April 5th - 2002
This letter is intended to provide Mandriva Shareholders with the latest news of the company.
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Answers about Mandriva's health.
On March 11th, we made a press release concerning one of our online services, the "Mandriva Club". It would seem that this press release, which was aimed at Mandriva Linux users, created a certain amount of worry concerning Mandriva's financial situation. Also, several negative rumours have been circulating regarding Mandriva. As a result of these developments, Mandriva's share price has dropped significantly in the last few weeks. It is important for us to communicate some facts to you concerning Mandriva's situation.
Several months ago, we launched a new online service, the "Mandriva users Club", which offers, for an annual fee, several advantages to members. The personal Club was launched on November 28, 2001, and the Corporate Club, February 20, 2002. The Club is gaining in its success, thanks to the addition of several interesting features and an ambitious communications campaign which has generated over 440,000 Euros of revenue from Club subscriptions, including more than 310,000 Euros in just the past few weeks.
The result is that, for the first time since our 1998/1999 fiscal year, which was profitable, Mandriva is experiencing positive cashflow. This means the cash situation is getting better. Club subscriptions are not counted immediately in the company's revenues - they are counted in prorata temporis to the length of the subscription, which is one year. This is a very important source of revenue, since it brings a large profit margin and allows a better view of future earnings for the company.
Nothing allows us to predict whether current Club subscription levels will last into the coming months. However, we must note that there are currently 5600 Club members, and with a potential installed user base of 3.6 million users (according to Linux Counter at http://counter.li.org), the current level of Club members represents only 0.15% of Mandriva Linux users. This allows us to be fairly confident that we have a comfortable margin for growth in this area. The Corporate Club currently has ten companies whose subscriptions are being processed. When we take into account that there are probably several thousand companies using Mandriva Linux (including the 485 cited on MandrivaBizCases), we think that a large margin for growth is possible also for the Corporate Club.
These positive results confirm Mandriva's strategy: make attractive products, build a large userbase (both individuals and companies), and then transform this user base into a customer base via value-added services.
On a more global side, it seems important to note that we have been working to correct the difficult situation in which we found ourselves, following the strategic errors of the previous management team. The actions we have been carrying out have been in several areas:
1. Refocusing the company around our original business, and what we are best at. It seemed necessary that we return to our original activity at Mandriva: implementing Mandriva Linux, and offering value-added products and services around this solution.
2. Lowering costs. This was necessary to bring us closer to financial stability, and took the form of removing unnessary expenses and reducing the head count. Mandriva has gone from over 150 employees at the start of 2001 to less than 100 now.
3. Increasing revenue and margins. This is done by developing new sources of revenue, such as OEM sales, e-commerce, services, online subscription services such as the Club, and increasing our margin on traditional product lines.
January-March 2002 financial figures, which will show the results of this strategy, will be published shortly.
Mandriva Linux Users Club:
March 11th message: