RECKON LIMITED — Interim / Quarterly Report 2013

Aug 12, 2013

Reckon Limited ACN 003 348 730

Directors' Report

Your directors present their report for the half-year ended 30 June 2013.

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:

Review of Operations Overview of financial performance for the half-year:
Operating revenue EBITDA Net profit after tax Earnings per share	30 June 2013 $'000 49,479 $ 18,715 $ 10,224 $ 7.9 cents	% growth 3% 10% 10% 11%	30 June 2012 $'000
			48,182 $ 17,080 $ 9,257 $ 7.1 cents

The group has focussed on the following key initiatives in the first half of 2013:

• Rebranding QuickBooks and Quicken whilst maintaining the revenue base for these products,

• Developing and launching our new cloud offering, Reckon One,

• Enhancing and launching the expanded APS Private Cloud solution, and

• Introducing Virtual Cabinet to clients in all Reckon businesses.

In the Business Division revenue growth has continued in the hosted, enterprise and content products notwithstanding the rebranding of key products in this range, but has been adversely impacted by continued weakness and destocking in the retail sector. The move towards a more sustainable subscription model and modest price increases have limited revenue growth in the half year. Marketing costs are higher due to the launch costs for Reckon One, with revenue benefits only expected from the second half of the year. As the development focus of the group has moved towards Reckon owned products, the majority of development costs have been capitalised, consistent with the prior year annual accounts.

In the Professional Division strong growth in subscription/maintenance revenue has continued at the expense of upfront revenue, as we also move this business to more of a recurring revenue model. The UK business was sold at the end of the prior year, and the revenue from this business has now been replaced by a royalty stream.

The nQueueBillback Division has also experienced growth in maintenance revenue, however weakness in the USA market has seen a fall in the quantum of new business won.

The Virtual Cabinet Division acquired in July 2012, has contributed $0.6m EBITDA in the first half.

The investment in Connect2Field Holdings has been sold, contributing $1.3m to EBITDA for the half year.

The board has declared an interim dividend of 4 cents (3.75 cents in 2012). The dividend will be 90% franked.

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

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nearest thousand dollars, unless otherwise indicated.

Reckon Limited ACN 003 348 730

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

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John Thame Chairman

Sydney, 13 August 2013

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Reckon Limited

ACN 003 348 730

Condensed Consolidated Statement of Profit or Loss for the half-year ended 30 June 2013

for the half-year ended 30 June 2013
Note Continuing operations Revenue from sale of goods and rendering of services Product and selling costs Royalties Employee benefits expenses Marketing expenses Premises and establishment expenses Telecommunications Depreciation and amortisation of other non-current assets Finance costs Other expenses Profit on sale of investment in joint venture entity Net costs associated with premises relocation Profit before income tax Income tax expense Profit for the half-year Profit attributable to: Owners of the parent Non-controlling interest Earnings per share Basic earnings per share Diluted earnings per share	Half-year 30 June 30 June 2013 2012 $'000 $'000 49,479 48,182 (8,595) (8,138) (3,105) (3,034) (14,757) (14,405) (1,436) (1,212) (1,121) (1,252) (404) (427) (5,163) (4,579) (365) (24) (2,463) (2,634) 1,340 - (222) - 13,188 12,477 (2,964) (3,220) 10,224 9,257 10,131 8,955 93 302 10,224 9,257 cents cents 7.9 7.1 7.8 7.1
		12,477 (3,220)
		9,257
		8,955 302
		9,257
		cents 7.1 7.1

The above condensed consolidated statement of profit or loss should be read in conjunction with the accompanying notes.

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Reckon Limited ACN 003 348 730

Condensed Consolidated Statement of Comprehensive Income for the half-year ended 30 June 2013

Profit for the half-year Other comprehensive income Exchange differences on translation of foreign operations Fair value adjustment of equity instruments Total comprehensive income Profit and comprehensive income is attributable to: Owners of the parent Non-controlling interest	Half-year 30 June 30 June 2013 2012 $'000 $'000 10,224 9,257 1,356 33 - 247 11,580 9,537 11,487 9,235 93 302 11,580 9,537	Half-year 30 June 30 June 2013 2012 $'000 $'000 10,224 9,257 1,356 33 - 247 11,580 9,537 11,487 9,235 93 302 11,580 9,537
		33 247
		9,537
		9,235 302
		9,537

