Bravura delivers a creditable FY2009 result
Sydney, 27 August 2009 (ASX:BVA/OTCQX:BRVSY) – Bravura Solutions Limited (Bravura) – a leading global supplier of wealth management applications and professional services to the financial sector – today reported its results for the financial year ended 30 June 2009.
Group CEO and Managing Director of Bravura, Iain Dunstan, said: “Bravura has delivered a very creditable result in a difficult operating environment. The highlight of our year was the continued improvement in operating cash flow, which has increased by $16.6 million over the past two years.
“The robustness of our revenue is a testament to our strategy of diversifying our geographic presence, developing our strong product offering, and delivering quality financial software to our expanding client base.
“This result was adversely affected by the inclusion of non-recurring items of $9.3 million which arose when we restructured the business. With that now behind us, Bravura is well positioned to deliver improving operating margins and benefit from opportunities we expect to emerge as the global economy recovers”.
2009 results highlights
- Revenue remained stable at $133.5 million
- Earnings before interest, tax and amortisation (EBITDA) declined $2.5 million to $16.1 million
- Non-recurring items of $9.3 million adversely impacted EBITDA
- Income tax benefit of $1.0 million arising from R&D tax concession claims and the review of overseas tax returns
- Net profit after tax was stable at $1.6 million
- Net operating cash flow increased by $7.6 million to $12.8 million
Bravura achieved stable revenue growth in a difficult economic environment. Total revenue declined by 2 per cent in FY2009 resulting in a total revenue figure of $133.5 million.
Revenue in Australia and New Zealand declined by $6.4 million to $39.9 million, reflecting market caution to committing to new projects in a highly uncertain environment. The key driver of the decrease in Australia and New Zealand revenue related to a greater number of client contracts being renewed during FY2008 compared to FY2009. Underlying professional services and maintenance revenues were $0.5 million higher than FY2008.
Despite the UK financial system being one of the most heavily impacted by the global financial crisis, with the UK government having to orchestrate the rescue of several financial institutions, Bravura’s revenue in the United Kingdom and Europe increased by $2.3 million to $85.1 million and represented 64 per cent of total group revenue. The acquisition in Warsaw added revenue of $4.8 million.
Revenue in Asia increased modestly by $1.8 million to $8.5 million as Bravura focused on contracts with multi-nationals operating in the region.
Professional services revenue declined by $5.0 million to $60.2 million reflecting the deferring of non-critical projects at a time of uncertainty. Overall, professional services accounted for 45 per cent of total revenue for the year ended June 2009 compared with 48 per cent in the prior year.
Maintenance revenue increased by 2 per cent to $46.1 million, due to completion of client implementations and CPI increases. Maintenance revenue accounted for 35 per cent of total revenue in the year ended June 2009 compared with 33 per cent in the prior year.
The strengthening of the Australian dollar (relative to other currencies) resulted in a foreign exchange translation effect that reduced reported revenue in FY2009 by $3.9 million. In order to demonstrate the impact of currency movements on Bravura results, the results have also been displayed using Constant Currency.
Operating costs included non-recurring items of $9.3 million for the year, and after taking these items into account, costs remained flat at $117.4 million. The bulk of the non-recurring items were comprised of the following expenses:
- Duplicate data centre costs $2.9 million
- Restructuring costs $2.0 million
- Foundation client investment $2.0 million
- Bad debt provision disputed items $2.4 million
The majority of restructuring costs of $2.0 million related to redundancy costs resulting from a strategic decision to lower headcount in order to maximise EBITDA margin. Headcount at the end of FY2009 was 568, 83 people lower than the corresponding period end. The majority of the redundancies occurred in the first half of the year. As a consequence of the timing of the headcount reduction, full benefit of this action was not reflected in this year’s result.
Employee benefits expense declined by $6.5 million to $74.8 million reflecting the headcount reduction. Included in this amount are termination costs of $2.2 million.
Bravura continued its extensive R&D program during the year with Company funded expenditure of $11.2 million, a marginal decrease of $0.9 million compared with the prior period. This is in addition to client funded R&D. Continued R&D spending reflects the commitment of the Group to delivering high quality innovative financial software solutions to its clients.
EBITDA for FY2009 was $16.1 million, a decrease of $2.5 million compared to the prior corresponding period.
The strengthening of the Australian dollar (relative to other currencies) resulted in a foreign exchange translation impact that reduced reported EBITDA in FY2009 by $1.1 million. The other major impact on reported EBITDA was the inclusion of $9.3 million of non-recurring items previously detailed.
Amortisation, depreciation and financing costs
Amortisation and depreciation expenditure increased by 22 per cent to $9.2 million compared with the prior year. Depreciation increased by $1.1 million to $3.2 million reflecting the commencement of depreciation charges on the EDS data centre.
Financing costs declined by $0.4 million to $4.9 million due to lower United Kingdom and Australian interest rates on borrowings, and a decline in non-cash interest on deferred settlements.
