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Please note that there is an Analyst meeting being held at Buchanan Communications, 45 Moorfields, London, EC2Y 9AE @ 10:00am, alternatively there is also a Lunch presentation @ 12:45

For Immediate Release

20 April 2009

                     

smartFOCUS Group plc

FINAL RESULTS 

for the year ended 31 December 2008

smartFOCUS Group plc (AIM : STF) ('smartFOCUS', the 'Company' or the 'Group), the international provider of high performance digital and multi-channel marketing software, announces its full year results for the year ended 31 December 2008.

Financial Highlights

	Revenue of £10.4m (2007 : £11.5m)
	Loss before tax (and non recurring costs) of £1.2m (2007: £1.7m profit)
	Net cash of £1.5m (2007 : £1.5m)
	Recurring revenue increased to 50% of total revenues (2007: 42%)
	Over 90% of recurring revenue retained in 2008 (2007: over 90%)

Operational Highlights

	Re-organisation of Group's operations reducing annualised expenses by £1.5m, resulting in a one-off non recurring cost of £0.5m
	Migration from perpetual software to software as a service 'SaaS' model completed
	Acquisition of Astech Intermedia in North America for £1.6 million to support US growth
	Significant new customer wins including Chelsea FC, Tenpin, New Zealand Herald, EasyJet, adding 90 new clients and partners

Commenting on current trading and outlook, Chris Underhill, CEO of smartFOCUS said: 'smartFOCUS' revenue and profit in the first quarter of this year were ahead of plan and comparable to trading in Q1 2008. We are already seeing the benefits of the switch to a software as a service 'SaaS' model and the significant reduction made to our cost base, supported from the Company's balance sheet at the end of last year. We are well positioned to increase the Group's recurring revenues and greatly improve the overall quality and visibility of our revenue over the medium to long term.'

- Ends -

Enquiries:

smartFOCUS Group plc                                         Today: 020 7466 5000

Chris Underhill, Chief Executive                            Thereafter: 0117 943 5800

Neil Thomas, Finance Director                              www.smartfocus.com

Buchanan Communications                                  Tel No: 020 7466 5000

Lisa Baderoon

Arbuthnot Securities Limited                                Tel No: 020 7012 2000

Tom Griffiths

 

Chairman's statement 

smartFOCUS experienced a difficult trading period in 2008. The deteriorating economy, specifically in the last quarter of 2008, traditionally the Group's strongest trading period, led to a reduction in software license revenues compared to 2007. The Group was presented with significant challenges in securing new perpetual software licenses for its high value multi-channel marketing solution while executing its business strategy, migrating from its traditional perpetual software license model to the software as a service ('SaaS') model, which was announced at the time of its interim results on 5 September. 

As a consequence, the Group significantly reduced its operational cost base and expenditure, accelerating the conversion of its pipeline to 'SaaS' and fully aligning its new business and operations to the 'SaaS' model in Europe. Inevitably accelerating its 'SaaS' migration has impacted near term profit and revenue growth, with the Group offering its software on a term-based rental contract for software usage, rather than a one-off payment. This is of course mitigated by better visibility and the improved quality of our revenues.

The Group continued to develop its international franchise with the acquisition of Astech Intermedia in May 2008. Based in Denver, Colorado, Astech is the leader in data-driven marketing solutions for the news media industry. The acquisition further supports the Group in building a leadership position in this industry sector and extends the Group's SaaS operational capability, providing a strong platform to enter other vertical markets directly in the US.

smartFOCUS DIGITAL (previously known as Email Reaction), the Group's email and digital service provider continued to grow strongly with revenue growth of 19%. The Group continued to invest in smartFOCUS DIGITAL's UK sales team to capitalise on this fast growing sector of the market and develop its range of solutions, further supporting the migration of email and digital customers to its higher value multi-channel solutions.

The Group has continued to secure prestigious new clients and partners, adding over 90 customers in 2008 while retention and growth of its existing clients and partner network remained strong, supported by continuing investment in new products and service development.

The Board wishes to thank the Company's shareholders, clients and partners for their on-going support in challenging times and the continued contribution made by our management and staff in difficult economic and trading conditions.