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

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Reckon Limited

ACN 003 348 730

Condensed Consolidated Statement of Financial Position as at 30 June 2013

ASSETS Current Assets Cash and cash equivalents Trade and other receivables Inventories Other assets Total Current Assets Non-Current Assets Receivables Investment in joint venture Other financial assets Property, plant and equipment Deferred tax assets Intangible assets Total Non-Current Assets Total Assets LIABILITIES Current Liabilities Trade and other payables Borrowings Current tax payables Provisions Deferred revenue Total Current Liabilities Non-Current Liabilities Borrowings Other financial liabilities Deferred tax liabilities Provisions Total Non-Current Liabilities Total Liabilities NET ASSETS EQUITY Issued capital Reserves Retained earnings TOTAL EQUITY	30 June 2013 $'000 2,598 12,865 1,550 3,600 20,613 1,079 - 56 3,446 106 71,245 75,932 96,545 6,005 11,775 1,008 3,285 9,872 31,945 86 11,770 3,347 1,046 16,249 48,194 48,351 16,558 (14,606) 46,399 48,351	31 December 2012 $'000 1,926 8,795 1,244 2,695
		14,660
		1,391 660 56 3,415 141 68,032
		73,695
		88,355
		4,922 10,994 1,119 3,341 8,674
		29,050
		136 10,608 2,949 1,194
		14,887
		43,937
		44,418
		16,878 (14,839) 42,379
		44,418

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

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Reckon Limited

ACN 003 348 730

Condensed Consolidated Statement of Changes in Equity for the half-year ended 30 June 2013

						Acquisition
			Foreign	Share-		of non-
		Share buy	currency	based	AFS Asset	controlling		Non-
	Issued	back	translation	payments	Revaluation	interest	Retained	controlling
	capital	reserve	reserve	reserve	reserve	reserve	earnings	interest	Total
	$'000	$'000	$'000	$'000	$'000	$'000	$'000	$'000	$'000
Total equity at 1 January 2013	16,878	(8,978)	(1,383)	503	-	(4,981)	42,379	-	44,418
Profit for the half-year							10,131	93	10,224
Exchange differences on translation
of foreign operations			1,356						1,356
Total Comprehensive Income	-	-	1,356	-	-	-	10,131	93	11,580
Dividends paid							(6,111)		(6,111)
Share based payments expense				105					105
Transfer to acquisition of non-
controlling interest reserve						93		(93)	-
Remeasurement of Linden House
option liability						(1,321)			(1,321)
Treasury shares acquired	(320)								(320)
Total equity at 30 June 2013	16,558	(8,978)	(27)	608	-	(6,209)	46,399	-	48,351
Total equity at 1 January 2012	15,752	-	(1,569)	556	(1,067)	-	36,621	203	50,496
Profit for the half-year							8,955	302	9,257
Exchange differences on translation
of foreign operations			33						33
Fair value adjustment of financial assets					247				247
Total Comprehensive Income	-	-	33	-	247	-	8,955	302	9,537
Dividends paid							(5,945)	(144)	(6,089)
Share based payments expense				179					179
Share buyback		(7,612)							(7,612)
Transfer prior year share buyback to
share buyback reserve	1,366	(1,366)							-
Transfer of revaluation reserve
to retained earnings					820		(820)		-
Treasury shares acquired	(541)								(541)
Total equity at 30 June 2012	16,577	(8,978)	(1,536)	735	-	-	38,811	361	45,970

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

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Reckon Limited

ACN 003 348 730

Condensed Consolidated Statement of Cash Flows for the half-year ended 30 June 2013

Cash Flows From Operating Activities Receipts from customers Payments to suppliers and employees Interest received/(paid) Income tax paid Net cash inflow from operating activities Cash Flows From Investing Activities Payment for property, plant and equipment Payment for purchase of business Payment for investment in joint venture Proceeds from sale of investment Payment for capitalised development costs Net cash inflow/(outflow) from investing activities Cash Flows From Financing Activities Dividends paid Dividends paid to non-controlling interests Payment for share buyback Payment for treasury shares Proceeds from/(repayment of) borrowings Net cash (outflow) from financing activities Net Increase/(Decrease) In Cash and Cash Equivalents Cash and cash equivalents at the beginning of the half-year Effects of exchange rate changes on cash and cash equivalents Cash and Cash Equivalents at the end of the half-year	Half-year 30 June 30 June 2013 2012 $'000 $'000 52,659 50,430 (36,301) (35,859) (365) (24) (2,642) (3,521) 13,351 11,026 (752) (293) (160) - - (660) - 6,448 (6,080) (4,105) (6,992) 1,390 (6,111) (5,945) - (144) - (7,612) (320) (541) 571 - (5,860) (14,242) 499 (1,826) 1,432 4,703 13 10 1,944 2,887	Half-year 30 June 30 June 2013 2012 $'000 $'000 52,659 50,430 (36,301) (35,859) (365) (24) (2,642) (3,521) 13,351 11,026 (752) (293) (160) - - (660) - 6,448 (6,080) (4,105) (6,992) 1,390 (6,111) (5,945) - (144) - (7,612) (320) (541) 571 - (5,860) (14,242) 499 (1,826) 1,432 4,703 13 10 1,944 2,887
		11,026
		(293) - (660) 6,448 (4,105)
		1,390
		(5,945) (144) (7,612) (541) -
		(14,242)
		(1,826) 4,703 10
		2,887

