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Orbital Soft Hldgs (ORB)

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Wednesday 15 August, 2001

Orbital Soft Hldgs

1st Qtr Results/Strat.Review

Orbital Software Holdings PLC
15 August 2001



For Immediate Release                           15 August 2001


ANNOUNCES STRATEGIC REVIEW UPDATE & FIRST QUARTER RESULTS
FOR THE PERIOD ENDED 30 JUNE 2001

2 new customer wins for Organik - Atofina & Textron

Edinburgh, UK - 15 August  2001 - Orbital Software Holdings plc (LSE: ORB),
Orbital Software, a leading provider of scalable, person-to-person Q&A
infrastructure for corporate portals, today reports its financial results for
the first fiscal quarter ended 30 June 2001 (Q1 FY02).


On 10 July 2001, the Company announced that the results for the three months
to June 30th (Q1 FY 02) were likely to be significantly below market
expectations.  As a result the Company has commenced a full review of its
strategic options. This process is ongoing and will be completed in due
course. At this time, we feel it is appropriate to communicate the two areas
we have been considering.  Firstly, we have looked at how to improve business
performance and, in particular, how we can improve our value proposition to
customers in order to reduce the sales cycle.  This work has been in progress
for several months and concluded in August with assistance from the Chasm
Group.  A detailed action plan is being prepared and its implications will be
presented on completion.



Secondly, we have been considering options that can deliver increased
shareholder value by using our software technology, customer base, TechMark
quote, our cash reserves and our quality shareholder base. The belief is that
we can deliver this by pursuing an M&A strategy.  The type of companies we are
considering are ones with complementary technology and a customer base that
would allow us to increase revenues more quickly.  The ultimate aim of any
transaction would be to bring forward profitability. During the last few weeks
we have had discussions with several potentially suitable companies.  Beeson
Gregory and Broadview Associates are assisting the Board with this process.
Should any of these discussions lead to a conclusion we will immediately
inform the Market.

As a preliminary measure, pending the final outcome of the strategic review, the
Board has significantly reduced the Company's current and budgeted cost base
since the beginning of Q1.  We have reduced the planned level of spend for the
current year by approximately 40% from the original budget.  This has been
mainly achieved by a reduction in headcount and a cut back in marketing spend.
Our current level of investment, we believe, represents the minimum necessary to
sustain value in the Company and to give the Board maximum flexibility in
exploring all strategic options.

Financial Review:
Revenues for the quarter totalled £146,023, compared with £146,736 for Q1 FY01
and sales of £402,000 for Q4 FY01.  The US accounted for 74% of these revenues
with the balance being generated from European sales.

Gross profits for the quarter were £139,020, compared with £142,833 for Q1 FY01.
Net Loss for Q1 FY02 was £2,089,837, or 5p per share, compared to net loss of
£807,819 for Q1 FY01.  These losses reflect the previously planned level of
investment in sales and marketing and the difficult trading conditions
encountered in the quarter.

Cash and cash equivalents totalled approximately £15 million at 30 June 2001,
compared to £17 million at 31 March 2001.

Operational Review:

The Group:
At the end of the quarter, a total of 38 sites have deployed Organik, up from 36
at the end of the previous quarter.

Sales:
The Board has spent a significant amount of time and effort on the restructuring
of the sales teams over the last quarter.   This has resulted in a layer of
management being removed, with the sales teams now directly answerable to, and
in turn driven, by their heads of departments.  This restructuring has resulted
in a larger percentage of the overall sales team carrying full sales quotas and
the headcount now stands at 18 - 9 in the US and 9 working across Europe (Q1 FY
01:  5 in US and 3 in Europe).  The majority of the team have joined us within
the last quarter and will become fully effective during this quarter and next. 
The sales team is now at full strength for the year.

We continue to pursue our strategy of building a channel for Organik.  We have
added four new partners during the quarter and are actively working on sales
prospects with three of them.