Outlook

We are encouraged by the market's response to the move to the SaaS model which was achieved using the Group's own cash resources. The Board is confident that future timing risks associated with securing large one-off perpetual software licenses have therefore been mitigated. The Group is now well positioned to benefit fully from the change in its model and can fully support its future cash requirements from its balance sheet.

J Charles

Chairman

20 April 2009

 

Chief Executive's Review

 

smartFOCUS completed a re-organisation in 2008, aligning operations to its software as a service model ('SaaS'), migrating from its traditional perpetual license revenue model. This supports the Group's on-going strategy of developing a sustainable growth business that delivers significantly increased recurring revenues, improved overall revenue quality, and enhanced visibility over the medium term.

smartFOCUS reported full year revenues of £10.4m (2007:£11.5m) which delivered a loss before tax and non-recurring costs of £1.2m (2007:£1.7m profit), in line with management's revised forecasts. The Group however reported a lower than expected one-off exceptional cost, of £0.5m. The re-organisation is expected to reduce annualised expenses by £1.5m in 2009. In future, the Group will benefit from the improved expense to revenue ratio, gained from efficiencies realisable in the operational alignment to the SaaS model. 

The year end net cash position was £1.5m (2007: £1.5m) after paying £0.5m in cash for the initial consideration of Astech Intermedia, the US acquisition announced in May 2008. Diluted EPS was (1.87)p per share (2007: 1.00p).

In line with previous years, the Directors intend to continue focusing the Group's cash resources in investing in its growth and operations and therefore, the Board does not recommend paying a dividend.

Economic Impact

The Group announced on 5th September, at the time of its interim results, that the migration was to be accelerated in response to the prevailing economic climate and the on-going challenges converting perpetual licenses to revenue. Inevitably accelerating this strategy has contributed to the reduction in near term profit and revenue, with the Group offering its software in the SaaS model to deliver term based contracted revenue for software usage, rather than a one-off payment. The Group also announced it would reduce its cost base and expenditure.

 

A further deterioration in the economic climate in Q4 had a significant and direct impact on securing and converting new customers and software licenses. Despite on-going development of the Group's pipeline, based on the sound fundamental competitiveness and underlying demand for its solutions, the Group experienced a virtual freeze on all decisions relating to new capital based projects.

 

The overall effect on software revenues in 2008 was significant:

	% of total software license revenues generated in Q4 was less than 4% - down from an average of 52% in each of the two previous years.
	% of total software license revenue generated in the year was 15% - down from an average of 35% in each of the previous two years.

Despite these short term challenges in software revenues, the Group experienced strong growth in other revenue streams due to the increased focus on email and digital marketing, a growth in managed service contracts and the acquisition of Astech Intermedia such that:

	total revenue growth (excluding total software revenue) was 21% (2007:20%)
	total revenue growth in Q4 (excluding software revenue in Q4) was 35% (2007:10%).

 

Although the challenges experienced in 2008 have been significant, the Group has executed the move to the SaaS model within its own cash resources and has secured a number of new customer wins on this basis. The Group is now positioned to benefit fully from the change in its model, enabling it to:

	deliver a significant increase in the Group's recurring revenues, greatly improving revenue quality and visibility over the medium term;
	shorten the sales cycle and the decision making process;
	increase the competitiveness of the Group's offering, thereby broadening the market to support growth over the long term;
	reduce the operational cost to serve revenue and benefit from on-going efficiencies;
	reduce barriers to adoption to secure more new customers than the traditional perpetual license model; and
	address short term challenges for customers investing in high value capital projects in a difficult economic climate.

Operational Review

The Group continues to focus on helping organisations transform their marketing performance and business results by delivering software solutions that improving marketing efficiency and productivity, and enable marketers to more effectively and affordably create and target highly relevant, personalised communications and automate timely execution.

