Alec Hogg
Failure to keep losses in check forced South African-owned technology group Ixchange to issue a profit warning on Tuesday morning.
But chief executive Derek Kreunen says although the bottom line number for the six months to June 30 came in $3,3-million worse than had been projected, there is enough in the results for management to be chuffed about.
Traders on the Johannesburg Stock Exchange, however, took a dim view. After a muted initial response, selling pressure emerged early Tuesday afternoon chopping 20% off the price that fell from Monday’s close of R1,45 to R1,16. This is the lowest level for Ixchange shares since they briefly touched R1,10 in mid-May before rebounding smartly since to trade in the mid-R1,40s.
Significantly, in May and June, Kreunen and his chairperson Dana Buys were aggressively accumulating Ixchange stock at prices of between R1,10 and R1,60.
Tuesday’s profit warning informs shareholders that Ixchange’s United States subsidiary Front Range, which now accounts for 87% of the group’s operations, posted a loss of $12,4-million in the six months to end June. This compares with the $9,1-million loss that had been projected. Front Range is competing for dominance of the customer relationship management software market that serves small and medium-sized companies.
Kreunen says only half of the $3,3-million overshoot was a result of not meeting the revenue target, a performance that he believes is excellent in the circumstances: “You must remember that 75% of the Front Range business is in the US, where virtually nobody predicted the sharp fall that has occurred in the technology sector. We performed up to expectations in the US, but were a little behind our targets in Europe.
“We are chuffed to come in with year-on-year revenue growth of 20% in dollar terms [45% in rands]. It showed that we are gaining market share as our major competitor’s revenue was down 35% with the other two significant players off 10% and 8% respectively.”
The group is continuing to work on cutting costs, with efforts intensified after a $1,5-million expense over-run was partly responsible for this week’s profit warning. In July Front Range announced a 10% cut in its workforce would reduce expenses by $500000 a month; with a further $250000 saved through consolidating back office operations into its head office.
Critically, the projection that Front Range would hit break-even in June has been achieved. Kreunen says more cautious shareholders will probably need to wait a little longer for confirmation of sustainable profit as the three months between July and September is traditionally the group’s worst quarter: “We have achieved the first target and results for our October to December quarter should prove the turnaround to profit is sustainable.”
More clarity will be provided on September 3 when the group releases its audited results for the year just ended. By then Kreunen hopes to have reached finality on the future of the Ability Division (12% of the business): “We are considering many alternatives, including partnerships.”
Ability’s $3,2-million loss for the six months to end-June is in line with the previously projected number, with an improving trend evident. Kreunen is confidently predicting Ability’s return to profitability in the year to June 2002.
Not such good news for the once-vaunted Incubator Division to which the group is now applying the last rites. The sale of the last two businesses owned by the in-house venture capital operation Fraxion and NeuraTech are in their final stages, after which the division will be closed. This, with the promised action on Ability, suggests that within months Ixchange will be focused solely on the US-based Front Range.
ENDS
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