Crimsonwing registers strong revenue growth
Interims impacted by VDA acquisition
Crimsonwing plc published its September 2008 interim results on November 26. These were the first results incorporating the recent acquisition of Netherlands-based VDA which was purchased for just under €2 million earlier this year. This new company helped Crimsonwing's turnover surge to almost €6.3 million in the first six months of the year. However, since VDA was a loss-making entity when it was acquired, this also contributed to the slight loss reported. After briefly analysing the interim results, I will provide an overview of the immediate outlook as presented by the company's CEO David Walsh during an analyst briefing held on November 27.
The key highlights of the half-year results are:
• revenue up 45.5 per cent to €6.3 million;
• gross profit of €3.8 million (margin of 60.2 per cent);
• pre-tax loss of €0.06 million;
• shareholders' funds of €3.8 million and net debt of €1.3 million.
The 45 per cent growth in revenue was attributable to the integration of VDA as from July 1, increased turnover generated from the ERP business as well as two substantial e-business upgrade projects in the UK.
Direct costs increased by 31.2 per cent to €2.5 million while administrative expenses rose to €3.8 million due to increased wages following the VDA acquisition and training costs in view of upcoming projects in the second half of the year.
The company incurred an operating loss of €33,889 compared to an operating profit of €427,529 in the same period last year. This loss was mainly derived from the loss incurred by two of the operational units of the company, namely the mid-market ERP Business and Crimsonwing BV, which offset the profits registered by the other operational divisions, namely Crimsonwing Promentum and the UK e-business.
Crimsonwing incurred a net interest expense of €22,853 compared to a net income of €14,672 registered in the six months up to September 30, 2007, following the drawdown of a loan required to partly finance the VDA acquisition. This resulted in a pre-tax loss of €56,742 in contrast to the pre-tax profit of €442,201 registered in the first half of the previous financial year. After accounting for a minimal tax charge and profits attributable to minority interests of €43,688, the company registered a loss after tax of €102,365. On the other hand, Crimsonwing had generated a profit after tax of €417,733 in the first half of last year.
On the balance sheet side, shareholders' funds declined 7.1 per cent to €3.8 million compared to the March 2008 figure, resulting in a net asset value per share of €0.147. Meanwhile total assets rose to €7.7 million (March 2008: €6.2 million) as Crimsonwing's balance sheet now includes the assets of VDA. For the first time the company is reporting debt on its balance sheet following the VDA acquisition. Crimsonwing now has a net debt of €1.3 million as the company took out a loan of €1.4 million and used a total of €0.5 million from its cash holdings and retained earnings to finance the €1.9 million VDA acquisition.
CEO David Walsh explained that the loss incurred in the first half of the year was also due to the significant increase in training costs during the period as well as a downturn in business activity in the Dynamics mid-market business in the UK. This slowdown unfortunately coincided with the integration of VDA in July. As such, July and August were the weakest months for the Crimsonwing Group but a substantial turnaround occurred in September and, according to the company, this is expected to continue throughout the third quarter of the year.
With regard to the slowdown in activity in the Dynamics mid-market business in the UK, Mr Walsh noted that the credit crunch in the UK halted some of the investments by the smaller companies because Crimsonwing's clients (typically small printing and publishing companies) also depended on bank funding to carry out such projects. Although Crimsonwing was awarded these contracts, no funding was available to its clients and as such these projects were put on hold. Following certain restructuring, this business unit generated a profit during September and there are indications of a recovery in the mid-market business as Crimsonwing recently gained commitments of further implementations at two large clients while it also won new projects in October 2008.
In relation to VDA, Crimsonwing's CEO noted that a successful restructuring exercise was also undertaken and the combined businesses in the Netherlands (Crimsonwing BV and VDA) will recover the losses during the second half of the year. Moreover, Mr Walsh announced that one of VDA's largest clients, the world's leading media investment management operation Group M, signed a five-year renewal contract worth over €1 million. A substantial part of VDA's turnover comes from annualised support services and the directors reported in their Interim Review that 99 per cent of renewals have already been contracted for 2009. Moreover, David Walsh reported that the newly acquired company is also working on potential new contracts and if these are confirmed, VDA will become a profitable entity in the very immediate future.
The CEO also reiterated that the listed company should achieve its revenue forecast for the current financial year to March 31, 2009, as a result of new client commitments during the second half. Crimsonwing's largest client, Morrisons, has already committed to a 20 per cent increase in services which commenced in October while Crimsonwing UK will also be performing some custom work for Sainsbury's. In the US, Crimsonwing LLC is providing a Microsoft Dynamics AX licence and support to Divestico (a Canadian oil and gas technology leader) while in Italy, Crimsonwing is performing e-business solutions to Loriblu, another luxury goods company, following the successful launch of the Furla e-commerce site.