Management:

Following the planned departure of Joan Saywood, I am delighted that John Swan
has joined Orbital Software as Chief Financial Officer. Since the year-end
Kevin Dorren has resigned as Chief Executive Officer and Brian Gray, Chief
Operating Officer, has assumed the responsibilities of Chief Executive Officer
as an interim measure. Due to our increased emphasis on providing a higher
lever of customer service Orbital has created a new group, Customer Support.
This is a vital addition to Orbital as it helps ensure deployments are
successful and provides a solid platform for our partners to work with
Orbital. As announced following the end of the period under review, a VP of
Customer Support has recently been appointed, Ian Bruce, who now heads up this
department.

Clients:

Since the end of the quarter under review, it was announced that following a
successful phase one deployment, Ericsson Research is to extend Orbital's
Organik knowledge sharing and collaboration software solution as it prepares
the application for global use.    Initially, Ericsson has purchased an
additional 1,000 seats for deployment within its R&D group.  It expects this
additional investment to generate pay back within 1 year.  The extension of
this deal further demonstrates Organik's acceptance in the marketplace.



Orbital can also today announce it has completed a first phase deployment for
Atofina.  Atofina is the petrochemical branch of TotalFinaElf, the recently
merged multinational, with 147,000 employees worldwide.  Organik is being used
in Petrochemical R&D in Belgium, France & US. Notably, the Atofina application
of Organik is bilingual and is believed to be the first of its kind in the
world. The Atofina deployment was completed in Q1 with the revenue from the
650-seat deployment being realised both in Q4, FY 01 and Q1, FY 02.



Also announced today, another exciting addition to the Orbital client list in
Q1 is a 300 seat, phase one deployment with US giant Textron.  Textron is a
$13 billion, global, multi-industry company with market-leading businesses in
Aircraft, Automotive, Industrial Products, Fastening Systems and Finance.
Textron has a workforce of 70,000 employees and major manufacturing facilities
in 30 countries.

Outlook
As stated in the trading statement released in July, market conditions remain
uncertain due to the current economic climate and the ensuing lengthening of the
sales cycle for enterprise wide applications.  The sales pipeline is growing,
however we expect the current quarter to be flat compared to Q1. Overall,
interest in Organik remains strong and the Directors believe that the prospects
for Orbital's innovative technology remain promising in the long term.

The Board expects to see quarter on quarter sales growth returning to the
business in the medium term and despite the upheavals of the last few months,
the Board looks forward to reporting more positive news to you in the future.

Ian Ritchie
Chairman                           15 August 2001


For further information, please contact:

Orbital Software                  Tel:    +44 (0) 131 348 3000
Brian Gray, CEO
Calum Smeaton, CTO

Buchanan Communications
Nicola How                        Tel:    +44 (0) 7956 597 099
Edward Cowdery                            +44 (0) 20 7466 5000

Beeson Gregory                    Tel:    +44 (0) 20 7488 4040
Tom Price

Orbital Software Holdings plc

                     Consolidated profit and loss account

                      for the quarter ended 30 June 2001


                                           Quarter to   Quarter to   Year ended
                                              30 June      30 June     31 March
                                                 2001         2000        2001
                                                    £          £            £
                                                                 
Turnover                                      146,023      146,736    1,090,018
Cost of sales                                 (7,003)      (3,903)     (23,512)
                                          ___________  ___________  ___________
Gross profit                                  139,020      142,833    1,066,506
Other operating expenses (net)            (2,451,660)    (951,103)  (7,597,504)
                                          ___________  ___________  ___________
Operating loss                            (2,312,640)    (808,270)  (6,530,998)
Interest receivable                           224,644       60,216      691,019
Interest payable and similar charges          (1,841)     (27,003)     (33,589)
                                          ___________  ___________  ___________
Loss on ordinary activities before        (2,089,837)    (775,057)  (5,873,568)
taxation
Tax on loss on ordinary activities                  -            -            -
                                          ___________  ___________  ___________
Loss on ordinary activities after         (2,089,837)    (775,057)  (5,873,568)
taxation
'A' ordinary share appropriation                    -     (32,762)     (81,433)
(non-equity)
                                          ___________  ___________  ___________
Loss for the financial period             (2,089,837)    (807,819)  (5,955,001)
                                          ___________  ___________  ___________
Loss per share
Basic                                          (0.05)       (0.59)       (0.27)
Diluted                                        (0.05)       (0.59)       (0.27)
                                          ___________  ___________  ___________


All of the group's activities were continuing operations in all periods.

         Consolidated statement of total recognised gains and losses

                                               Quarter to Quarter to Year ended
                                                  30 June    30 June   31 March
                                                     2001       2000       2001
                                                        £          £          £

Loss for the financial period                 (2,089,837)  (807,819)(5,955,001)
Currency translation difference on foreign        (7,702)    (4,443)   (58,103)
currency net investment
                                             ___________ ___________ ___________
Total losses recognised since last period     (2,097,539)  (812,262) (6,013,104)
                                             ___________ ___________ ___________


                        Orbital Software Holdings plc

                          Consolidated balance sheet

                              as at 30 June 2001


                                                  As at       As at       As at
                                                30 June     30 June    31 March
                                                   2001        2000      2001
                                                     £           £           £
Fixed assets
Tangible assets                                 444,368     219,506     449,035
                                            ___________ ___________ ___________
                                                444,368     219,506     449,035
Current assets

Debtors                                       1,282,981     556,960   1,750,325
Cash at bank and in hand                     14,961,177   5,780,003  17,085,782
                                            ___________ ___________ ___________
                                             16,244,158   6,336,963  18,836,107
                                            ___________ ___________ ___________

Creditors: Amounts falling due within one   (1,049,788)   (398,905) (1,539,490)
year
                                            ___________ ___________ ___________
Net current assets                           15,194,370   5,938,058  17,296,617
                                            ___________ ___________ ___________
Creditors: Amounts falling due after more      (37,500)    (75,000)    (46,875)
than one year
Provisions for liabilities and charges                -           -           -
                                            ___________ ___________ ___________
Net assets                                   15,601,238   6,082,564  17,698,777
                                            ___________ ___________ ___________
Capital and reserves
Called up share capital                       2,250,296     147,723   2,250,296
Share premium account                        14,665,811  10,998,175  14,665,811
Other reserves                               11,046,846           -  11,046,846
Profit and loss account                    (12,361,715) (5,063,334) (10,264,176)
                                            ___________ ___________ ___________
Shareholders' funds                          15,601,238   6,082,564  17,698,777
                                            ___________ ___________ ___________

Equity shareholders' funds                   15,601,238 (5,013,249)  17,698,777
Non-equity shareholders' funds                        -  11,095,813           -
                                            ___________ ___________ ___________
                                             15,601,238   6,082,564  17,698,777
                                            ___________ ___________ ___________




                        Orbital Software Holdings plc

                       Consolidated cash flow statement

                       For the year ended 31 March 2001


                                             Quarter to  Quarter to  Year ended
                                                30 June     30 June    31 March
                                                   2001        2000        2001
                                                      £           £           £
                                                                 
Operating loss                               (2,312,640)   (808,270) (6,530,998)
Depreciation charges                             58,925      65,474     201,730
Loss on sale of tangible fixed assets                 -      45,401      45,401
(Increase)/decrease in debtors                  420,005   (345,192) (1,282,268)
Increase/(decrease) in creditors              (489,703)      89,879   1,230,464
                                             ___________ ___________ ___________
Net cash outflow from operating activities   (2,323,413)   (952,708) (6,335,671)
Returns on investment and servicing of
finance
Interest receivable                             271,983      36,600     410,028
Interest payable                                (1,841)    (27,003)    (33,589)
                                             ___________ ___________ ___________
Net cash inflow from returns on investment
and servicing of finance                        270,142       9,597     376,439

