Q3 results: 2% organic growth in Q3, 5% in 9M17
Q3 revenues grew by 68% to €33.0m, including c 2% organic growth and contributions from Harlex (consolidated into the accounts from 1 October 2016), Innoplexia (1 May 2017), BCC (1 May 2017) and ADEPCON (1 August 2017). The group recorded a €953k normalised pre-tax loss, partly due to postponed sales of its proprietary software. While Q3 licence revenues jumped 82% to €5.9m, this includes a significant amount of low-margin software sales relating to the two recent acquisitions. Within 9M licence revenues, c €5m were third-party licence re-sales and own software was c €1m lower. The business benefits from software re-sales as it typically leads to project work. As own software sales were delayed, management anticipates a very busy Q4.
Incoming orders jumped by 43% to a record €37.4m in Q3, while the backlog rose by 70% to a record €62.2m. Utilisation rates have returned to normal levels after a slow start to the year and the book-to-bill remained positive at 1.13x. For 9M17, revenues rose by 41% to €81.0m, with a normalised loss of €3.6m after the €4m of one-off costs. Most of these one-off costs were in the first half, including €2.65m in Q1. We outlined these items in our Q1 note, published in early May, and have treated these items within normal operating expenses. This is because most of the costs are operational in nature such as legal fees and restructuring costs.
During 2017 the group has expanded its software product portfolio with the launch of CrystalBridge (used to blueprint projects) and Interface Scanner (enables customers to gather insights into their system landscape and any changes that have occurred over time). Both products were developed internally. CrystalBridge is a crucial component in the planning of SAP S/4HANA transformations and it operates on a recurring Software-as-a-Service revenue model. The recently acquired Innoplexia also broadens the offering – as a provider of market information, it enables customers to see what is going on in their particular industries.
Exhibit 1: Quarterly analysis
€000s |
Q116 |
Q216 |
Q316 |
Q416 |
FY16 |
Q117 |
Q217 |
Q317 |
Q417 |
FY17e |
FY18e |
Professional services |
15,516 |
16,558 |
15,953 |
18,613 |
66,640 |
19,089 |
22,151 |
25,936 |
30,776 |
97,952 |
125,399 |
Licences |
2,216 |
2,425 |
3,258 |
4,101 |
12,000 |
1,733 |
3,042 |
5,935 |
7,090 |
17,800 |
18,800 |
Maintenance |
742 |
457 |
416 |
430 |
2,045 |
776 |
1,237 |
1,140 |
1,047 |
4,200 |
5,050 |
Total revenue |
18,474 |
19,440 |
19,627 |
23,144 |
80,685 |
21,598 |
26,430 |
33,011 |
38,913 |
119,952 |
149,249 |
Other operating income |
200 |
148 |
150 |
730 |
1,228 |
235 |
295 |
171 |
|
|
|
Cost of materials |
(1,928) |
(2,037) |
(1,965) |
(2,346) |
(8,276) |
(2,260) |
(3,244) |
(7,037) |
|
|
|
Personnel costs |
(10,604) |
(11,382) |
(11,399) |
(13,822) |
(47,207) |
(14,657) |
(15,511) |
(18,849) |
|
|
|
Other operating expenses |
(4,174) |
(3,986) |
(4,209) |
(5,442) |
(17,811) |
(6,692) |
(6,461) |
(7,156) |
|
|
|
Other taxes |
(22) |
(27) |
(21) |
(25) |
(95) |
(28) |
(277) |
(32) |
|
|
|
Op costs (before depreciation) |
(16,528) |
(17,284) |
(17,444) |
(20,905) |
(72,161) |
(23,402) |
(25,198) |
(32,903) |
(35,452) |
(116,955) |
(138,292) |
Adjusted EBITDA |
1,946 |
2,156 |
2,183 |
2,239 |
8,524 |
(1,804) |
1,232 |
108 |
3,460 |
2,996 |
10,957 |
Depreciation |
(323) |
(372) |
(399) |
(573) |
(1,667) |
(594) |
(690) |
(843) |
(850) |
(2,977) |
(3,543) |
Adjusted operating profit (EBIT) |
1,623 |
1,784 |
1,784 |
1,666 |
6,857 |
(2,398) |
542 |
(735) |
2,611 |
20 |
