We now have a very focused business with a strong foundation for highly scalable expansion.
In January 2012, the Board made the decision to develop solely cloudbased technology solutions. The result of this decision means that we now have a very focused business with a strong foundation for highly scalable expansion. The concentration of the sales and client services teams’ efforts on StatPro Revolution resulted in a more than three-fold increase in annualised recurring revenue for the cloud-based service to £1.51 million (2011: £0.45 million at constant currency). We are no longer actively promoting our traditional StatPro Seven products to new prospects, nevertheless, we achieved some new business and extensions and StatPro Seven software revenue increased by 1% at constant currency. The restructuring in 2012 resulted in an exceptional restructuring charge of £0.98 million (2011: nil).
The StatPro Seven and data products achieved an 8% increase in underlying adjusted EBITDA (at constant currency), as shown in the table below, while the StatPro Revolution service, still in investment mode, achieved a reduced EBITDA loss of £2.28 million (2011: £2.54 million). The Group thus achieved a 10% increase overall in adjusted EBITDA to £6.73 million (2011: £6.12 million) and an adjusted EBITDA margin of 21.0% (2011: 19.3%) whilst continuing to invest in cloud technology.
|EBITDA relating to:|
|Seven and Data||9.38||8.66||8%|
|Adjusted EBITDA margin||21.0%||19.3%|
Share placing and planned investment
The Company raised £5.81 million (net of expenses) in a placing in November 2012 and, combined with another year with strong operating cash flow, the Group had net cash of £3.67 million at year end (2011: net debt of £3.40 million). The purpose of raising fresh equity was to allow increased investment in cloud services from a stronger balance sheet. The Board believes that StatPro Revolution has immense potential with ‘first mover’ advantage and the plan is to capitalise on this opportunity. Therefore, in 2013 more will be invested in the sales team and building on partnerships with fund administrators. StatPro will also increase its development and web design team as well as strengthening our client services team.
Key performance indicators
The key performance indicators (‘KPIs’) that are monitored by the Board, and by the Group Executive Board as part of the regular monthly management reporting are shown in table 2. The KPIs are discussed in detail below in the relevant sections of this Financial Review.
Overall, Group revenue increased by 1% to £32.00 million (2011: £31.72 million). At constant currency the revenue growth was 4%.
Revenue by segment
Revenue increased in the EMEAA region by 3% at constant currency but at actual rates was 2% lower than the prior year at £20.08 million (2011: £20.40 million). In the North American region revenue increased by 5% (both at constant currency and at actual rates) to £11.92 million (2011: £11.32 million) as shown in table 3.
Revenue by type
As anticipated, our decision to focus on cloud technology and not proactively market StatPro Seven had an impact on StatPro Seven software licence revenue, which grew by only 1% at constant currency and at actual rates fell by 2% to £24.60 million (2011: £25.01 million). StatPro Revolution revenue increased by 324% to £0.72 million (2011: £0.17 million). Data fees increased by 2% for the year as a whole to £4.69 million (2011: £4.61 million) but data fees were lower in H2 2012 as the level of data overage, which was higher than usual in H1 2012, reduced in the second half of the year. Professional services revenue increased slightly by 3% to £1.99 million (2011: £1.93 million).
The split of revenue for the year by type is shown in table 4.
The Group’s business model of Software as a Service (‘SaaS’) and recurring revenue contracts continues to provide excellent visibility of revenue with the recurring revenue element being a high percentage (94%) of total revenue (2011: 94%). The annualised recurring revenue from software licences and data fees at the end of December 2012 was £29.52 million (2011: £28.45 million at constant currency). New contracts signed in the year amounted to £3.11 million (2011: £3.47 million) and the renewal rate was higher at 93% (2011: 92%).
Approximately 71% of new recurring contracted revenue arose from existing clients (2011: 70%). The proportion by value of recurring software licences and data clients at the end of 2012 secured to the end of 2013 or beyond amounted to 81% (2011: 78%); the weighted average length of contracts committed was 17 months (2011: 17 months).
Client related KPIs
|New sales of recurring licences and data||£3.11 million||£3.47 million|
|New sales of consulting||£1.99 million||£1.93 million|
|Annualised recurring revenue*||£29.52 million||£28.45 million|
|Annualised recurring revenue* – StatPro Revolution||£1.51 million||£0.45 million|
|StatPro Revolution related recurring revenue*||£4.04 million||£1.62 million|
|StatPro Revolution related recurring revenue – % of software||16%||7%|
|Contract renewal rates||93%||92%|
Financial and operational KPIs
|Adjusted operating margin||17.3%||15.9%|
|Adjusted EBITDA margin||21.0%||19.3%|
|Adjusted EBITDA||£6.73 million||£6.12 million|
|Net cash/(debt)||£3.67 million||£(3.40) million|
|* At constant currency|
The Board believes that StatPro Revolution has immense potential with ‘first mover’ advantage and the plan is to capitalise on this opportunity.
