8 November 2011

KEWILL PLC

Interim results for the six months ended 30 September 2011

Kewill plc (Ticker: KWL) ("Kewill", the "Company" or the "Group"), the provider of software solutions that accelerate global trade and logistics, announces its unaudited results for the six months ended 30 September 2011.

FINANCIAL HIGHLIGHTS

OPERATIONAL HIGHLIGHTS

-     Contracts already in negotiation combined with a strong pipeline give the Board confidence that full year results will be in line with expectations.

-     82% of expected full year revenues recognised or contracted at 30 September 2011. 

-     The business continues to deliver strong cash conversion from operations with cash of £15.8 million at 30 September 2011.

-     In Customs & Forwarding new business was generated from new customers including Halal Global Services Company, and existing customers such as Union Airfreight, Transpeed, Trinet Logistics Asia, Hankyu Hanshin and Senator Singapore.

-     In Transportation & Logistics, new customers included L'Oreal USA, Laitram and American Music Supply, and upgrades orders from existing clients included Black & Decker, Cisco, Aviall and PT Senopati.

-     In eCommerce and B2B Integration, new customers included HP Enterprise Services, Auto Windscreens and Paymentshield.

-     Decisive action taken to reduce costs in the reverse logistics business.

(1)   Recurring revenue is defined as annually contracted revenue (Software as a Service, hosting and maintenance).

(2)   Adjusted operating profit is before amortisation of intangibles of £2.3 million (2010: £3.2 million), share based payment charges of £0.1 million (2010 £0.2 million), expensed acquisition costs of £nil (2010: £0.1 million) and reorganisation costs of £0.6 million (2010: £nil) as set out in the condensed consolidated income statement as the Directors regard this as providing additional useful information on trends in underlying performance. Adjusted EBITDA is also before depreciation of £0.7million (2010: £0.6 million).

(3)   In order to arrive at the adjusted earnings per share figures, adjustments made to consolidated pre-tax profit include the adjustments to operating profit as noted above, plus adding back notional interest on deferred consideration £0.1 million (2010: £0.1 million). The resulting adjusted profit before taxation is then subject to a notional tax charge at the weighted average tax rate for the Group excluding intangible amortisation, amounting to 29.5% (2010: 29.9%).

(4)   Constant currency equivalents are calculated by translating current year figures at prior year exchange rates.

George Elliott, Chairman commented:-

"The Board's expectations for full year revenues include 82% that is already recognised or contracted and we fully expect that the pilot orders described in our most recent trading update will convert to licence sales in the second half.  In addition, we are seeing a strong sales pipeline across all regions and this gives us confidence that Kewill will recover the first half shortfall in adjusted operating profit and deliver full year results in-line with expectations. To demonstrate our confidence in the trading outlook for the second half, the Board has declared a 13.5% increase in the interim dividend."

- Ends -

For additional information, please contact:

Kewill plc

Paul Nichols, Chief Executive Officer

David Gibbon, Chief Financial Officer

Tel: 01483 406080

FTI Consulting

Edward Bridges/Marc Cohen

Tel: 020 7831 3113

About Kewill plc:

Kewill delivers solutions that accelerate global trade and logistics.

Our software solutions and deep domain knowledge enable our customers to drive revenue growth and measurable cost savings. 

A global company, Kewill provides software that accelerates customs and forwarding, transportation & logistics, and eCommerce & B2B integration. All of our solutions and people are focused on increasing the speed and cost effectiveness of global trade for our customers.

Since 1972, Kewill has delivered global trade and logistics solutions to some of the most sophisticated companies in the world.  Over 7,000 companies use Kewill solutions including Bayer, Ingersoll Rand, DHL, UPS, TNT, Toll, Hankyu Hanshin, Scott's & Co., Hitachi, WaverleyTBS, Mothercare, Black & Decker and Damco.

www.kewill.com.

Interim Results for the six months ended 30 September 2011

Financial Review

Revenue

Revenue for the first six months of the year reduced by 6% to £27.2 million (H1 2010/11: £28.9 million). Revenue performance was particularly affected by the decline in our reverse logistics business which was down by £0.9 million. Excluding this business, revenue reduced by 3%. 

