StatPro Regulatory News (SOG)

2 August 2017

StatPro Group plc

Revenue and profit growth through cloud investment

StatPro Group plc, (AIM: SOG, "StatPro", "the Group"), the leading provider of portfolio analysis and asset pricing services for the global asset management industry, has published its interim results for the six months ended 30 June 2017.

Financial highlights:

· Group revenue up 23% to £21.62 million (2016: £17.55 million)

o Organic growth in revenue 2% (2016: nil)

o Currency impact on revenue 11% (2016: 2%)

· Adjusted EBITDA increased by 35% to £2.78 million (2016: £2.05 million)

· Loss before tax of £2.29 million (2016: £0.96 million) after acquisition and restructuring costs and other non-cash adjustments

· Interim dividend maintained at 0.85 pence per share

· Free cash flow in H1 2017 increased to £3.52 million (2016: outflow of £2.44 million)

Operating highlights:

· StatPro Revolution organic revenue growth of 16% (2016: 62%)

· Completed acquisition of UBS Delta - risk and performance analytics service for approx. €13 million (£11.2 million) in cash, paid over three years.

o UBS Delta extends risk and performance analytics service from middle office to front office of asset managers

o Acquisition phased over three to five years as StatPro incorporates UBS Delta's functionality into flagship product, StatPro Revolution

o Integration progressing to plan

· Software as a service (SaaS) as a percentage of software now 82% (2016: 74%)

· Multi-currency financing facility with Wells Fargo increased to £41.0 million

(1) Annualised Recurring Revenue is the annual value of revenue contractually committed at period end.

(2) Adjusted EBITDA and adjusted earnings/losses per share are EBITDA and earnings/losses per share after adjustment for amortisation of acquired intangible assets, acquisition transaction, redundancy and other integration costs, fair value movement on non-controlling interest put option and share based payments (notes 2 and 5).

Justin Wheatley, Chief Executive of StatPro, commented:

"Our underlying profitability has seen a solid improvement in H1 2017 and the recently acquired Delta business has significantly boosted our recurring revenues - a key metric for the business. Our ARR is now £53.19 million, up some 47% from this time last year.

"The acquisition of Delta was a major development for us. This business transforms our scale and significantly enhances our product capabilities. Our focus is now on maintaining the service for Delta clients, whilst migrating Delta's unique functionality onto StatPro Revolution's platform.

"Our journey to transform StatPro into a SaaS business is largely complete, with over 82% of our software revenues coming from our cloud services. We expect to improve our margins at all levels as we benefit from the enhanced scale provided by Delta, our solid organic growth and the operational gearing inherent in a cloud-based business." 

This announcement contains inside information for the purposes of Article 7 of Regulation (EU) 596/2014 (MAR).

A presentation for analysts of the interim results will be held at 9.30am today at the offices of Instinctif Partners, 65 Gresham Street, London, EC2V 7NQ.

Enquiries:

About StatPro

StatPro is a global provider of award winning portfolio analytics solutions for the investment community. The Group's cloud-based platform provides vital analysis of portfolio performance, attribution, risk and compliance. This multi-asset class analytics platform helps StatPro's clients increase assets under management, improve client service, meet tough regulations and reduce costs.

The Group's integrated and global data coverage includes over 3.2 million securities such as equities, bonds, mutual funds, FX rates, futures, options, OTCs, sector classifications and much else besides. StatPro also covers most families of benchmarks including MSCI, FTSE, Russell, NASDAQ and the open source Freedom Index.

The Group has operations in Europe, North America, South Africa, Asia and Australia, with hundreds of clients in 39 countries around the world.

StatPro has grown its Annualised Recurring Revenue from less than £1 million in 1999 to around £53 million today. Over 75% of recurring revenues are generated outside the UK. StatPro Group plc shares are listed on AIM.

Overview

The first half of the year saw a strong improvement in adjusted EBITDA, rising 35% to £2.78 million (2016: £2.05 million) with H1 revenues up 23% to £21.62 million (2016: £17.55 million).

ARR, which highlights the Group's strategy of growing recurring revenue contracts, increased by 47% to £53.19 million (2016: £36.17 million) over the last 12 months.

