Source: Portrait Software
Portrait Software plc (London: PST), a leading provider of Customer Interaction software, announces today its preliminary results for the year ended 31 March 2009.
· Move to application-based sales proving successful; licence sales increased 75% in second half with 20 licence wins in H2 for our growing range of inbound and outbound customer marketing applications.
· Extension of successful OEM partnership with Fiserv Bank Solutions, one of the world's leading financial technology providers, to include resale of Portrait's customer marketing applications - a growing and significant pipeline developing for the coming year.
· Recurring revenues now represent over 70% of all revenues, providing a good platform for future growth.
· Current financial year has started very well with 12 licence deals confirmed in the first quarter including Dell, an important new US reference for our Uplift marketing application.
· Revenue of £14.4 million (2008: £14.1 million). An additional £1.5 million of committed licence revenue was contracted in H2 which will be recognised in succeeding years.
· Trading in second half year returned to profitability before exceptional charges.
· First half operating loss and non-recurring exceptional charges contributed to full year loss after taxation of £3.2 million (2008: profit £0.3 million) and a fully diluted loss per share of 2.71 pence (2008: earnings per share 0.30 pence).
· Gross cash of £3.4 million (2008: £4.2 million).
Luke McKeever, Chief Executive of Portrait Software, commented: "Since my arrival seven months ago, the Company has worked hard on its sales and marketing execution and I am delighted to report that this focus is now generating positive results, with the increase in licence sales over this period being a great indication of Portrait's growth potential.
"Perhaps of equal importance has been our ability to increase sales back into our customer base, with 19 out of 34 licences sold to existing customers, a compelling demonstration of the quality of our people and our software athe quality ofware athe quality of our people and our software applications. This combined with our high level of recurring revenues provides a strong financial underpin for the coming year.
"Operational improvements combined with our alignment to current market demands has resulted in an increase in customer revenue opportunities. Demand for our applications is strong and we have several significant deals in the pipeline. We are looking forward to a year of profitable growth at Portrait."
Portrait has always had the advantages of great people, excellent software and an impressive customer base. The business has evolved substantially over the last few years and, with the addition this year of significantly improved sales and marketing skills to make full use of those business assets, all the ingredients for sustained success are now in place.
Inevitably, the global recession has slowed our progress. This contributed to the first half operating loss, and to the exceptional charges incurred in the second half, resulting in a loss for the financial year as a whole. However, Portrait's response to the change in its market environment was prompt and effective. By taking early action to reduce and realign operating costs and bring in new sales focused leadership, Portrait was able to return underlying trading to profitability in the second half. The full benefit of those actions will be realised in the current financial year.
Since Luke McKeever joined the Company in December 2008 he has accelerated sales performance and marketing execution, demonstrating both expert knowledge and first class leadership skills. With Luke's domain expertise and business development credentials, and my experience in growing high-quality profitable businesses, we have complementary skills which equip us well for the task ahead.
The current market focus on retaining and nurturing customers during these recessionary times is driving high levels of demand for Portrait's applications. I joined Portrait in June this year because I am excited by the huge level of opportunity open to it, and I am confident that we now have the capability to realise that potential to the full.
Paul Hewitt, Non-Executive Chairman
CHIEF EXECUTIVE'S STATEMENT
Since joining the Company seven months ago, I have met over forty key customers and partners and have received universally positive feedback on the quality of our people, technology and the impressive results delivered by their use of Portrait software and services. This direct feedback has confirmed my view that Portrait presents a compelling proposition which is acutely relevant for today's tough market where technology spend is under constant scrutiny. By honing our marketing focus we are now enjoying a significant rise in customer enquiries, leading to an acceleration of sales activity and providing confidence for a profitable year ahead.
