StatPro Regulatory News (SOG)

1 August 2018

StatPro Group plc

Solid growth in revenue and profit

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 2018.

Financial highlights:

· Group revenue up 22% to £27.24 million (2017: £22.41 million)

o Organic growth 3% (2017: 2%)

o Currency impact down 2% (2017: up 11%)

· Adjusted EBITDA increased by 23% to £4.34 million (2017: £3.53 million)

· Profit before tax £0.90 million (2017: loss £1.54 million)

· Interim dividend maintained at 0.85 pence per share

· Free cash flow in H1 2018 £2.19 million (2017: £3.52 million)

Operating highlights:

· StatPro Revolution underlying ARR growth of 19% (4) (2017: 9%)

· Software as a service (SaaS) as a percentage of software ARR now 84% (2017: 82%)

· StatPro Revolution Fixed Income Attribution (FIA) beta launched - key module seeing considerable demand. First step towards achieving parity with Delta

· Integration of Delta progressing well

· Acquired in July 2018 ODDO BHF's regulatory risk services bureau - adds managed regulatory risk services offering

(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).

(3) The interim and full year accounts for 2017 have been restated to take into account the adoption of IFRS 15 (see notes 1 and 3).

(4) Underlying ARR growth relates to Revolution excluding the acquired revenues from Delta and Investor Analytics and including conversions from Seven (see note 3).

Justin Wheatley, Chief Executive of StatPro, commented:

"We are pleased with the solid growth in Group revenue and profits in the first half. In particular, Revolution's underlying Annualised Recurring Revenue grew by 19%.

"The project to integrate Delta's functionality into our flagship product, Revolution, is going well. The launch of Revolution Fixed Income Attribution in July is the first step towards achieving functionality parity with Delta.

"In preparation for the planned restructure of the business into three divisions, we have appointed a new divisional CEO to lead and develop Source: StatPro, our data division. This division leverages our access to huge quantities of data covering global equities, bonds and other data such as global mutual fund information.

"In 2018 and beyond, we anticipate strong growth in specialised managed services for regulations, risk and performance. We are focused upon building our partnerships with Asset Service Providers to broaden the services they offer the asset management community."

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 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 £54 million today. Around 80% 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 23% to £4.34 million (2017: £3.53 million) with H1 revenues up 22% to £27.24 million (2017: £22.41 million). Excluding currency impact, revenue would have increased by 24%.

ARR, the core measure of the Group's strategy of growing recurring revenue contracts, was flat at constant currency at £52.25 million (2017: £53.19 million). Including the ODDO BHF contracts acquired on 2 July 2018, ARR was £53.74 million on a pro-forma basis.

StatPro Revolution revenues, excluding Delta acquisition, rose 15% and the StatPro Revolution ARR increased by 19% on an underlying basis. Adjusted EBITDA was up 23% to £4.34 million (2017: £3.53 million). Free cash flow decreased to £2.19 million from £3.52 million mainly due to less favourable working capital movements. The Group has maintained the interim dividend per share at 0.85p.

The integration of Delta, acquired on 15 May 2017 from UBS, is progressing well with the project phased over three to five years as StatPro incorporates Delta's functionality into its flagship product, StatPro Revolution. The Group released the beta version of Revolution Fixed Income Attribution (FIA). This is the first step towards achieving functionality parity with Delta. Throughout the transition, and until StatPro has fully integrated Delta's functionality, as planned, UBS will continue to support Delta for its clients.

The Group acquired in March 2018 the remaining shares in Infovest that it did not own and on 2 July 2018 acquired the regulatory risk service provided by ODDO BHF bank in Frankfurt. StatPro gains new clients in Germany, the expertise of the ODDO BHF risk team and adds to its existing managed services for valuations and performance measurement with risk reporting.

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

The Group is very focused on building relationships with Asset Service Providers ("ASPs") in order to become a key partner for them in the provision of services to the asset management community. StatPro anticipates strong growth in asset management services outsourcing and has positioned itself to be a specialist provider of risk and performance managed services.