In 2008, the Group continued to invest significantly in its software research and development and welcomed Paul Creamer, as Chief Technology Officer and Board member, to further support the Group's strategy and technology delivery. Progress in software platform development continued to increase scalability and support for international markets while developing closer technology integration with industry leading and complementary technology vendors. Integration of the Group's email and digital software with two leading vendors, contact management company Salesforce.com and web analysis company Omniture, was completed in 2008 to create a competitive offer to their large installed customer bases. 

smartFOCUS continues to develop major business to consumer vertical sectors, including finance, retail, travel and tourism, news media, through its direct sales operations. Marketers within these organisations use the Group's software to execute direct and relationship marketing across multiple channels of communication, many focused just on digital channels such as email and the web. 

smartFOCUS maintains a specific focus on developing relationships with marketing services organisations that operate as a partner channel for the Group, to serve those organisations which fully outsource their marketing operations.

smartFOCUS reorganised its operations in 2008, reducing overall headcount in the year and aligning its organisation in Europe and internationally. This is expected to provide significantly lower annual expenses moving forward. 

The Group's European organisation operates from the UK and local offices in the Netherlands and France. The International organisation serves non-European territories from offices in the United States and via a distribution partner, based in Singapore, serving the Asia Pacific territory. 

Functional development and operational best practice continue to be a focus for smartFOCUS supporting the delivery of on-going efficiency and productivity benefits internally, supporting a strong client advocacy and satisfaction externally. Functional best practice is evidenced by the Group's on-going certification to the European Quality standard, ISO 2001:2000. The Group completed its triennial ISO re- certification in July 2008.

smartFOCUS' software revenues were delivered in two license models: a perpetual software license, generating one-off recognition and payment, and a term license, generating monthly recognition and payment. All software licenses generate an on-going revenue stream for the provision of support services and software maintenance. It is intended that all of the Group's future software revenues will be generated by delivering term licenses within the SaaS model.

Revenue was generated from the use of smartFOCUS' email and digital software, used to create and deliver email and digital messages. The software is deployed on the Group's infrastructure and accessed by the user over the internet. The Group is responsible for the operational management of the system and delivery of messages on behalf of customers. smartFOCUS expects to send over a billion email and digital messages in 2009.

Service revenues were delivered in two models, project services and managed services, both recognised as delivered. Project services generate revenues associated with the deployment of new customers, and from activities that support existing customers' deliver marketing best practice and improved marketing Return on Investment (ROI). Managed services generate term-based revenues from service activity with customers who outsource all or part of the marketing operation to smartFOCUS, including their marketing database.

The Group's retention of recurring revenue remained consistent, at 94%, which underpins performance, with recurring revenues representing 50% of total revenues.

Significant new client and partner wins included Chelsea Football Club, Sony, Betfair, New Zealand Herald, ASOS, and William Hill. The Group won over 90 new customers in 2008 which generated total revenue contracts of over £4.4m, of which 44% was realised in the year.

Revenue from existing customers was generated from the purchase of additional software, services, email and digital communications, based on an increase in:

	the number of internal users of the software
	data volumes processed by the software
	new service requests delivered by the Group
	email and digital messages sent by the Group
	demand for improved marketing ROI in b-c and b-b sectors
	the number of clients served by marketing service partners

smartFOCUS' global network of partners was further extended during the year, adding 22 marketing services partners and agencies. Its network now has over 75 partners operating in eleven territories.

The Group continued to experience significant growth in demand for email and digital communication, adding over 50 new customers, deployed in the software as a service (SaaS) model. The Group continues to see this as a significant growth and customer acquisition channel. During the year smartFOCUS DIGITAL's UK sales operation grew to capitalise on increased market demand. smartFOCUS DIGITAL launched the Digital Marketing Solution in 2008, integrating digital channels with analysis and reporting functionality, to further support organisations increase the results from digital communication, which has been well received by the market. 

  

Business Review

Competition for new customers, increased customer retention and profit continues to drive marketing investment globally. Heightened economic pressure is supporting a focus on measurable activity based on the use of data and direct marketing communication. Organisations continue to invest in optimising the results and efficiency of their marketing spend and to demonstrate a clear return on investment from marketing activities. Growth in data volumes, data governance and the number of communication channels is increasing operational complexity while consumer expectations continue to demand co-ordinated, relevant and timely communications across all marketing, sales and service channels, fuelling demand for multi-channel marketing software and solutions. 

smartFOCUS' multi-channel marketing software solutions integrate off-line and on-line marketing channels and through integrated analysis, campaign automation and data management, improves marketing results. Many organisations using off-line channels are now moving to take advantage of on-line channels, integrating email and the web with traditional print and telephony to improve results and optimise marketing efficiency. Organisations are investing significantly more in digital channels, taking advantage of its low cost of entry and cost of ownership, enabling them to compete harder for customer spend and to retain more profitable customers for longer. This is encouraging many organisations to invest for the first time in marketing software and is a positive trend that supports the Group's growth opportunity in this sector.

