Kofax plc Interim Results – Six Months to 31 December 2009

IRVINE, Calif. -- (BUSINESS WIRE) -- Kofax plc (LSE: KFX), the leading provider of document driven business process automation solutions, today announces Interim Results for the six months ended 31 December 2009.

Financial Highlights

• Total revenues up 9% to $168.3m (2008: $154.5m)
  • Software business revenues up 17%
  • Hardware business revenues down 1%
• Adjusted EBITA* of $10.0m (2008: $11.3m)
  • Software business adjusted EBITA of $8.0m, a margin of 7.9% (2008: $5.7m)
  • Hardware business adjusted EBITA of $2.0m, a margin of 3.0% (2008: $5.6m)
• Pre-tax profits of $3.6m (2008: $9.1m)
• Adjusted earnings per share* of $.06 (2008: $.09)
• Operating cash flow before restructuring payments of $8.5m (2008: $3.4m)
• Cash of $30.9m ($48.1m at 30 June 2009)

* Further details with regard to the calculation of adjusted amounts are set out in note 7 to the financial results.

Operating Highlights

• Achieved major customer wins at Chronopost International, Defense Accounting & Finance Service, District of Columbia Public Schools, Infosys, Iron Mountain, Oakley and Pro BTP
• Acquired 170 Systems, adding accounts payable workflow capabilities and the ability to deliver a complete invoice processing solution
• Introduced new releases of Kofax Front Office Server and Kofax Transformation Modules
• Reported a 45% increase in attendance at our Transform Americas and EMEA end user customer & partner events

Commenting, Reynolds C. Bish, Chief Executive Officer of Kofax said:

“The first half of our financial year yielded very positive results, with solid organic revenue growth in our software business on both an ‘as reported’ and ‘constant’ currencies basis. This is particularly gratifying as we acquired and substantially integrated 170 Systems during this period and, despite those efforts, both businesses performed in line with our expectations. Moreover, the decline in our total adjusted EBITA masks significant underlying improvement and leverage in our software business due to an anticipated $2.1m loss from 170 Systems and lower revenues and gross profit margins in our hardware business.

“We’re pleased with the continued progress in implementing our strategic initiatives but while market conditions seem to have stabilized and started to slowly improve it’s still a very unsettled economic environment. As a result, for the full financial year ending 30 June 2010 we cautiously expect mid single digit organic growth in our software business revenues plus the contribution from the 170 Systems acquisition, and flat to a low single digit decline for our hardware business revenues. As a result, management and the Board remain confident that the full year results will be in line with our expectations.”

Webcast

There will be a webcast of the analyst presentation available on the Company’s website (http://www.kofax.com) from 2:00 pm UK time today.

About Kofax

Kofax plc (LSE: KFX) is the leading provider of document driven business process automation solutions. For more than 20 years, Kofax has provided award winning solutions that streamline the flow of information throughout an organization by managing the capture, transformation and exchange of business critical information arising in paper, fax and electronic formats in a more accurate, timely and cost effective manner. These solutions provide a rapid return on investment to thousands of customers in financial services, government, business process outsourcing, healthcare, supply chain and other markets. Kofax delivers these solutions through its own sales and service organizations, and a global network of more than 1000 authorized partners in more than 60 countries throughout the Americas, EMEA and Asia Pacific. For more information, visit www.kofax.com.

Chief Executive’s Review

Operational Overview

Two years ago we started to restructure Kofax’s business, implement new revenue growth strategies and upgrade our talent to improve the Company’s performance over time. During this period we’ve been pleased with our progress in implementing these changes but have obviously been a company in transition, experiencing success in some areas and challenges in others, and – like most firms – have suffered from a difficult economic environment. Despite our continuing caution, we believe we are now positioned to increasingly realize the benefits of these changes while having better visibility into our business and publicly report financial results that support this belief.

The first half of our financial year yielded very positive results, with total revenues in our software business growing 17% on an “as reported” basis, including the 170 Systems’ contribution, and 8% on an “organic and constant currencies” basis. This is particularly gratifying as we acquired and substantially integrated 170 Systems during this period and despite those efforts both businesses performed in line with our expectations.

The benefits of our strategic efforts have been particularly apparent in our applications software and services portion of our software business. We experienced improving sales execution and performance in the Americas and EMEA, where we won a number of very significant sales as a result of our direct sales efforts. The Asia Pacific region grew but at a lower rate than we expected. Despite this we believe its results will be as expected for the full financial year.

In our OEM / POS software business the essentially flat revenues masked the fact that these revenues actually grew on a sequential basis by more than 22% in both “as reported” and “constant” currencies when compared to the preceding half year ended 30 June 2009. As a result, we now expect continuing year over year improvements in this portion of our software business.

Our hardware business continues to be challenged by increasing price competition as a result of more digital scanners being sold through mainline hardware distributors. As a result, its revenues declined by 1% and 3% on an “as reported” and “constant” currencies basis, respectively, and we experienced lower gross profit margins.

The decline in our total adjusted operating profit masks significant underlying improvement and leverage in our software business due to an anticipated $2.1m loss arising from the 170 Systems acquisition and lower revenues and gross margins in our hardware business. We expect this leverage to become increasingly apparent during the remainder of this and the next financial years.

170 Systems Acquisition

This transaction was in line with our stated strategy of augmenting our organic growth with the acquisition of synergistic technologies or complementary companies that increase our competitive advantage or expand our market reach. In this specific case it addressed a significant competitive disadvantage we’ve publicly acknowledged and discussed in some detail over the past year.