Current trading and outlook

Demand continues to grow for the Group's flagship cloud delivered services and with a developing risk services capability, the Board is positive about the prospects for H2 2018 and thereafter. Trading for the year as a whole is in line with expectations.

Operational review

Total Group revenue rose 22% compared to H1 2017 and StatPro Revolution grew 15%, excluding Delta acquisition. Record new sales of £6.11 million were recorded, but this was offset by a higher than usual level of cancellations at 9%.

StatPro Seven also continues to be resilient with net reductions of 1%, excluding conversions to StatPro Revolution. Professional services revenue was slightly lower at £0.97 million (2017: £1.03 million) partly reflecting the greater ease of onboarding clients with cloud-based solutions.

On 28 July 2018, the Group released the beta version of Revolution FIA. This is a key module in the Group's offering and StatPro has considerable demand for this capability. The release of FIA will enable a large number of clients of StatPro Seven to convert fully to StatPro Revolution. In the coming months, further functionality will be added to FIA to make it the most compelling fixed income solution in the market.

Notably, no other service is able to offer such a wide range of portfolio analytics, nor such speed of implementation on a single platform as StatPro Revolution. FIA has been designed to handle huge scale and the Group looks forward to rolling it out to its clients and prospects.

Managed services

StatPro has long predicted that the asset management market would shift decisively towards outsourcing non-core activities, including regulatory reports, data management, performance reporting and risk reporting. This is also driven by asset managers looking to reduce costs with external service providers benefiting from economies of scale.

The Group's aim has therefore been to equip asset service providers with the technology to offer a flexible, responsive and sophisticated service. As a result, the Group has increased its focus on asset service providers and is deploying more resource to target companies of all sizes in this market.

In order to offer this segment the best possible service, StatPro is now offering managed services and pre-sales support. Smaller asset service providers and some larger providers will find it more convenient and cost effective to sub-contract performance and risk reporting to StatPro than to establish their own teams.

Assembling the required range of skills to provide a service is expensive and needs a high minimum level of revenue to break-even. The advantage that even the smallest asset service provider has is access to the portfolio data of the client, which is the essential input. However, it is not sufficient for StatPro to provide the managed service, it is also necessary to support the asset service providers in selling the benefits of the service. StatPro therefore offers pre-sales expertise to enable our partner asset service providers to sell the service effectively.

The Group has a unique position to offer software solutions that are truly tailored to meet the needs of asset service providers. The Group's multi-tenant, highly scalable, cloud-based technology is perfectly adapted to the needs of asset service providers. StatPro is well positioned to benefit from the reduced number of software solutions asset managers have in-house and the trend towards outsourcing, helping them to reduce costs in an increasingly tough market for them.

StatPro's business model of selling services on a per portfolio basis is also designed to minimise the effects of mergers as it is likely that the market will continue to experience significant consolidation.

Infovest

In March 2018, StatPro acquired the remaining outstanding shares in Infovest, the integration and data management business. Infovest has made strong progress since StatPro acquired the initial 51% of the business in March 2016.

Infovest's revenues and profitability have continued to grow as 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.

Acquisition

On 2 July 2018, StatPro acquired the regulatory risk service of ODDO BHF. This is a widely respected service that was started nearly 15 years ago. However, the third-party software that the service was based on became dated and inflexible with a high investment cost required. The Board of ODDO BHF therefore sought a partner that could ensure that their clients would have a smooth transition to new cloud-based technology and improved services whilst maintaining capabilities of the original service.

This small acquisition brings 10 new clients in the important German market as well as expertise in offering managed risk services. The Group intends to build its planned managed services team around this core based in Frankfurt. Three of the clients are themselves asset service providers and these offer further partnership possibilities.

Source: StatPro

StatPro has made the decision to invest more in its data division and we have appointed a new divisional CEO to grow the business unit, which will be called Source: StatPro.

Source: StatPro owns a huge quantity of data covering global equities and bonds and also has access to other data such as global mutual fund information.