Software as a Service 'SaaS'

smartFOCUS' strategy continues to focus on delivering its software in the SaaS model. 

The Group has successfully established and invested in the operational capability and expertise to deliver the Software as a SaaS model and currently serves almost half of its 600 customers by way of the SaaS model. 

The 'SaaS' model secures new clients that pay for usage of its software on a term rather than a one-off payment for software ownership. Customers can access the Group's software over the internet, served by the Group's own infrastructure. This deployment approach removes the need for marketing departments to secure capital budgets and minimises the need for IT resources, lowering both the overall cost of ownership and entry cost for clients, and reducing the time to benefit, when compared to a traditional perpetual license model.

 

Industry analysts Forrester forecasts that as a delivery model, SaaS will grow by 29% CAGR from 2007 to 2013, (Forrester 'Forecast: Global Enterprise Marketing Platforms: 2007 To 2013'). 

Over the medium term, the Group's SaaS strategy will deliver significantly increased recurring revenues and greatly improve overall revenue quality and visibility. 

The SaaS model significantly reduces the barriers to adoption for the Group's higher value multi-channel marketing software, which it believes will increase the size of its market opportunity and support its long term growth prospects.

smartFOCUS has lowered the cost of ownership and cost of entry for new customers to its multi-channel marketing software and delivered a clear migration path for customers from single to multi-channel marketing. 

The SaaS model enables the Group to scale its operations more easily and cost effectively and to deliver its software to larger numbers of customers. smartFOCUS expects to continue to invest in its SaaS infrastructure and deliver on-going operational efficiencies, reducing its operating expense to revenue.

  Europe

Europe experienced significant challenges, due to a worldwide economic downturn, as many organisations deferred or cancelled planned or expected capital projects relating to investment in large, higher value multi-channel marketing software solutions. 

However, demand for email and digital marketing solutions remained strong and smartFOCUS DIGITAL, the Group's email and digital specialist, grew revenues by 19%. smartFOCUS is well positioned to grow in this market as the use of digital communication continues to expand based on its strong customer base, established competitive software product and scalable SaaS operation. The Group continues to see the development of smartFOCUS DIGITAL outside of the UK as a growth opportunity.

Demand for data purposed for marketing, integrated with the use of marketing software, continues to support managed service revenue in new and existing customers. Organisations focused on improving marketing ROI are moving to consolidate data from across all marketing, sales and service channels to create a single customer view, against which customer relationship activity can be better co-ordinated and optimised.

smartFOCUS has continued to develop its database technology and managed service operations to support this demand and has established a significant proportion of its recurring revenues based on the addition of this capability to its software offering in Europe. The Group continues to see the growth opportunities outside of the UK for database managed service revenue. 

Europe delivered a total of 57 new customers including Chelsea Football Club, Sony, Betfair, ASOS, and William Hill.

International

The International operation has continued to develop the US and international markets through the addition of new marketing service partners to the Group's well established global partner network of over 75 organisations.

In May 2008, smartFOCUS acquired Astech Intermedia, the leader in data-driven marketing solutions for the news media industry, for a total consideration of £1.6 million, payable in cash. The Group intends to fund the acquisition from its existing cash resources and bank facilities. The consideration comprised £0.5 million payable upon completion, with the balance payable dependent upon the achievement of certain agreed performance benchmarks over a three year period. The acquisition of Astech Intermedia, a long standing partner of the Group, added over 100 news media clients in Asia Pacific, Europe and North America, mainly for its SaaS offering. This further builds the Group's leadership position in the news media sector and extends the Group's SaaS operational capability, providing a strong platform to grow in North America through a direct sales model in new market sectors.

Acquisitions

smartFOCUS has successfully integrated three acquisitions since 2005 and, based on its cash position, will continue to review opportunities to positively increase its technology, scale and distribution both in the UK and internationally through further strategic acquisitions alongside continued organic growth.

