Interim results

3 August 2016

StatPro Group plc

StatPro Revolution revenue up 64% as momentum builds

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 2016.

Financial highlights:

· Group revenue up 14% to £17.55 million (2015: £15.44 million)

· StatPro Revolution underlying revenue up 64% to £4.02 million (2015: £2.45 million)

· Group ARR up 26% to £36.17 million (2015: £28.62 million), 13% on a constant currency basis

· ARR from cloud services (StatPro Revolution and Investor Analytics) up 112% to £13.72 million (2015: £6.47 million), 90% on a constant currency basis

· Recurring revenue from cloud services now 38% of Group ARR (2015: 23%)

· Adjusted EBITDA increased by 19% to £2.05 million (2015: £1.73 million)

· Loss before tax £0.96 million (2015: profit £0.82 million) after exceptional items of £1.24 million (2015: nil) and acquired intangible assets amortisation of £0.55 million (2015: £0.03 million)

· Interim dividend maintained at 0.85 pence per share

Operating highlights:

· Two large contracts signed including new StatPro Revolution Performance module, demonstrating theendorsement of StatPro's cloud strategy by large fund administrators

· Launch of Revolution Performance on track for Q3 2016

· Continued focus on revenue per client; average annualised revenue for StatPro Revolution clients increased 82% to £43,600 (2015: £23,900 (5))

· Lifetime Value: Cost of Acquiring Customers (LTV:CAC) (2) rose to 10.8 from 10.1 - three or higher isconsidered acceptable for successful SaaS business

· Increased bank facility with Wells Fargo to £24.8 million

Outlook:

· Forward order book of contracted revenue (4) increased 19% to £44.13 million (2015: £37.01 million), 8% on a constant currency basis

o £21.91 million is contracted revenue for StatPro Revolution, an increase of 86%, 69% on a constant currency basis

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

(2) The Cost of Acquiring Customers ("CAC") is determined by the selling and other costs associated with contracting new clients and dividing by the number of clients signed in the period. The Lifetime Value of the customer contracts ("LTV") is determined by estimating the average life based on churn rates multiplied by the average ARR per client.

(3) Adjusted EBITDA and adjusted earnings per share are EBITDA and earnings per share after adjustment for amortisation of acquired intangible assets, exceptional items and share based payments (notes 2 and 5).

(4) Forward order book of contracted revenue is the total amount of software and professional services revenue that is contractually committed at period end.

(5) At constant currency, based on restating the prior year at the closing or average currency rate.

Justin Wheatley, Chief Executive of StatPro, commented:

"Our strategy to convert our portfolio analytics and risk services to the cloud has secured us a significant technological lead in our market.

"As a result, we offer our clients a materially better and simpler service. The scale, speed and control of Revolution provide asset managers with huge productivity gains. We have recently signed agreements with two more leading fund administrators - a clear endorsement of our capabilities.

"We are gaining momentum, as demonstrated by the 64% jump in Revolution's revenue and are extremely well positioned in a growing market. This is reflected in our forward order book of £44.13 million, up 19% - of which £21.91 million is contracted revenue for StatPro Revolution, an increase of 86%.

"We look forward to the launch of StatPro Revolution Performance in September."

 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 licence free Freedom Index.

StatPro has grown its Annualised Recurring Revenue from less than £1 million in 1999 to around £36 million at end June 2016. The Group has operations in Europe, North America, South Africa, Asia and Australia, with hundreds of clients in 37 countries around the world. Approximately 80% of recurring revenues are generated outside the UK. StatPro Group plc shares are listed on AIM.

Overview

StatPro had a good first half in 2016. Revenues increased 14% to £17.55 million (11% constant currency "CC") and adjusted EBITDA rose 19% to £2.05 million (13% CC). Once more, 93% of Group revenue in H1 2016 was derived from recurring revenue (2015: 93%).

Revenues from StatPro Revolution increased 64% to £4.02 million (62% CC) (2015: £2.45 million). That was offset by the expected reduction of StatPro Seven revenues to £8.99 million (15% CC) (2015: £10.27 million).

More importantly as a leading indicator, ARR increased 26% to £36.17 million (13% CC) with the ARR for the Group's cloud services rising 112% to £13.72 million (90% CC).