In addition, and to support our analytics business, we have a consolidated pass through feed of millions of indexes. We also have high quality yield curve data and automated pricing systems for complex assets. These services have been mainly focused in the past as valuable and essential input data for StatPro Revolution. Our intention now is to sell these services in their own right.

Divisional structure for 2019

As previously announced, StatPro plans to structure the business into three divisions from 2019 to make the operations of the business clearer, to provide distinct divisional management focus and to enable growth in each division based on specific divisional priorities.

The largest division, Revolution, will contain all the Group's analytics services. Source: StatPro will contain data revenues from market data and managed services, evaluated bond prices, index services, yield curves and complex asset pricing. Infovest will contain Infovest based in South Africa and SPM, the portfolio management service based in Canada.

Financial review

Revenue

Group revenue increased by 22% to £27.24 million (2017: £22.41 million). The revenue growth was driven by organic growth in StatPro Revolution, combined with the positive impact of six months of the Delta acquisition (compared with only 1.5 months in H1 2017), offset by the expected reduction in revenue for StatPro Seven and currency impacts, as shown below.

96% of Group revenue was recurring revenue (2017: 95%).

The adoption of IFRS 15 has resulted in increased revenue in H1 2018 by £0.57 million (£0.79 million benefit for H1 2017) because of earlier recognition of software licences on non-hosted contracts. However, this is largely a timing issue and the impact on the full year is expected to be minimal (see notes 1 and 3).

Recurring revenue

The Group's SaaS business model of recurring revenue contracts provides visibility of projected revenue. ARR at the end of June 2018 was flat at constant currency at £52.25 million (2017: £53.19 million); with the addition of the contracts acquired from ODDO BHF in July 2018, Group ARR was £53.74 million on a pro-forma basis.

Underlying growth of StatPro Revolution ARR over the last 12-month period was 19%. Excluding the impact of conversions, StatPro Seven ARR reduced by 1%; Data ARR increased by 4%.

Group gross new sales increased by 12% to £6.11 million (2017: £5.47 million) but overall Group ARR was flat at constant currency (2017: organic increase of 3%), having been impacted by a higher than historical level of cancellations (excluding conversions) of 9%.

StatPro's revenue derives from contracts in a mix of currencies, primarily being EUR, USD, GBP and CAD and therefore the business is impacted by movements in currency rates but the spread of currencies for both revenues and costs provides an element of natural hedging in the reported results. There has been a further increase (16%) in average revenue per StatPro Revolution/cloud client to £86,900 (2017: £75,200).

Approximately 84% of new recurring contracted revenue came from existing clients (2017: 85%). Data fees were stable at £2.00 million (2017: £2.03 million) and professional services revenue was £0.97 million (2017: £1.03 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 2018 on a 12-month trailing basis.

The average cost of acquiring customers has increased following the impact of the Delta acquisition and the implied life time is lower thus the LTV:CAC ratio is lower than the prior year. Nevertheless, 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 other adjustments) increased in line with plans by 23% to £21.90 million (2017: £17.83 million); this primarily relates to the impact of an additional 4.5 months of Delta costs compared to H1 2017. Excluding the impact of currency and additional Delta costs, the increase in operating expenses was 5%. These increases related to employee, data, software and communications costs and cloud infrastructure. The average number of employees was 304 (2017: 303).

Profitability

Adjusted EBITDA increased to £4.34 million (2017: £3.53 million). Gross profit margin was 58% (2017: 59%) as shown in note 5. The adjusted EBITDA margin was 15.9% (2017: 15.7%). Excluding the impact of IFRS 15 (which brings forward revenue into H1), the adjusted EBITDA margin would have been 14.2% (2017: 12.9%).

Finance income and expense

Net finance expense was £1.03 million (2017: £0.50 million), as a result of increased average net debt associated with the financing of acquisitions.

Profit before tax

The adjusted operating profit increased year on year to £3.48 million (2017: £2.69 million). The profit before taxation was £0.90 million (2017: loss £1.54 million). H1 2017 was impacted by one off acquisition costs as shown in note 4.

