P.J.
Jakovljevic
- August 16, 2002
Event Summary
Lately,
Geac Computer Corporation Limited (TSX: GAC), a large and until recently
struggling Canadian supplier of enterprise management software, has indicated
it might have finally gotten its ducks in the row not only has it posted a
few stable and profitable quarters, but the company has also shown the intent
to move away from its all but failed business model of selling maintenance and
services for outdated applications. As a result, it has a number of recent new
contract wins.
This note covers the following recent Geac announcements:
- The Extensity
and EBC Informatique acquisitions
- A contract
with ZPC Mieszko
- A contract with
Ghim Li Holdings Co Pte Ltd
- Delivery of
three new System21 products for automotive manufacturers
- Further details
on Project Aurora
- Industry response
to AnswerLink
- Financial Results
for fiscal year 2002
This
is Part One of a three-part note on recent announcements by Geac.
Part
Two will cover the Market Impact, and
Part
Three will discuss the Challenges Geac faces and make User Recommendations.
Extensity and EBC Informatique
On
August 29, Geac announced it has entered into an agreement to acquire the IBM
e-Server iSeries software assets, customer agreements and employee base
of EBC Informatique, a European hardware and software solutions provider, for
a transaction valued at Euro 2.45 million. EBC Informatique's iSeries unit will
be immediately integrated with Geac's Anael Solutions division in France.
The acquisition will significantly expand Geac's substantial presence in France's
financial management solutions market and will provide Geac with an opportunity
to deliver new software, service and support offerings to hundreds of new Geac
customers throughout the region.
Both
Geac's Anael Solutions division and EBC Informatique's software suites share
a common technology platform, the widely adopted and popular IBM e-Server iSeries,
formerly known as the IBM AS/400. With similar market segments and technology
platforms, the iSeries unit of EBC Informatique and Geac's Anael business unit
should integrate easily, enabling both companies to provide immediate new value
to their existing customers. Anael has approximately 1,800 customer implementations,
principally in France, and Geac believes to be well positioned to license the
new software suite to an expanded customer base.
Further,
on August 26, Geac announced it has entered into a definitive merger agreement
to acquire Extensity, Inc. (Nasdaq: EXTN), an Emeryville, CA-based provider
of Employee Relationship Management (ERM) solutions that automate employee-based
financial processes, for an approximate price tag of $47 million. The acquisition,
which follows a strategic alliance agreement signed by both companies in June
of 2002, should immediately enhance Geac's suite of financial management solutions.
To
date, Extensity has licensed more than 1,000,000 seats worldwide and possesses
an impressive customer list (nearly 400) including, Cisco Systems, Chase
J.P. Morgan, Merck, AstraZeneca and Office Depot. Moreover,
the two companies already share several customers, including Alliance Capital
Management and SUPERVALU, as well as a healthy prospect pipeline.
Extensity has annualized revenue of $20 million, 175 employees, no debt and
is expected to hold approximately $37 million in cash and cash equivalents at
September 30, 2002, excluding transaction costs. Extensity's product suite targets
a number of significant markets, including automated business travel and expense
reporting, billable and payroll time capture, and procurement.
In
a survey recently conducted by Geac, 73% of its customers reportedly responded
that they would purchase additional applications from Geac if available. In
particular, travel and expense management, and time capture applications were
identified as products that would be of interest to customers. To that end,
the Boards of Directors of both companies have received independent fairness
opinions respecting the financial terms of the Extensity merger from third party
financial institutions. BMO Nesbitt Burns provided the opinion to Geac,
and Broadview International LLC advised Extensity, whereas CIBC World
Markets also acted as financial advisor to Geac in connection with the transaction.
ZPC Mieszko
On
August 8, Geac Enterprise Solutions (GES), a division of Geac Computer
Corporation, announced that it has won a contract with ZPC Mieszko, one
of Poland's leading manufacturers of sweets, biscuits and crackers. Mieszko
has selected System21 Food, Geac's enterprise resource planning (ERP)
solution designed specifically for the food industry, to help it effectively
perform lot traceability and transport planning on over 50 dispatches made each
day. The system, which should incorporate financials, distribution and manufacturing
functional scope, is scheduled to be live by the end of 2002, and will be linked
to an IBM iSeries server for 48 users within Mieszko.
