Business News
Kofax plc Preliminary Results for the Financial Year Ended 30 June 2009
Monday 07. September 2009 - Kofax plc (LSE: KFX) (Kofax or the Company), the leading provider of document driven business process automation solutions, today announces audited Preliminary Results for the 12 months ended 30 June 2009.
Kofaxs results were clearly impacted by adverse economic conditions, which became worse as the financial year progressed. Despite these challenges, the Company experienced good progress in implementing its strategic initiatives, and now has a solid foundation to build upon and leverage.
Financial Highlights
Turnover up 9% to £185.8m (2008: £169.7m)
Software business grew 10% (declined 8% in constant currencies) to £105.5m (2008: £95.7m), with 26% growth in software services and 6% growth in software licences
Adjusted* operating profit down 16% to £14.1m (2008: £16.8m)
Adjusted* pre-tax profits down 20% to £13.9m (2008: £17.4m)
Adjusted* earnings per share of 12.1p (2008: 14.4p)
Positive operating cash generation of £9.2m (2008: £20.3m) with closing net funds of £28.3m
* For definitions of “adjusted” earnings measures, please see the Chief Financial Officers review
Operating Highlights
Upgraded much of our executive management team and senior sales leadership
Added almost 1,700 new customers, including Colgate Palmolive, DHL and France Telecom
Received widespread recognition for our market position and products
Successfully released eight new software products
Acquired OptiInvoice Digital Technology AB
Post Financial Year End Event
Acquired 170 Systems for a total consideration of $32.9m, net of cash held by the company
Strengthens Kofaxs position in the rapidly growing invoice processing market
Reynolds C. Bish, Chief Executive Officer of Kofax said: “Management and the Board are pleased with our progress in implementing Kofax’s strategic initiatives during this last financial year and the Company remains solidly cash generative with a strong balance sheet. In addition, the adverse economic conditions negatively affecting our business appear to have stabilized toward the end of this past financial year. Nonetheless, market conditions have been and continue to be challenging and difficult to predict. As a result and excluding the effect of the 170 Systems acquisition, management and the Board expect low to mid single digit organic revenue growth in the Company’s software business and flat revenues in its hardware business during the current financial year in U.S. dollars.
Chief Executive Officers Review
Financial Performance
Like many other companies, Kofax had a challenging financial year ended 30 June 2009. Total revenues grew 9% to £185.8m (2008: £169.7m) but our adjusted operating profit declined 16% to £14.1m (2008: £16.8m) and our adjusted operating profit margin declined to 7.6% (2008: 9.9%). These results benefited from favourable exchange rate movements and in constant currencies total revenues actually declined 6% and adjusted operating profit 38%.
This performance was clearly disappointing and below our expectations at the start of the financial year. Realizing the benefits of our previously implemented strategic initiatives took longer than expected, and progressively weaker global economic conditions negatively affected much of our business. In response to these developments we tightened hiring and expense controls but the resulting cost savings were insufficient to offset the lower revenues. We chose to not take more aggressive action to further reduce costs in order to continue investing in our strategic initiatives and improve the Companys future operating leverage and prospects.
On 9 February 2009 we did announce further actions to reorganize our finance, accounting and logistics functions as a result of the successful deployment of a standard global order entry and financial accounting system, and to facilitate greater efficiencies and productivity in our product development, management and marketing areas. As a result of these actions, we will have affected over 100 redundancies, some of which were replaced as we consolidated certain functions into fewer locations, and we recorded an exceptional charge of £3.4m in the second half of the financial year. These changes will lead to net cost savings of approximately £1.7m per year beginning in the new financial year.
Our software business revenues grew 10% to £105.5m (2008: £95.7m) but declined 8% in constant currencies, and we had an adjusted operating profit of £8.6m or 8.2% in this area. In the applications software and services portion of this business we experienced significant success in implementing our hybrid go-to-market strategy, with an increasing portion of revenues coming from direct engagements as the year progressed. We also experienced improving sales execution and performance in the Asia Pacific region, which has historically struggled. However, we saw weakness in orders flowing from our broad channel of smaller value added resellers and system integrators and, during the second half of the financial year, economic conditions in the Americas and EMEA lead to a lengthening of sales cycles and delays in decision making. These adverse trends resulted in lower than expected revenues in these important regions. Furthermore, deteriorating economic conditions throughout the year even more severely impacted sales of digital scanners on a global basis and resulted in significantly lower than expected OEM / POS software revenues.