By acquiring 170 Systems we achieved the ability to deliver the complete invoice processing solution that end users desire from a single point of procurement. This incorporates Kofax’s paper and electronic invoice capture software as well as 170 Systems’ accounts payable workflow capabilities. We believe this will allow us to gain a larger share of the rapidly growing invoice processing market which, according to Paystream Advisors, is forecasted to grow from $1.1 billion in 2008 to over $1.8 billion in 2012 at an 18.3% compound annual growth rate.

Outlook

Management and the Board remain confident in our business prospects and strategies, and the Company’s balance sheet remains strong with cash of $30.9m at 31 December 2009.

We’re pleased with the continued progress in implementing our strategic initiatives but while market conditions seem to have stabilized and started to slowly improve it’s still a very unsettled economic environment. As a result, for the full financial year ending 30 June 2010 we cautiously expect mid single digit growth in our organic software business revenues plus the contribution from the 170 Systems acquisition, and flat to a low single digit decline of our hardware business revenues. As a result, management and the Board remain confident that the full year results will be in line with our expectations.

Reynolds C. Bish
Chief Executive Officer

Financial Review

Throughout the first half of this financial year, we’ve seen strong performance in our overall software business revenues. Now that we’ve largely completed the restructuring of our software business, our efforts have been focused on improving its sales management and productivity to further enhance the prospects of future growth. The results of all these changes are starting to be seen and in September we further strengthened our software business through the acquisition of 170 Systems, which added $7.0m in revenue for the period.

Our hardware business revenues continued to decline slightly with gross margins stabilizing at the lower levels experienced during the second half of the year ended 30 June 2009.

On the operations side, we’ve also begun to see the benefits of the restructurings and the infrastructure investments made during the last two years through substantially lower general and administrative costs. Our operational focus remains on identifying cost efficiencies through further standardization of administrative activities.

Company Results

With the change in our presentation currency to the US dollar, a large portion of our revenues are no longer subject to exchange rate movements. However, we continue to trade heavily in Euros and benefited from the increase in the value of the Euro compared to the US dollar, which averaged three percent during the period.

Overall revenue was up 9% to $168.3m compared to $154.5m in the previous period. All of this growth was seen in the software business with a small portion attributable to currency exchange rates, which increased these revenues by 1% on an “as reported” basis. Further growth was achieved through the 170 Systems acquisition which generated $7.0m of incremental revenues.

Gross profit was $88.4m with an overall gross profit margin of 52.5%. International Financial Reporting Standards require acquired deferred revenues to be adjusted to fair value which reduced the recognized revenue during the period by approximately $1.4m. Without this fair value adjustment our gross profit margin would have been 53.4%.

Adjusted EBITA was lower during the period, decreasing from $11.3m to $10.0m. This decrease was caused by several factors. We realized a $2.1m anticipated loss from 170 Systems during the period and the gross margins in our hardware business, while stable compared to the second half of last financial year, decreased substantially compared to the previous period. Adjusted EPS was $.06, down from $.09 cents for the first half of the prior year.

Software Business Segment

During the first half of the year, we saw a strong performance in the software business. Much of this was achieved through significant organic growth as well as the acquisition of 170 Systems, both of which performed generally in line with our expectations.

The table below sets out the segment information for our software business in more detail.

Software business P&L 6 months to 31 December 2009		6M/FY10   $m		6M/FY09   $m		Change %		Organic & Constant Currency
Applications Software Licenses		40.9		36.9		11%		7%
Applications Software Services		48.6		37.7		29%		11%
Total Applications Software		89.5		74.6		20%		9%
OEM / POS Software		12.0		12.1		(1%)		(1%)
Total Software Business Revenue		101.5		86.7		17%		8%
Gross Profit		76.6		65.0		18%		12%
Research & Development		15.8		15.1		5%		(10%)
Sales & Marketing		37.6		27.8		35%		23%
General & Administrative		15.2		16.4		(7%)		(9%)
Total Expenses		68.6		59.3		15%		6%
Adjusted EBITA		8.0		5.7		41%		69%

Overall software revenue increased by 17% to $101.5m compared to $86.7m in the prior year. Revenue on an organic and constant currencies basis increased 8%.

Applications software license revenue increased 11% while services revenue continued its strong performance with growth of 29%. Applications software growth was seen in all regions with Asia Pacific achieving 34% growth, Americas 37% and EMEA 10%. Applications software services continued to benefit from high renewal rates and an increased focus on getting customers to reinstate expired maintenance contracts.

The economic conditions and execution challenges we’ve seen in the OEM/POS business seem to have subsided as our revenue levels remained approximately the same year over year. We expect to see further improvement in this business during the second half of the year.

Gross profit in the software business was $76.6m, which represents a gross margin of 75%. Total overheads were $68.6m. This resulted in an adjusted EBITA of $8.0m or a 7.9% margin on revenue, which should continue to improve as the benefits of the restructurings and new revenue growth strategies are realised.

Hardware Business Segment

Hardware business revenue decreased 1% to $66.8m compared to $67.8m in the prior year. Product revenue decreased by 2% while service revenue increased by 1%. Total revenue in “constant currencies” decreased 3%. The lower gross margins reflect a continuing competitive market and represent a substantial decrease compared to the first half of the prior year but remained stable compared to the second half. The increase in sales and marketing expense is largely due to reclassifications from general and administrative functions following the implementation of our new accounting and order entry system.

