expectations
confirming the importance of expanding product and service offerings to existing customers.
Reckon’s consistent organic growth, strong balance sheet and substantial cash holdings now
combine well with the fresh focus of a new chief executive for future growth in the Quicken
business.
The company is expecting also to strengthen its focus in broadening the product/services offering
in the personal wealth management market where Quicken’s 290,000 registered users represent
an 80% market share in retail.
Mr Rabie concluded by saying that: “We are very pleased to see the positive outcomes of our
strategy for the period under review. The performance of the company in the first half of 2006
together with strategies in place for the remainder of the year provides a solid platform for the
future. We will continue to pursue organic growth as well as growth from acquisitions and
expanding our product and service offering.”
Reckon Limited
Appendix 4D
Half year report
1. Company details
Name of entity
RECKON LIMITED
ABN or equivalent company
reference
Half year ended (‘current period’) Half year ended (‘previous
period’)
14 003 348 730 30 JUNE 2006 30 JUNE 2005
2. Results for announcement to the market $A’000’s
2.1 Revenues from ordinary activities
up 4.9 % to 23,249
2.2 Profit (loss) from ordinary activities after tax
attributable to members
up 26.6 %
to 4,314
2.3 Net profit (loss) for the period attributable to
members
up 26.6 % to 4,314
2.4 Dividends Amount per
security
Franked amount
per security
Interim dividend declared
2.0¢
NIL ¢
2.5 +Record date for determining entitlements to
the dividend.
21 August 2006
2.6 Brief explanation of any of the figures in 2.1 to 2.4 above necessary to enable the figures to
be understood.
The improvement is as a result of organic growth in the underlying businesses, with minimal
increase in expenses, together with contributions from the acquisitions made in March 2006.
3. NTA backing
Current period
Previous
corresponding
period
Net tangible asset backing per +ordinary
security
NTA has reduced as a result of reduced
cash balances following returns to
shareholders and acquisitions.
$0.07
$0.12
4.1 Control gained over entities
Name of entity (or group of
entities)
Desktop Super & Elite businesses
Date control gained
28 February 2006 and 1 March 2006
respectively
Contribution of such entities to the reporting entity’s
profit/ (loss) from ordinary activities during the period
(where material).
$398,000
Profit (loss) from ordinary activities and extraordinary
items after tax of the controlled entity (or group of
entities) for the whole of the previous corresponding
period.
No material difference to the
reported result
4.2 Loss of control over entities
Name of entity (or group of
entities)
N/A
Date control lost
Contribution of such entities to the reporting entity’s
profit/ (loss) from ordinary activities during the period
(where material).
$
Consolidated profit/(loss) from ordinary activities of the
controlled entity (or group of entities) whilst controlled
during the whole of the previous corresponding period
(where material).
$
5 Dividends
Individual dividends per security
Date
dividend is
payable
Amount per
security
Franked
amount per
security at
30% tax
Amount per
security of
foreign
source
dividend
Interim dividend: Current year
4/9/2006
2.0¢
- ¢
- ¢
Previous year
N/A
¢
¢
¢
6 Dividend Reinvestment Plans
The +dividend or distribution plans shown below are in operation.
N/A
The last date(s) for receipt of election notices for the
+dividend or distribution plans
7 Details of associates and joint venture entities
Name of associate/joint
venture
Reporting entity’s percentage
holding
Contribution to Net profit/(loss)
(where material)
N/A
Current
Period
Previous
corresponding
period
Current
Period
Previous
corresponding
period
Group’s aggregate share of associates’ and
joint venture entities’ profits/(losses) (where
material):
Current period
$A'000
Previous
corresponding
period $A'000
Profit/(loss) from ordinary activities before
tax
Income tax on ordinary activities
Profit/(loss) from ordinary activities
after tax
Extraordinary items net of tax
Net profit/(loss)
Adjustments
Share of net profit/(loss) of associates
and joint venture entities
8 Foreign entities
For foreign entities, details of origin of accounting standards used in compiling the report (e.g.