The Group signed large contracts towards the end of H1 2016 that included the new StatPro Revolution Performance module with two leading international fund administrators. These are clear endorsements of the Group's cloud strategy. 

StatPro's business has exhibited high levels of client renewals (94%) and strong SaaS ratios such as Lifetime Value: Cost of Acquiring Customers (LTV: CAC) ratio, which rose to 10.8 from 10.1. This ratio estimates the expected lifetime revenue generated per client divided by the cost of acquiring the client.

Strategy

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.

Demand from the asset management industry for StatPro products is driven by the increasing requirement for more types of analysis, as well as the need for greater levels of accuracy, faster delivery of analysis, and data and regulatory requirements.

The Group's strategy is built upon its early move to cloud technology. By making this investment, eight years ago, the Group has positioned itself strongly, well ahead of its competition.

StatPro's solution of a simple online service means that clients do not have to deal with the complexity of managing multiple software solutions or the expense of internal IT and data management.

The scalability, speed and data control that StatPro Revolution offers clients is unmatched. StatPro believes that these benefits appeal mostly to the largest financial institutions.

The Group considers the risk of its clients rejecting cloud-based services is now negligible. StatPro has observed that many clients have begun to consider installed software as a hindrance to their business efficiency.

Current trading and outlook

The Group's contracted order book is up 19% to £44.13 million (CC 8%) of which the StatPro Revolution contracted order book increased 86% to £21.91 million (CC 69%).

New sales of £8.66 million were made in the first half of 2016, an increase of 25% (2015: £6.94 million) of which £6.38 million was for StatPro Revolution, an increase of 56% (2015: £4.09 million). This improvement is a direct result of StatPro Revolution maturing and gaining widespread acceptance as a high quality platform for portfolio analytics and risk compliance.

The Group's current pipeline is larger than at any time. More than two thirds of sales by value are to clients who have already bought StatPro Revolution. With recurring revenues of 93%, StatPro continues to be profitable and cash generative.

Overall, the Group is trading in line with the Board's expectations after a strong start to the year.

Operational review

StatPro Revolution

StatPro made two releases of StatPro Revolution in the first half of the year, which introduced significant new functionality for risk and benchmark management. The forthcoming release in August will add the power of Hadoop® to the calculation module as this allows for parallel processing.

The Group has also made extensive improvements to the core database that will enable a huge increase in the storage of client data, which in turn will result in significantly faster response times.

The September launch of StatPro Revolution Performance marks the end of a long investment process and the point from which the Group can begin the physical conversion of clients to the full Revolution platform. To date, clients have used a combination of StatPro Seven for data management and Revolution for analytics. They will then be able to discontinue their use of StatPro Seven and so maximise the full benefit of the cloud. This process will take a number of years to complete.

StatPro Seven

StatPro Seven consists of seven modules, three of which are the focus of the Group's present migration to StatPro Revolution, (SPA, SFI and SRM), representing approximately £7.52 million of ARR (2015 CC: £10.03 million). Approximately half of StatPro's clients of SPA, SFI and SRM, by value, have now contracted to take StatPro Revolution.

The other four modules of StatPro Seven represent approximately £10.84 million of ARR (2015 CC: £10.67 million), including InfoVest's other products amounting to £0.38 million and are not currently planned for migration. Of these other four modules, the Group continues to market StatPro Composites (SC) extensively. StatPro Portfolio Control (SPC) was transferred to Infovest in February to acquire 51% of its equity and StatPro expects to see further growth for this product as a result.

Data

ARR for the data services the Group provides for valuations, index distribution and complex asset pricing is approximately £4.54 million (2015 CC: £4.43 million).

Acquisitions

Investor Analytics ("IA")

The Group has completed the integration of IA. The cost of the integration and other one-off costs have been taken in the exceptional charge in the first half.

Work is on-going for the integration of IA's cloud service with StatPro Revolution and the Group is on schedule to offer a unified solution by early 2017.

As previously stated, the Group expects that IA will make a positive EBITDA contribution for the full year.