Excluding the effect of the acquisition of Delta, revenues rose 13% and the operating profit was £0.62 million (2016: loss £0.60 million). Free cash flow increased to £3.52 million from a £2.44 million cash outflow. The Group has maintained the dividend at 0.85p.

StatPro is now truly cloud-based and firmly established as one of the leading services for the portfolio analytics market. 82% of the Group's software ARR is now from SaaS.

The highlight of the first half was the acquisition of Delta from UBS for approximately €13 million (£11.2 million) in cash, paid over three years. Delta will enable StatPro to extend its risk and performance analytics service from the middle office to the front office of asset managers.

The acquisition of Delta is phased over three to five years as StatPro incorporates Delta's functionality into its flagship product, StatPro Revolution. Throughout the transition, and until StatPro has fully integrated Delta's functionality, UBS will continue to operate and support Delta for its clients.

Investor Analytics (now known as Alpha), acquired in 2016, is being integrated into the Group's flagship cloud platform, StatPro Revolution.

These two acquisitions provide the Group with considerably enhanced capabilities, functionality and the ability to address a wider number of portfolio risk and performance segments.

The Group will continue to consider making acquisitions to widen its customer base and/or increase its product portfolio.

Current trading and outlook

The Group's sales pipeline of larger prospects continues to grow as asset managers and fund administrators begin to see the benefits of StatPro's cloud-based technology for their risk and performance management operations.

The Board is positive about the prospects for H2 2017 with trading expected to be in line with expectations. The addition of Delta underpins this confidence.

Operational review

Total StatPro Revolution revenue grew 61%, including acquisitions. The underlying growth, excluding acquisitions, was 27%. StatPro Seven also continues to be resilient with StatPro Composites seeing growth of 9% in ARR as more and more asset managers become compliant with Global Investment Performance Standards ("GIPS®"). Professional services have been lower in part due to the greater ease with which clients are able to implement StatPro Revolution, thus requiring less consulting.

Since launching the core module, StatPro Revolution Performance in September 2016, two fund administrator clients have on-boarded 36 of their own clients between them. They are looking to expand this significantly in the second half of 2017.

StatPro Revolution Performance has transformed the operations of fund administrators, allowing the on-boarding of new clients more efficiently, with greater ease of controlling data and increased speed and scale in calculating results and delivering services to their clients. It is notable that both of these fund administrators have spoken at conferences on the benefits of StatPro Revolution in providing their clients a better service.

The performance measurement and risk analytics market is largely a replacement market and it can take time for prospects to make decisions. However, the step change that the Group's proven technology offers is giving StatPro a real advantage over incumbent legacy systems. Once a decision to switch has been made, it is normally for a five to ten-year period.

With the Group's new technology now maturing as a service, StatPro is expanding its North America sales team. The Group has hired a senior executive, William Entwistle, to lead the team. William has previously worked at IDC, SS&C, and IBM and joins the Group's operating board, the Group Executive Board. StatPro has also hired three new salespeople for North America and is likely to invest in further additions in H2 2017.

In Europe, the Group has consolidated its sales teams in London and Milan following the acquisition of Delta. StatPro currently has 12 salespeople across Europe and is looking to expand the London team during H2.

The Group has consolidated its Asian operation into Sydney, doubling its size, and closed its Hong Kong office. StatPro has also added further sales resource there to help support its Delta clients in the region.

Development of StatPro Revolution has been expanded to include additional resource to handle the integration of Delta, as well as continuing the existing road map for development. StatPro has made three releases so far this year, each delivering significant improvements in functionality. Two more are expected this year.

Acquisitions

Delta

StatPro is fully engaged in the process of integrating Delta into the Group with the focus on developing the unique Delta functions inside StatPro Revolution. The Group is engaging with Delta clients to explain the integration plans.

The Group is focussed on continuing to ensure that there is no disruption to Delta's service, as StatPro has guaranteed the existing platform for five years. The business is having extensive consultations with clients to ensure optimal migration.

It is also clear that there are numerous opportunities for new business with Delta clients.

