Persoft Systems Sdn Bhd - 2007

MARC has affirmed the rating of MARC-2 to Persoft Systems Sdn Bhd’s (“PSSB”) issuance of Commercial Papers Programme (“CP Programme”) with a nominal value of up to RM50 million. The rating continues to be supported by PSSB’s competitive position as the largest Microsoft software reseller in Malaysia and favorable issue structure under which utilization the programme of CP is subject to assignment of contract proceeds which will form the repayment source for the notes. The above factors and expectations of improving revenue and profitability prospects mitigate weaker than projected financial performance, liquidity and cash flow measures in FY2006.

PSSB is a wholly owned subsidiary of Persoft Corp Sdn Bhd (“PerCorp”) (formerly known as SMS Capital Sdn Bhd). Its principal activities are managing licensing services for developer applications and products including related technical consulting and training, and providing solutions to clients running on the open source technology platform through its newly acquired subsidiary, Xanadu Solutions Sdn Bhd. PSSB is a Tier-1 managed licensing services provider for Microsoft Corporation’s (“Microsoft”) applications in Malaysia and has been a reseller of Microsoft for the past 17 years. PSSB continues to contribute significantly to Microsoft Malaysia’s software licensing revenue with its diversified customer base comprising 1,600 customers. These customers include multinationals, public listed companies and government agencies.

In March 2006, internal restructuring of the Persoft Group resulted in the disposal of three of their subsidiaries, two of which were loss making, namely Paracation Sdn Bhd (“PCSB”), Mycampus Sdn Bhd (MSB) (formerly known as Paracation (MSC) Sdn Bhd), and Persoft Services Sdn Bhd (PSVB) (formerly known as Pernet Sdn Bhd) to Percorp. Subsequently, PSSB also acquired 70% of Xanadu Solutions Sdn Bhd (“XSSB”) in March 2007, as a provider of open source solutions and services businesses in Asia Pacific region. The operations of PCSB and PMSC were wound down and are currently dormant.

The Group’s revenue of RM78.9 million (FY2005: RM77.5 million) in FY2006 was considerably lower than the RM110.0 million initially projected. The Group’s software licensing segment contributed 93.4% to the Group’s total revenue in FY2006. The Group incurred an after-tax loss of RM40,152 in FY2006. Pre-tax profit was also lower at RM1.0 million (FY2005: RM3.1 million) due to a marked increase in operating expenses to RM9.5 million (FY2005: RM6.9 million). For first half 2007, PSSB’s recorded pre tax profit of RM2.5 million as compared to RM1.9 million during the previous corresponding period. Excluding the gains, the profit before tax would have been RM1.7 million.

The Group’s total borrowings as at year-end 2006 stood at RM21.9 million, the bulk of which comprised outstanding CPs under the programme amounting to RM16.0 million. Consequently, its debt to equity level rose to 1.92 times (FY2005: 0.40 times). The Group’s covenanted debt to equity ratio of 2.0 times under the CP programme will limit the Group’s headroom for further borrowings. Based on its unaudited balance sheet as at June 30, 2007, the Group’s debt leverage has declined to a more manageable 1.69 times. The Group’s cash flow indicators were affected by its lower profitability and its high proportion of receivables (>50%) remaining outstanding beyond the normal credit period. The Group recorded negative cashflow from operations in FY2006.