FY17 results: Total revenue growth was 52%
SNP had an extremely busy FY17, with two major acquisitions (BCC and Adepcon) and separate debt and equity fund-raisings. It also increased its shareholding in Innoplexia from 20% to 80% and acquired a small company, ERST European Retail Systems Technology, late in the year. In addition, new corporate entities were established in the US and Germany and the parent company converted to a European stock corporation. The primary goal in FY18 is to adapt the newly acquired businesses and make adjustments to the group while focusing on driving organic growth with an emphasis on pushing software sales.
As stated in the preliminary announcement, FY17 organic revenue growth was c 8%, along with the impact of five acquisitions. In aggregate, revenues grew by 52% to €122.3m, including €35m from acquisitions. The newly consolidated businesses included Harlex (90% owned), acquired in late 2016, along with BCC (100%), Innoplexia (80%), Adepcon (60%) and ERST (100%), which were acquired during 2017. This is the group’s first public announcement of the ERST acquisition. ERST is a small nine-person data transformation company, based in Hamburg, which operates its own proprietary middleware platform. Additionally, during 2017 the group increased its stake in SNP Transformations SEA from 51% to 81%. The group’s acquisition strategy has shifted away from consulting businesses to acquiring businesses that will broaden the group’s software expertise.
Exhibit 1: Quarterly analysis
€000 |
FY16 |
Q117 |
Q217 |
Q317 |
Q417 |
FY17 |
FY18e |
Professional services |
66,640 |
19,089 |
22,151 |
25,936 |
31,157 |
98,333 |
116,757 |
Licences |
11,982 |
1,733 |
3,042 |
5,935 |
8,389 |
19,099 |
27,671 |
Maintenance |
2,063 |
776 |
1,237 |
1,140 |
1,758 |
4,911 |
6,821 |
Total revenue |
80,685 |
21,598 |
26,430 |
33,011 |
41,304 |
122,343 |
151,249 |
Other operating income |
1,228 |
235 |
295 |
171 |
1,217 |
1,918 |
|
Cost of materials |
(8,276) |
(2,260) |
(3,244) |
(7,037) |
(6,674) |
(19,215) |
|
Personnel costs |
(47,207) |
(14,657) |
(15,511) |
(18,849) |
(22,455) |
(71,472) |
|
Other operating expenses |
(17,811) |
(6,692) |
(6,461) |
(7,156) |
(9,626) |
(29,935) |
|
Other taxes |
(95) |
(28) |
(277) |
(32) |
(196) |
(533) |
|
Op costs (before depreciation) |
(72,161) |
(23,402) |
(25,198) |
(32,903) |
(37,572) |
(119,075) |
(140,367) |
EBITDA |
8,524 |
(1,804) |
1,232 |
108 |
3,732 |
3,268 |
10,882 |
Depreciation |
(1,667) |
(594) |
(690) |
(843) |
(1,649) |
(3,776) |
(3,488) |
Adjusted operating profit (EBIT) |
6,857 |
(2,398) |
542 |
(735) |
2,083 |
(508) |
7,394 |
Operating margin |
8.5% |
(11.1%) |
2.1% |
(2.2%) |
5.0% |
(0.4%) |
4.9% |
Net interest |
(1,137) |
(577) |
(181) |
(218) |
(351) |
(1,327) |
(1,000) |
Edison profit before tax (norm) |
5,720 |
(2,975) |
361 |
(953) |
1,732 |
(1,835) |
6,394 |
Associates |
8 |
0 |
(1) |
12 |
(35) |
(24) |
0 |
Exceptional items |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
Profit before tax (FRS 3) |
5,728 |
(2,975) |
360 |
(941) |
1,697 |
(1,859) |
6,394 |
New orders and backlog |
FY16 |
Q117 |
Q217 |
Q317 |
Q417 |
FY17 |
|
Incoming orders |
95,600 |
24,400 |
33,200 |
37,400 |
35,700 |
130,700 |
|
Quarterly revenues |
80,685 |
21,598 |
26,430 |
33,011 |
41,304 |
122,343 |
|
Book-to-bill ratio |
1.18 |
1.13 |
1.26 |
1.13 |
0.86 |
1.07 |
|
Backlog |
|
40,800 |
48,500 |
62,200 |
61,300 |
|
|
Source: Company accounts, Edison Investment Research
The group’s DACH (Germany, Austria and Switzerland) businesses have been performing well, while the Asian and North American markets have been more challenging. Hence, the primary focus in FY18 is on turning around the Asian and North American businesses.