Our hardware business revenues grew by 9% to £80.3m (2008: £74.0m) but declined 4% in constant currencies, and we had an adjusted operating profit of £5.5m or 6.8% in this area. As in our OEM / POS software business, economic conditions severely impacted sales of digital scanners on a global basis. This, combined with the increasingly competitive and price sensitive nature of the distribution portion of this business, resulted in significantly lower than expected revenues.
As a result of solid operating cash flow generation of £9.2m (2008: £20.3m), we ended the year with net funds of £28.3m (2008: £34.9m) after spending £7.8m on capital expenditures to upgrade our aging and in many cases unsupported information systems, technology and telephony infrastructure and moving to new operating headquarters. In addition we spent £4.4m to buy back 2,923,000 of the Companys ordinary shares.
Although disappointed with these results, we were nonetheless pleased with our progress in implementing and beginning to realize the benefits of our strategic initiatives and believe we have made some significant positive changes to the business. We look forward to building on this stronger foundation and delivering better results in the current and future financial years.
Operating Highlights
During this past financial year we continued implementing the strategic initiatives first announced in February of 2008. These included:
1. Renaming the Company to better leverage our best known brand and emphasize the focus on our software business,
2. Restructuring the company into vertically aligned, worldwide functions under global managers to facilitate developing and driving a comprehensive corporate strategy in a more consistent, productive and cost effective manner and
3. Reorganizing the Companys sales resources into three distinct groups better aligned with our products, markets and customers – applications software and solutions, OEM / POS software and hardware distribution and maintenance in EMEA – and thereby better focus our selling efforts, create clearer lines of authority, responsibility and accountability and, over time, improve sales management and productivity.
Substantially all of the actual work needed to fully drive these changes into the Company on a global basis and begin realizing the related benefits was accomplished in this most recent financial year. To support these efforts we in parallel also upgraded much of our executive management team and senior sales leadership with seasoned professionals possessing extensive enterprise software experience. This included the addition of Jim Nicol as our Executive Vice President of Products, Gene Lynes as our Chief Accounting Officer, Michael Mincieli as our Chief Information Officer, Steve Johnson as our Senior Vice President of Software & Solution Sales in the Americas, Thomas Senger and Peter Murray in that same position for EMEA and Asia Pacific, respectively, Jim Vickers as our Senior Vice President of OEM & Partner Strategy and Jim Hendrickson as our Vice President of Technical Support Services.
While transforming our business we managed to successfully add almost 1,700 new customers during this past financial year. Major customer wins during the period included Belgiums Ministry of Finance, Colgate Palmolive, Credit Agricole, DHL, Euro Information, France Telecom, Statistics Indonesia, Italys Guardia de Finanza, Mailsource, New South Wales Department of Health, US Bureau of the Census and Schering Plough.
During the year we were also pleased to again receive widespread recognition for our market position and products. This included:
A “Top Trend-Setting Product of 2008” award for our Kofax Capture 8.0 software from KMWorld Magazine,
A “Capture Product of the Year” award for Kofax Capture 8.0 at the 2008 Annual DM Awards sponsored by Document Manager Magazine,
Our Kofax Communication Server software being recognized as the global leader in the production fax market by Davidson Consulting, with nearly a 30 percent market share,
Kofax being named as the Outstanding Public Company of the Year at TechAmericas 2009 High-Tech Innovation Awards,
The Company being recognized as one of the “100 Companies That Matter in Knowledge Management in 2009” by KMWorld Magazine,
The Company being named to Software Magazines 26th Annual “Software 500” ranking of the worlds largest software and service providers and
Kofax again being recognized as the global leader in the capture software and services market by Harvey Spencer Associates, with a 30 percent share of the batch image capture segment and ten percent share of the overall market.
