RECKON LIMITED — Interim / Quarterly Report 2009

Aug 10, 2009

Directors' Report

Your directors present their report for the half-year ended 30 June 2009.

Directors

The names of the company's directors in office during the half-year and until the date of this report are as follows:

John Thame Greg Wilkinson Ian Ferrier Clive Rabie

Review of Operations

Overview of financial performance for the half-year:

30 June2009$'000			30 June2009$'000		30 June2008$'000
		(excludingrestructure			(net ofrestructure
		costs)	% growth		costs)
Operating Revenue	$	43,303	39%	$	43,303	$	31,171
EBITDA	$	12,867	37%	$	11,786	$	9,393
Net Profit before tax	$	9,410	25%	$	8,212	$	7,534
Net Profit after tax	$	6,974	25%	$	6,146	$	5,592

The Group operating revenue growth was 39% for the half year and EBITDA growth was 37% (before restructure costs). The result was positively impacted by the acquisition of the Corporate Services and Billback businesses from Espreon Limited in 2009.

Professional division revenue grew by 66% and EBITDA by 51% (before restructure costs). Revenue growth in the underlying businesses within the Professional Division was 8%. Similarly EBITDA growth in the yg y g underlying businesses was also 8% for the half year. The revenue generated by the Billback business was $6.1m with an EBITDA of $2.0m (before restructure costs).

Business division revenue grew by 25% and EBITDA by 23% (before restructure costs). Revenue in the underlying businesses within the Business Division declined by 6%, however EBITDA increased by 1% reflecting a strong focus on cost containment during this period of difficult trading conditions in the retail sector of this business. The Corporate Services business generated revenue of $6.3m and EBITDA of $1.4m (before restructure costs).

The Professional division continued to increase it's market share in the half year, and also saw the benefit of further maintenance revenue growth. In the Business division sales to retailers declined by 34% in the half, reflecting lower sell through of product by retailers as well as destocking. Unit market share however increased over 2008. Direct sales during this period again proved very resilient and increased by 7%.

Group NPAT growth, and correspondingly EPS growth before restructure costs, is 25% over prior year.

The Group finished the half year with net debt of only $0.6m despite the acquisition of the Billback and Corporate Services businesses, due to strong operating cash flow (up 43% before restructure costs and tax payments).

The board has declared an interim dividend of 3 cents (2.5 cents in 2008).

Rounding of amounts to the nearest thousand dollars

The Company is a company of the kind referred to in ASIC Class Order 98/100, and in accordance with that Class Order, amounts in the directors' report and the financial statements have been rounded off to the nearest thousand dollars.

Auditor's independence declaration

We have obtained an independence declaration from our auditors, Deloitte Touche Tohmatsu, which is attached to these financial statements.

Signed in accordance with a resolution of the directors, made pursuant to s.306(3) of the Corporations Act 2001.

On behalf of the directors

J h Thon ame Chairman

Sydney, 11 August 2009

Reckon Limited ACN 003 348 730

Condensed Consolidated Statement of Comprehensive Income for the half-year ended 30 June 2009

		Half-year
	30 June2009$'000	30 June2008$'000
Continuing operationsRevenue from sale of goods and rendering of servicesInvestment revenue	43,303-	31,171327
Product and selling costsRoyaltiesEmployee benefits expensesMarketing expensesPremises and establishment expensesTelecommunicationsDepreciation and amortisation of other non-current assetsFinance costsOther expenses	(7,380)(2,248)(13,879)(2,055)(1,465)(514)(3,324)(133)(2,895)	(2,594)(2,450)(10,328)(3,046)(967)(384)(2,186)-(2,009)
Profit before business acquisition restructure costs	9,410	7,534
Business acquisition restructure costs	(1,198)	-
Profit before income tax	8,212	7,534
Income tax expense	(2,066)	(1,942)
Profit for the half-year	6,146	5,592
Other comprehensive incomeExchange differences on translation of foreign operations	(104)	(396)
Total comprehensive income for the period	6,042	5,196
Profit and comprehensive income is attributable to:Owners of the parentMinority interest	6,042-	5,196-
	6,042	5,196
Earnings per shareBasic earnings per shareDiluted earnings per share	cents4.64.6	cents4.24.2
Alternative earnings per share (excluding after tax effect of restructure costs)Basic earnings per shareDiluted earnings per share	5.25.2	4.24.2

The above condensed consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.

