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-- Future software license sales
-- The continued financing by and participation of the Company's CoFlow
partner and it being completed in a timely manner -- Ability to enter into additional software license agreements -- Ability to continue current research and new product development -- Ability to recruit and retain qualified staff
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Forward-looking information is not a guarantee of future performance and involves a number of risks and uncertainties, only some of which are described herein. Many factors could cause the Company's actual results, performance or achievements, or future events or developments, to differ materially from those expressed or implied by the forward-looking information including, without limitation, the following factors which are discussed in greater detail in the "Business Risks" section of this MD&A:
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-- Economic conditions in the oil and gas industry
-- Reliance on key customers
-- Foreign exchange
-- Economic and political risks in countries where the Company currently
does or proposes to do business
-- Increased competition
-- Reliance on employees with specialized skills or knowledge
-- Protection of proprietary rights
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Should one or more of these risks or uncertainties materialize, or should assumptions underlying the forward-looking statements prove incorrect, actual results, performance or achievement may vary materially from those expressed or implied by the forward-looking information contained in this MD&A. These factors should be carefully considered and readers are cautioned not to place undue reliance on forward-looking information, which speaks only as of the date of this MD&A. All subsequent forward-looking information attributable to the Company herein is expressly qualified in its entirety by the cautionary statements contained in or referred to herein. The Company does not undertake any obligation to release publicly any revisions to forward-looking information contained in this MD&A to reflect events or circumstances that occur after the date of this MD&A or to reflect the occurrence of unanticipated events, except as may be required under applicable securities laws.
This Management's Discussion and Analysis was reviewed and approved by the Audit Committee and Board of Directors and is effective as of May 18, 2017.
Outlook
During fiscal 2017, our annuity and maintenance license revenue declined by 4%. Decreases in Canada, the United States and the Eastern Hemisphere were partially offset by an increase in South America as a result of receiving payments from a customer for whom revenue is recognized only when cash is received. The majority of the declines were a result of reduced licensing by customers that have been negatively affected by the economic downturn in the oil and gas industry. The largest decrease has been experienced in Canada, while the decrease in the Eastern Hemisphere comes as a result of both declines and delays in closing of contracts in Asia and Europe. Fewer perpetual sales were made in fiscal 2017 as a result of budgetary cuts by our customers.
In the second half of fiscal 2017 we noted a hint of positive sentiment in the industry with the price of oil stabilizing in the US$45 to US$50 per barrel range, shifting the focus of some petroleum producers from cost-cutting measures to value creation. While we are encouraged by these positive indicators, reductions in budgets and activity levels by our customers over the past couple of years have affected the utilization levels of our software during fiscal 2017, resulting in lower revenue and necessitating cost reductions.
During fiscal 2017, we demonstrated fiscal restraint by reducing costs by 7%, which allowed us to maintain operating profit at 44% of total revenue and EBITA at 46% of total revenue. We believe that the achievement of such margins under difficult economic conditions is impressive.
In an environment of low commodity prices and credit constraints, it is more important than ever for petroleum producers to increase the cost effectiveness and overall efficiency of their operations. CMG will continue to provide advanced process simulation and employ leading edge technologies to help these companies to get the most out of every dollar spent. We will continue to defend and grow our market share and maintain our leadership position in advanced reservoir simulation through investment in R&D, continuous advancement of technologies and unparalleled customer support while exercising fiscal prudence.
During the fourth quarter we released the most recent version of CoFlow, R11, to Shell and Petrobras to be used on their selected target assets. R11 has made material progress in improving the runtime performance, and there will be continued focus on performance and robustness of CoFlow in future releases. At the end of December 2016, Petrobras ended its financial participation in the project, and CMG entered into a new five-year agreement with Shell for continued development of CoFlow. We have also commenced the process of identifying additional customers for trial modelling work. CoFlow will provide one-vendor solution for integrated asset modelling by combining both reservoir and production networks.
During fiscal 2017, our new headquarters in Calgary was substantially completed and will be leased by us for the next 20 years. The new building features training facilities for customers and brings together our entire team in one location. We invested just over $15 million into the new building infrastructure over the past three fiscal years. Following the investment in the new headquarters, our capital expenditures are expected to recede to their normal levels of a couple of million dollars a year.
We ended fiscal 2017 with a strong balance sheet, no debt and $63.2 million in cash. During the fourth quarter, CMG's Board of Directors declared a quarterly dividend of $0.10 per share.
Kenneth M. Dedeluk
President and Chief Executive Officer
May 18, 2017
Consolidated Statements of Financial Position
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(thousands of Canadian $) March 31, 2017 March 31, 2016 --------------------------------------------------------------------------- ---------------------------------------------------------------------------Assets
Current assets:
Liabilities and shareholders' equity
Current liabilities:
Shareholders' equity:
Share capital (note 11) 71,859 66,007 Contributed surplus 11,433 10,397 Deficit (24,574) (17,146) --------------------------------------------------------------------------- Total shareholders' equity 58,718 59,258 --------------------------------------------------------------------------- Total liabilities and shareholders' equity 106,725 101,413 --------------------------------------------------------------------------- ---------------------------------------------------------------------------/T/
Subsequent events (notes 11(b) and 20)
See accompanying notes to consolidated financial statements.