Infovest

Infovest as planned, operates as a separately branded company. However, the products it supplies, Compliance, Data Warehouse, ETL tools and Reporting, are closely aligned with StatPro's services.

The Group has implemented an effective cross-marketing process to ensure that Infovest's sales team gets full access to StatPro's extensive worldwide client base. This has already yielded several sales since March, including Capita Fund Services.

The majority of its prospects are StatPro clients. The Group expects Infovest to make a positive contribution to Group EBITDA for the year as a whole.

Financial review

Revenue

Group revenue increased by 14% to £17.55 million (2015: £15.44 million). The revenue growth was driven by strong underlying growth in StatPro Revolution combined with the positive impact of the acquisitions, offset by the expected reduction in revenue for StatPro Seven as shown below.

The underlying growth in StatPro Revolution revenue was 62% at constant currency (64% at actual rates), while the revenue for StatPro Seven reduced by 15% at constant currency (12% at actual rates), as shown in the table below.

* at constant currency

93% of Group revenue in H1 2016 was recurring revenue (2015: 93%).

Contracted revenue

The Group achieved strong sales in H1 2016 with total contracted value of £8.66 million (2015: £6.94 million). The level of contracted sales for StatPro Revolution was £6.38 million (2015: £4.09 million), driven by two international banner deals, demonstrating the endorsement by large fund administrators of StatPro's platform solution including StatPro Revolution Performance. As a result, the forward order book of contracted revenue increased by 19% to £44.13 million (2015: £37.01 million) and by 8% at constant currency. The forward order book of contracted revenue for StatPro Revolution increased by 86% to £21.91 million (2015: £11.75 million) and by 69% at constant currency.

The proportion by value of recurring revenue contracts at the end of June 2016 secured to the end of June 2017 or beyond is 70% (2015: 72%); the weighted average length of contracts committed was 15 months (2015: 16 months).

Approximately 83% of new recurring contracted revenue came from existing clients (2015: 82%). Professional services revenue increased to £1.16 million (2015: £1.04 million).

Recurring revenue

The Group's SaaS business model of recurring revenue contracts continues to provide excellent visibility of revenue. The ARR at the end of June 2016 increased by 26% over the previous 12 months at constant currency to £36.17 million (2015: £28.62 million). Excluding the impact of acquisitions and currency rates, the organic growth in Group ARR was 1%.

The net growth rate for StatPro Revolution was 112% (2015: 61%). The organic growth in StatPro Revolution ARR was 47%, excluding the impact of acquisitions and currency rates.

The ARR for StatPro Seven before the impact of conversions to StatPro Revolution was £19.57 million, a 6% reduction at constant currency (2015: 1% reduction). After the impact of conversions to StatPro Revolution, StatPro Seven annualised recurring revenue was £17.98 million (2015: £18.67 million).

The ARR from cloud services (StatPro Revolution and IA) is now 38% of the Group total (2015: 23%) and has grown at a higher rate than other revenues as the service is developed on a highly scalable technology platform.

The total recurring revenue from clients whose subscription includes StatPro Revolution, was £21.60 million (2015: £13.10 million) representing 67% (2015: 52%) of total software recurring revenue.

There has been a significant increase (82%) in average revenue per StatPro Revolution client to £43,600 (2015: £23,900 at constant currency) including the impact of IA, where average revenue per IA client is approximately £75,800. The organic growth of average ARR for Revolution was 62%.

SaaS-based KPIs

The Group has pioneered the introduction of key SaaS metrics. One such measure used by SaaS businesses is to estimate the costs of acquiring each customer ("CAC") and to compare that with the Lifetime Value of the customer contracts ("LTV"). The results for StatPro are presented below for June 2016 on a 12 month trailing basis.

Generally 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 by 14% (12% at constant currency) to £14.54 million (2015: £12.74 million). £1.42 million (11%) of the increase was related to the acquisitions. 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 255 (2015: 245).

Exceptional items

Exceptional items amounting to a total of £1.24 million were incurred. These include: £1.06 million related to the acquisition of IA, of which £0.47 million related to transaction costs and the remainder related to reorganisation costs, redundancies and onerous leases. £0.44 million relating to a reorganisation of the Paris office including redundancy costs and onerous leases; and a credit of £0.26 million arose related to the negative goodwill on the InfoVest acquisition. The tax credit on the exceptional items was £0.39 million.