Reckon Limited ACN 003 348 730

Condensed Consolidated Statement of Financial Position as at 30 June 2009

	30 June2009$'000	31 December2008$'000
ASSETS
Current Assets
Cash and cash equivalents	3,758	16,134
Trade and other receivables	8,487	4,993
Inventories	2,182	440
Other assets	1,032	855
Total Current Assets	15,459	22,422
Non-Current Assets
Financial assets	56	629
Property, plant and equipment	3,020	2,543
Deferred tax assets	915	426
Intangible assets	43,078	24,088
Other assets	115	905
Total Non-Current Assets	47,184	28,591
Total Assets	62,643	51,013
LIABILITIES
Current Liabilities
Trade and other payables	7,860	4,918
Current tax payables	1,647	1,742
Provisions	993	808
DeferredDeferred revenueOther liabilities - deferred rent contribution	5,616213	2,863213
Total Current Liabilities	16,329	10,544
Non-Current Liabilities
Borrowings	4,400	-
Deferred tax liabilities	940	640
Provisions	582	605
Other liabilities - deferred rent contribution	734	841
Total Non-Current Liabilities	6,656	2,086
Total Liabilities	22,985	12,630
NET ASSETS	39,658	38,383
EQUITY
Issued capital	17,491	17,566
Reserves	656	816
Retained earnings	21,513	20,003
Equity attributable to owners of the parent	39,660	38,385
Minority interest	(2)	(2)
TOTAL EQUITY	39,658	38,383

The above condensed consolidated statement of financial position should be read in conjunction with the accompanying notes.

Reckon Limited ACN 003 348 730

Condensed Consolidated Statement of Changes in Equity for the half-year ended 30 June 2009

Total equity at 30 June 2008	18,220	(344)	461	17,547	(2)	35,882
Contributions of equity, net oftransaction costs	17					17
Exchange differences on translationof foreign operations		(396)				(396)
Dividends paid				(3,983)		(3,983)
Profit for the half-year				5,592		5,592
Total equity at 1 January 2008	18,203	52	461	15,938	(2)	34,652
Total equity at 30 June 2009Total equity at 30 June	17 49117,491	(246)	902	21 51321,513	(2)	39 65839,658
Contributions of equity, net oftransaction costs	128					128
Treasury shares acquired	(415)					(415)
Transfer to share capital	212		(212)			0
Share based payments expense			156			156
Exchange differences on translationof foreign operations		(104)				(104)
Dividends paid				(4,636)		(4,636)
Profit for the half-year				6,146		6,146
Total equity at 1 January 2009	17,566	(142)	958	20,003	(2)	38,383
	Issuedcapital$'000	Foreigncurrencytranslationreserve$'000	Share-basedpaymentsreserve$'000	Retainedearnings$'000	Minorityinterest$'000	Total$'000

The above condensed consolidated statement of changes in equity should be read in conjunction with the accompanying notes.

Condensed Consolidated Statement of Cash Flows for the half-year ended 30 June 2009