Total revenue for the full year of £14.4 million was up 2% on the prior year (2008: £14.1 million). H2 revenue of £7.5 million increased 10% compared to first half, with licence sales growing 75% in the same period. Licence revenue for the full year was £3.0 million (2008: £3.9 million) with an additional £1.5 million of committed licence revenue contracted during H2 which will be recognised in succeeding years.
We continue to enjoy high rates of support and maintenance renewals from our large customer base, with maintenance revenue growing 10% to £6.3 million (2008: £5.7 million), helped in part by the addition of Million Handshakes recurring maintenance streams this year. Overall, software revenues (licence plus maintenance) accounted for nearly two thirds of all revenues at £9.3 million (2008: £9.6 million).
Services revenues grew 15% to £5.2 million (2008: £4.5 million) helped by strong growth in our consultancy practice which has grown from its origins in the Quadstone and Million Handshakes businesses acquired in previous years.
Decreasing reliance on large enterprise deployments
We are now far less reliant on large services projects associated with enterprise deployments and are organised to deal with much shorter implementation assignments associated with the necessary 'time to value' measure that is used by companies buying software solutions today.
Expansion of sales capability increases international sales
We continued to expand our direct and indirect international sales capability during the year, resulting in international revenue growth of 19%, with 70% of all revenues coming from outside the UK (2008: 60%). Sales to the Americas region of £5.0 million represented more than a third of all revenue (2008: £5.4 million) with software sales in the region slightly ahead of prior year. European revenues including the UK grew 11% to £8.2 million (2008: £7.4 million) boosted by the contribution from Million Handshakes. Rest of World revenues were slightly down on prior year at £1.2 million (2008: £1.3 million).
We continue to have good visibility of recurring revenue from our broad customer base in terms of maintenance, managed services assignments, and recurring licence/ASP contracts. Customer renewals remain very high and we benefit from the 'stickiness' of previously installed operational systems at a time when capital investment in new large-scale systems is low. Such visible recurring revenue currently represents over 70% of all revenue, and provides a good platform for future growth.
Gross margin remained healthy at 67% (2008: 73%), the decrease reflecting the change in the services mix, with a reduction in long term services projects that drive high staff utilisation.
Cost base rationalised
Overheads had increased significantly following the Million Handshakes acquisition in March 2008. As previously announced, the Company took decisive action in early October 2008 to reduce operating expenses by means of an accelerated restructuring programme to complete the integration of the acquired business, and to cut surplus delivery capacity and investment in non core activities. The benefit of the cost efficiency actions will be gained in the new financial year. Accordingly, the higher run rate in the earlier part of the year meant that full year operating costs (excluding cost of sales) increased by 9% to £10.4 million (2008: £9.7 million).
Investment in research and development was maintained at £3.6 million, which is consistent with prior year spend. All development costs were fully expensed during the year and there is no capitalised development on Portrait's balance sheet.
Non-recurring exceptional charges associated with the restructuring amounted to £0.8 million. In addition, further non-cash exceptional charges of £1.2 million were incurred to increase balance sheet provisions. Of this amount, £0.3 million was provided against the carrying value of a loan to an associate company. The loan remains fully repayable and is subject to a formal loan agreement. The balance of the additional provisions, some £0.9 million, followed a review by the Board of the Group's exposure to leases connected with surplus office space. It was felt that in the current economic environment the Group may face an increased exposure to subtenancy income. For that reason the Board decided to set aside a buffer to mitigate the risk of future trading performance being adversely affected by non-core property obligations.
The operating loss of £0.8 million, before the £2.0 million exceptional charges above, was incurred as £1.1 million loss in H1 and £0.3 million profit in H2. In 2008 there was an operating profit of £0.7 million before £0.1 million exceptional costs.
The non-recurring exceptional charges contributed to an overall loss after taxation of £3.2 million (2008: profit £0.3 million) and a fully diluted loss per share of 2.62 pence (2008: earnings per share 0.30 pence).
Cash balances at the end of the year stood at £3.4 million (2008: £4.2 million) and gross debt was reduced to £3.2 million (2008: £3.3 million).
Net cash outflows from operating activities were £0.1 million compared to prior year's net cash inflows of £0.8 million.
During the year the Company increased to 49% its equity holding in its associate, Impendium Systems Limited in return for the waiver of rights to receive royalties on Impendium products, and for the formalisation of a loan agreement to cover the existing intercompany balances. In addition the Company increased its investment in Portrait Million Handshakes AS by some £192,000 deferred cash consideration payable in relation to earn-out achievement for the financial year. The amount payable was accrued at the year end and was paid in June 2009.
Strategy: Bringing it all together
Move to application-based sales, and focus on developing our customer base
We completed 34 licence deals in the full year of which 19 were to existing customers, endorsing the strength of our relationships and the quality of our applications. It has been a long held cornerstone of our strategy to retain and nurture our 300+ strong customer base worldwide and in the second half we put renewed focus on extending our relationships with key customers. This has not only served to secure ongoing maintenance revenue streams but also open up new services and licence cross-sell and extension opportunities. The 20 licence wins in the second half year included 14 extension and cross-sell deals within our existing customer base.
New year started well with important new client win at Dell
This momentum has continued into the first quarter of the current financial year with 12 licence deals already confirmed including Dell, an important new US reference for our Uplift marketing application. The pipeline continues to grow very healthily.
Improved sales process has helped sales execution
This has been a watershed year in terms of proving our capability as an applications vendor. Sales execution has been a major focus to ensure we can establish repeatability, that we are results orientated, and that we remain focused where the opportunities exist and where we can add value most. For the first time, customer reference sites, documented business cases and ROI tools now exist for all our core applications, in all the primary territories that we serve. New sales management methodologies have also been put in place to enable effective control of the sales pipeline - this provides the executive team with early insight on all opportunities in the pipeline to ensure the right internal and third party resources are applied to maximum effect. Furthermore, our mixed revenue model of monthly rentals, term licences and perpetual licences is progressing well with examples of each represented in our numbers for the year. This gives us flexibility to sell and deliver our applications in whichever way suits our customers best; we are not constrained by rigid pricing models which might otherwise restrict us from bidding successfully for some deals.
Clarity in marketing communications
One of the elements driving the increase in customer enquiries that we have witnessed has been our greater clarity in our marketing communications. Following the appointment of a new Chief Marketing Officer, we have now delivered an updated Portrait messaging platform and associated sales tools that both resonate well with our target audience, and address prevailing buying behaviour. This successful initiative has been accompanied by an overhaul of our marketing collateral and a relaunch of our website, which is now serving as a valuable tool for stimulating customer interest and capturing potential sales leads.
Of particular note were three landmark achievements in the second half which should have positive implications for the future of the business:
1. We signed major new contracts with our partner, Fiserv Bank Solutions ('Fiserv'), to extend the successful OEM agreement for Fiserv's Aperio banking application and to widen the partnership to include the resale of our customer marketing applications.
2. We completed the successful roll out of Interaction Optimizer, our real-time recommendation engine, at Merrill Lynch Private Wealth Management group, and based on the success of that implementation secured a licence extension to a second call centre in Merrill's Retirement group.
3. We won what is understood to be the largest campaign management deal in Europe so far this year at Trygvesta, a major Scandinavian insurer, made possible through the powerful combination of our customer analytics with the campaign management application acquired through Million Handshakes in 2008.
Fiserv represents a growing and very significant opportunity for the coming year. Fiserv's Aperio application continues to gain market traction with 5 new deals this last year and a further 2 closed so far in the first quarter of the new year. Further, our market-leading data mining capabilities and predictive analytics applications have now been identified internally by Fiserv as powerful tools which could be exploited by other divisions. Additionally, Fiserv reports that their new reseller status for our customer marketing applications has given the company a competitive edge in customer centric banking solutions that has enabled it to rapidly grow a significant pipeline of major deals. With Fiserv experiencing increasing success with our applications we confidently expect revenue growth in the coming year from this successful and long standing relationship.
