chairman's address to shareholders Reckon LimitedAnnual General...

chairman's address to shareholders Reckon Limited
Annual General Meeting
24 May 2005
10:00am
35 Saunders Street
Pyrmont NSW 2009
Chairman’s Speech
[To follow after the formal welcome as set out in the Meeting Script]
Before we proceed to the formalities I wish to briefly speak about our results for
the year ending 31 December 2004. By now most of you will be reasonably
familiar with the 2004 results of the company so I’ll try not to dwell on them for
too long.
I am very pleased to report to our shareholders that the results for 2004, now
already some five months ago, were pleasing. In fact, the headline results were
very good.
For the group, revenue grew by 48% and NPAT grew by 66% over 2003.
In the normal course this would be a spectacular result but account should be
taken for the fact that the acquisition of the APS business contributed
significantly to the profit line. And, after allowing for the application of a new
accounting policy regarding amortisation of goodwill in the APS acquisition and
allowing for future tax benefits, NPAT for 2004 grew by 44% over 2003, rather
than the headline 66%.
Earnings per share for 2004 on this normalised basis increased by 33% over
2003. This is a clear indicator of the success of the APS acquisition.
It has already been documented that we were disappointed with the performance
of the QuickBooks side of the business, with revenue growth over 2003 only
increasing by 5½%.
Nonetheless, the results confirm the strategic and commercial value of the APS
acquisition and against the background of the competitive landscape and
economic conditions for the end of the latter half of 2004 the overall result is
satisfactory.
Group performance for the first four months of this year has been satisfactory
and is in line with our expectations for the half year.
From a cash flow perspective the 2004 result is also positive. Operating cash
flow is up 53% on 2003 from $5.7 million to $8.7 million.
The cash positive position of the business put the board in a position to consider
declaring a dividend in early 2005. As indicated in the notice of meeting,
however, the only basis upon which a dividend could have been paid in 2005
based on profits generated in 2004 would have been if the dividend was actually
declared before the end of 2004. While this is the third year of profits for the
company, there are still accumulated losses on our balance sheet that date back
to 2001. The effect of these accumulated losses is that they absorb profits as
soon as the following year begins. The board was not in a position in late 2004 to
declare a dividend as there was still some way to go before the results for 2004
would be finalized. Although technically deprived of its power to declare a
divided, the board did not want to deprive shareholders of an opportunity to
participate in the success of the company and decided to use the mechanism of
a repayment of capital to reward shareholders.
So the board has recommended to shareholders to approve by way of special
resolution the repayment of a return of capital of three and half cents per share
with all shareholders treated equally. We will return to this later in the meeting
when we consider the votes on this resolution.
Related to the return of capital I should also say a few words about our cash
management generally. The acquisition of APS in January 2004, which was paid
for half in cash and half in shares, has proved to be an excellent acquisition in
terms of earnings and cash flow. The outcome of this transaction demonstrates
to us that we should be on the lookout for other similar deals. And to that end the
cash reserves we have may come in very useful. The other alternative for use of
cash is a share buy back. As you will be aware we announced a share buy back
on 8 February 2005. To date no shares have been purchased by the company.
The board has also asked shareholders to approve by way of special resolution
that the capital of the company be reduced by the amount of the accumulated
losses of $25 million. The effect of this is that the capital of the company will be
reduced from $53 million to $28 million. The result of this will be to effectively
wipe out the effect of the accumulated losses on the power of the board to
declare a dividend at any time appropriate. The board has been advised that this
action will not impact on the net financial position of the company and nor will it
change the tax position of the company.
There will be an opportunity later in the meeting to ask questions about this
resolution.
We will also return to this later in the meeting when we consider the votes on this
resolution.
I should add that no formal dividend policy is in place at present. This is under
review and should the position change the market will be informed.
As I alluded to earlier, the results to date for financial year 2005 are bearing the
fruit of strategies implemented to date. These include:
· recent price increases, the first since 2003;
· a realignment of the product range exposing more features for price;
· intensive roadshow marketing;
· maximizing our relationship with the recommender channels of accredited
trainers and professional partners; and
· continuing to emphasize the technological and value advantage of APS
solutions.
A very brief summary of the highlights of 2005 so far include:
1. The launch on 1 May 2005 of QuickBooks EasyStart. QuickBooks EasyStart
has been designed specifically for first-time users of accounting software
and/or anyone starting his/her first business.
2. Significant improvements of QuickBooks features.
3. The introduction of new Connected Services into QuickBooks 2005/06.
4. APS continue to enhance and expand the Advance range of products for
Professional Accounting firms and Professional Service organizations.
5. QuickBooks Plus 2005/06 and QuickBooks Premier 2005/06 made a clean
sweep of APC Magazine's annual review of accounting software - each
winning the Editor's Choice Award and each being named the best in terms of
Price-to-Performance ratio.
This summary does not do justice to the work put in by the company and if you
require more detail we will be happy to take questions later on.
Before closing off, it is appropriate that on behalf of the board we recognize the
contribution of a few people to the success of the business.
First of all we extend our thanks to Geoff Tomlinson who resigned as Chairman
in August 2004. Geoff played an important role on the board in the development
of the company since its listing in July 1999. He steered the company through
some tough times and we are grateful to him for his contribution.
We are fortunate to have Ian Ferrier as a new independent non-executive
director. As we announced in August, Ian is the founder of Ferrier Hodgson. He
is a Fellow of the Institute of Chartered Accountants in Australia. He has had
over 40 years experience in company corporate recovery and turnaround
practice. He is also a Director of a number of private and public companies. Ian
is currently Chairman of InvoCare Limited, Port Douglas Reef Resorts Limited
and a Director of McGuigan Simeon Wines Limited, and Macquarie Goodman
Management Limited. Ian has had significant experience in property and
development, tourism, manufacturing, retail, hospitality and hotels, infrastructure
and aviation and service industries. It is a requirement of the Corporations Act
that Ian’s appointment is confirmed by general resolution at today’s meeting.
That is the first resolution to be voted on later in this meeting.
You will also have seen in the notice of meeting that Phil Hayman, one of the
founders of the company, has resigned effective today. Phil has devoted 18
years of energy to the business in various roles and he too deserves our thanks
for his valuable contribution. With Phil’s resignation, the board has also put to
you today for approval the election and appointment of Mr Clive Rabie as a
director of the company.
A brief summary of Clive’s credentials as an entrepreneur and operations
executive are set out in the explanatory note to the notice of meeting. It is my
pleasure to recommend his election to the board. He has played a pivotal role in
the turnaround of the fortunes of the business since 2001 and his appointment
will continue to benefit the company in the years to come.
Should Clive be elected to the board it means the current position where there
are effectively only two truly independent non-executive directors continues. The
ASX corporate governance guidelines require that there should be a majority of
non-executive directors on the board. In light of that requirement I should explain
that this departure from the guidelines does not impact on the good governance
of the company.
Open channels and frequent communication between management and the
independent non-executive directors Board means that there is independent
oversight of material decision making and compliance with principles of good
corporate governance. Also, the independent non-executive directors ensure that
all issues that come before the Board are considered in an impartial manner and
from a variety of perspectives especially conscious of the importance of their role
as independent directors.
As always thanks must also be extended to the executive directors, the
management teams and the staff of the QuickBooks and APS side of the
business for their hard work. I especially welcome Mr Brian Armstrong MD of
APS Australia who has now completed almost 18 months at the helm of APS
since the acquisition.
And finally thanks also to our network of retailers, accredited trainers and
professional partners.
I turn now to the further formalities of the meeting.