General economic uncertainty across all regions has led prospective new customers to adopt a more cautious approach to procurement, which has in turn resulted in extended sales cycles. This has therefore resulted in license revenue declining by 50% year-on-year to £1.0 million.  As previously highlighted in our most recent trading update in October, Kewill was awarded preferred supplier status on four major new projects in the first half which, under normal procurement cycles, would likely have led to significant software licence fees and services revenues in the period.  However, as a result of their more cautious approach, two of these major prospects have commenced their use of our products with an initial paid-for end-user pilot phase before committing to the product licence.

As noted above, and as announced at the time of the full year results in June of this year, the loss of the global roll-out contract with Nokia and the reduction in the value of our contract with HP following its merger with Palm adversely impacted our business by £0.9 million in the first half of this year. To mitigate the impact of this, we took decisive action to reduce our costs.  The reorganisation cost in the period was £0.6 million, representing redundancy costs in the reverse logistics business. Annualised cost savings from this measure will be approximately £1.3 million.

The net impact of exchange rates compared to 2010/11 was not material to total revenue.

In Europe, revenue was £16.9 million (H1 2010/11: £17.1 million), a reduction of 1%.  On a constant currency⁽⁴⁾ basis European revenue decreased by 4%, to £16.4 million, largely as a result of the £0.7 million reduction in revenue from Nokia offset by the inclusion of Minihouse acquired in June 2010, for the full six months. Recurring revenue increased by 2% in constant currency terms and now represents 71% of all European revenues.  Licence revenue in Europe was down by 60% as a result of lengthened sales cycles and the decision by two large customers to award pilot projects as a precursor to awarding the full licence contract which we fully expect to sign in the second half (as discussed above).   In the case of two other European customers, we are currently carrying out paid-for evaluation work to significantly enhance and upgrade existing systems prior to an expected larger order in the second half.

Revenue from the Americas was 12% lower than last year at £8.9 million (H1 2010/11: £10.2 million). On a constant currency basis, Americas revenue decreased by 7% compared to last year. Excluding the decline due to the Palm / HP merger, constant currency revenue declined by 5%. Recurring revenue was 8% lower than last year (on a constant currency basis) and represents 58% of the total Americas revenue.  Licence revenue was down 42% on last year as customers delayed purchase decisions.  Costs have been reduced to mitigate the impact on profitability.

In Asia, revenue reduced to £1.4 million (H1 2010/11: £1.7 million), a decrease of 19% primarily as a result of delays in licence deals.  On a constant currency basis, Asia revenue reduced by 22%.  Kewill fully expects licence revenue in Asia to recover significantly in the second half as a result of the strong pipeline.  Recurring revenue increased by 1% (constant currency 1%) and now represents 49% of Asia revenues. 

Adjusted operating profit⁽²⁾

The 6% reduction in revenues has led to a 45% reduction in adjusted operating profit to £2.3 million (H1 2010/11: £4.2 million). The net impact of exchange rates compared to 2010/11 was not material. Adjusted operating profit margins were 8.4% (H1 2010/11: 14.4%). 

Adjusted EBITDA⁽²⁾

Adjusted EBITDA decreased by £1.8 million (a 37% decrease over the same period last year) to £3.0 million.  The net impact of exchange rates compared to H1 2010/11 was not material.  Adjusted EBITDA margins were 11% (H1 2010/11: 17%).

Reorganisation costs

The Group incurred a £0.6 million reorganisation cost in the period, representing redundancy costs in the reverse logistics business. Annualised cost savings from this measure will be approximately £1.3 million.

Profit before tax

After the deduction of amortisation of intangibles, acquisition costs (2010/11 only), share based payments and finance charges, the Group showed a loss before tax of £0.7 million (H1 2010/11 profit: £0.6 million).  Net finance costs were less than £0.1 million as the Group held net cash throughout the period, offset by notional interest on the Minihouse contingent consideration.  Amortisation of intangible assets has reduced by £0.9 million due to the past acquisitions being fully amortised.  The net impact of exchange rates compared to H1 2010/11 was not material.

Cash flow and financing

Net cash generated from operating activities (pre-tax) was again strong at £1.7 million (H1 2010/11: £3.8 million) which represented 100% of adjusted operating profit less the deduction of reorganisation costs (H1 2010/11: 92%).  Cash at 30 September 2011 was £15.8 million (H1 2010/11 £12.3 million) after £1.1 million of tax payments (H1 2010/11: £1.0 million),  £0.8 million paid as dividends to shareholders (H1 2010/11: £0.7 million), £0.4 million paid in respect of the Minihouse acquisition (H1 2010/11: £5.0 million), a net payment of £0.1 million for employee share awards (H1 2010/11: less than £0.1 million) and £0.5 million of net capital expenditure (H1 2010/11: £0.9 million).