The solution should also provide the company with highly pertinent quality management functionality including recipe and specification management, new product development, traceability and HACCP (Hazard Analysis of Critical Control Points) with both EDI and Internet connectivity. Capabilities of System21 not found in Mieszko's prior ERP implementations include transport planning, lot traceability for finished goods, semi-finished products and raw materials, and the ability to issue goods according to FIFO (First In First Out) inventory convention. Mieszko also looks forward to introducing eCommerce and CRM applications in the future.
System21 Food should assist Mieszko with the following food industry endemic processes, specifically in the areas of packaging and goods packaging demand planning:
- Perform lot
traceability for finished goods, semi-finished products and raw materials
- Produce quick
customer identification as to where goods were sold
- Identify raw
materials for finished products
- Manage expiry
date control
- Introduce more
units of measure with conversion rates
- Dispatch goods
according to date of receipts
- Introduce alternative
technological production processes
- Increase the
number of outputs from production process
Owing
to the support for the above functional requirement, System21 Food has been
acknowledged as one of the leading products in the food industry and has helped
hundreds of organizations such as Dairy Crest, Hygrade Foods,
Lindt & Sprungli and Freshbake Foods grow their businesses and
benefit from the integration of Geac ERP solutions.
Ghim Li Holdings Co Pte Ltd
On
July 31, Geac Enterprise Solutions announced it has signed a large contract
in another System21 industry of focus apparel/garment with Ghim Li Holdings
Co Pte Ltd, a major contract garment manufacturer of quality men's, ladies
and children's wear, wanting to be better able to expand its operating efficiency
and automate many of its existing business processes across geographical boundaries.
Under terms of the agreement, Ghim Li's investment will include software licenses
for Geac's System21 Style ERP solution - including financials, manufacturing
and distribution - linked to a central IBM iSeries 820 based in the Singapore
head office. In addition to ERP, Geac will be providing consultancy and will
implement its solutions for production planning, product data management and
business intelligence. The entire project is scheduled to be completed by July
2004.
Ghim
Li manufactures on behalf of leading U.S. retailers, including Federated
Department Stores who own world-renowned Macy's and Bloomingdale's,
May department stores, Sears, Roebuck and Co., Target
stores, Mervyn's and Wal-Mart, and specialty retailers Eddie
Bauer, Charming Shoppes, and Foot Locker. Ghim Li has 13 manufacturing
operations located in Singapore, Malaysia, Indonesia, Brunei, China, Fiji and
Guatemala, and sales & marketing offices in Singapore, Hong Kong and Los Angeles.
The system is seen to support Ghim Li's move towards the centralization of finance, purchasing and production planning, with the result of soon being possible for Ghim Li's customers to have access to production and delivery status across the company's worldwide manufacturing operations. Ghim Li hopes to also soon reap financial benefits, since a centralized purchasing system should enable the company to source raw materials globally for all of its worldwide operations, and it might hereby be able to multiply its buying power rather than dilute it on a local basis, while the Geac financial system will provide consolidated accounting for the entire group's operations. This will be imperative for the company's future growth, which already has revenues of US$160 million and over 6,000 staff.
Although Ghim Li is centralizing many processes, users are set to see the benefits from local flexibility. The production-planning tool should allow users to extract product information from System21 and view all production requirements graphically on screen. The product data managementbased system can analyze the individual cost elements of manufacturing each part of the garment and in turn manage the Bill of Materials and Production Routes to encourage cost effective manufacture. Simple manipulation of production orders can then avoid any bottlenecks occurring and ensure capacity can be optimized across all production lines in real time. In this way Ghim Li can ensure customer demands can be met in conjunction with production efficiency.
New System21 Products
Tackling its third industry of focus, on August 21, Geac Enterprise Solutions announced three new System21 products designed to help automotive manufacturers cut costs by better managing internal and supplier-facing ERP data. Geac demonstrated these new products at Auto-Tech 2002, August 27-29, at The Cobo Conference Center in Detroit, MI. The new products are:
- System21
enCompass
provides a universal Web-based user interface for launching System21 applications
through a Web browser, thereby enabling users to navigate back end systems
quickly and easily.