Profitability

Adjusted EBITDA increased to £2.05 million (2015: £1.73 million). Gross profit margin for the period was 60% (2015: 61%) as shown in note 5.

Finance income and expense

Net finance expense increased to £0.36 million (2015: £0.16 million), as a result of moving into net debt following the financing of the IA acquisition and share buyback.

(Loss)/profit before tax

Adjusting for amortisation of acquired intangible assets, exceptional items and share based payments, the adjusted profit before taxation was flat year on year at £0.93 million (2015: £0.93 million). Currency movements increased adjusted profit before taxation by approximately £0.11 million. The loss before taxation was £0.96 million (2015: profit £0.82 million), mainly as a result of exceptional items of £1.24 million and amortisation of acquired intangibles of £0.55 million.

Taxation

The tax credit was £0.25 million (2015: charge is £0.27 million). The overall effective tax rate is 26% (2015: 32%). The underlying credit on adjusted profit before tax was approximately 13%. This is low primarily because of tax losses in the Group. The effective tax rate relating to the exceptional charges was 32%. Although tax cash payments in H1 2016 were higher than typical at £1.42 million (2015: £0.67 million), the Group anticipates receiving some refunds in H2 2016.

Earnings per share

Adjusted earnings per share was 1.1p (2015: 1.0p). Actual and diluted losses per share was 1.2p (2015: earnings per share 0.8p).

Interim dividend

An interim dividend of 0.85 pence per ordinary share (2015: 0.85 pence) will be paid on 2 November 2016 to shareholders on the register at the close of business on 7 October 2016 (ex-div date will be 6 October 2016).

Balance sheet

The Group's net assets at the period end were £40.69 million (2015: £42.49 million). The increase in gross assets was primarily due to the increase in goodwill of £11.20 million (of which £5.01 million related to acquisitions and £6.19 million to revaluation) and other intangible assets amounting to £4.95 million. This main increase in the liabilities was the increase in borrowings related to the acquisition of IA. There has also been a large increase in deferred revenue, which is a non-cash liability to £15.67 million (2015: £12.42 million). The deferred tax liability increased to £2.20 million (2015: £0.50 million), mainly due to the impact of the accounting for the acquired intangible assets.

Cash flow and financing

StatPro continues to be cash generative with cash generated from operations of £3.17 million before exceptional payments (2015: £3.69 million), although lower than the prior year, mainly due to lower working capital movements. The free cash flow (before exceptional payments) was an outflow of £1.57 million (2015: £0.78 million inflow). The free cash flow was negative in H1 2016 due to a higher level of investment in property, plant and equipment and intangibles and a higher than normal level of tax paid.

The Group ended the period with net debt of £9.14 million (2015: net cash £2.03 million). The increase in net debt arose because of the financing of the IA acquisition and share buyback using the Group's debt facilities.

Financing facility

As part of the acquisition of IA in January 2016, the financing facilities with Wells Fargo (originally completed in July 2015 and available for acquisitions, share buybacks and general corporate purposes), were increased. The key features of the facilities now are:

· Five year commitment period to July 2020

· £10 million committed revolving credit facility

· US$6.825 million committed term loan ($175,000 of original loan was repaid on 30 June as planned)

· US$3 million committed deferred drawdown loan

· £7.5 million uncommitted additional facility available

The primary financial covenants are linked to recurring revenue and adjusted EBITDA while allowing the Group to invest for growth. The financing costs will be 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 2016, StatPro completed two acquisitions.

Acquisition of Investor Analytics

On 21 January 2016, StatPro acquired the entire share capital of Investor Analytics LLC, the US-headquartered, cloud-based risk analytics company to hedge funds and asset managers.

Acquisition of majority control of InfoVest

With effect from 1 March 2016, StatPro South African business acquired a 51% shareholding in InfoVest Consulting (Pty) Ltd, a South African headquartered software provider, specialising in data warehouse, ETL and reporting software for the asset management industry.

Further details on these acquisitions are provided in note 9.

