Half Year Report to 31 December 2022

HALFYR
Wed, Mar 01 2023 08:30 am

Revenue from software and licenses has been decreased by $0.31 million due to the reduction in MYOB Exo margins that are being challenged in court. The board reviewed the goodwill of the Kilimanjaro Australian cash generating unit and due to the ongoing dispute with MYOB, MYOB indicating further MYOB Exo margin reductions in future periods and the current forecast, the board elected to write down the goodwill value by $2.363 million. The board reviewed the goodwill of the iSell cash generating unit and has elected to write off the $1 million in goodwill due to slower than expected customer acquisition, unexpected delays in the release of new features and changes in the discount rates.

BNZ has provided a waiver of the 30 June 2022 banking interest cover and leverage covenant, and a modification to the group’s banking covenants on 23 September 2022. These remove the leverage ratio testing requirement, and temporarily waive the interest cover ratio requirements until 30 June 2023.

Kilimanjaro Consulting business
The current Strategic Plan of Kilimanjaro strives to achieve a Compound Annual Growth rate of 15%. The impact of the loss of the MYOB ALF Margin, as announced to the NZX on 1st August 2022, is severe, hence our legal challenge to MYOB (see below). Despite this, revenue has held up well. This year we have further invested in People, Processes and Systems to address efficiency, and to fortify the business in the longer term.
Kilimanjaro is fully resourced, with high customer satisfaction. Customer Satisfaction scores currently stand at an average of 4.7 out of 5. This is an exceptional performance for a professional services organisation, and will continue to be a core focus.
Charge-out rates have been increased across all service revenue streams. An increase in MYOB Subscription rates will also flow through to our bottom line. A large proportion of the revenue is recurring or contracted. Recurring revenue has grown 3% despite the reduction in margin by MYOB of $0.31 million during this period, as the mix of clients between MYOB Advanced and MYOB Exo changes. Contracted revenue has grown 26% during this period, mainly due to increases in support contracts and hosting fees.
MYOB changed their strategy in the Enterprise space from a purely channel partner model, to a combination of direct and channel. This caused some disruption, further exacerbated as MYOB announced the acquisition of some of their Channel partners. Kilimanjaro face significant challenges with MYOB's entry directly into our markets. Kilimanjaro have responded by executing a comprehensive new management plan, aimed at restoring profitability to our desired levels, accounting for the reduced MYOB Exo margins. Kilimanjaro believe that MYOB cannot satisfy the demand for the Advanced/ Acumatica product without Channel Partners, and therefore remain optimistic that these differences can be settled.
As announced on the 16th December 2022 a case against MYOB has been filed in the Federal Court of Australia: [Kilimanjaro Consulting Pty Ltd v MYOB Australia Pty Ltd Federal Court of Australia proceedings NSD 1111 of 2022]. The matter has been listed for directions on 1 March 2023.
The year saw a significant shift in new sales from MYOB Exo to MYOB Advanced/ Acumatica, as well as a slower than anticipated MYOB Exo attrition. Despite the suppressed economic conditions, Kilimanjaro were able to close the calendar year with New License Sales for MYOB (Au and NZ) of just over $2 million. This included the largest MYOB Advanced/ Acumatica contract in Au/NZ.
Kilimanjario continue to focus on cost control and better utilisation of resources across all teams to maintain profitability in spite of MYOB's actions. The predominant theme is “Work Smarter”.
Kilimanjaro's future with MYOB will be largely dictated by the final resolution reached with the dispute, as referenced in the announcement to the NZX on 1st August 2022. Kilimanjaro considers it prudent to diversify and the management team is actively investigating options. There are significant changes in the markets in which Kilimanjaro operate. The direct entry of MYOB has de-stabilised the Partner Channel, and further consolidation can be expected. If Kilimanjaro is not successful in challenging the legality of MYOB’s retrospective changes to the MYOB Exo margins, the further indicated reductions in MYOB Exo margins are likely to require more drastic changes to the business model. Whilst low business confidence and inflationary expectations are creating headwinds, there is good cause for optimism. Kilimanjaro operates in markets that a number of diverse markets that are somewhat resilient, and this combined with our strong investment in marketing capability, technical capability, internal platforms and system and the trend towards Cloud based software positions the business well for future growth.

iSell business
Annual recurring revenue (ARR) has increased to $0.54 million (up 12%). Total revenue $0.56 million (up 10%). Enprise currently owns 75% of iSell.
The current focus is on simplifying the on boarding process to empower new customers to perform more self service. A new version of IT Quoter with enhanced integration capability is expected to be available in the first quarter of 2023, this version includes the integration to Ingram CloudBlue PSA.
The integration with Datagate has been completed which will enable further synergies between the companies. In December 2022, iSell completed the Halo PSA integration and has already sold 3 new sites with this integration in January 2023.

Datagate investment
Enprise Group’s associate, Datagate Innovation Ltd (Datagate) grew its annual recurring revenue (ARR) to over $2.7 million, an increase of 34%. Growth in the USA was 40%. Datagate continues to be in high growth mode and is keeping its focus on growing revenue and market share. Enprise participated in the capital raising in November 2022, Enprise took up $0.23 million of the total issue of $0.75 million.
Enprise has 2,340,479 shares in Datagate which if valued at the last rights issue price of $2.80 per share, values the investment at $6.55 million. This investment is currently held on the balance sheet at approximately $0.83 million as at 31 December 2022.


Vadacom investment
Vadacom Holdings Ltd (Vadacom)’s ARR and contracted revenue was $1.71 million for the nine months ended 31 December 2022. The recently released new cloud PBX phone system ‘Next Voice’ functionality continues to expand to support new and existing customers directly and through resellers. There were 1,645 users of "Next Voice" at 31 December 2022, up 189% from 2021.

Significant changes in the state of affairs
Kilimanjaro commenced legal proceedings against MYOB on 16 December 2022, alleging breach of contract in relation to MYOB's conduct and the unilateral decision to reduce the MYOB Exo margins Kilimanjaro previously received. The negative impact on the revenue from software and licenses and therefore profitability of the Kilimanjaro division for the 5 months since the disputed unilateral change in MYOB Exo margin actioned by MYOB was $0.31 million to 31 December 2022.

Datagate converted the convertible note at $2.20 per share and then did a rights issue at $2.80 per share, which Enprise participated in. The conversion and the rights issue increased Enprise's share of Datagate to 32%.

Enprise Group had a rights issue in November 2022 which issued 1,210,662 new shares rasing $1.029 million.

for and on behalf of the board

Elliot Cooper
0275615501

ENDS





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