Revenue from the DACH countries grew by 8% to €64.0m, but fell from 73% of the total to 52%, reflecting the group’s internationalisation strategy. The rest of Europe jumped from €1.4m to €23.6m, mainly reflecting the acquisition of Adepcon. The US grew by 21% to €15.9m, largely reflecting a large order from a US chemicals company. South America jumped from zero to €12.0m while Asia eased by 3% to €6.9m.
Software sales jumped 71% to €24.0m, helped by a strong Q4 (up 105%), while professional services rose by 48% to €98.3m. The SNP Transformation Backbone with SAP LT grew revenues by 9% to €10.4m, while Interface Scanner generated €1.1m of revenue in its first year.
SNP has decided not to pay a dividend for FY17 to strengthen the group’s capital base.
The cash outflow from operating activities was €5.3m in FY17. After interest of €0.8m, tax of €1.4m and capex of €5.2m, the free cash outflow was €12.7m. There were acquisition costs of c €28.8m and the company raised €18.3m in a share placement. After the €1.9m dividend and €10.0m of other movements, including foreign exchange, net debt jumped by €35.1m to €26.8m. There is also a €1.5m pension deficit that takes the adjusted position to €28.4m.
Exhibit 2: Balance sheet position
€m |
31 Dec 16 |
31 Dec 17 |
Cash |
(31.9) |
(33.9) |
Corporate bond |
10.7 |
0.0 |
Short-term bank debt |
2.1 |
1.0 |
Long-term bank debt |
0.4 |
39.6 |
Net debt / (cash) (old presentation) |
(18.7) |
6.7 |
Purchase price obligations (current) |
5.3 |
9.8 |
Purchase price obligations (non-current) |
5.1 |
9.1 |
Leasing obligations (current) |
0.0 |
0.3 |
Leasing obligations (non-current) |
0.0 |
0.3 |
Other financial liabilities (current) |
0.0 |
0.1 |
Other financial liabilities (non-current) |
0.0 |
0.5 |
Net debt / (cash) |
(8.3) |
26.8 |
Pension deficit |
1.5 |
1.5 |
Adjusted net debt / (cash) |
(6.8) |
28.4 |
Evolving software platform
The new CrystalBridge software platform was unveiled at SNP’s Transformation World trade show in October 2017 and is intended to become SNP’s central software platform. CrystalBridge offers a graphical and interactive visualisation of entire SAP systems with the goal of supporting and accelerating business transformations, and is a crucial component in the planning of SAP S/4HANA transformations. All the group’s core software is expected to be integrated into the CrystalBridge platform, with T-Bone in the development phase. CrystalBridge is mainly offered on a hosted SaaS rental basis, but SNP also offers one time on-premise licences for larger projects. The other important software launch in 2017 is the SNP Interface Scanner, which enables customers to analyse the interfaces between SAP systems and their surrounding IT landscapes.
Research and development costs were €14.0m in FY17 (or 11.4% of sales), up from €11.0m in FY16 (13.7% of sales) and the development team more than doubled from 43 to 91 people.
The group implemented a new organisational and management structure at the end of FY17. There are now six positions on the executive board: chief executive officer, chief revenue officer, global head of services, global head of product development, chief financial officer and global head of human resources.
Henry Göttler has stepped down from the executive board to focus on driving the group’s business in Asia. Mr Göttler is fluent in Cantonese and has strong knowledge of the Asian region. Earlier this year, SNP appointed David Kenneson, a software industry veteran, in the new role of chief revenue officer to head the global sales effort. The role is based in Philadelphia, US, supported by a small team. Dieter Matheis rejoined the company as CFO late last year. He was chairman of the SNP supervisory board from 2002 and 2011 and before that was CFO of SAP. Mr Matheis has made a number of changes to the accounts, including to the balance sheet position (as shown in Exhibit 2) and to the contribution breakdown (Exhibit 3).
Management continues to expect FY18 group revenue of between €150m and €155m along with an operating earnings margin (EBIT margin) in the mid-single digits. As in previous years, it is assumed that in FY18, revenue will be much stronger in the second half of the year. Software revenue is expected to reach 23% of group revenues.
The EBIT margin excluding non-segment-related expenses is expected to fall within the mid-single digit percentage range in the professional services business segment. For the software business segment, management expects an EBIT margin in the lower- to mid-double digit percentage range.
The group order book stood at c €131m at the end of December, including €16m of software and maintenance revenue. Around two-thirds of the orders are from the DACH region, with the remaining c €43m from the rest of the world.
