Released 11 September 2001
Review of Operations
The 12-month period to 30 June 2001 was a difficult time for the
technology sector in all global markets. Most IT companies suffered
from poor trading conditions as the demand for IT products and services
Prophecy International was similarly affected. A number of large
contracts that were not closed in 2000/1 are still being pursued
and will result in a substantial contribution to our half year result.
The impact on our financial performance is detailed below.
Neither the Board nor the management of the company is satisfied
with these results.
Whilst the external factors are acknowledged, there have been internal
factors that have also impacted our performance. Consequently a
number of actions have been taken to position the company for significantly
improved performance in 2001/2.
· The restructure of the company to strengthen our overseas
operations which are our biggest opportunity markets. This includes
the location of myself as CEO in North America.
· A redefinition of our marketing strategies to ensure maximum
revenue generation from existing customers and concentrated new
business development centered on our rapid application assembly
· The establishment of a consulting and training group to
increase services revenues.
· The reduction of our expense base including reduction
in non-customer related headcount and review of executive salaries.
There were a number of significant achievements in the area of
sales and marketing. These are detailed below. It is relevant to
note that whilst the volume of business was down due to overall
market conditions, these achievements confirm that there is great
potential for our products in global markets.
In declaring the annual result the Board has taken a number of
bold decisions to ensure that the company's accounts are positioned
to benefit from improved operational and financial success in 2001/2.
The Prophecy International Holdings Limited group achieved total
revenues from operating activities for the twelve months ending
30 June 2001 of $10.9m (comparative $12.8m).
The results for the year were impacted by the following decisions
by the Board.
· A doubtful debt provision of almost $1.5m made in relation
to an overseas debtor who at the date of this report appears unable
to meet its obligations.
· A change in the treatment of foreign exchange gains or
losses from the company's overseas subsidiaries, reducing revenue
by over $0.4m.
· A reversal of Future Income Tax Benefits attributable
to losses, increasing the tax charge by almost $2.3m.
These 'one-off' events have impacted on the profitability for the
year, with the group reporting a loss from ordinary activities before
tax of $3.5m and a loss from ordinary activities after tax of $4.9m.
Without these items the group would have reported a small loss of
Nevertheless the group's Financial Position remains strong, with
$8.5m in cash reserves at year-end. The group also reported a net
cash inflow from operations of $0.5m for the year. The group remains
virtually debt free.
As a result the group is well placed to take advantage of expected
improved trading conditions in 2001/2 and the opportunities that
are expected to arise from the group's new Java based technology.
Research and Development
During the year the group made significant progress in the development
of its new Java based rapid software solution technology which it
expects to release shortly.
This new product will allow the rapid assembly of 100% Java based
software solutions without the need for Java programmers and database
experts whilst retaining Prophecy's trademark flexibility and ability
to deliver maximum results in a minimum period. Most major software
projects today utilize the Java development environment and as a
result there is a shortage of Java programmers worldwide thus driving
up development costs. Our technology bypasses the need for such
costly staff, allowing instead for a business to utilize existing
IT staff to assemble solutions with greater speed and much less
risk than traditional coding methodologies.
This product is expected to enhance the appeal of the Prophecy
product set - taking it to new world markets and capitalizing on
the increasing popularity of the platform and vendor independent
Java development language. The product will be of particular appeal
for Business to Business (B2B) developments, web deployments, and
integration with legacy systems.
Prophecy has also continued to develop and enhance its existing
ProphecyOpen rapid application assembly and financials product,
and through the acquisition of UK based Tecsun Computer Services
Limited has enhanced this product set with CHRyStal, a fully featured
human resource system developed using Prophecy's own product.
Sales and Marketing
Late in the year a review was conducted of our sales marketing
plans and performance.
This review, which studied our performance in this and prior years
together with market conditions, resulted in the development of
group marketing strategies that we have begun to implement.
These strategies seek to focus more resource in growing revenue
from our installed base of over 300 global customers. Many of these
customers have indicated an interest in upgrading their existing
Prophecy products to our current product range. In addition we seek
to concentrate our efforts on our existing business partners, who
can augment our market coverage and our services capability.
The level of interest in our rapid application assembly technology
(both current and future products) remains extremely high amongst
both our existing and prospective partners. There is a major emphasis
on and expansion of strategic alliances with some of the worlds
largest IT companies, and this work is well advanced. Here we will
see our products reach vast world markets through being incorporated
into alliance partner products, or sold through their existing distributor
Further, we remain committed to search for potential acquisitions
in circumstances where the global technology is complementary to
that of Prophecy and where additional global growth can be obtained.
In endorsing these strategies, the management has accepted a business
plan whose goals include the growth of the company through organic
growth and acquisitions eight fold in the next three years. The
goals also include the shift of the company's business from being
largely direct sales to a majority of indirect sales in this period.
Furthermore the strategies call for dramatic growth in our services
revenues which will follow the IT market trend.
As early indications of the success of these actions the following
strategic customer orders were secured in the year.
· A major Australian financial institution provided orders
and revenue totaling over $2m as a result of a partnership in developing
a Framework solution.
· Electronic Data Systems (EDS) provided an order to use
the Framework for the development of a student loans system for
the US Federal Education department (further orders for this project
have been received in 2001/2).
· A major UK university provided an order for the migration
of their systems from Prophecy Classic to the current Prophecy Open
suite of applications.
In the year our services revenues were up 98% over the previous
year. Our customers recognize the technical capabilities of the
company and are seeking increased contribution from Prophecy to
leverage their investment in our products.
There is much work still to be achieved but the last quarter of
the year closed with a positive trend into the New Year.
Outlook for 2001/2
The global IT market will remain difficult based on available market
indicators. However the Board and the management believe that we
have taken the necessary actions to position the company for a return
to profit and a return to revenue growth.
The release of our Java Framework is eagerly awaited by both existing
and prospective customers and major alliance partners. Our intention
is to focus our efforts on building awareness of this world class
technology in the Australian and USA markets in 2001/2. This will
result in sustained and increasing revenue streams in the Q3/4 fiscal
Prophecy is a company in transition. We have a solid heritage of
providing applications based on leading edge technology for which
we own the intellectual property rights. We will leverage the investment
that our customers have made in that technology. Furthermore we
will demonstrate that the heritage continues with the release of
the Java Framework in early 2001/2.
We have an established international distribution network that positions
us for success in taking our new technology to market.
We have taken the essential actions to provide a platform for our
success throughout the 2001/2 period.
We are confident that this year will see Prophecy achieve its financial
objectives and return to profitability with continued positive cashflow.
The year will also confirm that we have the platform for sustained
growth over the next 3-year period with the aim of increasing shareholder