International etc.)
N/A
9. If the accounts are subject to audit dispute or qualification, details are
described below
NIL
Sign here:
Date: 21 August 2006
(Director)
Print name: Clive Rabie
Your directors present their report for the half-year ended 30 June 2006.
Directors
The names of the company's directors in office during the half-year and until the date of this report are as follows:
John Thame
Greg Wilkinson
Ian Ferrier
Clive Rabie
Review of Operations
Overview of financial performance for the half-year:
30 June 30 June
2006 2005
$'000 $'000
Revenue $ 2 3,249 $ 2 2,171
EBITDA $ 6 ,670 $ 5 ,539
Net Profit before tax $ 5 ,763 $ 5 ,239
Net Profit after tax $ 4 ,314 $ 3 ,408
Revenue growth has been postively impacted by the acquisitions of Elite and Desktop Super during the half-year, as well
as ongoing growth in the underlying Quicken and APS businesses, partially offset by lower interest revenue following
capital returns to shareholders and acquisitions during the year.
Recurring revenue in the underlying Quicken business continues to grow and now represents 55% of total revenue, up
from 49% to June 2005. Sales through retail stores to July 2006 have increased by 11% over the same period in 2005.
The retail market as a whole has increased by 4% over this period. This increased retail volume had not been reflected in
orders placed by retailers in the first half, hence this augurs well for a strong second half.
The APS business has also lifted it's recurring revenue percentage to 60% in the first-half, up from 49% in the first-half of 2005.
New product sales in the APS business were impacted by human resource constraints in the consulting division in
the half, however a full order book without these constraints in the second half should enable some ground to be made
up in the second half.
The increased revenue has been achieved without an increase in expenses resulting in an increased EBITDA percentage
of 29% (2005: 25%).
Earnings per share growth of 33% has been achieved for the half year. This is higher than the net profit after tax growth
of 27% due to the capital reduction approved by shareholders in 2005.
Rounding of amounts to the nearest thousand dollars
The Company is a company of the kind referred to in ASIC Class Order 98/100, and in accordance with that
Class Order, amounts in the directors' report and the financial statements have been rounded off to the
nearest thousand dollars.
Auditor's independence declaration
We have obtained an independence declaration from our auditors, Horwath Sydney Partnership, which is
attached to this report.
Signed in accordance with a resolution of the directors.
John Thame
Chairman
Sydney, 21 August 2006
Directors' Report
Page 1
Half-year
30 June 30 June
2006 2005
$'000 $'000
Revenue from continuing operations 23,249 2 2,171
Product and selling costs ( 1,437) (1,538)
Royalties ( 2,248) (2,260)
Employee benefits expenses ( 7,495) (7,234)
Employee related expenses ( 361) (328)
Expense of share-based payments ( 178) (157)
Marketing expenses ( 2,240) (2,079)
Premises and establishment expenses ( 755) (842)
Depreciation and amortisation of other non-current assets ( 1,170) (735)
Telecommunications ( 269) (298)
Other expenses ( 1,333) (1,461)
Profit before income tax 5,763 5 ,239
Income tax expense ( 1,449) (1,831)
Profit for the half-year 4,314 3 ,408
Profit attributable to minority interest - -
Profit attributable to members of RECKON LIMITED 4,314 3 ,408
Earnings per share
cents cents
Basic earnings per share 3.3 2 .5
Diluted earnings per share 3.2 2 .4
The above consolidated income statement should be read in conjunction with the accompanying notes.
