2004 Chairman's review

Delivering the platform for future growth

As Chairman of the Board of Directors I am pleased to present Altium's annual report for the 2003/04 financial year. This past year was an extremely significant time for Altium as it saw the culmination of the company's initial plans set out in our IPO Prospectus of 1999. As outlined in the Prospectus, we have since been engaged in a multi-year program to acquire the expertise and technology that will provide the foundation for the company's future growth.

The results of this can clearly be seen in the successful launch of the first of a new generation of products based upon this extensive technology development program. And, this has been accompanied by numerous fundamental improvements across many areas of the organisation in order to better position ourselves for the significant opportunities ahead.

All of this has been accomplished against a challenging economic environment and a background of exchange rate volatility for our principle trading currencies. Our continued navigation of these tough market conditions is due to responsive decision-making, adaptation, and our unwavering efforts to complete a bold and intensive research and development program. Although this environment makes predictable revenue growth difficult, the Board is confident that the company is emerging from this period in an advantaged position. Our significant investment in acquired and internally developed technology is now poised to deliver real benefits to the company and its shareholders.

Financial results

During the financial year, Altium achieved total revenues of $40.5m for the 2004 financial year and despite the prevailing challenging economic conditions, the underlying sales performance of the business in local currencies is in line with the results of the previous year.

As disclosed in an August release to the ASX, the Directors made the decision to adopt a new policy and assumptions for the cash flow model used to assess the recoverable amount of intangibles. As a result of this change in accounting policy, there was a one-off write-down of $83.3m in the carrying value of goodwill. Consequently, Altium reported a loss of $88.0m for the 2004 financial year. Further details of the change in accounting policy can be found on page 33 of this report.

Altium's EBITDA (excluding the effects of the change in policy) was $5m, its positive operating cash flows were $1.9m and its cash position at balance date was $3.6m. The company's cash position has since improved following the collection of receipts from customers after strong June sales. The Board decided not to pay a final dividend for the 2004 financial year.

Innovation in electronics design technology

We are particularly gratified by the response generated by our new Nexar and Protel 2004 product families. Altium has received unprecedented and entirely positive press coverage of these products and we remain confident that these, and the balance of our forthcoming product updates, will contribute substantially to the coming year's result. These first LiveDesign-enabled products provide a convincing fulfilment of the 'Board on Chip' technology concept that we've discussed in years past, and they are now allowing mainstream designers to exploit the emerging potential of programmable electronic design in a way that is unmatched by any other tool developer. The quick acceptance of this concept by universities in many of our key markets is particularly gratifying as it sets the stage for wide future adoption of this powerful new design methodology when today's students move out into tomorrow's commercial design space.

Our enthusiasm for this technology will drive a fundamental refocus of our sales and marketing efforts over the next year as we begin a worldwide campaign for enterprise-level adoption of LiveDesign. Another significant milestone for the past year was Altium's establishment of a direct presence in China, the world's most dynamic economy, which surges ahead not only in electronics product manufacturing but increasingly in product design. Under the Protel brand, Altium has provided the most widely-used EDA technology in this market. By setting up a representative office, building our own distribution network and playing an active role in local industry events we are well positioned to fully capture the value of this strong brand presence.

Corporate governance

During the reporting period the Board completed a review of corporate governance procedures, and is pleased to report that our policies are consistent with the relevant guidelines of the ASX Corporate Governance Council. For further details on our corporate governance policies, please refer to page 21 of this report.

Strong industry position

We are proud of our agile, innovative and team-based culture, which is vital not only for our success in the marketplace but also to maintaining our strong reputation for technology leadership and integrity in the industry. I am therefore very confident about Altium's ability to continue to succeed and to lead. While the challenges are many, the opportunities created by the strategies that we have implemented over the past years are significant. The rapid changes manifesting in the global electronics industry will favour those organisations that can respond quickly, decisively and intuitively – and that plays exactly to the strengths of our company.

While it is reasonable to conclude that there will continue to be strong headwinds of economic volatility, we are seeing signs of a steady recovery. My confidence that Altium will benefit from this recovery is based on the strength of our innovative technology and products, our diverse and global customer base, our consistent and strong management team and significant growth opportunities in various new markets.

I would like to thank shareholders for their continued support. We also extend thanks to the over 250 Altium team members worldwide, whose continued hard work and dedication have sustained our position as a global leader in innovative mainstream solutions for electronics design.

On behalf of the Board, I say with great conviction that I feel privileged to have served as Chairman of Altium Limited for the past five years, during the most exciting and dynamic technological development period in the company's history.

 

Carl J Rooke, Chairman

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