The table below sets out the segment information for our hardware business in more detail.

Hardware business P&L 6 months to 31 December 2009		6M/FY10   $m		6M/FY09   $m		% Change		Using Constant Currency
Hardware Products		47.8		49.0		(2%)		(4%)
Hardware Services		19.0		18.8		1%		(1%)
Total Hardware Business Revenue		66.8		67.8		(1%)		(3%)
Gross Profit		11.8		15.0		(21%)		(23%)
Sales & Marketing		6.6		5.4		22%		18%
General & Administrative		3.2		4.0		(20%)		(18%)
Total Expenses		9.8		9.4		5%		3%
Adjusted EBITA		2.0		5.6		(64%)		(67%)

Taxation

The tax charge of $2.5m equals an effective tax rate of 70%, which is primarily the result of the non-deductibility of intangible amortization and share-based payment expense. The tax charge on adjusted pre-tax profits represents an adjusted effective tax rate of 27%. The difference between the effective tax rate and the adjusted effective tax rate is due to the release of deferred tax provisions on intangible assets and the add-back of $1.8m in non-deductible share-based payments related to a one-time cancellation charge.

Earnings per Share

Basic profit per share was $.01 compared to prior year earnings of $.08. Adjusted earnings per share equaled $.06 compared to $.09 in the prior year. The adjusted earnings per share calculation excludes certain charges, including amortisation of acquired intangible assets, restructuring charges and fair value adjustments on financial instruments. Please see Notes to the Financial Statements concerning further information about the basis upon which these calculations were made.

Cash Flow

Operating cash flow before restructuring and income tax payments was $8.5m compared to $3.4m in the prior year. Operating cash flow during the first six months was strong due to improved collection efforts following our migration to a new accounting system. Total cash outflows for investments increased during the period to $21.4m from $6.9m in the prior year, due to the acquisition of 170 Systems. Total cash outflows related to financing declined to $.9m from $9.3m in the prior year as a result of the discontinuation of the share buy-back and dividend programs.

To acquire 170 Systems, we paid consideration of $32.9 million, net of $10.1 million of cash held by the company. Of that amount, $29.7 million was in cash, $9.0 million was in the form of a note payable due in September 2010 and $4.3 million was in the form of a hold back, with $2.3 million to be released in September 2010 and the remainder in September 2011, subject to certain indemnification terms and conditions.

Going Concern

The financial statements have been prepared on the basis that the company is a going concern. In connection with this presentation, the Director’s have reviewed the company’s forecasts and budgets, borrowing facilities, plans, and various other analyses to determine the level of uncertainties of the business. The use of the going concern basis of accounting is appropriate because there are no material uncertainties related to events or conditions that may cast significant doubt about the ability of the company to continue as a going concern.

Stefan Gaiser
Chief Financial Officer

Kofax plc Interim Report 2010
Condensed Consolidated Interim Income Statement
$’000		Note		6 months to 31 December 2009 unaudited			6 months to 31 December 2008 translated1)			Year to 30 June 2009 translated1)
Software Licenses				40,937			36,905			71,413
Software Services				48,589			37,738			76,115
OEM/POS				11,995			12,050			21,863
Total Software Revenue				101,521			86,693			169,391
Hardware Distribution				47,750			48,954			92,613
Hardware Services				19,053			18,827			36,191
Total Hardware Revenue				66,803			67,781			128,804
Total Revenue		3		168,324			154,474			298,195
Cost of Sales				(79,888	)		(74,425	)		(142,105	)
Gross Profit Software				76,633			65,023			130,323
Gross Profit Hardware				11,803			15,026			25,767
Total Gross Profit				88,436			80,049			156,090
Research and Development				(15,800	)		(15,098	)		(29,125	)
Sales and Marketing				(44,236	)		(33,246	)		(66,355	)
General and Administrative				(18,370	)		(20,378	)		(38,034	)
Total Expenses		4		(78,406	)		(68,722	)		(133,514	)
Adjusted operating profit before*				10,030			11,327			22,576
Amortisation of acquired intangible assets				(2,981	)		(2,083	)		(4,408	)
Restructuring costs				-			-			(5,455	)
Share-based payment expense				(2,588	)		(1,110	)		(1,318	)
Operating profit				4,461			8,134			11,395
Share of results and disposal of associated undertakings				(164	)		116			173
Finance income				39			1,306			1,432
Finance expense				(762	)		(441	)		(1,008	)
Profit before tax				3,574			9,115			11,992
Tax expense		5		(2,491	)		(2,362	)		(3,748	)
Profit for the period				1,083			6,753			8,244
Profit for the period attributable to
Equity holders of the parent
Earnings per share
> basic				1.3 c			8.1 c			10.0 c
> diluted				1.3 c			8.1 c			10.0 c
> adjusted basic				6.0 c			9.1 c			19.4 c
> adjusted diluted				6.0 c			9.0 c			19.4 c
* Adjusted operating profit is a KPI used by the group to help in assessing the underlying trading results of the Group.