Other new marketing partner initiatives have expanded our sales reach across the globe; contributing partners include Consona, Unisys, Releye & One Marketing. In addition there are other exciting channel opportunities which we have been advancing with other potential major partners and we hope to announce further news over the course of the next financial year.
Product development - focused on the future
A key component to realising the success of the Million Handshakes acquisition was to ensure that its technology could be seamlessly integrated with other existing application components to create a holistic customer marketing suite for inbound and outbound marketing that had a consistent look and feel for the user, and an intuitive and visually appealing user interface. The integration was completed earlier in the year and we are now putting significant financial investment behind the development of advanced usability features which will make our applications even more visually appealing and functionally compelling to our target users.
The current challenging market conditions, although undeniably difficult, provide considerable opportunity for Portrait. Our clients, who each typically have millions of customers, are seeing similar issues which affect their buying decisions.
Emphasis on the customer you know, not the prospect you don't
Marketing budgets are swinging from new customer acquisition to customer retention. According to the NYC based research firm the Winterberry Group, despite an overall reduction in marketing spend over the past year, expenditure on customer-focused marketing has actually risen in the past 12 months, and Portrait Software is already benefiting from this evolution.
Extend and evolve, not rip and replace
At the same time, technology budgets are reducing, with a focus on cost-control and increasing operational efficiency with decreased fixed costs. Portrait is uniquely qualified to benefit from this focus. Our clients are not looking to rip out their existing customer facing systems in which they have invested many millions of dollars. They want to make the best of what they have by looking for incremental enhancements to these systems which require minimal capital outlay and provide rapid and dramatic pay-back within the same budget year.
Accountability for budget spend - demonstrable results needed to justify outlays
Tactical, incremental investments in customer analytics, customer dialogue management, and insight-driven multi-channel customer interaction management are proven to reduce costs, increase customer retention and increase revenues in a matter of weeks, not years. Our software makes every customer interaction count, with demonstrable ROI.
Supporting our customers' future roadmap
Our marketing applications sit within a complete customer interaction suite which is modular and can support our customers' growth and vision. By implementing elements of the Portrait platform now, our customers can extend their customer marketing capabilities at their own pace to add other powerful application components when they are ready for front-foot activity as the economy begins to grow.
I have been deeply impressed by the quality of Portrait's staff throughout the organisation, both in terms of commitment to customer care and their in-depth knowledge of our systems gained through a far higher than average level of experience than is the norm in our industry. I am grateful to all our people for the support and enthusiasm they have demonstrated in helping us achieve our objectives during these first few months at the helm. It is a pleasure to work in such an intelligent and positive environment and the results are beginning to reward the incredible industry of the Portrait team.
As we move forward it is essential that we continue to build the best team to deliver against our plan. This means continuing to invest in the development of our staff at all levels and, where necessary, to bring in selective new skills and experience.
As previously announced, we have made two new additions to our Board in recent months, Richard Goat as Non-Executive Director and Paul Hewitt as Non-Executive Chairman, both of whom bring valuable skills and experience to the Board and have already demonstrated what a positive contribution they can add. I am looking forward to working with the whole team over the coming year.
Our substantial recurring revenues and broad customer base provide stability, referenceability and extended revenue opportunities. Our strategic partners such as Fiserv provide the sort of global reach and credibility that we could not achieve alone. Our insight-driven customer marketing applications are market leading, innovative and above all can demonstrate short time to value. Finally, the quality and commitment of our people continues to delight our customers and drives us to be the best we can be.
Operational improvements combined with our alignment to current market demands has resulted in an increase in customer revenue opportunities. Demand for our applications is strong and we have several significant deals in the pipeline. We are looking forward to a year of profitable growth at Portrait.
Luke McKeever, Chief Executive
29 June 2009