Taxation received/(paid)                              -           -           -

Capital expenditure
Purchase of tangible fixed assets              (54,257)    (89,216)   (453,915)
                                             ___________ ___________ ___________
Net cash outflow before financing            (2,107,528) (1,032,327) (6,413,147)
                                             ___________ ___________ ___________
Financing
(Decrease) in short term borrowings                   -   (840,371)   (840,371)
(Decrease)/increase in long term borrowings     (9,375)   (239,618)   (267,743)
Translation difference                          (7,702)     (4,443)    (58,103)
Proceeds from issue of shares                         -   7,624,697  24,393,081
Share issue costs                                     -    (51,731)    (51,731)
                                             ___________ ___________ ___________
Net cash (outflow)/inflow from financing       (17,077)   6,488,534  23,175,133
                                             ___________ ___________ ___________
Increase in cash in the period               (2,124,605)   5,456,207  16,761,986
                                             ___________ ___________ ___________
Reconciliation of net cash flow to movement
in net debt
Net (debt)/cash at beginning of the period   17,001,407   (868,693)   (868,693)
Increase in cash in the period               (2,124,605)   5,456,207  16,761,986
Decrease in short term borrowings                     -     840,371     840,371
Decrease in long term borrowings                  9,375     239,618     267,743
                                             ___________ ___________ ___________
Net cash at end of period                    14,886,177   5,667,503  17,001,407
                                             ___________ ___________ ___________




                        Orbital Software Holdings plc

Notes to the interim report



1 Segmental information

                                           Quarter to  Quarter to     Year to
                                              30 June     30 June    31 March
                                                2001        2000        2001
                                                    £           £           £
Geographical segments:
Turnover by geographical destination and
origin:
UK                                             38,018      16,275     385,438
USA                                           108,005     130,461     704,580
                                          ___________ ___________ ___________
                                              146,023     146,736   1,090,018
                                          ___________ ___________ ___________
Operating loss by geographical origin:
UK                                        (1,531,702)   (648,715) (4,654,546)
USA                                         (780,938)   (159,555) (1,876,452)
                                          ___________ ___________ ___________
                                          (2,312,640)   (808,270) (6,530,998)
                                          ___________ ___________ ___________
Net assets by geographical origin:
UK                                         19,779,494   7,523,807  21,065,812
USA                                       (4,178,256) (1,441,243) (3,367,035)
                                          ___________ ___________ ___________
                                           15,601,238   6,082,564  17,698,777
                                          ___________ ___________ ___________



2 Tax on loss on ordinary activities

There is no charge for corporation tax for the period ended 30 June 2001 as a
result of losses arising in the period.

3 Loss per share

The calculation of earnings per share are based on the following losses and
number of ordinary shares:
                                           Quarter to   Quarter to      Year to

                                              30 June      30 June     31 March
                                                 2001         2000         2001
                                                    £            £            £
                                                                 
Loss for the financial period              (2,089,837)    (807,819)  (5,955,001)
Weighted average basic number of shares    45,005,920    1,370,856   21,939,270




The weighted average for the year to 31 March 2001 and the period to 30 June
2001 includes the issue of bonus shares, the share split and the shares
allotted on flotation as detailed in Note 4.

4 Share capital

By special resolution passed on 3 October 2000, it was resolved that:

(a) each of the issued and unissued ordinary shares of 10p each and A ordinary
shares of 10p each in the capital of the Company be redesignated as an
ordinary share of 10p;
(b) the authorised share capital of the Company be increased from £164,136.40
to £5,000,000 by the creation of 48,358,636 ordinary shares of 10p each, each
ranking pari passu in all respects with the existing ordinary shares of 10p
each;
(c) the sum of £1,477,228 which will be part of the sum standing to the credit
of the Company's share premium account on Admission be applied in paying up in
full 14,772,280 ordinary shares of 10p each to be allotted credited as fully
paid at par to the holders of the issued ordinary shares of 10p each on the
Company's register of members immediately prior to Admission on the basis of
10 ordinary shares of 10p or A ordinary share of 10p held; and
(d)  each of the issued and unissued ordinary shares of 10p each be subdivided
into 2 ordinary shares of 5p each.

The Company allotted 12,413,800 ordinary shares of 5p at a price of 145p per
share.  The issued share capital at the date of this report is 45,005,920
ordinary shares of 5p.  On 11 October 2000 the company was admitted to the
Official List of the UK Listing Authority.