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

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Reckon Limited ACN 003 348 730

Notes to the Condensed Consolidated Financial Statements for the half-year ended 30 June 2013

Note 1. Basis of preparation of half-year report

This general purpose financial report for the interim half year ended 30 June 2013 has been prepared in accordance with Accounting Standard AASB 134 "Interim Financial Reporting" and the Corporations Act 2001. Compliance with AASB 134 ensures compliance with International Financial Reporting Standard IAS 34 "Interim Financial Reporting".

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 2012 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. All amounts are presented in Australian dollars.

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 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.

The accounting policies adopted are consistent with those of the previous financial year and corresponding interim reporting period. These accounting policies are consistent with Australian Accounting Standards and with International Financial Reporting Standards.

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Reckon Limited ACN 003 348 730

Note 2: Segment information

Primary segments Half-year 2013 Segment operating revenue Other revenue Total revenue Segment EBITDA Depreciation and amortisation Total segment profit before tax Central administration costs Profit on sale of investment in joint venture Finance costs Profit before tax Income tax expense Profit for the half-year Half-year 2012 Segment operating revenue Other revenue Total revenue Segment EBITDA Depreciation and amortisation Total segment profit before tax Central administration costs Finance costs Profit before tax Income tax expense Profit for the half-year	Business Professional NQBB Virtual Cabinet Division Division Division Division Consolidated $'000 $'000 $'000 $'000 $'000	Business Professional NQBB Virtual Cabinet Division Division Division Division Consolidated $'000 $'000 $'000 $'000 $'000
	29,949 12,051 5,096 2,383	49,479 -
		49,479
	9,480 3,318 997 218 14,013
	30,412 12,268 5,402 -	(1,800) 1,340 (365)
		13,188 (2,964)
		10,224
		48,082 100
	10,973 5,783 2,292 - (1,156) (2,517) (906) -
		48,182
		19,048 (4,579)
	9,817 3,266 1,386 -	14,469
		(1,968) (24)
		12,477 (3,220)
		9,257

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.

The Professional Division in the 2012 Interim Financial Report included nQueue Billback Australia. This business is now included in the nQueue Billback Division and the 2012 results have been restated to reflect this change.

There have been no material changes to segment assets.

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 Reckon Accounts (formerly QuickBooks and Quicken), ReckonDocs and ReckonElite.

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

nQueue Billback Division - distribution and support of cost recovery, cost management and related software predominantly to the legal market.

Virtual Cabinet Division - development, distribution and support of document management and document portal products.

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Reckon Limited ACN 003 348 730

Note 3. Issued capital

Issued capital at 30 June 2013 amounted to $18,842 thousand (129,488,015 shares)

134,279 treasury shares (2012: 235,127) were purchased in the current period.

ote 4. Dividends Ordinary shares Dividends paid during the half-year 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 4 cents per fully paid ordinary share (2012: 3.75 cents). The dividend will be 90% franked. The aggregate amount of the proposed dividend expected to be paid on 11 September 2013 out of retained profits at 30 June 2013, but not recognised as a liability at the end of the half-year, is	Half-year 30 June 30 June 2013 2012 $'000 $'000 6,111 5,945 5,142 4,819	Half-year 30 June 30 June 2013 2012 $'000 $'000 6,111 5,945 5,142 4,819
		4,819

Note 4. Dividends

Note 5. Borrowings

The Group has existing bank facilities totalling $23.7 million. These facilities are available until 31 December 2013. The group expects to refinance the facility prior to year end.

Note 6. Working capital deficiency

The condensed consolidated statement of financial position indicates an excess of current liabilities over current assets of $11,332 thousand (December 2012: $14,390 thousand). This arises due to the cash management structure adopted by management, whereby surplus funds are used to repay debt and make investments. Unused bank facilities at balance date total $10.1 million. Furthermore, included in current liabilities is deferred revenue of $9,872 thousand (December 2012: $8,674 thousand), for which cash has been received in advance, and will be recognised as income as the services are rendered.

Note 7. Disposal of investment in joint venture entity

The investment in Connect2Field Holdings Pty Limited has been sold for $2million, resulting in a profit on sale of $1.3million. $0.3million of the proceeds will be held in escrow and released by October 2014.

Note 8. Subsequent events

A share buy back of up to 10% of the company's share capital, was announced on 13 August 2013, as part of the company's strategy to manage its capital base.

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Reckon Limited ACN 003 348 730

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 2013 and the performance for the half-year ended 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

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John Thame Chairman

Sydney, 13 August 2013

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