StatPro Revolution revenue profile
Whilst recurring revenue relating to StatPro Revolution is currently only 5% of the Group total it is growing at a higher rate as the service is developed on a highly scalable technology platform. The total recurring revenue from clients whose subscription includes StatPro Revolution was £4.04 million (2011: £1.62 million) representing 16% (2011: 7%) of our total software recurring revenue, a KPI we are focusing on increasing.
The profile of our client numbers and revenues is a skewed distribution. At one extreme are a number of fund administrator partners (typically large custodian banks) who have contracted for, say, a minimum of 100 portfolios and we expect the number of portfolios (and hence recurring revenue) to increase as they promote the service to their wide client base. At the other end are a large number of clients who have signed for just one portfolio. Whilst the revenue per client for these smaller clients is much lower than our current average there is a larger market of potential clients and we are focusing on growing both these target markets in addition to prospecting existing clients.
The revenue distribution profile for StatPro Revolution is shown in table 6.
Operating expenses (before amortisation of intangible assets and exceptional items) reduced by 4% (1% at constant currency) to £23.02 million (2011: £24.03 million). The average number of employees reduced by 5% to 253 (2011: 266), and we ended the year with 242 employees, 14% fewer than the previous year’s staffing level (2011: 280).
Adjusted operating margin
As a result of increased investment in our products and the restructuring in 2012, the operating profit reduced in 2012 to £4.28 million (2011: £4.49 million), although the adjusted operating profit increased by 9% year on year to £5.53 million (2011: £5.06 million) as shown in note 3, with the adjusted operating margin increasing to 17.3% (2011: 15.9%). The adjusted EBITDA (note 3) increased by 10% to £6.73 million (2011: £6.12 million).
Research and development and capex
Following the decision to develop solely cloud-based solutions, we focused the development team on StatPro Revolution and StatPro Revolution Plus (the cloud upgrade path for StatPro Seven). As a result total research and development expenditure reduced overall by 17% to £4.18 million (2011: £5.01 million), equating to 13% of Group revenue (2011: 16%), but our expenditure dedicated to cloud computing increased.
The total expenditure on StatPro Revolution including marketing and other costs incurred in 2012 was £3.70 million (2011: £3.32 million), which had an EBITDA impact in the year of approximately £2.28 million (2011: £2.54 million), after taking into account associated revenue and the impact of capitalised development costs.
Development costs of £3.21 million were capitalised in the year (2011: £3.45 million) and amortisation on internal development increased to £3.06 million (2011: £2.64 million). Expenditure on other intangible assets was £0.34 million (2011: £0.36 million) and total capital expenditure on property plant and equipment was £0.64 million (2011: £0.99 million).
|Software licences – StatPro Seven||24.60||25.01||(2%)|
|Software licences – StatPro Revolution||0.72||0.17||324%|
|Software licences – Total||25.32||25.18||1%|
|Total recurring revenue||30.01||29.79||1%|
|Professional services and other revenue||1.99||1.93||3%|
Following the decision to develop solely cloud-based solutions, we focused the development team on StatPro Revolution and StatPro Revolution Plus ('R+').
Finance income and expense
Net finance expense reduced to £0.49 million (2011: £0.63 million) as a result of lower average net debt in 2012.
Profit before tax
Profit before taxation in 2012 decreased by 2% to £3.78 million (2011: £3.86 million). After adjusting for amortisation of acquired intangible assets, share based payments and exceptional items, the adjusted profit before taxation increased by 14% to £5.04 million (2011: £4.43 million). The impact of currency movements reduced adjusted profit before taxation by £0.37 million (i.e. approximately 7% impact).
The tax charge is £1.10 million (2011: £0.96 million) giving an effective tax rate of 29% (2011: 25%). This is higher than the prevailing UK rate largely due to unrelieved losses in our development company StatPro International Sarl.
Earnings per share
Basic earnings per share decreased by 10% to 4.3p (2011: 4.8p). Diluted earnings per share decreased to 4.3p (2011: 4.7p) based on 0.25 million (2011: 1.02 million) potentially dilutive shares outstanding. Adjusted earnings per share (note 10) increased by 4% to 5.9p (2011: 5.7p).
The purpose of raising fresh equity was to allow increased investment in cloud services from a stronger balance sheet.
The Group’s net assets increased to £49.62 million at 31 December 2012 (2011: £43.83 million), mainly as a result of the placing of shares, which raised £5.81 million (net of expenses).