Alpha (previously Investor Analytics)

StatPro launched the first version of Alpha integrated with StatPro Revolution in March 2017 and the second version was released in July 2017. The Group expects to complete the integration of Alpha seamlessly into the StatPro Revolution platform next year.

Alpha's physical servers have been moved from New Jersey to the Group's private cloud capability in Toronto. The combination of Alpha and StatPro Revolution has resulted in a number of additional sales and the pipeline is growing well.

Increased investment in Infovest

In February 2017, StatPro increased its investment in Infovest to 72.7% by acquiring additional shares from three of the founders of the company. The business has made strong progress since StatPro acquired 51% of the business in March 2016.

Infovest revenues have grown 28%, and profitability has increased by approximately 47%. Infovest has been able to leverage the Group's global network of clients to win new business in the US, Canada and the UK as well as its home market of South Africa.

Financial review

Revenue

Group revenue increased by 23% to £21.62 million (2016: £17.55 million). The revenue growth was driven by organic growth in StatPro Revolution combined with the positive impact of the Delta acquisition and currency benefits, offset by the expected reduction in revenue for StatPro Seven, as shown below.

95% of Group revenue was recurring revenue (2016: 93%).

Recurring revenue

The Group's SaaS business model of recurring revenue contracts provides excellent visibility of projected revenue. ARR at the end of June 2017 increased by 47% over the previous 12 months to £53.19 million (2016: £36.17 million). Organic growth of StatPro Revolution ARR was 9%. Growth in StatPro Seven ARR was 3%; Data ARR fell by 2%. Excluding the impact of acquisitions and currency rates, overall organic growth in Group ARR was 3% (2016: 1%).

Our revenue derives from contracts in a mix of currencies, with the primary ones being EUR, USD, GBP and CAD and therefore the business is impacted by movements in fx rates but the spread of currencies for revenues and costs provides an element of natural hedging in the reported results.

There has been a significant increase (67%) in average revenue per StatPro Revolution/cloud client to £75,500 (2016: £45,300), boosted by continued focus on larger contract values, and the Delta acquisition, where average revenue per client is approximately £127,500. The organic growth of average ARR for StatPro Revolution was 19%.

Approximately 85% of new recurring contracted revenue came from existing clients (2016: 83%). Data fees were £2.03 million (2016: £1.81 million) and professional services revenue was £1.03 million (2016: £1.16 million).

SaaS-based KPIs

One KPI used by SaaS businesses is the ratio of costs of acquiring each customer ("CAC") compared to the Lifetime Value of the customer contracts ("LTV"). The results for StatPro are presented below for June 2017 on a 12-month trailing basis.

The comparatives for June 2016 have been restated to be consistent with the methodology adopted in the Annual Report for 2016

A value of three or higher for the ratio of LTV:CAC is considered the industry benchmark for a successful SaaS business and for StatPro it is well above this figure.

Operating expenses (before amortisation of intangible assets and exceptional items) increased as planned by 22% (13% at constant currency) to £17.78 million (2016: £14.54 million). £1.96 million (13%) of the increase was related to operating costs within the recently acquired Delta business. Other increases in expenditure related to the investment in cloud technology, data costs, software and communications costs and cloud infrastructure. The average number of employees was 303 (2016: 255).

Adjusting items

One-off adjusting items amounting to a total of £2.71 million were incurred. These include: £2.51 million related to the transaction costs of the acquisition and associated restructuring charges in Delta as well as costs arising from streamlining StatPro's European operations. The non-cash fair value movement on the non-controlling interest put option of £0.20 million relates to Infovest.

Profitability

Adjusted EBITDA increased to £2.78 million (2016: £2.05 million). Gross profit margin was 58% (2016: 60%) as shown in note 5. The adjusted EBITDA margin was 12.9% (2016: 11.7%). Delta was close to breakeven on an adjusted EBITDA basis in the short period since acquisition and the core business had an EBITDA margin of approximately 14.6%.

Finance income and expense

Net finance expense was £0.50 million (2016: £0.36 million), as a result of increased net debt associated with the financing of the Delta acquisition.