In this past financial year we also successfully released eight new software products in support of our strategic initiatives and revenue growth strategies:
Kofax Transformation Modules 3.5 and 4.0, new releases that combine the Company’s Ascent Xtrata Pro and INDICIUS products under one re-branded platform and now offer the world’s most complete and versatile solution for automated document classification and data extraction.
Kofax Document Exchange Server 2.0, a new release of the Companys enterprise ready solution for extending back-office capture to front-office environments with enhanced ease-of-use, administration and performance.
Kofax Monitor, a new module that provides real time, enterprise level monitoring and metrics to better optimize the performance of Kofax software and solutions.
Kofax Express, a new, all-in-one application that offers the world’s most advanced scan-to-archive solution with the fast, easy-to-use capabilities needed to address basic batch image capture requirements.
Kofax Desktop, a new, entry-level desktop scanning product that makes scanning as easy as printing by seamlessly embedding these capabilities within Microsoft Office 2007 applications and thereby extending our offerings to address personal productivity and collaboration needs.
Kofax Communication Server 8.1 and Kofax Communication Server – FoIP 3.0, two new releases that offer the enhanced receipt, exchange and output of business critical information between applications, devices and people and improved FoIP capabilities, and re-brand the Companys TOPCALL Communication Server products.
To augment our internal product development we acquired OptiInvoice Digital Technology AB, a Scandinavian company that developed software to facilitate the processing of electronic invoices, in October of 2009 for £1.67 million in cash and further conditional payments subject to certain performance criteria and the retention of certain employees. Processing electronic invoices has become more important as companies and government agencies migrate from paper to electronic invoices in order to improve efficiency and lower costs. The OptiInvoice and Kofax software products were successfully integrated and released as Kofax e-Transactions shortly following the acquisition.
Following the close of this past financial year in September of 2009 we also acquired 170 Systems, Inc., a U.S. based company and leading provider of financial process automation software, for a total consideration of $32.9m (£20.2m), net of cash held by the company. The company’s flagship product, the 170 MarkView Financial Suite, is a proven workflow solution for invoice processing and accounts payable functions that is fully integrated and certified for use with both SAPs and Oracles enterprise resource planning (ERP) software. This is complemented by 170 MarkView Advisor, the industry’s first real time financial process performance management and cash flow optimization software, and SupplierExpress, a hosted software application that streamlines supplier interaction and enables timely, accurate payments. As long time business partners, the 170 Systems and Kofax software products have been successfully integrated for some time now and deployed at numerous customer sites.
Both of these acquisitions are consistent with Kofaxs stated acquisition strategy and position the Company for leadership in the important and rapidly growing invoice processing market. The combination of OptiInvoice, 170 Systems and our existing Kofax Capture and Transformation Modules software will now allow us to provide a complete invoice processing solution that incorporates paper as well as electronic invoice capture and accounts payable workflow capabilities.
Corporate Mission & Strategies
During this past financial year weve come to realize that “intelligent capture and exchange solutions” doesnt best describe what our products actually do, the benefits we provide to our customers or our future direction. After reflecting on this as well as underlying trends in the broader enterprise software market weve restated Kofaxs mission as follows: To be the leading provider of document driven business process automation solutions.
All the solutions weve historically provided automate what were previously manual paper based business processes. As evidenced by the acquisitions described above, were now also focused on enhancing our solutions to incorporate electronic sources of those very same documents while also automating related, synergistic business processes. In essence, to provide more complete solutions that better meet our customers needs and provide an even higher value proposition. This will ultimately lead us into the more mainstream business process automation market and significantly expand our opportunities.
As a result, our corporate objectives are to:
1. Deliver organic software business revenue growth that meets or exceeds capture market growth rates while maintaining our hardware business revenues,
2. Continue transforming both our software and hardware business models to improve their profit margins,
3. Control costs to meet or exceed Company profit objectives and
4. Augment our organic revenue growth with carefully selected, strategic acquisitions of software companies and products.