		Half-year
	30 June	30 June
	2009	2008
	$'000	$'000
Cash Flows From Operating Activities
Receipts from customers	47,576	32,101
Payments to suppliers and employees	(35,758)	(23,890)
Interest received/(paid)	(133)	327
Income tax paid	(1,920)	(359)
Net cash inflow from operating activities	9,765	8,179
Cash Flows From Investing Activities
Payment for property, plant and equipment	(462)	(314)
Payment for intellectual property	(149)	-
Payment for purchase of businesses (including acquisition costs)	(18,368)	(73)
Payment for security deposits	-	(249)
Proceeds from security deposits	573	-
Payment for capitalised development costs	(3,213)	(2,259)
Net cash (outflow) from investing activities	(21,619)	(2,895)
Cash Flows From Financing Activities
Dividends paid	(4,636)	(3,983)
Payment for treasury shares	(415)	-
Proceeds from borrowings	4,400	-
Proceeds from issues of equity securities	128	17
Net cash outflow from financing activities	(523)	(3,966)
Net Increase/(Decrease) In Cash and Cash Equivalents	(12,377)	1,318
Cash and cash equivalents at the beginning of the half-year	16,134	14,141
Effects of exchange rate changes on cash and cash equivalents	1	(234)
Cash and Cash Equivalents at the end of the half-year	3,758	15,225

The above condensed consolidated statement of cash flows should be read in conjunction with the accompanying notes.

for the half-year ended 30 June 2009 Notes to the Condensed Consolidated Financial Statements

Note 1. Basis of preparation of half-year report

This general purpose financial report for the interim half year ended 30 June 2009 has been prepared in accordance with Accounting Standard AASB 134 "Interim Financial Reporting" and the Corporations Act 2001.

This interim financial report does not include all of the notes of the type normally included in an annual report. Accordingly, this report is to be read in conjunction with the annual report for the year ended 31 December 2008 and any public announcements made by Reckon Limited during the interim reporting period in accordance with the continuous disclosure requirements of the Corporations Act 2001.

The condensed consolidated financial statements have been prepared on the basis of historical cost, except for the revaluation of certain non-current assets and financial instruments.

The parent entity has applied the relief available to it under ASIC Class Order 98/100, and accordingly, amounts in the interim financial report have been rounded off to the nearest thousand dollars.

The accounting policies adopted are consistent with those of the previous financial year and corresponding interim reporting period.

The Group has adopted all of the new and revised Standards and Interpretations issued by the Australian Accounting Standards Board (the AASB) that are relevant to its operations and effective for the current reporting period.

ACN 003 348 730 Note 2: Segment information

Reckon Limited

The Group has adopted AASB 8 Operating Segments and AASB 2008-3 Amendments to Australian Accounting Standards arising from AASB 8 with effect from 1 January 2009. AASB 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision maker in order to allocate resources to the segment and to assess its performance .

Primary segments

Amounts reported in the prior period have been restated to conform to the requirements of AASB 8. As a result the following have been restated in 2008:

• 1. Corporate head office expenses previously included in the Business Division has been separated out.
• 1. Royalties paid by the Professional Division to the Business Division in lieu of development costs incurred by the latter have been removed and replaced by amortisation. Amortisation was previously reflected in the Business Division.

	Business	Professional
	Division$'000	Division$'000	Consolidated$'000
Half-year 2009
Segment operating revenue	25,704	17,599	43,303
Interest revenueTotal revenue			-43,303
Segment EBITDA	7,544	6,980	14,524
Depreciation and amortisation	(808)	(2,516)	(3,324)
Business acquisition restructure costs	(204)	(994)	(1,198)
Total segment profit before tax	6,532	3,470	10,002
Central administration costsFinance costs			(1,657)(133)
Profit before tax			8,212
Income tax expense			(2,066)
Profit for the half-year			6,146
Half-year 2008
Segment operating revenue	20,566	10,605	31,171
Interest revenue			327
Total revenue			31,498
Segment EBITDA	6,145	4,625	10,770
Depreciation and amortisation	(505)	(1,681)	(2,186)
Total segment profit before tax	5,640	2,944	8,584
Central administration costs			(1,377)
Interest revenue			327
Profit before tax			7,534
Income tax expense			(1,942)
Profit for the half-year			5,592

The revenue reported above represents revenue generated from external customers.

Segment profit represents the profit earned by each segment without allocation of central administration costs, finance costs and income tax expense, all of which are allocated to Corporate head office. This is the measure reported to the chief operating decision maker for the purposes of resource allocation and assessing performance.