Dividends

To demonstrate their confidence in the trading outlook for the second half, the Board has declared an interim dividend of 0.42 pence per share (H1 2010/11: 0.37 pence per share), representing a 13.5% increase, which will be paid on 13 January 2012 to those shareholders on the register at 2 December 2011 (the shares going ex-dividend on 30 November 2011).

Business Review

Market Overview

There are four major factors placing increased pressure on our customers to automate their supply chain systems and these are:

•           overall growth in global trade - forecast by WTO at 6.5% in 2011

•           increased complexity in supply chains 

•           M&A driving the need for consolidated systems

•           end customers outsourcing more of their logistics to LSPs

This macro environment creates opportunities for Kewill as our customers see operational and financial benefits from our systems to help them manage multiple transportation modes. This includes the integration of domestic & international shipping, the need for better visibility and control of their supply chains through connection to their trading partners and regulatory agencies. Our product and service portfolio can be grouped into three major lines of business:

•     Customs & Forwarding - managing international trade and regulatory compliance

•     Transportation & Logistics - accelerating the shipment and facilitating the cost effective storage of goods

•     eCommerce/B2B Integration - connecting business systems and monitoring global trade and logistics

These are areas where Kewill has specialised for many years. Our continued investment in specialist technology to provide solutions our customers require, allied with our deep domain skills across major trading geographies, puts us in a strong position to win new business and add increased value for our existing customers.  Our specialist technology solutions help reduce the manual processes involved in shipping across multiple geographies, helping to reduce costs and improve accuracy and hence customer satisfaction on setting and meeting delivery expectations.  Our software & services help control and manage transportation networks, particularly important as variable fuel costs drive near-shore/offshore decisions.  We also help to accelerate lead times for customer shipments and reduce inventory holdings resulting in lower storage costs and working capital.  By ensuring compliance with governmental and regulatory requirements we are able to help our customers avoid costly delays and fines. 

Despite the fall in revenues in the six months to 30 September 2011 against last year for the reasons described earlier, we began to see early signs during the first half that customers are beginning to invest again on addressing the crucial issues that put pressure on their supply chains and hence their overall business.  In particular we saw an increase in activity, including smaller orders and pilot projects, from LSPs in Europe and Asia that we are convinced will lead to larger deals in the second half of the year.  This was particularly noticeable in the area of Customs & Forwarding. 

Line of Business Review

Customs & Forwarding

Revenues in Customs & Forwarding grew by 6% in the first half to £13.4 million (H1 2010/11: £12.6 million) driven by the continued success of Kewill Forwarding both from new customers committing to this market leading product and existing customers continuing the successful roll-out of their implementations.  New business was secured with Halal Global Services Company (HGS), a leading logistics company specializing in the logistics of Halal food. They have selected Kewill Forwarding as the solution to support their business in Thailand as well as their expansion across Asia.  Other new orders were also received from several existing clients for upgrades to Kewill Forwarding version 3.2 with Union Airfreight, Transpeed, Trinet Logistics Asia, Hankyu Hanshin and Senator Singapore.  In addition, three major LSPs selected Kewill Forwarding in the first half to be their preferred supplier.  We would anticipate these decisions leading to licence orders and significant professional services revenue earning commitments in the second half of the financial year.

On the product side we released Kewill Forwarding version 3.3, adding hub and gateway functions, end to end visibility, bonded warehouse and integration with Kewill Customs Exchange (KCX).  KCX continued to grow its comprehensive coverage of the European geography and is now operational in fifteen EU countries.  It also provided the platform for the go-live in Singapore of a Trade Permit solution providing electronic connectivity from the shipper to their forwarder and on to the Singapore government's customs system via TradeXchange®.

Transportation & Logistics 

Revenues in the first half of the year were £8.8 million, a decline of 20% (H1 2010/11: £11.0 million) compared to the same period last year.  Of the decline in revenue, £0.9 million was attributable to the previously disclosed loss of the Nokia global contract and the consolidation of the HP and Palm reverse logistics revenues.  Excluding these two material contract losses the revenues would have declined 13% largely as a result of the more cautious approach by our customers and consequential delay in licence contract signings. 