5 Reserves

The movement on reserves are as follows:
                              Profit and loss      Share premium        Capital
                                      account            account       reserves
                                            £                  £              £

At 1 April 2001                  (10,264,176)         14,665,811     11,046,846
Retained loss for the             (2,089,837)                  -              -
period
Currency translation                  (7,702)                  -              -
                                  ___________        ___________    ___________
At 30 June 2001                  (12,361,715)         14,665,811     11,046,846
                                  ___________        ___________    ___________



6 Reconciliation of movements in shareholders' funds

                                            Quarter to  Quarter to     Year to

                                               30 June     30 June    31 March
                                                  2001       2000        2001
                                                              
                                                     £          £           £

Loss for the financial period before        (2,089,837)   (775,057) (5,873,568)
appropriations
Currency translation                           (7,702)     (4,443)    (58,103)
New share capital issued                             -   6,575,000  23,343,384
Loans converted to new share capital issued          -   1,049,697   1,049,697
Cost of issue of share capital                       -    (51,731)    (51,731)
                                            ___________ ___________ ___________
                                            (2,097,539)   6,793,466  18,409,679
Opening shareholders' funds                 17,698,777   (710,902)   (710,902)
                                            ___________ ___________ ___________
                                            15,601,238   6,082,564  17,698,777
                                            ___________ ___________ ___________



7 Basis of preparation

The results for the quarter to 30 June 2001 have been prepared on the basis of
accounting policies consistent with those set out in the audited report and
financial statements for the year ended 31 March 2001.  The trading results of
the group reflect those of Orbital Software Group Limited, which was acquired
by Orbital Software Holdings plc on 19 September 2000.  Orbital Software
Holdings plc was admitted to the Official List of the UK Listing Authority on
11 October 2000.

The results for the year to 31 March 2001 reflect a change in accounting
estimate of the useful lives of computer equipment and fixtures and fittings.
Subsequent to 31 March 2000 it was determined to provide depreciation at 33%
and 20% straight line basis on computer equipment and fixtures and fittings
respectively. Prior to 31 March 2000 the rates of depreciation were 25% on
computer equipment and 10% on fixtures and fittings, both on the reducing
balance method.  The change in the estimate of the useful lives of computer
equipment and fixtures and fittings was made to provide a more appropriate
reflection of the period over which computer equipment and fixtures and
fittings are retained and used.  The impact was to reduce operating profits by
£35,622 in the period to 31 March 2001.  The brought forward balances at as 31
March 2000 are being depreciated over the remaining period of the revised
lives.

The financial information set out above does not comprise the company's
statutory accounts.

The results for the year ended 31 March 2001 are an abridged version of the
Group's full financial statements which carried an unqualified auditors'
report and which have been filed with the Registrar of Companies.



INDEPENDENT REVIEW REPORT TO ORBITAL SOFTWARE HOLDINGS PLC



Introduction



We have been instructed by the company to review the financial information for
the three months ended 30 June 2001 which comprises the following consolidated
statements; profit and loss account, statement of recognised gains and losses,
balance sheet, cash flow statement and notes 1 to 7.  We have read the other
information contained in the interim report and considered whether it contains
any apparent misstatements or material inconsistencies with the financial
information.



Directors' responsibilities



The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors.  The directors
are responsible for preparing the interim report in accordance with the
Listing Rules of the Financial Services Authority which require that the
accounting policies and presentation applied to the interim figures should be
consistent with those applied in preparing the preceding annual accounts
except where any changes, and the reasons for them, are disclosed.



Review work performed



We conducted our review in accordance with guidance contained in Bulletin 1999
/4 issued by the Auditing Practices Board for use in the United Kingdom.  A
review consists principally of making enquiries of group management and
applying analytical procedures to the financial information and underlying
financial data and based thereon, assessing whether the accounting policies
and presentation have been consistently applied unless otherwise disclosed.  A
review excludes audit procedures such as tests of controls and verification of
assets, liabilities and transactions.  It is substantially less in scope than
an audit performed in accordance with United Kingdom Auditing Standards and
therefore provides a lower level of assurance than an audit.  Accordingly, we
do not express an audit opinion on the financial information.



Review conclusion



On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the three months
ended 30 June 2001.



Arthur Andersen

Chartered Accountants

191 West George Street

G2 2LB



15 August 2001