- Key Performance
Indicator (KPI) FastPack provides an extensive overview of a company's
System21 operational data, enabling users to analyze performance measurements
and improve business processes where necessary.
- Vendor.connect
is a supplier self-service application designed to support a collaborative
relationship between System21 users and their suppliers, as it provides non-EDI
capable suppliers with a secure, Web-based connection to their customers'
requirements schedules, and supports both Advanced Shipping Notification (ASN)
generation and Vendor Managed Inventory (VMI) relationships.
Project Aurora
The
wins came on the heels of the July 25 encouraging announcement of further details
of Project Aurora -- the code name for Geac's most significant investment
in the System21 product in recent years. System21 is already well proven amongst
its 1600 customers worldwide, and Aurora, set for global release early in the
second quarter of 2003, should offer users an open, collaborative supply chain
management (SCM) solution which will exploit the newest technologies, and provide
users with access to all their business applications through a single web-based
user interface.
Following many thousands of developer days Aurora is seen to present substantial benefits and reflect Geac's strategic commitment of late to place customer focus at the center of its activities. The web-based user portal will provide users - including remote, mobile and home workers - with easy access to business applications through an intuitive, customizable desktop, ensuring increased user productivity. Multi-national organizations with complex sourcing, supply chain and accounting issues, potentially distributed across various countries and legal entities, should all benefit from Aurora. It will include new function that enables companies to review and rationalize their production, inventory, distribution and accounting organizations across international boundaries. Customers who have already deployed early versions of this function to manage their international manufacturing and fulfillment operations, have reportedly experienced benefits from increased optimization of distributed inventories, and greatly reduced transaction overheads.
Aurora
will also incorporate an update to the Geac System21 code from the traditional
RPG to the modern Integrated Language Environment (ILE)
code, supposedly providing a modular development language that will provide
flexibility, ease of upgrade and speed not only for Geac's development but also
for customers' internal IT departments. The modular nature of ILE, together
with Geac's Java-based commerce.connect applications, creates an open
ERP system, a foundation for full supply chain collaboration in local or global
trading situations.
Geac's
commerce.connect is a series of applications and infrastructure components designed
to extend the use of System21 to suppliers, customers and mobile employees.
Geac's commerce.platform further underpins commerce.connect by providing
all the necessary security, workflow and integration capabilities typically
required by companies operating in complex supply chains. commerce.connect includes
a range of applications to improve the performance of individuals involved in
critical business processes such as sales (direct sales force, call centers
and customer self-service via the web) purchasing, vendor scheduling and after
sales customer service.
AnswerLink
Furthermore,
at the end of July, Geac announced the positive feedback from industry-leading
customers, analyst groups and key influencers in the enterprise software market
with regard to its AnswerLink solution, which reportedly delivers 24
x 7 x 365 Web-based self-service support to its enterprise customers, which
represent nearly 50% of the Fortune 100 and span more than 95 countries worldwide.
Industry and market leaders have reportedly acknowledged AnswerLink's ability
to provide increasing levels of exceptional service and support to Global 2000
customers, Hitachi Automotive Products (USA), Inc., a subsidiary of Hitachi
America, Ltd., being one such company that has benefited from Geac's proactive
customer support philosophy. Hitachi Over the past four years, AnswerLink has
been instrumental in helping the company transition through product upgrades
and troubleshoot existing IT problems.
AnswerLink
allows Geac users worldwide to run their core software efficiently and solve
IT problems on their own, whenever and wherever they want. Specifically, AnswerLink
enables E Series and M Series (host/mainframe based product lines),
SmartStream (client/server product), and System21 (IBM iSeries
server based product) users to look up documentation, post questions, search
an extensive knowledgebase, download program fixes and service packs, and communicate
with other Geac users through an easy-to-use browser interface. In 2001, AnswerLink
helped address more than 59,000 cases, achieving a very high success rate in
terms of case responsiveness and resolution.
AnswerLink
is part of a larger suite of service and support offerings provided by Geac.