Taxation

The tax charge was £0.18 million (2017: credit of £0.10 million). The overall effective tax rate on the profit is 20% (2017: 6% credit on loss).

Earnings/losses per share

Adjusted earnings per share was 3.4p (2017: 2.7p). Actual basic earnings per share was 1.1p and diluted earnings per share was 1.0p (2017: losses per share basic and diluted 2.4p).

Interim dividend

An interim dividend of 0.85 pence per ordinary share (2017: 0.85 pence) will be paid on 7 November 2018 to shareholders on the register at the close of business on 5 October 2018 (ex-div date will be 4 October 2018).

Balance sheet

The Group's net assets at the period end were £29.57 million (December 2017: £30.62 million). The primary movements in the six-month period were the decrease in intangible assets, mainly relating to the amortisation of acquired intangibles from acquisitions, and the increase in borrowings related to acquisition payments. Deferred revenue, which is a non-cash liability, was £16.62 million (December 2017: £17.89 million).

Cash flow and financing

StatPro continues to be cash generative with cash generated from operations of £6.13 million (2017: £7.48 million). The free cash flow was lower at £2.19 million (2017: £3.52 million) having been impacted by much lower working capital benefit of £0.22 million (2017: £3.30 million) and higher interest. The Group ended the period with net debt of £23.17 million (December 2017: £20.22 million). The increase in net debt arose primarily because of further payments on the Infovest and Investor Analytics acquisitions, using the Group's debt facilities.

Financing facility

As part of the acquisition of the non-controlling interest in Infovest completed in March 2018, the committed element of the multi-currency financing facilities with Wells Fargo was increased. The key features of the facilities, amounting to £39.8 million at 30 June 2018, are:

· Committed to April 2022

· £10 million committed revolving credit facility

· Committed term and deferred drawdown loans totalling £25.8 million

· £4.0 million uncommitted additional facility available

The primary financial covenants are linked to recurring revenue, adjusted EBITDA and available liquidity. 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.

Acquisition

In March 2018, StatPro South Africa (Pty) Ltd. purchased a further 27.3% shares in Infovest for ZAR 30.4 million (£1.9 million) taking the total Group interest in Infovest to 100%.

Post-balance sheet event

On 2 July 2018, StatPro completed the acquisition of the regulatory risk service from ODDO BHF. An initial payment of €1.0 million (£0.9 million) was made in early July 2018, out of a total cash consideration of approximately €1.42 million (fair value of £1.25 million), with the remainder being payable on 2 January 2019. 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 £4.17 million (2017: £3.62 million), equating to 15% of Group revenue (2017: 16%). Capitalised development costs were £2.53 million (2017: £2.62 million) and amortisation on internal development was £1.80 million (2017: £1.94 million). Capital expenditure on property, plant and equipment was £1.25 million (2017: £1.46 million), of which £0.89 million (2017: £1.09 million) was 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 26 to 29 of the StatPro 2017 Annual Report.

Group Income Statement

For the six months ended 30 June 2018

 * Prior year figures have been restated (see notes 1 and 3) in relation to the implementation of IFRS 15.

Group Statement of Comprehensive Income

For the six months ended 30 June 2018

* Prior year figures have been restated (see notes 1 and 3) in relation to the implementation of IFRS 15.

Group Balance Sheet

At 30 June 2018

* Prior year figures have been restated (see notes 1 and 3) in relation to the implementation of IFRS 15.

* Other reserves includes a merger reserve of £2,369,000 (2017: £2,369,000), a translation reserve surplus of £5,594,000 (2017: £6,540,000) and a reserve relating to the put option held by non-controlling interests of a debit balance of nil (2017: £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.

For the six months ended 30 June 2018 (continued)

Notes to the interim financial information

For the six months ended 30 June 2018

1. Principal accounting policies

This interim report was approved by the Board of directors on 31 July 2018. 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 2017, amended as explained below.