Loss before tax

The adjusted operating profit increased year on year to £1.94 million (2016: £1.29 million). Adjusting items include amortisation of acquired intangible assets (£0.88 million), acquisition related and restructuring costs (£2.51 million), fair value movement on non-controlling interest put option (£0.20 million), and share based payments (£0.14 million). The loss before taxation was £2.29 million (2016: £0.96 million).

Taxation

The tax credit was £0.27 million (2016: £0.25 million). The overall effective tax credit rate on the loss is 12% (2016: 26%). The underlying tax rate has reduced mainly due to reducing UK tax rates and R&D tax benefits.

Earnings/losses per share

Adjusted earnings per share was 1.8p (2016: 1.1p). Actual basic and diluted losses per share was 3.3p (2016: 1.2p).

Interim dividend

An interim dividend of 0.85 pence per ordinary share (2016: 0.85 pence) will be paid on 1 November 2017 to shareholders on the register at the close of business on 6 October 2017 (ex-div date will be 5 October 2017).

Balance sheet

The Group's net assets at the period end were £28.93 million (Dec 2016: £32.59 million). The primary movements in the six-month period were the increase in intangible assets of £10.33 million, mainly relating to the acquired intangibles from the Delta acquisition, and the increase in borrowings related to acquisition payments. There has also been an increase in deferred revenue, which is a non-cash liability to £18.58 million (Dec 2016: £17.60 million).

Cash flow and financing

StatPro continues to be cash generative with cash generated from operations of £7.48 million (2016: £2.29 million), benefitting from strong positive working capital movements. The free cash flow was an inflow of £3.52 million (2016: outflow of £2.44 million). The Group ended the period with net debt of £18.92 million (Dec 2016: £10.06 million). The increase in net debt arose primarily because of the financing of the Delta acquisition, and further payments on Infovest and Investor Aanalytics acquisitions, using the Group's debt facilities.

Financing facility

As part of the acquisition of Delta signed in April 2017, the multi-currency financing facilities with Wells Fargo were increased. The key features of the facilities, now amounting to £41.0 million, are:

· Five-year commitment period to April 2022

· £10 million committed revolving credit facility

· Committed term loans totalling £19.0 million

· Committed deferred drawdown loans totalling £4.5 million

· £7.5 million uncommitted additional facility available

The primary financial covenants are linked to recurring revenue and EBITDA while allowing the Group to invest for growth. The financing costs are amortised over the five-year term. This facility strengthens the Group's long-term financial structure and therefore the Board believes that the Group is well positioned to manage the business risks.

Acquisitions

During H1 2017, StatPro completed one acquisition and increased its investment in an existing subsidiary, as follows:

Acquisition of Delta

On 15 May 2017, StatPro completed the First Closing of the acquisition, from UBS, of its risk and performance analytics service, UBS Delta. An initial payment of approximately £7.5 million has been made, out of a total cash consideration of approximately €13 million (£11.2 million), with the remainder being paid over three years.

Increase in majority control of Infovest

The Group increased its shareholding in Infovest Consulting (Pty) Ltd ("Infovest"), from 51.0% to 72.7% in February 2017. The consideration for the additional 21.7% shareholding was ZAR 19.1 million (£1.15 million) in cash.

Further details on these acquisitions are provided in note 9.

Research and development and capex

The research and development team is now focused solely on the Group's cloud-based solutions, the StatPro Revolution platform. R&D expenditure increased to £3.62 million (2016: £2.27 million), equating to 17% of Group revenue (2016: 13%). R&D has increased as a result of the work commenced on integrating the Delta product onto the Revolution platform and although R&D is higher than H1 2016, the level of R&D spend in relation to revenue is similar to the level in FY 2016. Capitalised development costs were £2.62 million (2016: £1.87 million) and amortisation on internal development was £1.94 million (2016: £1.71 million). Capital expenditure on property, plant and equipment was £1.46 million (2016: £1.02 million), of which £1.09 million were financed under finance lease arrangements.

Principal risks and uncertainties

The directors continue to evaluate the principal business risks and uncertainties affecting the Group and further discussion of the principal risks and uncertainties can be found on pages 24 to 27 of the StatPro 2016 Annual Report.

