Lombard Risk Management (LRM), the specialist provider of integrated collateral management, regulatory compliance and reporting solutions for the financial services industry, has tumbled into the red in FY15 in its quest to deliver strong growth.

For the year ended 31 March, top line revenue was up 10.3% to £23.7m. However, a pre-tax profit last time of £2.3m reversed into losses of £2.2m. LRM has spent the year making ‘significant investment’ in its products, sales, a new exec team (new Head of Product, CTO and CEO) and in its new strategic relationship with Oracle America. Product investments alone were up 16% to £5.9m to keep ahead of the competition. These initiatives are going to need ‘continued investment’ this year too.

LRM has been through a lot of change over the past year (see here and work back). It is now refocusing the business on two core products – COLLINE for collateral management and AgileREPORTER for regulatory reporting. This should make the sales process more streamlined and clear for partners and customers. Along with the partnership with Oracle America, there’s every chance for LRM to continue growing at a healthy rate.

LRM is in a good place to help financial services firms respond to ever changing regulatory and compliance demands. But its biggest challenge is going to be converting all this momentum and growth in to profits.

The deadline for applications for the 2016 WCIT Enterprise Awards is 31st May - so really FAST APPROACHING.  Many of TechMarketView's Little British Battlers have gone on to win one of these awards. So we really would encourage you to apply.

Our dear friend John O’Connell established these ‘Oscars for UK Tech Entrepreneurs’ some six years ago. TechMarketView – together with such notables as Sage, techUK, Cobalt Corporate Finance, Smith &Williamson, Questers, Innovation Warehouse and ScaleUp Group – are sponsors. We – that is Anthony & I and other TMV Research Directors  - will be there at the glittering Awards Ceremony on 30^th June 16 at the Brewery. We’d love to see you there too.

The Award categories are as follows:

• Young Entrepreneur
• Evergreen Entrepreneur - for founders who started their business aged 50 or over
• Emerging Entrepreneur– up to £1 million annual revenue
• Developing Entrepreneur– annual revenue between £1 and £5 million
• Scaling Up Award– annual revenue between £5 and £10 million
• Enterprise Entrepreneur– annual revenue over £10 million
• Social Enterprise Entrepreneur - for entrepreneurs with a business model that gives something back
• Public Sector Award - for innovators targeting the public sector
• Female Entrepreneur - for outstanding female entrepreneurs
• and the Judges Special Award.

Email alex@innovationwarehouse.org for an Application Form. Or download Click Here. I am a judge (again). Not that I can be bribed of course…

We promise suitable publicity for all the winners on HotViews. What more glittering prize could there be?

Anyone involved in the early PCs back on the 1980s will recall the floppy discs that were used – not just for data but for loading programs as well.

The US Dept of Defense yesterday reported that it is still using 8 inch floppy discs ‘in a legacy system that coordinates the operational functions of the United States’ nuclear forces’. Each floppy holds about 80kb of data. Of course, this admission has caused derision in the media. But perhaps that is a bit unfair. If it still works, why fix it?

It is actually quite remarkable how long-lasting computer technology is if you don’t change it. I have a lovely Dell computer still under XP that I use to edit all my photos. It is now 15 years old and still works like a dream. I haven’t upgraded any of the software for years and therefore don’t have it connected to the internet. I will be very sad when it dies.

Same goes for many of the Excel spreadsheets that I use daily for such things as my bank accounts and investments. They contain macros that I first wrote back in the 1980s.

Back in the 1960s I was writing code for a banking system. It is not completely impossible that some of that code is still used today. Although we would all agree that today’s core banking systems are indeed creaking – it is, none-the-less amazing that they still work at all after so many decades. Indeed, in terms of ‘value for money’ they are unbeatable.

Although our industry is built on the concept of constant upgrade and constant change, sometimes the cost and upheaval of the ‘upgrade’ far exceed the benefit

Some of the TechMarketView team spent an insightful day with TCS at its UK Innovation Forum earlier this week, where the theme was innovating in the hyper connected world. With input from customers, partners and the TCS team there was plenty to chew over.