Specific revenue growth strategies include:
1. Growing our market share in the “back office” or batch image and transaction capture market segments by better leveraging our channel partners and large installed base of customers,
2. Establishing a top five position in the “front office” or ad hoc image and transaction capture market segments by further leveraging our channel partners and installed base of customers,
3. Expanding our overall market reach by accelerating the transition to a hybrid go-to-market model,
4. Increasing our OEM / POS software revenues by introducing new product offerings and
5. Exploiting growth opportunities in our hardware distribution business by adding to our existing product offerings.
Weve made a great deal of progress during this past financial year and have created a solid foundation for more aggressively pursuing these strategies during the new and future financial years.
Board Changes
On 1 April 2009 John Alexander retired as a Non-Executive member of the Board of Directors and was replaced by Joe Rose, who was subsequently appointed as a member of the Remuneration and Nominating Committees. Along with the rest of the Board, I thank John for his many years of service as a Director and wish him well in his other activities.
Outlook
Management and the Board are pleased with our progress in implementing Kofax’s strategic initiatives during this last financial year and the Company remains solidly cash generative with a strong balance sheet. In addition, the adverse economic conditions negatively affecting our business appear to have stabilized toward the end of this past financial year. Nonetheless, market conditions have been and continue to be challenging and difficult to predict. As a result and excluding the effect of the 170 Systems acquisition, management and the Board expect low to mid single digit organic revenue growth in the Company’s software business and flat revenues in its hardware business during the current financial year in U.S. dollars.
Thank You
Our performance is the direct result of the dedication and hard work of our valued employees, channel partners and suppliers, and the continued support of our customers and shareholders. I would like to sincerely thank all of these stakeholders for their ongoing contributions to our success.
Reynolds C. Bish
Chief Executive Officer
3 September 2009
Chief Financial Officers Review
Overview
This last financial year was full of changing market conditions and operational challenges. The general economic situation around the globe deteriorated as the year progressed, resulting in a more difficult sales environment with generally lower levels of capital expenditures, increased project cancellations and longer sales cycles. While our solutions provide a very fast return on investment, we were certainly not immune to the impact of these changing circumstances. As a result, we did not achieve the level of revenues and profits anticipated at the start of the year; but met the revised targets communicated in early May 2009.
As we continued transforming the Company, we made significant progress with our hybrid go to market strategy as evidenced by substantially increasing revenues from direct sales. To support this transition, we invested significant amounts in upgrading our corporate infrastructure as planned and announced last year. We successfully deployed a standard global accounting and order entry system which will result in many significant benefits for the Company in the coming years, including reductions in our general and administrative expenses and much greater visibility as well as faster access to key financial metrics. These changes have also enabled us to reduce and centralise our accounting staff into fewer offices and reduce our hardware warehouses from 19 to 6 locations while maintaining our existing rapid delivery times. This should lead to better inventory management and lower administration costs in the future as a result.
On top of this we implemented a global treasury and cash management function which provides greater cash visibility, easier access to our global funds and better cash management. Finally we relocated and expanded our operating headquarters in Irvine into two new buildings. This relocation allowed us to expand our operations at a lower cost per square foot than what we previously paid due to the very weak commercial real estate market in most of the United States.
All of the above mentioned changes will result in a much stronger and more stable basis for the Companys future growth.
The results for the last financial year were as follows: Total revenues grew by 9% during the period. Our software business grew 10% during the period, much of which was achieved through favourable exchange rate movements, as both the US dollar and Euro appreciated substantially against the Pound Sterling, and a 26% increase in services revenues. The hardware business achieved a growth rate of 9% for the period, solely as result of favourable exchange rate movements.
Mainly as a result of weaknesses in our OEM / POS software business coupled with the effects of realigning the organization and investing in our corporate infrastructure, our adjusted operating profits declined by 16% to £14.1m. Cash flow from operations, although lower, remained solid at £9.2m before restructuring costs.