Operating cash flow improved by $7.6 million for the financial year ended 30 June 2009 compared with the prior period. An improvement in net working capital of $9.6 million was the source of the improvement. Net profit after tax was impacted by a number of non-cash items.
The Company continued to re-invest proceeds from operating activities back into the business and proceeds were used to partially fund the Warsaw transfer agency acquisition from December 2008.
A final dividend will not be paid for the year ended 30 June 2009.
The Board has previously indicated that it will look at resuming dividend payments to shareholders at the earliest possible opportunity. In the six months to December 2009, the priority use for cash flow is to pay an outstanding amount of $8.7 million to Citigroup for the purchase of the Warsaw transfer agency business. Consequently, the Board is likely to consider the re-instatement of a final dividend for FY2010.
The Company’s financial position remains strong with total assets of $208.1 million and shareholders’ funds of $89.2 million as at 30 June 2009.
The significant increase in current liabilities primarily relates to the upcoming repayment, in the first quarter of the financial year, of $28.5 million to Bank of Scotland International (BOSI). There has been a corresponding diminution in non-current borrowings.
During the period under review, intangible assets increased by $25.7.million reflecting the Warsaw acquisition.
Bravura remains in compliance with all its banking covenants. As at 30 June 2009, the leverage ratio (defined as total debt at the end of the relevant period to EBITDA for the prior 12 months) stood at 2.53 times well below our banking covenant of less than 3.0 times.
Events since year end
Following the end of the 2009 financial year, the Recapitalisation Proposal was approved by shareholders on 24 July 2009. Subsequently, shareholders were invited to participate in the Rights Issue. The Rights Issue closed on 24 August 2009, with a total indicative* number of 787 shareholders subscribing for 103.4 million shares, raising approximately A$15,513,265.
The indicative* shortfall from the Rights Issue is 119.5 million shares, equating to approximately A$17,929,775. This shortfall will be subscribed for by wholly owned or affiliated subsidiaries of Ironbridge Fund II, a fund that is managed or advised by Ironbridge Capital Pty Ltd (Ironbridge), as underwriter to the Rights Issue. Ironbridge’s obligation to subscribe for the shortfall is subject to the underwriting agreement being completed according to its terms. Completion of the underwriting agreement is scheduled for 11 September 2009. As at 26 August 2009, Bravura is not aware of any reason why the underwriting agreement will not complete on 11 September 2009. As a result of the shortfall and Ironbridge’s existing holding of 1.1 million shares, Ironbridge will on completion of the underwriting agreement become a substantial shareholder of Bravura with a total indicative* shareholding of 120.6 million shares. This represents 33 per cent of the Company’s expanded issued share capital. In addition, Ironbridge will be issued with 87 million options following completion of the underwriting agreements. These options are exercisable at $0.15 per option at any time within the next two years. If all of these options are exercised, Ironbridge’s shareholding in the Company would increase to approximately 46 per cent.
The net proceeds from the Rights Issue, including the funds to be received from Ironbridge for the shortfall amount, will be applied together with internal cash reserves to reduce Bravura’s obligations with its lender, BOSI by $28.4 million.
As a consequence of Ironbridge’s investment in Bravura, it proposes to nominate Mr Matthew McLellan and Mr Neil Broekhuizen to be appointed to the Board shortly following completion of the underwriting agreement.
Traditionally, Bravura’s performance is skewed heavily toward the second half of the financial year with respect to both revenue and earnings. The current financial year is expected to be no different, and given that the recovery from the global financial crisis is still in the early stages and not uniform across our markets, this trend may be even more pronounced in FY2010.
The primary business objectives in the current year are to drive revenue growth and improve EBITDA margins. At this stage, there is no expectation of any significant non-recurring items to adversely impact the current year’s results.
It is our intention to provide further guidance to shareholders at the Annual General Meeting.
The Annual General Meeting for Bravura Solutions will be held on 20 November 2009 in Sydney. The Notice of Meeting will be sent to shareholders towards the end of October 2009. Shareholders who will not be able to attend in person are invited to forward any questions they have to Bravura (see contact details below) by 15 November 2009.
* The figures specified above are indicative and subject to reconciliation, including confirmation that all payments made by participating shareholders have been cleared by the relevant financial institution on which they have been drawn.
The full-year financial report together with the investor presentation is available on Bravura’s corporate website under the Investor Centre.
We will also be holding a teleconference and live webcast at 4.00 pm (Sydney time) today to present our results to the market. You can access the webcast by visiting www.brr.com.au/event/59223/?popup=true.
To register for the teleconference, visit www.brr.cti.com.au and ‘Set up a new account’. Once you have logged in, you can register yourself for the Bravura Solutions FY09 full year results call.
The audio from the teleconference will also be available on our website for download from Friday, 28 August 2009, and can be listened to from your computer, or downloaded as a podcast.
For investors unable to participate live, the conference call will be made available on our website.