1)	June 2009 and December 2008 comparative numbers have been converted as a result of the change in presentation currency as outlined in note 1. Information presented as of 30 June 2009 has been translated from audited numbers while 31 December 2008 numbers were unaudited

Condensed Consolidated Interim Statement of Comprehensive Income
$’000		Note		6 months to 31 December 2009 unaudited			6 months to 31 December 2008 translated1)			Year to 30 June 2009 translated1)
Profit for the period				1,083			6,753			8,244
Other comprehensive income/losses
Exchange gains/(losses) arising on translation of foreign operations				398			(7,669	)		(10,092	)
Actuarial gains/(losses) on defined benefit pension plans				156			(499	)		(1,012	)
Income tax effects on components of other comprehensive income				(175	)		(267	)		(453	)
Other comprehensive income/(losses) for the period, net of tax				379			(8,435	)		(11,557	)
Total comprehensive income/(losses) for the period, net of tax				1,462			(1,682	)		(3,313	)
Attributable to
Equity holders of the parent				1,462			(1,682	)		(3,313	)

1)	June 2009 and December 2008 comparative numbers have been converted as a result of the change in presentation currency as outlined in note 1. Information presented as of 30 June 2009 has been translated from audited numbers while 31 December 2008 numbers were unaudited

Condensed Consolidated Interim Statement of Financial Position
$’000		Note		At			At			At
				31 December 2009			31 December 2008			30 June 2009
				unaudited			translated1)			translated1)
Non-current assets
Intangible assets				174,201			132,469			135,218
Property, plant and equipment				9,005			10,065			9,808
Deferred tax assets				12,031			4,537			8,441
Investments				691			2,203			2,252
Other non-current assets				203			-			-
Total non-current assets				196,131			149,274			155,719
Current assets
Inventories				13,987			13,963			15,902
Trade and other receivables				110,463			77,144			95,623
Investments-current				32			596			348
Current tax assets				6,169			1,898			2,173
Cash and cash-equivalents				31,456			47,541			49,294
Total current assets				162,107			141,142			163,340
Total assets				358,238			290,416			319,059
Current liabilities
Trade and other payables				73,147			52,303			62,281
Deferred income - current				54,812			27,731			47,049
Other financial liabilities				9,483			2,203			2,531
Current tax liabilities				7,767			-			2,156
Provisions – current		8		2,087			2,780			5,531
Total current liabilities				147,296			85,017			119,548
Non-current liabilities
Other payables				3,398			2,888			3,051
Deferred income – non current				11,704			15,384			10,127
Deferred tax liabilities				16,301			10,479			10,488
Provision – non current				620			-			717
Total non-current liabilities				32,023			28,751			24,383
Total liabilities				179,319			113,768			143,931
Net assets				178,919			176,648			175,128
Capital and reserves
Share capital				4,130			4,114			4,121
Share premium account				4,310			3,632			3,880
ESOP shares				(14,478	)		(14,478	)		(14,478	)
Treasury shares				(15,980	)		(15,980	)		(15,980	)
Merger Reserve				2,835			2,835			2,835
Retained earnings				173,275			169,177			170,146
Other components of equity				24,827			27,348			24,604
Shareholder’s equity				178,919			176,648			175,128
Total equity				178,919			176,648			175,128

1)	June 2009 and December 2008 comparative numbers have been converted as a result of the change in presentation currency as outlined in note 1. Information presented as of 30 June 2009 has been translated from audited numbers while 31 December 2008 numbers were unaudited

Condensed Consolidated Interim Statement of Changes in Equity
for the six months to 31 December 2008 (translated1))
$’000		Share capital		Share premium account		ESOP shares			Treasury shares			Merger reserve		Retained earnings			Currency translation adjustment			Total equity
Group at 1 July 2008		4,093		2,661		(14,630	)		(7,878	)		2,835		163,998			35,282			186,361
Profit for the period														6,753						6,753
Other comprehensive income, net of tax														(501	)		(7,934	)		(8,435	)
Dividends paid														(2,004	)					(2,004	)
Share-based payment charge														931						931
Share buy back									(8,102	)										(8,102	)
Changes in ESOP shares						152														152
New share capital issued		21		971																992
Group at 31 December 2008		4,114		3,632		(14,478	)		(15,980	)		2,835		169,177			27,348			176,648

1)	June 2009 and December 2008 comparative numbers have been converted as a result of the change in presentation currency as outlined in note 1. Information presented as of 30 June 2009 has been translated from audited numbers while 31 December 2008 numbers were unaudited

Condensed Consolidated Interim Statement of Changes in Equity
for the six months to 30 June 2009 (translated1))
$’000		Share capital		Share premium account		ESOP shares			Treasury shares			Merger reserve		Retained earnings			Currency translation adjustment			Total equity
Group at 1 January 2009		4,114		3,632		(14,478	)		(15,980	)		2,835		169,177			27,348			176,648
Profit for the period														1,491						1,491
Other comprehensive income, net of tax														(378	)		(2,744	)		(3,122	)
Share-based payment charge														(144	)					(144	)
Changes in ESOP shares
New share capital issued		7		248																255
Group at 30 June 2009		4,121		3,880		(14,478	)		(15,980	)		2,835		170,146			24,604			175,128

1)	June 2009 and December 2008 comparative numbers have been converted as a result of the change in presentation currency as outlined in note 1. Information presented as of 30 June 2009 has been translated from audited numbers while 31 December 2008 numbers were unaudited