Our main product offerings in this line of business are the Kewill Logistics suite that provides integrated transportation and warehousing management for LSPs and our parcel products Flagship and Clippership.  During the first half we released version 6.0/4 and 6.1 of Kewill Transport adding a web-based plan board, cross-docking & 4PL enhancements.  In addition, we provided the first integration of Kewill Transport with the Netherlands customs offerings acquired with Minihouse in June 2010.  As part of the full year results for last year we announced the availability of TMS Quickstart, an option for customers to have a fast deployment of our Kewill Transport solution in a SaaS environment.  During the first half we won our first pilot for TMS Quickstart in Europe, we also closed our first TMS/WMS contract in Indonesia with PT Senopati, through our new Indonesian partner, PT Star System International.   

We also continued with our previously announced program to migrate customers from the older Kewill Ship parcel shipping product and during the period under review we had commitments from over thirty of these customers to migrate across to Kewill Flagship or Clippership. 

In the area of trade compliance we released Kewill Export version 1.3 with important functionality for US export documents and received an order from one of our large Kewill Flagship customers to implement an integrated version of Kewill Flagship with Kewill Export and ECS our export compliance SaaS offering.  This will be an important part of our strategy to integrate the suite of solutions for our shipper customers and thereby enhance our cross selling initiative.

Other notable Kewill Flagship sales included new customers such as L'Oreal USA, Laitram, American Music Supply, NMB Solutions and CTL Global and upgrade orders from existing clients Black & Decker, Cisco, Aviall, American Mailing, GE Aviation and Deluxe Corporation.  We also increased our business sold through our third party channel with the addition of over 90 value added resellers across the USA.  Our partner development work also progressed with product integrations between Flagship and Oracle OTM & EBS and JDA. 

eCommerce and B2B Integration

Revenue in our eCommerce and B2B Integration line of business was £5.0 million (H1 2010/11: £5.3 million) a reduction of 6%.  This reduction reflects the slow business conditions in the UK retail market as customers reigned in spending.  However, we were successful in the period under review with orders for our Kewill MessageBroker system from new customers HP Enterprise Services, Auto Windscreens, Paymentshield and Markerstudy and upgrade orders from MM UK, Thomas Pink and VAX and a three year contract renewal from ARB Underwriting.  Kewill Trade orders were placed by Paymentshield and Markerstudy, a contract  extension from J. Sainsbury and three year contract renewals from JD Williams and Dunelm.

Outlook

Last year we reported that we were making specific investments in sales & marketing specifically timed to take advantage of the return to growth that was being forecast in global trade over the next three years, and to increase cross selling opportunities within the business.  As reported in our most recent trading updates, this increased investment has taken longer to generate direct revenue benefit as a result of several factors beyond our direct control.   General economic uncertainty across all regions has led prospective new customers to adopt a more cautious approach to procurement, which has in turn resulted in extended sales cycles. 

The Board's expectations for full year revenues include 82% that is already recognised or contracted and we fully expect that the pilot orders described in our most recent trading update will convert to license sales in the second half.  In addition, we are seeing a strong sales pipeline across all regions and this gives us confidence that Kewill will recover the first half shortfall in adjusted operating profit and deliver full year results in-line with expectations. As a sign of our confidence in the trading outlook for the second half, the Board has declared a 13.5% increase in the interim dividend.

Directors' responsibilities

The Directors confirm that to the best of our knowledge:

a)   the condensed set of financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting';

b)   the interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

c)   the interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties' transactions and changes therein).

Signed on behalf of the Board

Cautionary statement

This Interim Management Report (IMR) has been prepared solely to provide additional information to shareholders to assess the Group's strategies and the potential for those strategies to succeed. The IMR should not be relied on by any party or for any other purpose.

The IMR contains forward-looking statements. These statements are made by the directors in good faith based on the information available to them up to the time of their approval of this report and such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information.

This IMR has been prepared for the Group as a whole and therefore gives greater emphasis to those matters which are significant to Kewill plc and its subsidiary undertakings when viewed as a whole.