One consideration was how organisations are reacting to the digital shift/digital customer, with a neat illustration from CTO K. Ananth Krishnan of how this is blurring the boundaries between industry sectors because businesses have to cover so many areas to meet the demands of their digital customers. Virtually every industry is crossing into adjacent ones as they rethink sector boundaries in the hyper connected world. Amazon is in the retail, payments, devices, infrastructure, drones and enterprise spaces for example; while Apple operates across devices, media, comms, software, wearables, retail and payments. The blurring is evident beyond these headline companies - think telco/media, tech/automotive, retail/finanical services etc - and a business will typically cross into multiple industry sectors.

The message is that businesses cannot operate within traditional lines. That’s true enough and it also highlights the complexity and therefore one of barriers to the shift to digital, which is why we continue to hear of small scale serial projects across the market, that help enterprises progress but are a challenge for suppliers to scale down to.    

One of the other takeaways was the shift towards intelligent operations through the combination of analytics and automation – the point being that the combination is critical because as separate entities automation is dumb and offline analytics too slow. Naturally, TCS has a solution in the form of its “neural automation” ignio system but the move towards intelligent operations, intelligent software, intelligent automation is gaining momentum, as we have highlighted in Business Process Automation: What is Intelligent Automation, and our series of reports on machine learning. Automation and machine intelligence is shaping up to be a major market disruptor. 

I still have no idea why it takes management at Mumbai-based offshore services firm Tech Mahindra a month longer than India-headquartered peers to run the numbers; maybe they want to keep bad news under the covers for a little bit longer.

I say bad news only because Tech Mahindra had the weakest quarter (ended 31^st March) than all the other India-headquartered top tier players, with headline revenues for Q4 increasing by just 3.9% to $1.02b, almost flat compared to the prior quarter. This is the fourth consecutive quarter of yoy headline growth decline. Operating profit fell qoq leaving margins well below peers at 13.8%.

Over the FY, Tech Mahindra just made it through the $4b revenue barrier ($4.04b to be more precise), representing 10.2% yoy growth (9.5% adjusted), a huge decrease on the prior year’s 18.2% growth. Even so, Tech Mahindra came second only to Cognizant’s 18.2% growth for the trailing 12 months to 31^st March. Tech Mahindra’s FY operating margins, at 13.4%, were down a couple of points yoy; they remain the only India-headquartered top-tier player with margins below 20%.

It seems Tech Mahindra still struggles with ‘bipolar disorder’, some three years since the integration of Satyam was declared complete. As yet there seems to be no cure in in sght.

Security specialist Sophos saw FY16 revenue increase 7% yoy to US$478m (16% on a like for like basis), though the company’s IPO in June last year lead to an operating loss of US$33m.

Making money out of data security in the current climate may be a bit like shooting fish in a barrel as public and private sector investment in cyber defences remains high. But suppliers still have to get the balance of new and old business right and deliver solutions across hardware, software and cloud platforms which cater for every enterprise requirement (just ask Symantec).

Sophos reported strong sales of network and end user solutions across all regions, with billings up 12% to US$535m (20% on a like for like basis). Billings in Europe, the Middle East and Africa (which accounted for 49% of all revenue) increased 3% yoy to US$264m on a reported basis as a strong US dollar took its toll on exchange rates, but grew 16% like for like.

Software subscriptions totalled US$422m, up 10% (17% like for like) but it is sales of higher margin hardware - including firewalls, wireless access points, and web/email gateways - which catch the eye. Hardware billings increased 26% to US$99m (38% like for like), with the network based SG unified threat management (UTM) gaining particularly good traction.

Sophos is successfully bringing in new business - revenue from new customers was up 33% to represent 25% of the total (up from 23% in FY15). Like other security vendors, Sophos is now keen to expand its focus to managed security services. The recently announced MSP program is intended to drive more business through the channel and tempt its partners into adopting a more integrated approach which gives customers greater control over the multiple security platforms they currently maintain.

We can now guess the rationale for the timing of Meg Whitman’s long-awaited decision last month to announce the sale of HPE’s majority stake in Bangalore-based Mphasis (see Blackstone India buys HPE’s stake in Mphasis): Mike Lawrie didn’t want to have that albatross hanging around his neck when CSC picks up HPE’s Enterprise Services unit (see HPE hives off Enterprise Services to merge with CSC).