  

Current Trading

smartFOCUS is already seeing the benefits of the switch to the SaaS model and the significant reduction made to its cost base, supported from its own balance sheet, at the end of last year. Revenue and profit in the first quarter of this year were ahead of plan and comparable to trading in Q1 2008. We are therefore encouraged by the 'back to business' approach of our customers and the positive response from the market to the change in our operating model.  

There is significant demand for digital channels as organisations continue to adopt these channels of communication. This has resulted in the Group delivering a record number of digital communications in the first quarter of this year and is on track to deliver over a billion in 2009. 

The Group has increased its recurring revenues, securing over £0.7m of new contracted revenue in Q1 and exited the quarter with visibility of over 78% of the Group's planned revenues for 2009. 

Outlook and Summary

We are encouraged by the strong trading in Q1 09 and by the positive benefits of the decisive actions taken in 2008. We are now well positioned to take advantage of the changes made and to execute our strategy of developing a sustainable growth business that delivers significantly increased recurring revenues, improved overall revenue quality, and enhanced visibility over the medium term.

C Underhill

Chief Executive

20 April 2009

 

Consolidated income statement

Note		2008	2007
		£	£
Group revenue		10,399,701	11,525,260
Other operating income and charges		(11,622,598)	(9,824,284)
Operating (loss)/profit before non recurring costs		(1,222,897)	1,700,976

Non recurring costs		(548,724)	(152,640)
Operating (loss)/profit after non-recurring costs		(1,771,621)	1,548,336
Interest receivable		32,158	21,599
Interest payable		-	(21,014)

(Loss)/profit from continuing operations before taxation			(1,739,463)	1,548,921
Tax credit (expense) net			1,864	(555,560)
Net (loss)/profit for the period			(1,737,599)	993,361
Earnings per share (basic)			(1.87)p	1.07p
Earnings per share (diluted)			(1.87)p	1.00p

All of the activities of the Group are classed as continuing.

 

Consolidated balance sheet

Note		2008	2007
		£	£
Assets
Non-current assets
Goodwill		2,316,458	447,911
Other Intangible Assets		1,133,192	1,283,796
Property, plant and equipment		636,456	361,994
Deferred Tax		938,271	807,428
		5,024,377	2,901,129

Current assets

Trade and other receivables due within one year		3,708,378	4,679,757
Cash and cash equivalents		1,534,787	1,507,757
		5,243,165	6,187,514
Total assets		10,267,542	9,088,643

Equity

Called-up equity share capital			937,884	927,753
Share premium account			1,614,695	1,534,042
Share option reserve			213,992	185,905
Merger reserve			2,093,754	2,093,754
Retranslation Reserve			115,663	(28,742)
Retained earnings			(1,972,781)	(235,182)
			3,003,207	4,477,580

Liabilities
Non-current liabilities
Deferred Tax		339,937	385,118
Other payables falling due after one year		175,707	141,591
		515,644	526,709
Current liabilities
Trade payables		491,562	373,151
Other payables falling due within one year		6,257,129	3,711,203
		6,748,691	4,084,354
Total liabilities		7,264,335	4,611,063
Total liabilities and equity		10,267,542	9,088,643

Consolidated cash flow statement

Note		2008	2007
		£	£
Operating activities
Result for the period before tax and finance costs		(1,771,621)	1,548,921
Amortisation of intangible assets		300,556	106,613
Depreciation of property, plant and equipment		192,089	104,720
Change in trade and other receivables		1,152,390	(1,134,596)
Change in trade and other payables		750,295	78,680
Share option charges		28,087	55,313
Interest receivable		32,158	-
Exchange differences		(58,234)	(31,241)
Cash flows from operating activities		625,720	728,410
Investing activities
Purchase of property, plant and equipment		(136,180)	(26,959)
Acquisition of subsidiary		(409,001)	-
Acquisition expenses		(48,518)	-
Cash acquired with subsidiary		57,906	-
Exchange differences		(27,310)	-
Net cash used in investing activities		(563,103)	(26,959)
Financing activities
Proceeds from issue of shares		90,734	738
Repayment of debenture loan		-	(1,000,000)
Finance lease payments		(126,321)	(45,477)
Net cash inflow/(outflow) from financing		(35,587)	(1,044,739)
Net movement in cash		27,030	(343,288)
Opening cash balance		1,507,757	1,851,045
Net movement in cash		27,030	(343,288)
Closing cash balance		1,534,787	1,507,757