Consolidated Income Statement
For the half-year ended 30 June 2006
Page 2
30 June 31 December
2006 2005
$'000 $'000
ASSETS
Current Assets
Cash and cash equivalents 10,072 1 8,023
Receivables 4,932 2 ,920
Inventories 257 1 85
Tax assets 88 9
Other assets 815 4 99
Total Current Assets 16,164 2 1,636
Non-Current Assets
Financial assets 315 3 15
Property, plant and equipment 1,623 6 52
Deferred tax assets 821 2 ,000
Intangible assets 20,022 1 6,292
Other assets 200 -
Total Non-Current Assets 22,981 1 9,259
Total Assets 39,145 4 0,895
LIABILITIES
Current Liabilities
Payables 6,045 9 ,668
Provisions 535 6 20
Other liabilities 1,943 1 ,582
Total Current Liabilities 8,523 1 1,870
Non-Current Liabilities
Deferred tax liabilities 430 4 30
Provisions 342 2 35
Other liabilities 256 -
Total Non-Current Liabilities 1,028 6 65
Total Liabilities 9,551 1 2,535
NET ASSETS 29,594 2 8,360
EQUITY
Contributed equity 17,798 1 7,747
Reserves 333 8 19
Retained earnings 11,465 9 ,796
Parent entity interest 29,596 2 8,362
Minority interest ( 2) (2)
TOTAL EQUITY 29,594 2 8,360
The above consolidated balance sheet should be read in conjunction with the accompanying notes.
Consolidated Balance Sheet
As at 30 June 2006
Page 3
Half-year
30 June 30 June
2006 2005
$'000 $'000
Total equity at the beginning of the half-year 28,360 3 1,262
Employee share options 40 1 57
Exchange differences on translation of foreign operations ( 495) 2 6
Net income recognised directly into equity ( 455) 1 83
Profit for the half-year 4,314 3 ,408
Total recognised income and expense for the half-year 3,859 3 ,591
Transactions with equity holders in their capacity as equity holders:
Purchase of less than marketable parcels ( 37) -
Dividends paid ( 2,645) -
Contributions of equity, net of transaction costs 57 4 8
Total equity at the end of the half-year 29,594 3 4,901
Total recognised income and expense for the half-year attributable to:
Members of Reckon Limited 3,859 3 ,591
Minority interest - -
3,859 3 ,591
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
Consolidated Statement of Changes in Equity
For the half-year ended 30 June 2006
Page 4
Half-year
30 June 30 June
2006 2005
$'000 $'000
Cash Flows From Operating Activities
Receipts from customers 23,085 22,398
Payments to suppliers and employees ( 18,271) (16,288)
Interest received 263 435
Income tax paid ( 328) -
Net cash inflow from operating activities 4,749 6 ,545
Cash Flows From Investing Activities
Payment for property, plant and equipment ( 785) (192)
Payment for purchase of businesses ( 2,097) -
Payment for capitalised development costs ( 1,546) (1,403)
Net cash (outflow) from investing activities ( 4,428) (1,595)
Cash Flows From Financing Activities
Dividends paid ( 2,645) -
Reduction of capital ( 5,568) -
Purchase of less than marketable parcels ( 37) -
Proceeds from issues of equity securities 57 48
Net cash inflow from financing activities ( 8,193) 4 8
Net Increase/(Decrease) In Cash and Cash Equivalents ( 7,872) 4 ,998
Cash and cash equivalents at the beginning of the half-year 18,023 13,302
Effects of exchange rate changes on cash and cash equivalents ( 79) (9)
Cash and Cash Equivalents at the end of the half-year 10,072 1 8,291
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.
Consolidated Cash Flow Statement
For the half-year ended 30 June 2006
Page 5
Note 1. Basis of preparation of half-yearly report
This general purpose financial report for the interim half year ended 30 June 2006 has been prepared in accordance with
Accounting Standard AASB 134 "Interim Financial Reporting" and the Corporations Act 2001.
This interim financial report does not include all of the notes of the type normally included in an annual report.
Accordingly, this report is to be read in conjunction with the annual report for the year ended 31 December 2005 and any
public announcements made by Reckon Limited during the interim reporting period in accordance with the continuous
disclosure requirements of the Corporations Act 2001.