Other solutions include AppCare (Geac's application management outsourcing
solution), Customer Select, Professional Services Consulting and
Education Services. All of these offerings are designed to help customers
proactively seek and receive the help they need to maximize their mission-critical
operational systems.
Financial Results
On June 25, Geac reported better than expected financial results for its fiscal year 2002. While the company's revenue continues to decline, it has returned to profitability and offers a modestly optimistic outlook for fiscal 2003. The results are merely attributable to various initiatives to restore profitability undertaken since a way back in 2000, including restructuring, divestitures and facility rationalization. Revenue for the year ended April 30, 2002, was Can$719.5 million, a 14% drop compared to Can$834.8 million in fiscal 2001. Excluding revenue attributable to the company's publishing software business, which was sold on August 9, 2001, and the hotel software business, which was sold on March 31, 2001, total revenue declined by Can$85.6 million, or 10.7%, from Can$799.7 million in fiscal 2001 to Can$714.1 million in fiscal 2002.
Fiscal
2002 net income from continuing operations, however, was Can$51.8 million, compared
to a whopping net loss from continuing operations of Can$351.3 million last
year (see Figure 1). Geac's balance sheet strengthened considerably during the
quarter, as the company had approximately Can$115.7 million in cash at the end
of April. About 74% (Can$534 million) of revenues derived from the GES division,
with 57% of total revenues generated in the Americas, 35% in Europe, and 8%
in Asia Pacific region.
Figure
1.
Cost of revenues was reduced by Can$95.0 million, or 22.5%, from Can$421.6 million in fiscal year 2001 to Can$326.6 million in fiscal year 2002, as during the fourth quarter, Geac undertook a comprehensive review of its operations with the objective of reducing costs and increasing effectiveness. As a result of this effort, the company streamlined operations, centralized management of its SmartStream and System21 enterprise applications, refocused development, and reduced the size of its workforce.
Over the course of the next year, Geac will be simplifying its organizational structure and rationalizing back office general and administrative functions inherited from numerous acquisitions. At the end of this process, Geac intends to be a flatter, leaner and more nimble organization. These efforts are aimed at eliminating the processes that do not deliver tangible value and benefits for customers, retaining profitable customers, boosting the revenue derived from existing businesses, improving internal processes and reducing complexity.
The anticipated savings associated with the net restructuring and other unusual items charge of Can$41.3 million in the fourth quarter of fiscal 2002 will be approximately Can$70 million for fiscal year 2003 and approximately Can$86 million for fiscal year 2004 and annually thereafter. The company does not anticipate the need for future restructuring charges at this time. Although the restructuring, head count reductions, and office closings should improve earnings in fiscal 2003, the management is only forecasting Can$600 million in revenue for next year.
The
predictions appeared to be close to the mark based on its September 4 announcement
of Q1 2003 financial results. Revenue for the first quarter of fiscal 2003,
ended July 31, 2002, was Can$155.1 million, a 13.6% drop compared to Can$179.6
million in the corresponding period in fiscal 2002 (see Figure 2). Excluding
revenue attributable to the above-mentioned former publishing software business,
total revenue declined by Can$19.1 million, or 11.0%, from Can$174.2 million
a year ago. Software license revenue, excluding revenue attributable to the
publishing software business, declined by Can$5.4 million, or 28.4%, and support
and services revenue declined by Can$17.9 million, or 12.3%. These declines
were partially offset by a Can$4.2 million increase in revenue from the sale
of computer hardware. Net income was Can$16.2 million, compared to Can$17.0
million in the same period of the prior fiscal year. Net income as a percentage
of revenue was 10.4% in Q1 2003, an improvement from 9.5% in Q1 2002. On July
31, 2002, cash and cash equivalents totaled Can$73.8 million, compared to Can$115.7
million at April 30, 2002. The company's decline in cash resulted primarily
from the payment of Can$44.4 million in accounts payable and accrued liabilities
during the first quarter.
Figure
2.
This
concludes Part One of a three-part note on Geac. Part Two will cover the Market
Impact, and Part Three will discuss the Challenges Geac faces and make User
Recommendations.