Condensed Consolidated Interim Statement of Changes in Equity
for the six months to 31 December 2009 (unaudited1))
$’000		Share capital		Share premium account		ESOP shares			Treasury shares			Merger reserve		Retained earnings			Currency translation adjustment		Total equity
Group at 1 July 2009		4,121		3,880		(14,478	)		(15,980	)		2,835		170,146			24,604		175,128
Change in accounting policy of 170 Systems														(752	)				(752	)
Group at 1 July 2009 (restated)		4,121		3,880		(14,478	)		(15,980	)		2,835		169,394			24,604		174,376
Profit for the period														1,083					1,083
Other comprehensive income, net of tax														156			223		379
Share-based payment charge														2,642					2,642
New share capital issued		9		430															439
Group at 31 December 2009		4,130		4,310		(14,478	)		(15,980	)		2,835		173,275			24,827		178,919

1)	June 2009 and December 2008 comparative numbers have been converted as a result of the change in presentation currency as outlined in note 1. Information presented as of 30 June 2009 has been translated from audited numbers while 31 December 2008 numbers were unaudited

Consolidated Condensed Interim Cash Flow Statement
$’000		Note		6 months to 31 December 2009 unaudited			6 months to 31 December 2008 translated1)			Year to 30 June 2009 translated1)
Cash flows from operating activities
Profit before tax				3,574			9,115			11,992
Share results from associated undertakings				164			(116	)		(173	)
Finance income				(39	)		(1,306	)		(1,432	)
Finance Expense				762			441			1,008
Depreciation and amortisation				5,583			4,111			8,702
Share-based payment expense				2,588			1,110			889
Movement in working capital				(3,782	)		(11,090	)		(11,062	)
Movement in provision				(360	)		1,139			5,211
Gain on disposal on property, plant and equipment				3			3			43
Cash generated from operations before restructuring				8,493			3,407			15,178
Payments under restructuring				(3,156	)		(2,676	)		(5,214	)
Cash generated from operations				5,337			731			9,964
Income tax paid				(1,792	)		(1,830	)		(1,926	)
Net cash inflow/(outflow) from operating activities				3,545			(1,099	)		8,038
Cash flows from investing activities
Purchase of property, plant and equipment, licences and similar rights				(2,697	)		(6,497	)		(12,508	)
Disposal of property, plant and equipment, licences and similar rights				3			14			153
Acquisition of subsidiaries, net of cash acquired		2		(19,900	)		(2,945	)		(2,681	)
Disposal of associates, net of cash disposed				1,203			-			-
Interest received				34			2,498			944
Net cash outflow from investing activities				(21,357	)		(6,930	)		(14,092	)
Cash flows from financing activities
Issue of share capital				440			1,252			1,248
(Decrease)/increase in short term borrowings				(1,297	)		(474	)		859
(Decrease)/increase in long term borrowings				(3	)		-			-
Share buy back				-			(7,538	)		(7,023	)
Dividends paid to shareholders				-			(2,378	)		(2,378	)
Capital element on finance lease payments				-			(5	)		-
Currency swap				-			-			1,621
Interest paid				(49	)		(117	)		(305	)
Net cash outflow from financing activities				(909	)		(9,260	)		(5,978	)
Net decrease in cash and cash-equivalents in the period				(18,721	)		(17,289	)		(12,032	)
Cash and cash-equivalents at start of the period				48,067			70,033			70,033
Exchange rate effects				1,542			(7,391	)		(9,934	)
Cash and cash-equivalents at the end of the period				30,888			45,353			48,067
Cash and cash-equivalents consists of:
Cash and cash-equivalents				31,456			47,541			49,294
Overdrafts				(568	)		(2,188	)		(1,227	)

1)	June 2009 and December 2008 comparative numbers have been converted as a result of the change in presentation currency as outlined in note 1. Information presented as of 30 June 2009 has been translated from audited numbers while 31 December 2008 numbers were unaudited

Notes to the Financial Statements

NOTE 1

ACCOUNTING POLICIES

1.1 BASIS OF PREPARATION

The unaudited Condensed Consolidated Interim Financial Statements for the six months ended 31 December 2009 have been prepared in accordance with IAS 34, “Interim Financial Reporting” and the Disclosure and Transparency Rules of the Financial Services Authority.

The Condensed Consolidated Interim Financial Statements do not include all information and disclosures as required in the annual financial statements, and should be read in conjunction with the Group’s Consolidated Annual Financial Statements for the year ended 30 June 2009.

The financial information contained in this interim statement does not comprise statutory financial statements within the meaning of section 435 of the UK Companies Act 2006. The financial statements for the year ended 30 June 2009, from which information has been extracted were prepared under IFRS and have been delivered to the Registrar of Companies. The report of the auditors was unqualified and did not contain a statement under section 498 of the UK Companies Act 2006.

The interim financial statements were approved by the Board of Directors on 3 February 2010.

The Group changed its presentation currency from Pound Sterling to US Dollars with effect from 1 July 2008 as a significant portion of the group’s principal assets and operations are based in the US and a fair part of its operations are conducted in US Dollars. The Group redenominated its share capital into US Dollars on 1 July 2008 and will retain all reserves in US Dollars for group presentation purposes. Group financial information for comparative periods has been restated from Pound Sterling into US Dollars in accordance with IAS 21, “The Effects of Changes in Foreign Exchange Rates”.

The Group changed the presentation of revenue, cost of sales and expense of the Condensed Consolidated Interim Income Statement in order to improve transparency of the statements and comparability to companies within the industry. Comparative periods have been presented accordingly and in line with IAS 8, “Accounting Policies, Changes in Accounting Estimates and Errors”.

The Parent will maintain their financial statements information in Pound Sterling.

