Chief Executive’s Review
At the end of 2014, StatPro Revolution accounted for 18% of Group recurring revenues, marking an inflexion point for StatPro on the path to becoming a pure cloud services provider.
StatPro has a 15 year track record of growing sustained long term revenue streams – with an average renewal rate of 94% over that period. The Group has reached an inflexion point in the roll out of its cloud-based product StatPro Revolution. Its annualised revenue jumped by 68% and now contributes some 18% of the Group’s total annualised recurring revenue (‘ARR’) – up from 11%.
The Group anticipates that it will continue the process of converting its clients from its StatPro Seven productto StatPro Revolution. The timing for converting a client will largely depend on the client’s own requirements but StatPro expects the bulk will convert over the next three to four years.
In 2014, approximately 78% of new sales were upsells to existing clients.
At the start of 2014 StatPro launched its AIFMD module which, together with the UCITS module, has sold very well.
At the same time, as expected, the roll out of StatPro Revolution has opened up a number of new markets and opportunities – both geographically and by types of customers, including hedge funds and private wealth asset managers.
Total Group revenues grew 6% on a constant currency basis to £32.02 million, (2013 actual: £32.49 million) and the Group’s ARR as a whole also grew 4% on a constant currency basis to £29.39 million (2013 at constant currency: £28.30 million). Profits were reduced as expected as StatPro continued its investment programme to underpin future revenues and growth potential. The forward order book of contracted revenue grew by 7% to £38.74 million (2013 at constant currency: £36.36 million). Revenues were up 8% in EMEAA and up 2% in North America on a constant currency basis.
The Board is recommending that the dividend increases by 4% to 2.9p (2013: 2.8p).
As expected, the roll out of StatPro Revolution has opened up a number of new markets and opportunities – both geographically and by types of customers, including hedge funds and private wealth asset managers.
StatPro provides portfolio analysis and data for the international asset management industry, a highly regulated and expanding sector. Its sophisticated solutions address the complexity of investment processes driven by a number of industry factors including multi-jurisdictional compliance, regulatory change and rising demand for cloud-based reporting and analysis.
Globally, the total figure for assets under management is estimated at over $87 trillion with significant compound growth over the past 20 years. At the same time, demand from the asset management industry for StatPro products is being driven by the increasing requirement for more types of analysis, as well as the need for greater levels of accuracy and faster delivery of analysis and data.
StatPro achieves high client retention through a combination of long term contracts and deeply embedded systems, underpinned by superior levels of expertise and service and continuous innovation. In early 2011, StatPro introduced StatPro Revolution, its cloud-based highly centralised platform with extensive data and portfolio capabilities. Over the past four years, StatPro has continued to service its existing client base whilst upselling the cloud capabilities that StatPro Revolution offers.
At the same time, StatPro Revolution has opened a range of new addressable markets to StatPro within the asset management sector, including hedge funds, private wealth businesses and fund administrators wishing to offer portfolio analytics as a service to their clients.
At the end of 2014, recurring revenue from StatPro Revolution accounted for 18% of Group recurring revenues, marking an inflexion point in the revenue mix for StatPro on the path to becoming a pure cloud services provider.
This has resulted both from upselling StatPro Revolution to existing clients as well as new sales resulting from the enlarged market opportunity that StatPro Revolution addresses. At the end of 2014, 46% of recurring software contract value was derived from customers who have signed up for StatPro Revolution, as StatPro migrates its stable cash generative customer base onto this lower cost, higher-margin cloud-based solution with international scalability.
Current trading and outlook
In 2015, StatPro has continued to maintain high levels of recurring revenue whilst driving growth in sales of StatPro Revolution to both its existing customer base and to new types of customers, including hedge funds and private wealth managers.
The Group’s recently signed three year €4 million (£3.1 million) contract with a large European asset manager to transition its StatPro Seven platform to StatPro Revolution clearly demonstrates the upsell, conversion potential and value uplift in StatPro Revolution.
The current financial year has started well and is in line with the Board’s expectations. The Group has some £38.7 million in contracts revenue secured over the next few years, of which £9.7 million is for StatPro Revolution. With this level of momentum, the Group believes it will continue to see further growth in StatPro Revolution revenues.
2014 has been a successful year; StatPro has seen strong growth in StatPro Revolution ARR, up 68% to £5.42 million (2013: £3.22 million) and continued stability for the StatPro Seven platform with total ARR of £20.28 million at end December 2014 (£21.21 million before impact of StatPro Revolution conversions) (2013: £21.20 million).
The Group has made good progress in implementing a strategy to convert clients from the StatPro Seven platform to the StatPro Revolution platform with 46% by value of software clients using StatPro Revolution. StatPro has a growing list of clients that it expects to convert to StatPro Revolution in due course as it rolls out further functionality.