There have been no material changes to segment assets except for the addition of the Corporate Services assets acquired on 2 January 2009 to the Business Division ($11,577 thousand), and the addition of the Billback assets to the Professional Division ($12,933 thousand)

The principal activities of these divisions are as follows:

Business Division - development, distribution and support of personal financial and accounting software, as well as related products and services to professional partners. Products sold in this division include Quickbooks, Quicken, ReckonTools, ReckonDocs, ReckonElite, Corporate Services.

Professional Division - development, distribution and support of practice management, tax, client accounting, cost management and related software under the APS and Billback brands.

				30 June 31 December
	2009	2008	2009	2008
	$'000	$'000	$'000	$'000
			Non-current	Non-current
Secondary segments	Revenue	Revenue	assets	assets
Australia	34,422	26,762	33,079	22,559
Other	8,881	4,409	2,668	2,089
Unallocated - intangibles	-	-	11,437	3,943
	43,303	31,171	47,184	28,591

Note 3. Equity securities issued

Issues of ordinary shares during the half-year:	Half-year		Half-year
	2009		2008
	No.	$'000	No.	$'000
Exercise of employee share scheme options	193,169	128	31,139	17
	193,169	128	31,139	17
Issued capital at 30 June 2009 amounted to $17,491 thousand(132,202,434 shares)
			Half-year
		30 June		30 June
		2009		2008
		$'000		$'000
Note 4. Dividends
Ordinary shares

Dividends paid during the half-year 4,636 3,983

Dividends not recognised at the end of the half-year

In addition to the above dividends, since the end of the half-year the directors have recommended the payment of an interim dividend of 3 0 cents per fully paid ordinary share (2008 2 5 cents) The dividend 3.0 cents per paid share (2008 - 2.5 cents). The will be franked. The aggregate amount of the proposed dividend expected to be paid on 11 September 2009 out of retained profits at 30 June 2009, but not recognised as a liability at the end of the half-year, is 3,994 3,264

Note 5. Borrowings

During the period, the Group obtained bank facilities to the value of $23 million. All except for $1 million (annual review) are available for a period of 3 years. The balance drawn down to date has been used to fund a portion of the Corporate Services and Billback acquisitions.

Note 6. Business combinations

Reckon Limited acquired the Corporate Services and Billback businesses on 2 January 2009 for $18 million.

The two businesses contributed revenue of $12,438 thousand and EBITDA of $3,353 thousand (before restructure costs) to the group results for the half year.

The initial accounting for the acquisition of these businesses has only been provisionally determined at reporting date. Reckon Limited has commenced legal proceedings against Espreon in relation to several claims associated with the acquisitions which is expected to reduce the consideration paid. The amount of the claims is yet to be finalised.

		Half-year
	30 June2009	30 June2008
	$'000	$'000
Consideration:
Cash paid	18,000	-
Net debt acquired	228	-
Direct costs relating to the acquisitions	1,045	-
Cash	19,273	-
Fair value of net assets of entity acquired:
Receivables	3,437	-
Inventories	1,587	-
Intellectual property - customer contracts	4,210	-
Intellectual property - development and softwareppyp	1,793	-
Intellectual property - trademarks and domain names	150	-
Deferred tax assets	430	-
Fixed assets	728	-
Trade payables	(773)	-
Deferred revenue	(3,361)	-
Other current liabilities	(965)	-
Other non-current liabilities	(138)	-
	7,098	-
Goodwill	12,175	-
	19,273	-

Note 7. Subsequent events

On 5 July 2009 Reckon Limited announced that its United States subsidiary Billback LLC had concluded a Joint Venture Agreement with nQueue Inc in the USA.

The Reckon group holds a 67% membership interest and nQueue holds the remaining interest in a new entity known as nQueue Billback LLC.

The joint venture brings together the best of the parties' cost recovery and cost management products and service offerings in the USA and gives the business greater scale.

The size of the transaction is not material to the expected performance of the Reckon group for the financial year 2009.