Trading Results
For the year revenues grew by 9% to £185.8m (2008: £169.7m). In constant currency terms, total revenues declined by 6%. The software business grew by 10% but in constant currency terms declined by 8%. Our application software licence revenues increased 6% (a 10% decrease in constant currencies) and our applications software services revenues increased by 26% (a 4% growth in constant currencies). The growth in services was largely driven by an increase in software maintenance revenues. As mentioned during the year, our OEM / POS software business was substantially impacted by the poor economic environment. Revenues declined 16% (a 32% decrease in constant currencies). Our total software business revenues now amount to £105.5m and represent 57% of total revenues. The remaining revenue is derived from our hardware distribution and maintenance business which grew 9% (a 4% decrease in constant currency terms).
Adjusted operating profit declined by 16% from £16.8m to £14.1m (a decrease of 38% in constant currencies). As most of our profits arise in the US, we benefitted from the strengthening of the US dollar against the Pound Sterling causing our US profits to be translated into higher Pound Sterling amounts. Our net operating profit decreased to £7.1m (£9.4m in the previous financial year). Cost of sales increased to £88.5m from £75.8m due to exchange rate movements and a changing composition. Total operating expenses increased from £84.6m to £90.1m, up 7% due to increased personnel expenses and exchange rate movements. Amortisation of acquired intangible assets, included under operating expenses, increased to £2.7m from £2.3m due to the acquisition of OptiInvoice Digital Technology AB. Share based payment charges increased to £0.8m compared to £0.3m in the previous year. The prior year charge was comparably low as forfeitures of share-based incentives increased as a result of our reorganization. In addition, we incurred an exceptional charge of £3.4m in the second half of the year ended 30 June 2009 (2008: £4.8m) related to restructuring the organization. The restructuring affects our sales function as we transition to a more direct sales model, our research and development functions as we realign the related resources and finally our general and administrative functions as a result of centralising various back office services. These reorganisations and related headcount reductions will be completed in the second half of the new financial year. The charge is approximately £1.2m higher compared to what we previously indicated at the time of the Interim Results announcement in February 2009. The difference is mainly due to the fact that our reorganisation expands into the current financial year and includes more headcount, especially within R&D and Sales.
In the first half of this past financial year, adjusted operating profit was £6.6m, a margin of 7.3% on total revenues of £89.7m. Results in the second half contributed an adjusted operating profit of £7.5m or 7.8% on total revenues of £96.1m. This split reflects our seasonal sales pattern with a slow first quarter followed by significantly stronger subsequent quarters.
Reconciliation of Adjusted Profit
Year Ended 30 June
2009
EPS in
pence
2009
£000
2008
EPS in
pence
2008
£000
Profit for the period attributable to the equity holders of the parent 6.2 5,136 4.0 3,356
Amortisation of acquired intangible assets 3.4 2,746 2.7 2,309
Restructuring costs 4.1 3,398 5.7 4,808
Financial instruments expense 0.3 264 3.2 2,657
Tax effect of above (1.9) (1,561) (1.2) (1,005)
Adjusted profit for the period attributable to the equity holders of the parent* 12.1 9,983 14.4 12,125
Note: charge for share-based payments deducted in arriving at adjusted profit 1.0 821 0.3 286
*Adjusted operating profit adds back the share based payment expense for the year, however adjusted profit after tax for the purposes of adjusted earnings per share includes the share based payment charge.
Adjusted earnings per share (EPS) decreased by 16% to 12.1p (2008: 14.4p). A reconciliation of adjusted profit is provided in the table above.
Basic earnings per share increased to 6.2p (2008: 4.0p). Diluted earnings per share increased to 6.2p (2008: 3.9p).
Software Business Revenue Breakdown
The table below provides a breakdown of the total software business revenues which are split into application software and OEM / POS software.
Software Business Revenue
Year Ended 30 June
2009
£m
2008
£m
%
Using
constant
currency
Application Software Licences
44.5
42.0
6%
(10%)
Application Software Services 47.4 37.6 26% 4%
Total Application Software 91.9 79.6 15% (3%)
OEM / POS Software Licences 13.6 16.1 (16%) (32%)
Total Software Business 105.5 95.7 10% (8%)
Total application software revenues grew 15% for the year, but the increase is mainly due to favourable exchange rate movements.