Cash flow and financing
2012 was another year of positive cash generation with cash inflow from operating activities (before exceptional payments) of £10.18 million (2011: £10.37 million). The Directors believe that the financial risk profile has reduced significantly following the extension of the financing facility in May 2012, the placing in November 2012 and the general improvement in trading over the last year. The Group was in a net cash position amounting to £3.67 million as at 31 December 2012 (2011: net debt of £3.40 million). The Group nevertheless retains its long-term financing facility which was undrawn at 31 December 2012.
The Directors are recommending an increased final dividend for 2012 of 1.9p per share (2011: 1.85p) making a total dividend for 2012 of 2.7p per share (2011: 2.6p). It is intended to pay the final dividend on 22 May 2013 to all shareholders on the register at the close of business on 26 April 2013. Total dividends paid in 2012 amounted to £1.63 million (2011: £1.50 million). The Board intends to maintain a progressive dividend policy reflecting the balance between the investment needs of the business and the growth in underlying earnings per share. When proposing the dividend, the Board satisfies itself that the current and projected level of dividend cover is appropriate. The dividend cover (calculated as adjusted eps: dividends per share) in 2012 was 2.2 times (2011: 2.2).
Principal risks and uncertainties
The principal business risks and uncertainties affecting the Group are described on pages 33 to 35 of the annual report. For each category of risk, the Directors have identified means by which the risk can be managed or reduced in a cost effective way, whilst accepting that some risks cannot be completely eliminated. Details of key financial risks are considered below.
Financial risk management
The current and projected financial risks of the Group are managed by the Group finance team. The primary risk relates to financing facilities and this is mitigated by ensuring very tight control of cash and detailed forecasting of business cash flows.
The Group’s cash position is closely monitored with weekly updates from all overseas operations and daily updates of cash collected from customers. Any aged debtor balance that is overdue is investigated to ascertain the reason and to resolve the situation promptly. Monitoring procedures for short term cash projections allow the Group Finance team to closely monitor the key liquidity and other financial ratios to ensure that there is sufficient liquidity in the business at all times and sufficient headroom in relation to the banking covenants.
|Annualised recurring contract revenue 2012 £million||Annualised recurring contract revenue 2011 £million|
|As at 31 December 2011||29.41||29.38|
|Net impact of exchange rates||(0.96)||(1.03)|
|At 1 January 2012 (at December 2012 rates)||28.45||28.35|
|New contracted revenue||3.11||3.47|
|Recurring licence fees as at 31 December 2012||29.52||29.41|
|Number of clients 2012
|Average revenue per client 2012 £’000s||Annualised revenue
|Number of clients 2011
|Average revenue per client 2011
|Annualised revenue bands|
|£2k – £10k||126||30||4.2||17||5||3.4|
|£10k – £50k||189||9||21.0||93||4||23.1|
|£50k – £100k||360||5||72.0||178||2||88.9|
The Company retains its senior debt facility with The Royal Bank of Scotland plc (‘RBS’), which is committed to May 2015, subject to compliance with agreed covenants. The Company has the option to extend the facility for a further two years to May 2017 (subject to RBS Credit Committee approval). At 31 December 2012, the Group had both net cash of £3.67 million and undrawn credit facilities of approximately £9.50 million available to support its business operations and therefore the Board believes that the Group is well positioned to manage the business risks.
Foreign exchange risk management
The Group is exposed to exchange rate fluctuations given that the majority of its revenue is non-sterling based. The Group also has a significant proportion of its costs in the same currencies as its revenues and therefore there is a reasonable degree of natural reduction in overall currency risk.
All material foreign currency transaction exposures (i.e. sales and purchase contracts denominated in a different currency to the local reporting currency) are hedged through use of foreign exchange contracts as soon as the amount and timing of the exposure is identified with reasonable certainty. The Group’s policy is not to hedge profit and loss translation exposures.
As part of our liability management, we have made use of currency swaps with a total principal value of approximately £5.23 million denominated in USD, CAD, and EUR, to create synthetic currency hedges in order to provide a partial hedge against movements in the fair value of investments in overseas subsidiaries. As the Group continues to grow and generates increased profits overseas in foreign currencies this exchange rate exposure is expected to increase.
Interest rate risk management
The Group is exposed to interest rate risk and an increase in interest rates would increase the interest payable on the Group’s banking facility. Given the Group’s current net cash position and the benign outlook for interest rates, the Board has decided not to undertake any interest rate hedging but will review the position from time to time.
The risk to rising interest rates (should the Group return to a net debt position) would be partly mitigated by an increase in interest income from surplus cash and deposits, where the policy is to seek to maximise interest return without exposure to inappropriate liquidity or counterparty risk.
14 March 2013