Directors' Declaration

The directors declare that:

in the opinion of the directors:

• (a) the financial statements and notes of the consolidated entity are in accordance with the Corporations Act 2001, including:
  • (i) giving a true and fair view of the financial position as at 30 June 2009 and the performance for the half-year on that date of the consolidated entity; and
• (ii) complying with accounting standards
• (b) there are reasonable grounds to believe that Reckon Limited will be able to pay its debts as and when they become due and payable.

Signed in accordance with a resolution of the directors made pursuant to s.303(5) of the Corporations Act 2001.

On behalf of the Directors

John Thame Chairman

Sydney, 11 August 2009

Deloitte Touche Tohmatsu A.B.N. 74 490 121 060

Grosvenor Place 225 George Street Sydney NSW 2000 PO Box N250 Grosvenor Place Sydney NSW 1220 Australia

DX 10307SSE Tel: +61 (0) 2 9322 7000 Fax: +61 (0) 2 9322 7001 www.deloitte.com.au

The Board of Directors Reckon Limited 35 Saunders Street Pyrmont NSW 2009

11 August 2009

Dear Board Members

Reckon Limited

In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the directors of Reckon Limited.

As lead audit partner for the review of the financial statements of Reckon Limited for the half-year ended 30 June 2009, I declare that to the best of my knowledge and belief, there have been no contraventions of:

• (i) the auditor independence requirements of the Corporations Act 2001 in relation to the review; and
• (ii) any applicable code of professional conduct in relation to the review.

Yours sincerely

DELOITTE TOUCHE TOHMATSU

Michael Kaplan Partner Chartered Accountants

Deloitte Touche Tohmatsu A.B.N. 74 490 121 060

Grosvenor Place 225 George Street Sydney NSW 2000 PO Box N250 Grosvenor Place Sydney NSW 1220 Australia

DX 10307SSE Tel: +61 (0) 2 9322 7000 Fax: +61 (0) 2 9322 7001 www.deloitte.com.au

Independent Auditor's Review Report to the Members of Reckon Limited

We have reviewed the accompanying half-year financial report of Reckon Limited and its Controlled Entities ("the Group"), which comprises the condensed consolidated statement of financial position as at 30 June 2009, and the condensed consolidated statement of comprehensive income, condensed consolidated statement of cash flows, condensed consolidated statement of changes in equity for the half-year ended on that date, selected explanatory notes and the directors' declaration of the consolidated entity comprising the company and the entities it controlled at the end of the half-year or from time to time during the half-year as set out on pages 1 to 10.

Directors' Responsibility for the Half-Year Financial Report

The directors of the company are responsible for the preparation and fair presentation of the half-year financial report in accordance with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001. This responsibility includes establishing and maintaining internal control relevant to the preparation and fair presentation of the half-year financial report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditor's Responsibility

Our responsibility is to express a conclusion on the half-year financial report based on our review. We conducted our review in accordance with Auditing Standard on Review Engagements ASRE 2410 Review of an Interim Financial Report Performed by the Independent Auditor of the Entity, in order to state whether, on the basis of the procedures described, we have become aware of any matter that makes us believe that the half-year financial report is not in accordance with the Corporations Act 2001 including: giving a true and fair view of the consolidated entity's financial position as at 30 June 2009 and its performance for the half-year ended on that date; and complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001. As the auditor of Reckon Limited, ASRE 2410 requires that we comply with the ethical requirements relevant to the audit of the annual financial report.

A review of a half-year financial report consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Australian Auditing Standards and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Auditor's Independence Declaration

In conducting our review, we have complied with the independence requirements of the Corporations Act 2001.

Conclusion

Based on our review, which is not an audit, we have not become aware of any matter that makes us believe that the half-year financial report of Reckon Limited is not in accordance with the Corporations Act 2001, including:

• (a) giving a true and fair view of the consolidated entity's financial position as at 30 June 2009 and of its performance for the half-year ended on that date; and
• (b) complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001.

DELOITTE TOUCHE TOHMATSU

Michael Kaplan Partner Chartered Accountants Sydney, 11 August 2009