The OEM / POS business experienced a decline of 16%. This is attributable to two factors. First, several years ago we started to transition sales of VRS from a POS to an OEM model and to date the increase in revenue from our OEM customers has not yet offset the decline in POS sales. Secondly, the overall market for capital expenditures has declined, thus reducing scanner sales being shipped with VRS and the related OEM royalties.
Hardware Business Revenue Breakdown
Hardware revenues in total grew 9%. Similar to the Software business the increase is mainly due to favourable exchange rate movements. Hardware product revenues grew 9% and Hardware service revenues grew 7%. The performance of the Hardware business has certainly been negatively affected by the lower level of capital expenditures as a result of the recession. However based on data available to us we have substantially increased our market share with all key suppliers and therefore have strengthened our market position.
Hardware Business Revenue
Year Ended 30 June
2009
£m
2008
£m
%
Using
constant
currency
Hardware Products
57.7
52.8
9%
(4%)
Hardware Services 22.6 21.2 7% (3%)
Total Hardware Business 80.3 74.0 9% (4%)
Revenue by Geographic Segments
Revenue in the Americas increased overall by 12%. Applications software revenues grew 18% (a decrease of 2% in constant currencies), driven by a 26% increase in related services. The decline in OEM / POS revenues, most of which are included in this region, amounted to 3% (27% in constant currencies).
Total revenue in EMEA grew by 8% (a decrease of 5% in constant currencies) with a 13% growth in application software revenues (a 4% decrease in constant currencies) and 9% growth in hardware revenues (a 4% decrease in constant currencies). The performance in EMEA varied greatly by region. Revenues in the south grew, both in the software and hardware businesses and benefitted from strong execution and an increasing portion of direct sales. However we experienced substantial weakness and execution issues in the central region where we historically depended to a great extent on our channel partners, which experienced a sharp decline. The north had very strong performance, across both the software and hardware business, also benefitting from an increased focus on direct sales. Overall we believe that this was a respectable performance by our EMEA sales organization given the number of changes implemented and impact of the economic downturn.
Application software revenues in Asia Pacific increased by 18% (a decrease of 1% in constant currencies), driven equally by increases in license and software service revenues. This is even more notable as we experienced a substantial decrease in revenues during the first half of the financial year. Our new sales leadership achieved increasingly strong results, especially in the second half of the financial year and despite difficult economic circumstances.
Geographical
Regions
Year Ended 30 June
Americas
£m
%
EMEA
£m
%
Asia-
Pacific
£m
%
Total
£m
%
Application Software Licences 18.8 11% 22.4 – 3.3 18% 44.5
6%-
Application Software Services 18.3 26% 25.8 27% 3.3 18% 47.4 26%
Total Application Software 37.1 18% 48.2 13% 6.6 18% 91.9 15%
OEM / POS Software Licenses 11.4 (3%) 2.1 (46%) 0.1 (75%) 13.6 (16%)
Total Software Business 48.5 12% 50.3 8% 6.7 12% 105.5 10%
Hardware Products 57.6 10% 0.1 (50%) 57.7 9%
Hardware Services 22.4 7% 0.2 – 22.6 7%
Total Hardware Business 80.0 9% 0.3 (25%) 80.3 9%
Total Revenues 2009 48.5 12% 130.3 8% 7.0 9% 185.8 9%
Total Revenues 2008 43.2 120.1 6.4 169.7
The indicated percentage growth rates are in comparison to the previous financial year.
Research and Development Expenditures
We continued to invest in our market leading software products through research and development but have taken steps to reduce our expenditures in line with other cost reductions made in the business. For the period, research and development costs totalled £18.1m (2008: £17.4m) which represents a 4% increase compared to 14% in 2008. This increase is solely due to exchange rate movements. The majority of our research and development expenses are incurred in US dollars and as such result in higher Pound Sterling amounts due to the strengthening of the US dollar. On a constant currency basis R&D expenses decreased 12%, and represented 17% of total software revenues (18% in 2008). We plan to further reduce these expenses as a percent of total software revenues during the new financial year.