1.2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accounting policies adopted in preparation of the Condensed Consolidated Interim Financial Statements are consistent with those followed in preparation of the Consolidated Annual Financial Statements for the year ended 30 June 2009 except for the new revenue recognition policy as a result of the acquisition of 170 Systems and the following adoption of new standards, amendments to the standards and interpretations which are mandatory for the financial year ending 30 June 2010 and have been adopted in these consolidated interim statements:

170 Systems generally enters into multiple-element arrangements containing software licenses, professional services and maintenance and support services. If the services have been determined to be essential to the functionality of the software, the software license revenue and consulting service revenue are bundled together and recognised over the period that the services are rendered using a percentage of completion method. The maintenance and support services are recognised ratably over the contractual period, which is generally one year and does therefore coincide with the Group’s policy in that area.

IAS 1R, “Presentation of Financial Statements” (revised)		1 January 2009
Provides an entity with a choice of presenting one performance statement (‘statement of comprehensive income’) or two statements (‘income statement’ and ‘statement of comprehensive income’). There is also a requirement to present a new financial statement (‘consolidated statement of changes in equity’), which will present information that has previously been disclosed in the notes. In addition, where entities restate or reclassify comparative information, they will be required to present a restated opening balance sheet for the earliest comparative period.

Management decided to adopt the two statement format for the statement of comprehensive income and the financial statements now include a statement of changes in equity instead of a disclosure note.

IFRS 3, “Business Combinations” (revised)		1 July 2009
IAS 27, “Consolidated and Separate Financial Statements” (revised)		1 July 2009
The revised standards were issued in January 2008, and change several aspects of the definitions of and accounting treatment for business combinations and divestments. These include requirements for the acquirer to expense direct acquisition costs as incurred; to revalue to fair value any interest it already has in the acquired company at the date on which it takes control, and record the resulting gain or loss in profit or loss; to record in profit or loss adjustments to contingent consideration which occur after completion of the purchase price allocation; to record directly in equity the effect of transactions after taking control of the acquiree which increase or decrease the acquirer's interest but do not affect control; on divesting control, to revalue any retained shareholding in the divested company at fair value and record the resulting gain or loss in profit or loss; and to attribute to non-controlling shareholders their share of any deficit in the equity of a non wholly-owned subsidiary. Management is currently assessing the potential impact on future acquisitions.

Adoption of this revised standard led to an adjustment of previously capitalized transaction costs in relation to the acquisition of 170 Systems to retained earnings in the amount of $0.8m. Additional disclosures are presented in accordance with the new requirements in note 2 below.

The adoption of other standards/interpretations that have become effective for the financial 2010 have not had an impact on these condensed consolidated interim statements.

NOTE 2

ACQUISITIONS AND DISPOSALS

Acquisitions in 2009

On 4 September 2009 Kofax acquired 100% of the shares of 170 Systems, Inc., a US company which is a leading provider of financial process automation software. With the acquisition of this company the Group has achieved the ability to deliver a complete invoice processing solution that incorporates paper as well as electronic invoice capture and A/P workflow capabilities.

The provisional fair value of the identifiable assets and liabilities of 170 Systems at acquisition date are set out below.

$‘000		Carrying value		Adjustments			Fair value
Non-current assets
PP&E		283					283
Customer list - intangible				7,129			7,129
Technology - intangible				6,666			6,666
DTA				2,369			2,369
Other non-current assets		162					162
Total non-current assets		445		16,164			16,609
$‘000		Carrying value		Adjustments			Fair value
Current assets
Cash and cash equivalents		10,454					10,454
Accounts receivable		7,111					7,111
Other current assets		911					911
Total current assets		18,476					18,476
Total assets		18,921		16,164			35,085
Current liabilities
Accounts payable		230					230
Deferred revenue		8,951		(2,046	)		6,905
Other current liabilities		4,953					4,953
Total current liabilities		14,134		(2,046	)		12,088
Non-current liabilities
Deferred tax liability				6,479			6,479
Other non-current liabilities		141					141
Total non-current liabilities		141		6,479			6,620
Total liabilities		14,275		4,433			18,708
Net assets acquired		4,646		11,731			16,377
							$‘000
Consideration paid in cash							29,700
Deferred payments							13,005
Total consideration							42,705
Goodwill arising from acquisition							26,328

The fair value of the trade receivables amounts to $7,111. None of the trade receivables have been impaired and it is expected that the full contractual amount can be collected.

The goodwill of $26,328 comprises the value of expected synergies arising from the acquisition and the workforce, which is not separately recognised. None of the goodwill recognised is expected to be deductible for income tax purposes.

From the date of acquisition, 170 Systems has contributed $7,041 of revenue and a net loss of $2,065 to the Group. If the combination had taken place at the beginning of the year, revenue from continuing operations would have been approximately $11,686 and the loss contribution would have been approximately $4,306.

Analysis of cash flows on acquisition:

$‘000
Transaction costs of the acquisition (included in the cash flow from operating activities)		200
Net cash acquired (included in the cash flows from investing activities)		19,900
Net outflow of cash relating to the acquisition		20,100

The transaction costs in 2009 amounting $0.8m have been adjusted against retained earnings following the transitional guidance of IFRS 3R, “Business Combination” while $0.2m relating to 2010 have been expensed.

Acquisitions in 2008

On 6 October 2008 the Group acquired 100% of the shares of OptiInvoice (Digital Technology AB OptiInvoice), a Scandinavian company that develops electronic invoice processing software technology.

The net assets recognised in the Group’s Consolidated Annual Financial Statements for the year ended 30 June 2009 were based on a provisional assessment of the fair value. Management has now finalized the purchase accounting for the acquisition of OptiInvoice within the 12 month window ending 6 October 2009 with no measurement period adjustments identified.

NOTE 3

OPERATING SEGMENTS

The two distinct operating and reportable segments are:

Software: Capture and exchange software automates business processes and improves business performance by capturing and transforming documents into digital format and delivering them into business applications and archives.

Hardware: The Group resells scanning and storage products to resellers. This business is only conducted in EMEA. The hardware segment includes revenue from the resale of hardware products and hardware related maintenance services.

The Group manages its two segments separately because their current or future sources of income derive from distinct markets and customers which require different manufacturing, distribution and marketing strategies.

The Group manages its business based on the key measures for resource allocation like revenue generation and adjusted operating profit. Gross Profit is not a key measure according to IFRS 8, but disclosed for additional information.

Segment assets comprise inventory balances only as these are the only asset figures included in the internal management segmental reporting.

$’000		Software		Hardware		Total
6 months to 31 December 2009 unaudited
Revenue external		101,521		66,803		168,324
Segment revenue1)
Gross profit		76,633		11,803		88,436
Adjusted operating profit2)		8,035		1,995		10,030
Amortisation of acquired intangible assets						(2,981	)
Share-based payment expense						(2,588	)
Share of results and disposal of associated undertakings						(164	)
Finance income						39
Finance expense						(762	)
Segment profit before tax						3,574
$’000		Software		Hardware		Total
6 months to 31 December 2008 translated
Revenue external		86,693		67,781		154,474
Segment revenue1)
Gross profit		65,023		15,026		80,049
Adjusted operating profit2)		5,708		5,619		11,327
Amortisation of acquired intangible assets						(2,083	)
Share-based payment expense						(1,110	)
Share of results of associated undertakings						116
Finance income						1,306
Finance expense						(441	)
Segment profit before tax						9,115
$’000		Software		Hardware		Total
Year to 30 June 2009 Translated
Revenue external		169,391		128,804		298,195
Segment revenue1)
Gross profit		130,323		25,767		156,090
Adjusted operating profit2)		13,783		8,793		22,576
Amortisation of acquired intangible assets						(4,408	)
Restructuring costs						(5,455	)
Share-based payment expense						(1,318	)
Share of results of associated undertakings						173
Finance income						1,432
Finance expense						(1,008	)
Segment profit before tax						11,992

1)	There were no intersegment revenues in the current year.
2)	Adjusted operating profit is stated before adding back amortisation of acquired intangibles, restructuring costs and the share-based payment expense. It is used by the Group as KPI to help in assessing the underlying trading.

$’000		Software		Hardware		Total
31 December 2009
Inventories		1,742		12,245		13,987
All other assets as per balance sheet						344,251
Total assets		-		-		358,238
$’000		Software		Hardware		Total
31 December 2008
Inventories		3,299		10,664		13,963
All other assets as per balance sheet						276,453
Total assets		-		-		290,416
$’000		Software		Hardware		Total
30 June 2009
Inventories		2,283		13,619		15,902
All other assets as per balance sheet						303,157
Total assets		-		-		319,059

NOTE 4

PROFIT ON OPERATING ACTIVITIES BEFORE TAXATION

$’000		6 months to 31 December		6 months to 31 December		Year to 30 June
		2009		2008		2009
		unaudited		translated		translated
Profit on ordinary activities before taxation is stated after charging:
Total staff costs		54,707		46,874		98,072
Depreciation of property, plant and equipment		2,602		2,028		4,294
Amortisation of acquired intangible assets		2,981		2,083		4,408
Restructuring charge		-		-		5,455
Loss on disposal of property, plant and equipment		3		3		43
Auditors, remuneration		687		893		1,644
Operating lease expense – minimum lease payments		3,431		3,939		7,636
Other operating expenses		19,564		16,095		23,143
Total operating expenses		83,975		71,915		144,695

NOTE 5

TAX EXPENSE

$’000		6 months to 31 December 2009			6 months to 31 December 2008			Year to 30 June 2009
		unaudited			translated			translated
Current tax
Income tax on profit for the period		4,083			1,818			4,730
Adjustments in respect of prior years		561			(62	)		291
Total current tax		4,644			1,756			5,021
Deferred tax
Origination and reversal of timing differences		(2,153	)		606			(1,284	)
Adjustments in respect of prior years		-			-			11
Total deferred tax		(2,153	)		606			(1,273	)
Total tax expense		2,491			2,362			3,748

NOTE 6

DIVIDENDS – EQUITY

		6 months to 31 December 2009 per share		6 months to 31 December 2009 $’000
In respect of – ordinary shares of 2.5p
Final dividend paid for 2009		-		-
Total dividend		-		-
		6 months to 31 December 2008 per share		6 months to 31 December 2008 $’000
In respect of – ordinary shares of 2.5p
Final dividend paid for 2008		2.79c		2,004
Total dividend		2.79c		2,004
		Year to 30 June 2009 per share		Year to 30 June 2009 $’000
In respect of – ordinary shares of 2.5p
Interim dividend paid for 2009		-		-
Total dividend		-		-

NOTE 7

EARNINGS PER SHARE

Basic earnings per share of 1.3c (2008: 8.1c) for to the period ended 31 December 2009 have been calculated based on the profit attributable to shareholders of $1,083,000 (2008: $6,753,000) using the weighted average number of ordinary shares in issue totalling 81.7m (2008: 83.3m) during the period.