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Approved by the Board
Frank L. Meyer Robert F. M. Smith Director Director/T/
Consolidated Statements of Operations and Comprehensive Income
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Years Ended March 31, 2017 2016 (thousands of Canadian $ except per share amounts) --------------------------------------------------------------------------- ---------------------------------------------------------------------------Revenue (note 6) 75,097 80,798 ---------------------------------------------------------------------------
Operating expenses
Sales, marketing and professional services 19,353 21,450 Research and development (note 7) 16,423 16,865 General and administrative 6,000 6,447 --------------------------------------------------------------------------- 41,776 44,762 --------------------------------------------------------------------------- Operating profit 33,321 36,036Finance income (note 9) 871 549 Finance costs (note 9) - (954) --------------------------------------------------------------------------- Profit before income and other taxes 34,192 35,631 Income and other taxes (note 10) 9,923 10,329 ---------------------------------------------------------------------------
Net and total comprehensive income 24,269 25,302 ---------------------------------------------------------------------------
Earnings Per Share Basic (note 11(e)) 0.31 0.32 Diluted (note 11(e)) 0.31 0.32 --------------------------------------------------------------------------- ---------------------------------------------------------------------------
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See accompanying notes to consolidated financial statements.
Consolidated Statements of Changes in Equity
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Common Contributed Retained Total (thousands of Canadian $) Share Capital Surplus Deficit Equity --------------------------------------------------------------------------- ---------------------------------------------------------------------------Balance, April 1, 2015 59,397 8,561 (4,502) 63,456 Total comprehensive income for the year - - 25,302 25,302 Dividends paid - - (31,514) (31,514) Shares issued for cash on exercise of stock options (note 11(b)) 6,002 - - 6,002 Common shares buy-back (notes 11(b) & (c)) (474) - (6,432) (6,906) Stock-based compensation: Current period expense - 2,918 - 2,918 Stock options exercised (note 11(b)) 1,082 (1,082) - - --------------------------------------------------------------------------- Balance, March 31, 2016 66,007 10,397 (17,146) 59,258 --------------------------------------------------------------------------- ---------------------------------------------------------------------------
Balance, April 1, 2016 66,007 10,397 (17,146) 59,258 Total comprehensive income for the year - - 24,269 24,269 Dividends paid - - (31,697) (31,697) Shares issued for cash on exercise of stock options (note 11(b)) 4,925 - - 4,925 Stock-based compensation: Current period expense (note 11 (d)) - 1,963 - 1,963 Stock options exercised (note 11(b)) 927 (927) - - --------------------------------------------------------------------------- Balance, March 31, 2017 71,859 11,433 (24,574) 58,718 --------------------------------------------------------------------------- ---------------------------------------------------------------------------
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See accompanying notes to consolidated financial statements.
Consolidated Statements of Cash Flows
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Years ended March 31, 2017 2016 (thousands of Canadian $) --------------------------------------------------------------------------- ---------------------------------------------------------------------------Operating activities
Net income 24,269 25,302 Adjustments for: Depreciation (note 4) 1,093 1,382 Income and other taxes (note 10) 9,923 10,329 Stock-based compensation (note 11(d)) 2,144 2,918 Interest income (note 9) (551) (549) --------------------------------------------------------------------------- --------------------------------------------------------------------------- 36,878 39,382 Changes in non-cash working capital: Trade and other receivables (4,233) 5,983 Trade payables and accrued liabilities (1,585) (226) Prepaid expenses (14) 49 Deferred revenue 4,603 966 --------------------------------------------------------------------------- --------------------------------------------------------------------------- Cash provided by operating activities 35,649 46,154 Interest received 574 556 Income taxes paid (7,378) (15,045) --------------------------------------------------------------------------- Net cash provided by operating activities 28,845 31,665 --------------------------------------------------------------------------- ---------------------------------------------------------------------------Financing activities Proceeds from issue of common shares 4,925 6,002 Dividends paid (31,697) (31,514) Common shares buy-back (note 11(c)) - (6,906) --------------------------------------------------------------------------- Net cash used in financing activities (26,772) (32,418) --------------------------------------------------------------------------- ---------------------------------------------------------------------------
Investing activities Property and equipment additions (note 4) (11,514) (1,909) --------------------------------------------------------------------------- Decrease in cash (9,441) (2,662) Cash, beginning of year 72,680 75,342 --------------------------------------------------------------------------- Cash, end of year 63,239 72,680 --------------------------------------------------------------------------- ---------------------------------------------------------------------------
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Canada’s Advantage as the World’s Demand for Plastic Continues to Grow