  

Consolidated statement of changes in equity

 

	Share Capital	Share Premium	Share Options	Other Reserves	Retained Earnings	Total Equity
	£	£	£	£	£	£
Balance 1 January 2007	927,753	1,533,354	130,592	2,096,253	(1,228,543)	3,459,409
Issue of shares	50	688	-	-	-	738
Merger relief on issue of shares	-	-	-	-	-	-
Exchange differences	-	-	-	(31,241)	-	(31,241)
Profits for the period	-	-	-	-	993,361	993,361
Sub-total recognised gains and losses	-	-	-	(31,241)	993,361	962,120
Share options	-	-	55,313	-	-	55,313
Balance 31 December 2007	927,803	1,534,042	185,905	2,065,012	(235,182)	4,477,580
Balance 1 January 2008	927,803	1,534,042	185,905	2,065,012	(235,182)	4,477,580
Issue of shares	10,081	80,653	-	-	-	90,734
Merger relief on issue of shares	-	-	-	-	-	-
Exchange differences	-	-	-	144,405	-	144,405
Profits for the period	-	-	-	-	(1,737,599)	(1,737,599)
Sub-total recognised gains and losses	-	-	-	144,405	(1,737,599)	(1,593,194)
Share options	-	-	28,087	-	-	28,087
Balance 31 December 2008	937,884	1,614,695	213,992	2,209,417	(1,972,781)	3,003,207

The accompanying accounting policies and notes form part of these financial statements.

                   1.     Basis of preparation

The financial information set out in the announcement does not constitute the group's statutory accounts for the years ended 31 December 2008 or 2007. The statutory accounts for the year ended 31 December 2008 have not yet been finalised on the basis that the auditors have not yet reported on them. They will be finalised on the basis of the financial information presented by the directors in this preliminary announcement and will be delivered to the Registrar of Companies. The financial statements have been prepared in accordance with applicable international reporting standards as adopted by the EU. The group financial statements consolidate those of the company and of its subsidiary companies drawn up to 31 December 2008.

Intra-group transactions are eliminated on consolidation and all figures relate to external transactions only.

Acquisitions of subsidiaries are dealt with by the acquisition method of accounting except for those qualifying as group reconstructions where merger accounting is used. The results of newly acquired companies are consolidated from the date that control passed.

2.     Segmental reporting

The primary segment for the group is identified as one principal business segment being marketing software. Therefore the disclosures for the primary segment have already been given in the financial statements.

The secondary segment information relates to revenue by origin and is presented below:

31 December 2008	UK	Other	Total
	£	£	£
Group revenue	6,132,517	4,267,184	10,399,701
Operating profit	(2,089,472)	350,009	(1,739,463)
Assets	6,059,287	4,208,255	10,267,542
Liabilities	1,913,606	5,350,729	7,264,335
Capital expenditure	337,494	-	337,494

31 December 2007	UK	Other	Total
	£	£	£
Group revenue	8,389,572	3,135,688	11,525,260
Operating profit	505,842	1,195,134	1,700,976
Assets	5,109,435	3,979,208	9,088,643
Liabilities	2,028,876	2,582,187	4,611,063
Capital expenditure	258,152	1,988	260,140

 

  

3.     Earnings per share

	2008	2007
	£	£
Profit/(loss) attributable to ordinary shareholders (basic and diluted)	(1,737,599)	993,361
Profit/(loss) on ordinary activities before taxation	(1,771,621)	1,548,336
Add back non-recurring costs	(548,724)	152,640
Adjusted profit on ordinary activities before taxation	(1,222,897)	1,700,976
Weighted average number of shares (basic)	93,380,367	92,779,839
Weighted average number of shares (diluted)	101,439,628	99,778,933
Basic earnings per share	(1,87)p	1.07p
Diluted earnings per share	(1.87)p	1.00p
Adjusted basic earnings per share	(1.31)p	1.83p

The difference between the basic and the diluted number of shares relates to share options issued.

ENDFR EAKLXFDXNEFE