To be fair, Mphasis is a perfectly respectable mid-tier offshore services player. But it lives in a half-world where some 40% of the stock is still in public hands – a legacy from the original majority stake purchase by the erstwhile EDS almost 10 years ago to the date. What could have – and should have – been a savvy move to boost EDS’ offshore services capability, had they gone on to complete the minorities buyout, turned into a compete fiasco as Mphasis went all ‘fifth column’ on its new parent and decimated its business with EDS (now HPE) clients.

Indeed, Mphasis closed its latest FY (to 31^st March) with barely a quarter of its revenues deriving from the ‘HP Channel’. When EDS acquired the stake, it was more like two-thirds. And it wasn’t a great year anyway for Mphasis. Headline revenues grew by just 5% to Rs60.9b, though by my calculations this was more like a 2% decline in USD terms, to around $930m. However, operating margins improved a tad to 13.5% (FY15: 13.3%).

Well, Mphasis is Blackstone’s problem now – or soon will be – relieving Mike Lawrie of the distraction of having to struggle with a renegade business unit with noisy external investors while he gets on with the real job in hand.

Struggling UK managed service provider PinnacleTechnology Group balanced its recent self-induced deflation with an acquisition, buying Warrington based IT services company adept4 Limited for £5m of unsecured loan notes to the Business Growth Fund (BGF).

We think the deal brings a source of much needed revenue to Pinnacle, with adept4 having generated £5m of revenue in FY15 with EBITDA of £750,000. If Pinnacle can keep hold of them, adept4’s client base of around 60 customers on long term 3-6 year contracts will provide further stability, estimated to currently deliver 67% of recurring revenue from managed IT service contracts, software support and development, and professional and cloud services.

Pinnacle executive chairman Gavin Lyons described the acquisition as a ‘pivotal moment’ – apt for a company that has spent the first half of the year selling off its unwanted and unprofitable assets as it tries to transform itself into an IT as a Service company for SMEs.

The BGF is an independent fund launched in 2011 to provide long term equity capital to smaller companies that would struggle to secure investment from elsewhere. It is backed by Barclays, HSBC, Lloyds, RBS and Standard Chartered, and has an estimated war chest of £2.5bn.

It clearly does not view Pinnacle as a terminal case, at least not yet, and sees promise in the efforts being made by tech merchant bank (and TechMarketView Little British Battler sponsor) MXC Capital to turn Pinnacle around.

UK communications service provider KCOM Group posted flat FY16 results with audited revenue static at £348m and EBITDA growing 0.8% to £74m. The company notched a pre-tax profit of £48m, down 7% yoy despite the £44.5m profit it made from selling off network assets to CityFibre for £90m. Earnings per share dropped 4.7% to 7.54p

Significant internal reorganisation (and £4.1m of restructuring costs) divided the business into two segments. KC (Kingston Communications), which provides telephone and broadband services to a pool of residential and small business customers over the company’s own network in Hull and East Yorkshire, turned over the same £105m it did in FY15.

With limited growth capacity in a small regional market, KCOM is pinning its expansion hopes on communication and collaboration services for enterprises and SMBs on a national level. But traction here too is at a standstill with revenue up to £250m from £249m in FY15 and EBIDTA barely moving at £26.1m.

Much rests on Smart421, the Ipswich based IT consultancy and systems integrator with a strong focus on combining network connectivity with cloud hosting that KCOM paid £24m to acquire back in 2006.

KCOM’s decision to prioritise higher margin larger contracts at top 100 accounts and ignore core network connectivity deals for smaller businesses looks risky but necessary in a commoditised broadband market fixated on price and dominated by much larger telecommunications players.

Ongoing contracts with HMRC and NFU Mutual, plus FY16 wins with ATOC, BUPA and Shoosmiths have failed to move the needle however. KCOM must now prove it can successfully layer value added cloud hosting elements on top of WAN links at a cost which marks it out from the competition while simultaneously consolidating its operational expenditure to drive profits.

Part of Sage’s transformation necessarily involves changes to its partner ecosystem, which it kicked off in October 2015. A big part of the change is moving to a global system from the multi country and multi product based model of old.

An update on how it has progressed during H1 indicates the ship is moving, with the number of channel programmes significantly reduced and foundations for further change in place, from assets to streamline partner onboarding to more of a focus on encouraging partner business development.