7,415 |
Operating Margin |
8.8% |
9.2% |
9.1% |
7.2% |
8.5% |
(11.1%) |
2.1% |
(2.2%) |
6.7% |
0.0% |
5.0% |
Net interest |
(191) |
(268) |
(141) |
(537) |
(1,137) |
(577) |
(181) |
(218) |
(224) |
(1,200) |
(1,000) |
Edison profit before tax (norm) |
1,432 |
1,516 |
1,643 |
1,129 |
5,720 |
(2,975) |
361 |
(953) |
2,387 |
(1,180) |
6,415 |
Associates |
0 |
(1) |
0 |
9 |
8 |
0 |
(1) |
12 |
0 |
0 |
0 |
Exceptional items |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
Profit before tax (FRS 3) |
1,432 |
1,515 |
1,643 |
1,138 |
5,728 |
(2,975) |
360 |
(941) |
2,387 |
(1,180) |
6,415 |
New orders and backlog |
|
|
|
|
|
|
|
|
|
|
|
Incoming orders |
26,200 |
19,900 |
26,200 |
23,300 |
95,600 |
24,400 |
33,200 |
37,400 |
|
|
|
Quarterly revenues |
18,474 |
19,440 |
19,627 |
23,144 |
80,685 |
21,598 |
26,430 |
33,011 |
|
|
|
Book-to-bill ratio |
1.42 |
1.02 |
1.33 |
1.01 |
1.18 |
1.13 |
1.26 |
1.13 |
|
|
|
Backlog |
28,700 |
29,300 |
36,200 |
39,300 |
|
40,800 |
48,500 |
62,200 |
|
|
|
Source: SNP Schneider-Neureither & Partner accounts, Edison Investment Research
During the period, the company established a strategic partnership with NTT Data. The aim of the partnership is to jointly offer software-based transformation services for enterprises in Asia Pacific.
In October, SNP had a successful Transformation World customer conference with 240 attendees, up from 160 in the previous year. There were the first presentations given in English, reflecting the increasingly international perspective, and considerable interest was shown in the new products.
The cash outflow from operating activities eased to €2.9m in Q3 from €8.0m in H1. There were acquisition costs of c €7m in Q3 relating to ADEPCON, and the company raised €18.3m in a share placement. After c €0.8m capex and €0.2m of currency movement, net debt fell by €7.4m over the quarter to €7.5m. Our estimated adjusted net debt eases by €0.5m to €24.3m, after including of our assumed cost over the remaining 40% of ADEPCON.
Exhibit 2: Balance sheet development
€m |
31-Dec-16 |
31-Mar-17 |
30-Jun-17 |
30-Sep-17 |
Cash |
(31.9) |
(53.9) |
(26.5) |
(33.3) |
Short-term debt |
12.8 |
2.1 |
1.7 |
1.2 |
Long-term debt |
0.4 |
39.6 |
39.6 |
39.7 |
Net debt/(cash) |
(18.7) |
(12.2) |
14.9 |
7.5 |
RSP acquisition liabilities |
2.5 |
2.5 |
2.5 |
2.5 |
Astrums/Hartung acquisition liabilities |
1.9 |
1.9 |
1.9 |
1.9 |
Harlex acquisition liabilities |
4.0 |
4.0 |
4.0 |
4.0 |
ADEPCON acquisition liabilities |
|
|
|
6.9 |
Pension deficit |
1.5 |
1.5 |
1.5 |
1.5 |
Adjusted net debt/(cash) |
(8.7) |
(2.3) |
24.8 |
24.3 |
Source: SNP, Edison Investment Research
Outlook: Strong business drivers in M&A and data migrations
Management raised its revenue guidance for FY17 to €120m from €110m. It now expects to generate EBITDA margin, before the c €4m in one-off costs, of c 5% and an EBIT margin of 3%. After one-off costs, management anticipates a broadly neutral (zero) EBIT margin. It expects own software sales to reach c €10m for the year, with Q4 proprietary software sales helping the group return to profit in the final quarter. Management has given no guidance beyond FY17.
The group’s medium-term growth is largely driven by M&A-related factors, with around 40,000 mergers each year around the globe, while longer-term vision is around the potential tsunami of data migrations building up across the globe, particularly around SAP S/4HANA. SNP estimates that some 125 S4 migrations are required per week to meet the goal of achieving SAP’s end-of-life target. SNP argues that this can only be achieved through automation.