There were no acquisitions in H1 2018.

New and amended accounting standards and interpretations

The following new or amended IFRS and IFRIC interpretations effective as of 1 January 2018, which impact this interim report, are as follows:

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

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

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 this new standard.

· 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 2017 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 earnings/(loss) per share has been calculated based on the profit after taxation of £0.70 million (2017: loss of £1.55 million) and the weighted average number of shares of 65.63 million (2017: 64.72 million). The basic earnings per share were 1.1p and diluted earnings per share were 1.0p (2017: basic and diluted loss of 2.4p).

Adjusted earnings per share are shown in the table below. The diluted adjusted earnings per share are based on potentially dilutive shares outstanding of 3.45 million (2017: 1.80 million).

3. Revenue analysis

Revenue by type of service was as follows:

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 2018 was as follows:

The movement in Annualised Recurring Revenue ("ARR") in the 12-month period to June 2018 by service was as follows:

The Annualised Recurring Revenue profile of StatPro Revolution clients was as follows:

* at constant currency

Impact of IFRS 15

With effect from 1 January 2018, the Group has implemented the following accounting standard:

· IFRS 15 Revenue from Contracts with Customers 

The main areas considered by the directors in performing this assessment are outlined below.

Accounting for licences

IFRS 15 contains new guidance on accounting for licences, which requires an entity to consider:

a) whether the licence is distinct from other goods and services; and

b) whether the licence provides a 'right to use' software in its current form or a 'right to access' content that changes over time.

Particular consideration was given to accounting for some legacy term licences for a subset of StatPro Seven software products that are not hosted, i.e. they are installed on-premise. The total annualised recurring contract value of these products is approximately £6.3 million and these are no longer sold to new customers as an on-premise solution. These licences are considered distinct from support and maintenance services included in the contract and provide a 'right to use' software that does not significantly change over the term of the contract.

Under the previous accounting policy, the Group recognised revenue for the combined licence and support and maintenance fee on a straight-line basis over the term of the contract. Under IFRS 15, the Group is required to recognise revenue in respect of the licence upfront on delivery based on its standalone selling price and recognise revenue in respect of support and maintenance on a straight-line basis over the term of the contract.

The Directors have considered the contractual arrangements and determined that they contain a series of annual performance obligations as the Group is required to deliver a licence key annually. Therefore, whilst the monthly phasing of revenue differs under IFRS 15, and therefore results in an increase of around 16% of revenue on H1 2018, an impact of around 1% for the year as a whole is expected, unless contracts are not renewed. The impact of this on the opening balance sheet at 1 January 2017 was to decrease deferred income by £1.92 million and to increase brought forward reserves by £1.92 million. The impact on 2018 EBITDA was an increase of £0.57 million. The Group continues to transition to cloud-based services in line with its strategy.

The Directors consider that for all other revenue streams, the customer cannot benefit from the licence without a related service provided by the Group and consequently, these are not considered distinct from other services included in the contract. Therefore, there has been no change to revenue recognition for other revenue streams.

Direct costs of obtaining a contract

IFRS 15 requires that direct costs of obtaining a contract are capitalised and amortised over the period these are expected to be recovered.

The main direct cost of obtaining a contract incurred by the Group is sales commissions. Under the Group's previous accounting policy, these were expensed immediately as incurred. Under IFRS 15, these are capitalised and written off over the life of the customer contract. The impact of this on the opening balance sheet was to increase brought forward reserves by approximately £0.21 million. The impact on 2018 EBITDA was a decrease of £0.01 million.

The profile of cash receipts or payments is not affected by this standard.

The impact on the balance sheet including the opening reserves as at 1 January 2017 was as follows:

The tax profit and loss impact of the restatement was £0.17 million additional tax charge for H1 2017 and £0.03 million additional tax credit for FY 2017.

4. Adjusting items

There were no one-off adjusting items in H1 2018. One-off adjusting items amounting to a total of £2.71 million were incurred in H1 2017. These included: £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