Business development is the nub of the matter. We see Sage looking to partners to take its revamped strategy (see the HotViews archive here for the many facets and progress) to market but also to boost its overall growth rate from the stable 5%-6% range, and to really drive cross sell activities as it pursues its ‘golden triangle’ of accounts, payments and payroll.

That calls for substantial change among partners at a time when they are also navigating the shift to the cloud model. Some will not make the transition to multi product SaaS and mobile driven cross sell capability and Sage accepts there will be losses, although it expects the overall number will remain broadly the same as joiners compensate for leavers. Our interpretation is that partners need to be proactive and there is no place for complacency.

Making this change is not going to be easy – Microsoft has struggled with similar plans to get more of its partners to take a broader set of products. New partners - of the right type - will be key so we’ll be watching out for this at the Sage Summit in July. Early whispers are that we’ll see different types of partners coming on board.

Watchstone, the recently ‘born again’ Quindell, has released its full year results, which show a company flat-lining. Revenues from the underlying business were ‘steady’ at £58.3m vs. £56.5m last time. The underlying EBITDA loss was also no different at -£16.8m (vs. -£16.8m). Cash nudged up to £103m.

Watchstone says it is ‘focused on managing the Group's operating, contingent and cash assets in order to achieve the maximum value possible, whilst always ensuring good governance’.

This sounds very much a case of sitting tight till a sale can be achieved. In April, it rejected what it called a ‘highly conditional, non-cash bid’ from a PE investor (see here). Management will be doing well if they can find a buyer prepared to take on the business on their terms.

The name sounds like a type of kebab, but at least it comes top of a Google search. But it’s a shame that its mission statement uses words like ‘democratise’ as that’s just far too pretentious.

I’m talking about Guildford-based education app platform startup, Zzish, which has recently raised a further £700k in a crowdfunding round, roughly doubling its total funding since it was founded in 2013 by ex-Google product manager, Charles Wiles. Zzish’s backers include Leaf Investments and other ‘edtech’ investors.

What Zzish is (at least, if I understand it right) is a portal that channels access to the multitude (they reckon 200k) of education-orientated apps out there in app-land. There’s some dashboard stuff as well.

Sounds great – really – but I do wish startups would stick to plain English in their mission statements. Actually, I wish they didn’t have mission statements at all. Just tell us what your ‘thing’ does, nice and simply, and why it’s different. We can work out the rest.

Indian Pure Play (IPP) Tech Mahindra is planning a big splash in the UK, with the intended acquisition of Target Group, the privately-owned Business Process as a Service (BPaaS) provider to the lending and insurance markets.

Tech M's move is the latest by an IPP to acquire BPaaS capability within the BFSI sector, following Wipro’s purchase of US-based Viteos earlier this year (see here). It shows that the platform BPaaS space is now ripe for consolidation as the IPPs seek to transform their legacy business process services (BPS) businesses.

Subject to FCA approval, Tech Mahindra will pay current private equity owners Pollen Street Capital£112m for the 800-person strong Target Group. Co-Group CEOs, Ian Larkin and Bill Alley, will apparently stay on to ensure continuity and drive the current strategy.

Cardiff-based Target Group is a company we have been following for a while, as an emerging disruptor within its market sectors (see Target adds Hope to glory and work back). It is uses its own platform technology to offer BPaaS in areas like loans and mortgage servicing, insurance policy administration, investments and broking, for big name clients like Goldman Sachs, Credit Suisse, LV, Shawbrook, NFU Mutual and Morgan Stanley.  

Being part of a much larger company with international reach will give Target Group plenty of opportunity to scale further across broader sectors and geographies. We hope to speak with management shortly to provide more on this significant deal.

Having raised £5m to fund acquisitions earlier in the year (Instem raises £5m for acquisitions), it comes as no surprise to hear that Instem is parting with some of that cash to bring UK-based Samarind on board. Instem, which provides IT solutions to the global early development healthcare market, is paying a total consideration of £2.5m for Deeside-based provider of Regulatory Information Management (RIM) software to the life sciences sector. Payment will be in a mixture of cash and new ordinary shares: £1.5m on completion, £0.65m of deferred consideration and a further £0.35m dependent on the financial performance of Samarind.