This report is available in electronic format from the Company's website, www.kewill.com/investor 

Condensed consolidated interim income statement 

for the six months ended 30 September 2011

Condensed consolidated interim statement of comprehensive income 

for the six months ended 30 September 2011

Condensed consolidated interim statement of changes in equity 

for the six months ended 30 September 2011

Condensed consolidated interim balance sheet

as at 30 September 2011

Condensed consolidated interim cash flow statement 

for the six months ended 30 September 2011

Reconciliation of profit for the period to net cash generated from operating activities

Notes to the condensed consolidated interim financial statements

1.       General information

Kewill plc (the "Company") is a company incorporated and domiciled in the United Kingdom under the Companies Act. The address of the registered office is Bramley House, The Guildway, Old Portsmouth Road, Artington, Guildford, Surrey, GU3 1LR. The Company is listed on the London Stock Exchange and its registered number is 1037515.

2.       Accounting policies

Basis of preparation

The condensed consolidated interim financial statements comprise the Company and its subsidiaries (the "Group") and are presented in pounds sterling rounded to the nearest thousand. They have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and in accordance with International Accounting Standard 34 'Interim Financial Reporting', as adopted by the European Union, and should be read in conjunction with the consolidated annual financial statements of the Group for the year ended 31 March 2011.

The annual financial statements of Kewill plc are prepared in accordance with International Financial Reporting Standards as adopted by the European Union, although the information for the year ended 31 March 2011 presented within the condensed interim financial statements does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. A copy of the statutory accounts for the year ended 31 March 2011 has been delivered to the Registrar of Companies. The auditors reported on those accounts: their report was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

The condensed  interim financial statements were approved by the Board of Directors on 7 November 2011.

The condensed  interim financial statements have not been reviewed or audited by the Company's auditors.

Significant accounting policies

The same accounting policies, presentation and methods of computation are followed in the condensed set of interim financial statements as applied in the Group's latest annual audited financial statements, except that taxes on income in the interim periods are accrued using the tax rates that would be applicable to expected annual earnings as determined on a territory by territory basis.

New standards, amendments to standards or interpretations which are mandatory for the first time for the Group's financial year beginning 1 April 2011 have been taken into account in the preparation of the condensed interim financial statements but there have been no significant changes as a result of so doing.

3.       Reorganisation costs

Reorganisation cost represents the cash cost of redundancy payments, primarily arising in the reverse logistics business following the loss of a contract with Nokia and the reduction in the value of the contract with HP following its merger with Palm.

4.       Segmental reporting

The Group's operating segments have been identified on the basis of internal reports about components of the Group that are regularly reviewed by the Chief Operating Decision Maker (considered to be the Board of Directors) to allocate resources to the segments and to assess their performance.

The Board primarily considers the business from a geographical basis, but secondary information on revenues by product type is also reviewed.

Under the primary geographical reporting, external revenues are recorded by origin and operating profits reflect the statutory operating profits recorded by the legal entities based in each region (prior to any central overhead allocation).

During the second half of the prior year, the group changed the basis of allocating expenses to segments and measuring segmental performance. This was to better reflect the statutory profits of the companies in each region. The figures for the six months to 30 September 2010 have also now been restated on the new basis.

5.       Taxation

The tax charge for the six months to 30 September 2011 has  been accrued using the tax rates that would be applicable to total expected annual earnings by country. Excluding intangible amortisation, the full year weighted average statutory tax rate for the Group is expected to be 29.5% (year to 31 March 2011: 29.9%).

6.       Earnings per share

Earnings per share has been calculated on the profit on ordinary activities after tax divided by the weighted average number of shares in issue during the year based on the following:

Earnings per share

Adjusted earnings per share has been disclosed as the Directors consider this better reflects the underlying performance of the Group. The basis of calculation was revised in the second half of the prior year to eliminate the distorting effect caused by the progressive recognition of tax losses.

In order to arrive at the adjusted earnings per share figures, adjustments made to consolidated pre-tax profit comprise adding back amortisation of intangibles £2,321,000 (2010: £3,188,000), notional interest on deferred consideration £65,000 (2010: £80,000), reorganisation costs £575,000 (2010: £nil), acquisition costs £nil (2010: £143,000) and share-based payment expense £114,000 (2010: £160,000). The resulting adjusted profit before taxation is then subject to a notional tax charge at the weighted average tax rate for the Group excluding intangible amortisation, amounting to 29.5%.