In June 2014, StatPro implemented a new pricing policy, requiring a minimum relationship fee from new clients of $18,000 p.a. (up from $1,200 p.a.). This has increased new revenue per client although the numbers of new clients being added has slowed. By focusing attention and resources on more profitable clients, StatPro has also improved its basic operating cost model. In 2015, the Group will focus on migrating those clients that pay less than $18,000 p.a. to the new minimum subscription level.
In 2014, senior management visited over 150 of StatPro’s largest clients (representing approximately 80% by value of our subscription base), spanning Europe, North America, Australia, Asia and South Africa, to gauge their clients’ perspectives on their businesses and how StatPro’s new technology is supporting them.
Acceptance of cloud-based services is now almost universal. The economic case for the cloud now looks irresistible and, even where there is still some doubt, it is likely that these fears will be
overcome. The greatest common worry for StatPro’s clients is to meet an ever growing list of regulations, whilst keeping IT budgets at a reasonable level. For many clients, there is also the threat of competitors being able to use technology to deliver a far better service at a lower cost point.
The Group anticipates that it will continue the process of converting its clients from StatPro Seven to StatPro Revolution over the next few years. The timing for converting a client will largely depend on the client’s own requirements but StatPro expects the bulk will convert over the next three to four years.
Approximately 78% of new sales in 2014 were upsells to existing clients. The Group believes that StatPro Revolution is particularly well adapted for repeat sales to clients and that existing clients will continue to be a rich source of new business.
With a large base of approximately 500 clients, StatPro has a ready-made market to sell additional services, portfolios and modules.
Development of the StatPro Revolution cloud platform has gone well in 2014 with some very significant new functionality being delivered. At the start of 2014 StatPro launched its AIFMD module which, together with the UCITS module, has sold very well and now accounts for approximately 18% of StatPro Revolution recurring revenue. StatPro was proud to receive an award for this module for the ‘Best Risk Initiative 2014’ from Waters Buy Side Technology Magazine.
Additionally, StatPro launched Advanced Equity Attribution which means that StatPro Revolution offers the very latest and most sophisticated functionality available for equity attribution. The Group believes this will encourage the conversion of clients on StatPro Seven to StatPro Revolution in order to access the improved functionality.
During the course of 2015, StatPro will launch the Advanced Risk Module within StatPro Revolution, which offers significantly more functionality than the risk module in StatPro Seven. The Group anticipates that many of its risk clients using StatPro Seven will convert to this product in due course.
The Group is also building a new high volume calculation platform using Apache™ Hadoop® technology which will enable it to offer StatPro Revolution to clients with extremely large portfolios and benchmarks. This will form an integral part of StatPro’s advanced fixed income attribution module planned for release in 2016.
StatPro has decided to rebrand StatPro R+ as the performance module within StatPro Revolution, thus simplifying the naming convention for all new products on the StatPro Revolution platform. The StatPro Revolution performance module is progressing as planned and StatPro will be releasing the full replacement of StatPro Seven to several clients on a beta basis in the second half of the year and go live in 2016.
StatPro markets its data services in StatPro Revolution as part of a bundled service, and continues to expand the depth and quality of data for StatPro Revolution. To make the user experience as smooth as possible, StatPro has woven together raw data with its very large pricing library to produce further data for risk and fixed income analysis.
Each market has different conventions and habits and StatPro Revolution is able to cater for hundreds of methodologies to give users the view of their portfolio to suit their specific requirements. This is one of the ways that StatPro Revolution is a considerable improvement on StatPro Seven. StatPro Revolution provides software, IT and data in a combined service that enables StatPro to offer
a significantly enhanced service.
Repeat revenue from StatPro Seven was very solid in 2014 with new sales largely offsetting reductions. New sales tend to come from existing clients buying additional modules and user licences as well as new sales of StatPro Composites.
StatPro continues to support its clients on the StatPro Seven platform, offering upgrades and maintenance. StatPro Seven provides essential services for the Group’s clients by delivering accurate and comprehensive analysis for reporting to their clients.
Client feedback indicates that the operators of StatPro Seven want greater control over their data so that they have higher confidence that they will always publish accurate analysis. Whereas in the past, sending out approximately correct performance numbers was common practice, the new regulatory environment makes this unacceptable. This in turn has led to clients expanding the use of
accurate systems like StatPro Seven to a broader range of portfolios such as private wealth mandates. This is where StatPro Revolution will offer the crucial solution: complete control of data and
huge scale and speed compared to StatPro Seven and other systems using older technology.
Group Chief Executive
12 March 2015