Mr Walsh also briefly discussed Crimsonwing's objective of increasing its revenues to the €30 million mark within the next three years while still maintaining a 10 per cent profit margin. The CEO was confident that this could be achieved given the group's unique business model and its immediate focus on an increased reliance on support services as well as more revenue derived from eurozone countries. Seventy per cent of the group's costs are in euro and the CEO is seeking to increase euro revenues from the current level of 45 per sent to 60 per cent in the coming years. This will help reduce the volatility caused by the exchange rate fluctuations between the euro and the sterling.
In response to a question related to further acquisitions, Crimsonwing's CEO concluded the meeting by saying that various companies are struggling and he is receiving several requests from businesses to be taken over by Crimsonwing.
Mr Walsh noted that there has been a marked downturn in the valuations of these companies, and while not ruling out any further acquisitions he noted that Crimsonwing is seeking to penetrate the enterprise solution market in the UK as well as the mid-market in the Netherlands. The acquisition of a company's clients in these specific areas could take the Crimsonwing Group to a higher level for the long-term benefit of all shareholders.
http://www.rfstockbrokers.com
Rizzo, Farrugia & Co. (Stockbrokers) Ltd, RFC, are members of the Malta Stock Exchange and licensed by the Malta Financial Services Authority. This report has been prepared in accordance with legal requirements. It has not been disclosed to the issuer/s herein mentioned before its publication. It is based on public information only and is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. The author and other relevant persons may not trade in the securities to which this report relates (other than executing unsolicited client orders) until such time as the recipients of this report have had a reasonable opportunity to act thereon. RFC, its directors, the author of this report, other employees or RFC on behalf of its clients, have holdings in the securities herein mentioned and may at any time make purchases and/or sales in them as principal or agent. Stock markets are volatile and subject to fluctuations which cannot be reasonably foreseen. Past performance is not necessarily indicative of future results. Neither RFC nor any of its directors or employees accept any liability for any loss or damage arising out of the use of all or any part thereof and no representation or warranty is provided in respect of the reliability of the information contained in this report.
© 2008 Rizzo, Farrugia & Co. (Stockbrokers) Ltd. All rights reserved.
Mr Rizzo is director of Rizzo, Farrugia & Co. (Stockbrokers) Ltd.
The key highlights of the half-year results are:
• revenue up 45.5 per cent to €6.3 million;
• gross profit of €3.8 million (margin of 60.2 per cent);
• pre-tax loss of €0.06 million;
• shareholders' funds of €3.8 million and net debt of €1.3 million.
The 45 per cent growth in revenue was attributable to the integration of VDA as from July 1, increased turnover generated from the ERP business as well as two substantial e-business upgrade projects in the UK.
Direct costs increased by 31.2 per cent to €2.5 million while administrative expenses rose to €3.8 million due to increased wages following the VDA acquisition and training costs in view of upcoming projects in the second half of the year.
The company incurred an operating loss of €33,889 compared to an operating profit of €427,529 in the same period last year. This loss was mainly derived from the loss incurred by two of the operational units of the company, namely the mid-market ERP Business and Crimsonwing BV, which offset the profits registered by the other operational divisions, namely Crimsonwing Promentum and the UK e-business.
Crimsonwing incurred a net interest expense of €22,853 compared to a net income of €14,672 registered in the six months up to September 30, 2007, following the drawdown of a loan required to partly finance the VDA acquisition. This resulted in a pre-tax loss of €56,742 in contrast to the pre-tax profit of €442,201 registered in the first half of the previous financial year. After accounting for a minimal tax charge and profits attributable to minority interests of €43,688, the company registered a loss after tax of €102,365. On the other hand, Crimsonwing had generated a profit after tax of €417,733 in the first half of last year.
On the balance sheet side, shareholders' funds declined 7.1 per cent to €3.8 million compared to the March 2008 figure, resulting in a net asset value per share of €0.147. Meanwhile total assets rose to €7.7 million (March 2008: €6.2 million) as Crimsonwing's balance sheet now includes the assets of VDA. For the first time the company is reporting debt on its balance sheet following the VDA acquisition. Crimsonwing now has a net debt of €1.3 million as the company took out a loan of €1.4 million and used a total of €0.5 million from its cash holdings and retained earnings to finance the €1.9 million VDA acquisition.