Taxation
The tax charge for the year ended 30 June 2009 of £2.3m reflects a tax rate on profit before tax of 31% (2008: 55%). This decrease is largely due to the benefits of a more efficient tax structure having been put in place. The amortisation of intangible assets, financial instruments expense and the share based payment expense are, for the most part, not deductible for tax purposes. The effective tax rate on adjusted profit before tax is reported at 28% and is generally what can be expected on a sustainable level considering the groups earnings mix and taking advantage of prior year tax losses. Adjusted profit before tax is defined as profit before tax adding back the amortisation of acquired intangible assets, reorganisation charges and financial instruments expense.
Balance Sheet
The consolidated balance sheet remained strong with shareholders equity reported at £102.3m (2008: £97.4m). The net funds position was £28.3m (2008: £34.9m), with cash and cash-equivalents of £29.9m (2008: £36.4m) held at year end.
Cash Flow
Operating cash flow generation also remained solid, although not as strong as in the prior year. During the year ended 30 June 2009, Kofax generated positive operating cash flows of £9.2m (2008: £20.3m), turning 66% (2008: 121%) of adjusted operating profit into operating cash flow. As a result of the reorganisations previously effected, the Company incurred a cash outflow of £3.2m. The remaining provision amounts to £2.3m, of which the majority will be settled in the new financial year.
Total investments in property, plant and equipment amount to £7.8m. As described earlier, the company deployed a standard global accounting and sales order entry system, which was a much needed improvement for the company, and made other significant investments to upgrade its corporate infrastructure. Therefore capital expenditures will be substantially less in future years. We also spent £1.7m on the acquisition of OptiInvoice. This, coupled with interest received and the disposal of fixed assets, results in a total cash outflow from investing activities of £8.8m.
Cash outflows from financing activities amount to £3.6m, principally due to £4.4m spent buying back 2,923,000 of our ordinary shares.
As the majority of our net cash is held in US dollars and Euros, our net cash position benefitted from retranslating those funds into Pound Sterling at favourable exchange rates.
Treasury Management
The Company has continued to generate solid cash flows. Kofaxs policy has been to fund its operations centrally through the use of retained earnings, equity and bank facilities. Material bank borrowing arrangements are negotiated by management and approved by the Board of Directors. Positive cash balances earn floating rate interest based on relevant national interbank rates.
During the year the Company has signed a credit facility of £10m with a major European bank. The credit facility remains in place until September 2011 and is unsecured.
The Company has significant overseas subsidiaries, which operate principally in their local currencies. Where appropriate, intra group borrowings are arranged in local currencies to provide a natural hedge against exchange rate movement risks.
During the year, Kofax discontinued the use of foreign currency swaps. In the prior year, Kofax used foreign currency swaps to convert the foreign currency exposure on a $25m intercompany loan to Euros. The swaps did not qualify for hedge accounting and therefore gains or losses were recorded in the income statement, and shown along with the gains or losses arising on the translation of the intercompany loan. The loss recorded in the income statement in financial year was £0.3m (£2.7m in 2008), which was more than offset by substantial gains of £4.8m (£7.3m in 2008) on currency asset translation in reserves.
Ordinary Share Matters
At the Annual General Meeting on 11 November 2008 the shareholders approved the Boards authority to buy back up to ten percent of Kofaxs issued share capital for a period of one year or the next Annual General Meeting should it occur at an earlier date. During this past financial year the Company bought back 2,923,000 of its ordinary shares at a cost of £4.4m and added those shares to the shares already held in treasury.
At the beginning of this financial year Kofax had 89.8m ordinary shares issued. During the year 0.7m shares were issued to satisfy the exercise of stock options. On 30 June 2009, the Company therefore had 90.5m ordinary shares issued, of which 5.1m were held in treasury and 3.6m were held in the Companys employee benefit trust.
Change in Reporting Currency
A relatively small portion of the Companys revenues arise in Pounds Sterling and very little of its cash is held in that currency. In addition, most of Kofaxs management is located in and manages the business from the United States. As a result, after due consideration of these and other relevant factors, management and the Board have decided to report Kofaxs financial results in US dollars on a go forward basis and, as a result, this Annual Report will be the Companys last public financial report in Pounds Sterling.
Stefan Gaiser
Chief Financial Officer
3 September 2009