Adjusted earnings per share of 6.0c (2008: 9.1c) for the period ended 31 December 2009 are based on profit of $4,916,000 (2008: $7,576,000), being adjusted for the expenses as stated below using the weighted average number of ordinary shares in issue totalling 81.7m (2008: 83.3m) during the period. The Board considers that adjusted EPS better reflects the underlying performance of the Group.

Reconciliation of adjusted profit		6 months to 31 December			6 months to 31 December			6 months to 31 December			6 months to 31 December			Year to 30 June			Year to 30 June
		2009			2009			2008			2008			2009			2009
					$’000						$’000						$’000
		EPS in						EPS in						EPS in
		cents						cents						cents
		unaudited			unaudited			translated			translated			translated			translated
Profit for the period attributable to the equity holders of the parent		1.3			1,083			8.1			6,753			10.0			8,244
Amortisation of acquired intangible assets		3.6			2,981			2.5			2,083			5.3			4,408
Restructuring costs														6.7			5,455
Financial instruments expenses								(0.5	)		(388	)		0.5			424
Tax effect of above		(1.2	)		(946	)		(0.5	)		(872	)		(3.0	)		(2,506	)
LTIP cancellation		2.3			1,798
Adjusted profit for the period attributable to the equity holders of the parent		6.0			4,916			9.1			7,576			19.5			16,025

Reconciliation of adjusted profit before taxation $’000		6 months to 31 December 2009		6 months to 31 December 2008			Year to 30 June 2009
		unaudited		translated			translated
Profit on ordinary activities before taxation		3,574		9,115			11,992
Amortisation of intangible assets		2,981		2,083			4,408
Restructuring costs		-		-			5,455
Financial instruments (income)/expenses		-		(388	)		424
Adjusted profit before tax		6,555		10,810			22,279

Diluted earnings per share of 1.3c (2008: 8.1c) for the period ended 31 December 2009 have been calculated based on the post tax profit attributable to equity holders of the parent of $1,083,000 (2008: $6,753,000) using 82.0m (2008: 84.2m) ordinary shares, the difference to the basic calculation representing the additional shares that would be issued on the conversion of all the dilutive potential ordinary shares.

Adjusted, diluted earnings per share of 6.0c (2008: 9.0c) for the period ended 31 December 2009 have been calculated based on profit of $4,916,000 (2008: $7,576,000), being adjusted for the operating expenses as stated above using 82.0m (2008: 84.2m) ordinary shares.

Reconciliation of the denominator for EPS		6 months to 31 December 2009			6 months to 31 December 2008			Year to 30 June 2009
millions of shares
Weighted average number of ordinary shares issued		86.8			88.4			84.3
Shares held in treasury or employee trusts but not outstanding		(5.1	)		(5.1	)		(1.9	)
Weighted average number of ordinary shares		81.7			83.3			82.4
Weighted average number of ordinary shares		81.7			83.3			82.4
Dilutive impact of share options		0.3			0.9			0.4
Dilutive impact on LTIPs					-			-
Total diluted shares		82.0			84.2			82.8

NOTE 8

PROVISIONS

$’000		Restructuring			Onerous lease			Contingent consideration			Others
At 1 July 2008 (translated)		(4,376	)		(1,037	)
Arising during the year								(1,511	)
Utilised		2,643			308
Exchange differences		716			237			240
At 31 December 2008 (translated)		(1,017	)		(492	)		(1,271	)
Arising during the year		(3,251	)								(1,477	)
Reversed against income statement		47			87
Reversed against balance sheet								607
Utilised		949			273
Exchange differences		(490	)		(137	)		(34	)		(42	)
At 30 June 2009 (translated)		(3,762	)		(269	)		(698	)		(1,519	)
Arising during the year
Reversed against income statement											360
Utilised		3,156			115						118
Exchange differences		(135	)		(11	)		(38	)		(24	)
At 31 December 2009 (unaudited)		(741	)		(165	)		(736	)		(1,065	)

NOTE 9

RELATED PARTY TRANSACTIONS

		6 months to		6 months to		Year to
$’000		31 December 2009		31 December 2008		30 June 2009
		unaudited		translated		translated
Sales to associated undertakings		993		2,035		5,589
Purchases from associated undertakings		148		667		254

The transactions set out above took place with Alos GmbH, Cologne, Germany, until disposal. Sales to and purchases from associates are at arms length.

Directors, interests in share option and LTIPs

Directors hold 695,000 LTIP shares as of 31 December 2009 of which 695,000 LTIP shares were granted during the first half of the year. Based upon performance criteria, shares are exercisable during 2012. Market price of the shares was 146p at grant date.

Directors hold 2,232,000 share options as of 31 December 2009 of which 1,350,000 options were granted during the first half of the year. 8,000 share options will lapse during the year. The option awards having a strike price range from 73p to 253p can be exercised during 2010 to 2019.

Cancellation of LTIPs

With effect as of 4 August 2009 the Group has cancelled the LTIP awards with no replacement. This cancelation led to a charge of $1.8m resulting from an acceleration of vesting.

NOTE 10

CONTINGENT LIABILITIES

There are no material pending or threatened lawsuits against the Group.

NOTE 11

EVENTS AFTER THE BALANCE SHEET DATE

There are no events after the balance sheet date to report.