Share buyback

On 11 March 2016, the Group purchased 2,873,713 at a price of 72p per share. This was financed by its debt facility with Wells Fargo.

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 reduced overall by 11% to £2.27 million as planned (2015: £2.55 million), equating to 13% of Group revenue (2015: 17%). Included within investment in intangible assets are capitalised development costs of £1.87 million (2015: £1.67 million) and amortisation on internal development was £1.71 million (2015: £1.57 million). The Group expects that R&D expenditure as a percentage of revenue will continue to decrease in the future. Capital expenditure on property, plant and equipment was £1.02 million (2015: £0.51 million).

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 28 to 31 of the StatPro 2015 Annual Report. The result of the Brexit referendum in the UK is not expected to have any adverse impact on the Group and there has been a significant positive impact on the Group's ARR due to fall in sterling since the result, as only 15% of the Group's ARR is denominated in GBP.

Group Income Statement

For the six months ended 30 June 2016

Group Statement of Comprehensive Income

For the six months ended 30 June 2016

Group Balance Sheet

At 30 June 2016

* Other reserves includes a merger reserve of £2,369,000 (2015: £2,369,000), a translation reserve surplus of £5,187,000 (2015: £1,831,000) and a reserve relating to the put option held by non-controlling interests of a debit balance of £1,929,000 (2015: nil). 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 2016

1. Principal Accounting policies

This interim report was approved by the Board of directors on 2 August 2016. 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 2015, amended as explained below.

New and amended accounting standards and interpretations

The following interpretations to existing standards have been published that are mandatory for the Group's accounting and are effective in the current period. The new standard does not impact the interim report.

· IFRS 14 Regulatory Deferral Accounts - 1 January 2016

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. We have 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 2015 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 per share

Basic (loss)/earnings per share has been calculated based on the loss after taxation of £0.78 million (2015: profit of £0.56 million) and the weighted average number of shares of 65.84 million (2015: 67.55 million). The diluted losses per share were 1.2p (2015: earnings of 0.8p) based on potentially dilutive shares outstanding of 1.06 million (2015: 0.39 million).

Adjusted earnings per share are shown in the table below.

3. Revenue analysis

The movement in Annualised Recurring Revenue in the period was as follows:

Revenue by product/service

Revenue by type of product or service was as follows:

The Annualised Recurring Revenue profile of StatPro Revolution clients (including Investor Analytics cloud solution sold via Revolution) was as follows:

* at constant currency

SaaS KPIs

The SaaS KPIs above are for the cloud products and we include the results with and without IA for June 2016. Revolution is a more recently developed product and therefore has lower churn and hence a higher implied lifetime and hence a much higher LTV and LTV:CAC ratio.

4. Exceptional items

Exceptional items amounting to a total of £1.24 million were incurred. £1.06 million related to the acquisition of Investor Analytics, of which £0.47 million related to transaction costs and the remainder related to reorganisation costs, redundancies and onerous leases. There was also an exceptional charge amounting to £0.44 million relating to a reorganisation of our Paris office including redundancy costs and onerous leases. There was also an exceptional credit of £0.26 million arising related to the negative goodwill on the InfoVest acquisition. The tax credit on the exceptional items was £0.39 million.

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

a) Adjusted profit before taxation

b) Adjusted operating profit

c) Adjusted EBITDA

d) Gross profit margin analysis

Gross profit margin analysis helps us assess the profitably of incremental revenue as the business evolves into a pure cloud business and the costs drivers begin to change. As there are a number of methodologies for allocating costs, we have described how we have allocated the cost elements. The Board's view is that, as the business grows, the inherent scalability of cloud technology will lead to greater profitability in the future.

Definition of cost category for gross margin analysis:

Cost of services includes Clients Services employee salaries, Data employee salaries, Development employee salaries related to support, contractors costs, data costs, costs of software and hardware maintenance.

R&D includes the element of Development employee salaries that relates to new research and development.

Sales & marketing includes Sales and Marketing employee salaries, external marketing costs and sales commissions.

General & administration includes the Finance, HR and IT employee salaries, communications costs, occupancy costs, professional fees, travel and expenses, and other costs.

Free cash flow