Update on Restructure and Earnings Guidance

Attention Business Editors
For Immediate Release
March 27, 2006
Software of Excellence

Update on Restructure and Earnings Guidance

Software of Excellence directors are pleased to provide an update on the company’s outlook following the restructuring of the company’s Enterprise operations, as announced in November, 2005.

Enterprise restructure:

The restructuring programme has been progressing effectively and in line with management’s planning for the exercise. The sale of the Company’s Asia-Pacific Enterprise business to Spark Technologies has been completed. Spark Technologies is owned and operated by Paul Weatherly, a former director of Software of Excellence. The management buy-in of GSD, the Company’s United States Enterprise operations is also completed, leaving SOEI with a 49% interest in the ongoing operations. The management buy-in was lead by John Burns.

The financial impact of the restructuring is summarised below:

Cost savings:

Total monthly cost savings of some $152,000 a month, or $1.8 million a year, are now in place. This compares with the estimate made in November that annual savings of between $1.5 million and $1.9 million would be achieved.

These overall cost savings reflect savings in New Zealand-based salaries, related indirect costs in New Zealand and the removal of costs flowing from the disestablishment of the US sales and marketing roles within the former US-based enterprise business unit, GSD.

Restructuring costs:

In November the company estimated that the resulting write-downs and restructuring costs were expected to be up to $3 million in respect of the current year. This included direct costs of the restructure (including redundancy and client obligations) and also the write down of certain intangible assets.

As a result of the management buy-in to 51% of GSD, SOEI will reduce the carrying value of GSD in full, inclusive of its market entry costs which will be capitalised, resulting in a write down for the 2006 financial year of approximately $4.2 million.

The company is currently reviewing the carrying value of Soel Focus, its US groups’ product, with a view to also write it down. Its current carrying value is $600,000.

SOEI now estimates that the total costs of the restructure that will be included in the 2006 financial results will be in the range of $6.5 million to $7.2 million.

Oasis Acquisition:

In December the Company acquired the Australian company, Oasis Software Pty Limited (“Oasis”) a move which saw it become market leader with a total of 1400 sites in that market. The Oasis acquisition has gone smoothly with nearly four months trading now having passed. All financial targets had either been met or exceeded with the company working towards the earn-out criteria set for its first 12 months of trading.

FY2006 Outlook:

The following updates the company’s projections for the year to March 31, 2006:

Professional business unit revenues:

In November these were predicted to be between $18 million and $19 million for the year to March 31, 2006.

SOEI now expects that Professional revenues will be at the high end of this projection and may exceed it with the benefit of sales from the Oasis acquisition. SOEI has experienced strong sales and installations in its UK market, which now accounts for approximately 85% of its Professional revenues. The company is looking to install approximately 230 systems in the quarter ending March 31, 2006, up 114 units or 117% on the same period last year. At the end of February the company had yet-to-be installed Professional orders worth approximately $3.5 million in the UK.

The Professional business is being driven by the UK Government’s “Options for Change Programme”, which has stimulated short-term product demand in advance of the proposed March 31, 2006 cut-over date. “Options for Change” is subject to political considerations, which may impact on future business volumes.

Performance of GSD:

Since restructuring and the change of product strategies, GSD has been cash flow positive. John Burns stated: “I’m pleased that following the restructure GSD has been successful in securing several contracts for incremental software deliveries including a significant upgrade for Mississippi School of Dentistry.”

Cash reserves:

In November it was estimated that the company would have cash reserves of $8.0 million to $8.5 million as at March 31, 2006. Since this estimate, SOEI announced the acquisition of the Australian dental software company, Oasis, for an initial consideration of A$1.8 million (with a further A$0.5 million subject to earn-out).

The company expects its cash reserves to be between $7.5 million and $8.5 million at March 31, 2006.

March 31, 2007 business Outlook

Following the finalisation of the Enterprise restructure, the 2007 financial year will see SOEI with a primary Professional focus, retaining only a minority interest in the ongoing operations of GSD. This move will provide greater visibility on future earnings due to the more predictable nature of Professional revenues.

Revenue growth:

The historical growth rate for the company’s Professional business has exceeded 15 per cent per annum and now that a purely Professional focus has been adopted, this is expected to be at least maintained in the year to March 31, 2007.

Recurring revenues from the Professional business for the year to March 31, 2006 is expected to fall within the 48% to 51% of the total Professional revenue guideline given in November. In the March 2007 year recurring revenue will also benefit from the high level of Professional sales being achieved in the current quarter.

EBITDA margins:

In November the company indicated a targeted EBITDA margin of 20% for the company’s business (excluding GSD). This target return is before any capitalisation of product development costs.

The company has exceeded this targeted return over the current quarter, primarily as a result of the strong installation rates in the UK market.

Whilst SOEI anticipates a moderation in the UK market following the “Options for Change” cut-over date of March 31, 2006, it is continuing to target an EBITDA margin (excluding GSD) of 20% for the 2007 financial year.

Comments:

SOEI Chief Executive Brian Weatherly said that the restructuring of the company’s Enterprise business had now effectively been completed, with the Asia-Pacific Enterprise business unit sold and the US Enterprise business established as a 49% owned stand-alone profit centre.

“At this stage we are pleased with what has been achieved in terms of restructuring the business to have a Professional focus.

“The current performance of the business in the UK is pleasing and Professional sales in Australia are running ahead of the budgets set at the time of the Oasis acquisition.”

ENDS

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