The accounting policies adopted are consistent with those of the previous financial year and corresponding interim
reporting period.
Note 2: Segment information
Primary reporting - business segments
Inter-segment
Quicken APS Interest Eliminations/
UnallocatedConsolidated
$'000 $'000 $'000 $'000 $'000
Half-year 2006
Total segment revenue 15,613 7,374 262 - 23,249
Segment result* 4,031 1,470 262 - 5,763
Half-year 2005
Total segment revenue 14,560 7,176 435 - 22,171
Segment result* 3,727 1,077 435 - 5,239
* The Quicken result includes royalty income from APS, net of APS development costs and IP amortisation.
Note 3. Equity securities issued
Issues of ordinary shares during the half-year: Half-year Half-year
2006 2005
No. $'000 No. $'000
Exercise of employee share scheme options 1 12,686 57 1 00,289 5 1
Transfer from share-based payments reserve - 31 - -
1 12,686 88 1 00,289 5 1
Notes to the Financial Statements
For the half-year ended 30 June 2006
Page 6
Half-year
30 June 30 June
2006 2005
$'000 $'000
Note 4. Dividends
Ordinary shares
Dividends paid during the half-year 2,645 -
Dividends not recognised at the end of the half-year
In addition to the above dividends, since the end of the half-year the
directors have recommended the payment of an interim dividend of
2 cents per fully paid ordinary share (2005 - nil). The dividend will
be unfranked. The aggregate amount of the proposed dividend
expected to be paid on 4 September 2006 out of retained profits at
30 June 2006, but not recognised as a liability at the end of the
half-year, is 2,646 -
Note 5. Contingent liabilities
Further payments may be required to be made in respect of the
Desktop Super acquisition. These payments are subject to
performance, future development roadmap and quality conditions,
and hence cannot be reliably estimated at this time.
Page 7
Note 6. Business combinations
Reckon Limited acquired the Desktop Super business effective from
28 February 2006 for an initial payment of $450,000. Further payments
may be made subject to performance, future development roadmap
and quality conditions. Desktop Super is a provider of superannuation
administration software.
Effective 1 March 2006 Reckon Limited acquired the Elite business for
$2.3 million, $1.6 million payable on completion and $0.7 million payable
on 28 February 2007. Elite develops and distributes tax return preparation tools
used by tax agents and accountants.
The acquired businesses contributed revenues of $833,000 and net profit after
tax of $398,000 to the Group for the half-year ended 30 June 2006.
If the acquistions had occurred on 1 January 2006, the consolidated revenue
and consolidated net profit after tax for the half-year ended 30 June 2006
would not have been materially different to the reported results.
Half-year
30 June 30 June
2006 2005
$'000 $'000
Consideration:
Cash 2,097 -
Consideration yet to be paid 700 -
2,797 -
Fair value of net assets of entity acquired:
Receivables 116 -
Deferred tax assets 27 -
Property, plant and equipment 53 -
Intellectual property 654 -
Employee benefit liabilities ( 90) -
Other current liabilities ( 500) -
260 -
Goodwill 2,537 -
2,797 -
The goodwill is attributable to the established profitability of the Elite business.
Page 8
In accordance with a resolution of the directors of Reckon Limited, I state that:
In the opinion of the directors:
(a) the financial statements and notes of the consolidated entity are in accordance
with the Corporations Act 2001, including:
(i) giving a true and fair view of the financial position as at 30 June 2006 and the
performance for the half-year on that date of the consolidated entity; and
(i) complying with Accounting Standard AASB 134 "Interim Financial Reporting"
and the Corporations Regulations 2001; and
(b) there are reasonable grounds to believe that Reckon Limited will be able to pay
its debts as and when they become due and payable.
On behalf of the Board
John Thame
Chairman
Sydney, 21 August 2006
Directors' Declaration
Page 9