Group Income Statement

For the six months ended 30 June 2017

* This relates to the results of the acquisition made during the financial period

Group Statement of Comprehensive Income

For the six months ended 30 June 2017

Group Balance Sheet

At 30 June 2017

* For consistency with the year-end audited accounts for 2016, the comparatives for some components of provisions have been reclassified to non-controlling interest put option, and trade and other payables.

* Other reserves includes a merger reserve of £2,369,000 (2016: £2,369,000), a translation reserve surplus of £6,540,000 (2016: £5,187,000) and a reserve relating to the put option held by non-controlling interests of a debit balance of £1,929,000 (2016: £1,929,000). The merger reserve arose on acquisitions and represents the difference between the fair value and the nominal value of the shares issued. The translation reserve incorporates the gains and losses on revaluation of the net assets and liabilities of subsidiary undertakings and other currency gains and losses that are presented in equity.

Notes to the interim financial information

For the six months ended 30 June 2017

1. Principal Accounting policies

This interim report was approved by the Board of directors on 1 August 2017. The financial information set out in this interim report has been prepared under IFRS as adopted by the European Union and on the basis of the accounting policies set out in the statutory accounts of StatPro Group plc for the year ended 31 December 2016, amended as explained below.

New and amended accounting standards and interpretations

There were no new or amended IFRS and IFRIC interpretations effective as of 1 January 2017 which impact this interim report.

Interpretations and revised standards that are not yet effective and have not been early adopted by the Group

The following interpretations to existing standards have been published that are mandatory for the Group's future accounting but which the Group has not adopted early. Management has not yet fully assessed the impact of these new standards.

· IFRS 9 Financial Instruments - Classification and Measurement - 1 January 2018

· IFRS 15 Revenue from Contracts with Customers - 1 January 2018

· IFRS 16 Leases - 1 January 2019

This report is not prepared in accordance with IAS 34, which is not mandatory. This interim report has not been audited but has been reviewed in accordance with ISRE 2410 by the Company's auditors, Ernst & Young LLP. The financial information does not constitute statutory accounts within the meaning of section 435 of the Companies Act 2006. Statutory accounts for StatPro Group plc for the year ended 31 December 2016 reported under IFRS have been delivered to the Registrar of Companies. The auditors' report on those accounts was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006. Copies of this report will be posted or provided electronically to shareholders. Further copies are available free of charge on request from the Company Secretary at the Company's registered office, Mansel Court, Mansel Road, London SW19 4AA.

Basis of preparation - going concern

After making appropriate enquiries, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For these reasons, the Board continues to adopt the going concern basis in preparing the interim report.

2. Earnings/losses per share

Basic (loss)/earnings per share has been calculated based on the loss after taxation of £2.12 million (2016: £0.78 million) and the weighted average number of shares of 64.72 million (2016: 65.84 million). The basic and diluted losses per share were 3.3p (2016: 1.2p).

Adjusted earnings per share are shown in the table below. The diluted adjusted earnings per share are based on potentially dilutive shares outstanding of 1.80 million (2016: 1.06 million). The reported diluted loss per share for the year to 31 December 2016 has been adjusted to 15.4p from the 15.1p previously reported.

3. Revenue analysis

Revenue by type of service was as follows:

 The Acquisition relates to Delta

A key performance indicator for the Group is the Annualised Recurring Revenue ("ARR") from client contracts. The movement in Annualised Recurring Revenue ("ARR") in the 12-month period to June 2017 was as follows:

The Annualised Recurring Revenue profile of StatPro Revolution clients (including Delta cloud solution) was as follows:

* at constant currency

4. Adjusting items

One-off adjusting items amounting to a total of £2.71 million were incurred in H1 2017. These include: £2.51 million related to the acquisition of Delta and associated restructuring charges in the core business. The fair value movement on the non-controlling interest put option of £0.20 million relates to Infovest.

5. Adjusted profit before taxation, adjusted operating profit, adjusted EBITDA and gross margin analysis

a) Adjusted profit before taxation