CEO David Walsh explained that the loss incurred in the first half of the year was also due to the significant increase in training costs during the period as well as a downturn in business activity in the Dynamics mid-market business in the UK. This slowdown unfortunately coincided with the integration of VDA in July. As such, July and August were the weakest months for the Crimsonwing Group but a substantial turnaround occurred in September and, according to the company, this is expected to continue throughout the third quarter of the year.
With regard to the slowdown in activity in the Dynamics mid-market business in the UK, Mr Walsh noted that the credit crunch in the UK halted some of the investments by the smaller companies because Crimsonwing's clients (typically small printing and publishing companies) also depended on bank funding to carry out such projects. Although Crimsonwing was awarded these contracts, no funding was available to its clients and as such these projects were put on hold. Following certain restructuring, this business unit generated a profit during September and there are indications of a recovery in the mid-market business as Crimsonwing recently gained commitments of further implementations at two large clients while it also won new projects in October 2008.
In relation to VDA, Crimsonwing's CEO noted that a successful restructuring exercise was also undertaken and the combined businesses in the Netherlands (Crimsonwing BV and VDA) will recover the losses during the second half of the year. Moreover, Mr Walsh announced that one of VDA's largest clients, the world's leading media investment management operation Group M, signed a five-year renewal contract worth over €1 million. A substantial part of VDA's turnover comes from annualised support services and the directors reported in their Interim Review that 99 per cent of renewals have already been contracted for 2009. Moreover, David Walsh reported that the newly acquired company is also working on potential new contracts and if these are confirmed, VDA will become a profitable entity in the very immediate future.
The CEO also reiterated that the listed company should achieve its revenue forecast for the current financial year to March 31, 2009, as a result of new client commitments during the second half. Crimsonwing's largest client, Morrisons, has already committed to a 20 per cent increase in services which commenced in October while Crimsonwing UK will also be performing some custom work for Sainsbury's. In the US, Crimsonwing LLC is providing a Microsoft Dynamics AX licence and support to Divestico (a Canadian oil and gas technology leader) while in Italy, Crimsonwing is performing e-business solutions to Loriblu, another luxury goods company, following the successful launch of the Furla e-commerce site.
Mr Walsh also briefly discussed Crimsonwing's objective of increasing its revenues to the €30 million mark within the next three years while still maintaining a 10 per cent profit margin. The CEO was confident that this could be achieved given the group's unique business model and its immediate focus on an increased reliance on support services as well as more revenue derived from eurozone countries. Seventy per cent of the group's costs are in euro and the CEO is seeking to increase euro revenues from the current level of 45 per sent to 60 per cent in the coming years. This will help reduce the volatility caused by the exchange rate fluctuations between the euro and the sterling.
In response to a question related to further acquisitions, Crimsonwing's CEO concluded the meeting by saying that various companies are struggling and he is receiving several requests from businesses to be taken over by Crimsonwing.
Mr Walsh noted that there has been a marked downturn in the valuations of these companies, and while not ruling out any further acquisitions he noted that Crimsonwing is seeking to penetrate the enterprise solution market in the UK as well as the mid-market in the Netherlands. The acquisition of a company's clients in these specific areas could take the Crimsonwing Group to a higher level for the long-term benefit of all shareholders.
http://www.rfstockbrokers.com
Rizzo, Farrugia & Co. (Stockbrokers) Ltd, RFC, are members of the Malta Stock Exchange and licensed by the Malta Financial Services Authority. This report has been prepared in accordance with legal requirements. It has not been disclosed to the issuer/s herein mentioned before its publication. It is based on public information only and is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. The author and other relevant persons may not trade in the securities to which this report relates (other than executing unsolicited client orders) until such time as the recipients of this report have had a reasonable opportunity to act thereon. RFC, its directors, the author of this report, other employees or RFC on behalf of its clients, have holdings in the securities herein mentioned and may at any time make purchases and/or sales in them as principal or agent. Stock markets are volatile and subject to fluctuations which cannot be reasonably foreseen. Past performance is not necessarily indicative of future results. Neither RFC nor any of its directors or employees accept any liability for any loss or damage arising out of the use of all or any part thereof and no representation or warranty is provided in respect of the reliability of the information contained in this report.
© 2008 Rizzo, Farrugia & Co. (Stockbrokers) Ltd. All rights reserved.
Mr Rizzo is director of Rizzo, Farrugia & Co. (Stockbrokers) Ltd.