This looks like a neat acquisition for Instem. It supports the company’s strategy of expanding organically and acquisitively into adjacent market areas, particularly those having strong regulatory drivers for technology adoption. Samarind’s RMS software, which helps to achieve and maintain compliance for pharmaceutical, bioetch and medical devices, will extend Instem’s portfolio of data exchange and management software solutions, with which it has already had notable success (see Instem in fine fettle at full year). It will also provide additional opportunities for outsourced regulatory services. Importantly the software is designed to adapt to evolving global standards for exchange, formats and terminologies, as set by the European Medical Agency (EMA).

This is a bite-sized acquisition for Instem, which made revenues of £16.3m last year. Ten-employee Samarind made sales of £1.2m and operating profits of £0.4m in its last financial year to 31^st March 2016. At year end it had net assets of £0.04m, including £0.68m in cash and no debt. Instem expects the acquisition to be earnings enhancing from 2016 onwards.

Kainos’ first full year results since it IPO’d last July show that it has continued to motor with a strong performance reported across the business and record levels of revenue, profit and orders. In the year to end March 2016, revenue grew by 26% to £76.6m, PBT was up by 20% to £14.3m and sales orders were 11% higher at £87.2m.

The bulk of the revenue continues to come from the Digital Services division, which delivers customised online digital solutions principally for central and regional government in the UK. Turnover from Digital Services increased by 11% to £48.5m although gross profits at the division decreased slightly to £21.9m (FY15: £23.1m) largely due to issues with one large government contract that led staffing profiles on the programme to be readjusted.

Kainos’ healthcare business, Evolve, went from strength to strength as it launched a new cloud-based Integrated Care product alongside its EMR offering. Revenue at the division increased by an impressive 112% to £19.1m, gross profits were up by 115% to £10.1m and SaaS sales orders went from nil in FY15 to £3.4m. The group’s other division, WorkSmart, saw turnover increase by 10% to £9m and gross profits climb by 9% to £5.1m. It provides consulting, project management, integration, support and testing services for Workday Inc’s software suite. 

Across the Group, the UK remains the dominant region with £65.3m of revenue, up by a stonking 24% (all organic) in FY16. There is a more international flavour to the business though and 15% of revenue is now accounted for outside the UK. Kainos signed $13m of international deals over the last twelve months as its footprint in the US and its business with Workday in Europe grows.

All three of Kainos’ divisions appear well-placed for continued growth into 2017. Digital programmes continue to be the order of the day in UK central government. Kainos is winning business with existing clients, such as the Home Office, and making progress in new business with departments such as the Ministry of Justice, where its consultants are working on the Criminal Justice System Efficiency programme. It is also expanding its presence in regional government, where revenue grew 111% to £7.8m in FY16, and sees opportunities in the Welsh and Scottish Assemblies as well as the Northern Ireland Civil Service. Indeed, with additional funding available for NHS digitisation this year and partner Workday also showing very strong growth, Kainos’ biggest challenge in the year ahead could be deciding which opportunities to focus on!

A couple of years ago, Hewlett Packard (as was) ceded its crown as the leading supplier of IT and business process services to the UK market to 'home-grown' Capita.

But will the merger of CSC with the Enterprise Services business of (now) Hewlett Packard Enterprise topple Capita from the top spot in 2017 and beyond?

We will be presenting our ‘first response’ analysis of the potential impact of the deal on the UK software and services in a series of UKHotViews Extraposts, exclusively for TechMarketView subscription service clients. The merger was announced on 24^th May 2016 (see here) and is expected to close in March 2017. 

In our first UKHotViews Extra post, TechMarketView Managing Partner Anthony Miller looks at how the proposed merger could affect the UK supplier rankings. In future posts, TechMarketView Research Directors will look at the deal from the perspective of key UK services segments and vertical sectors.

Everything seems to be going smoothly at broadly-based online payments services provider Paysafe after a transformational year, see here, which included doubling its size through the acquisition of Skrill and the move to the main board of the LSE, see here. Recent trading also appears robust, particularly in Payments Processing and Digital Wallets. Management now suggests that EBITDA forecasts for the current year can be tweaked upwards to US$270-276m, with a revenue range of US$950-970m.

Despite several equity placings (including funding the Skrill deal), the share price is up 50% over the year and around 4x what it was three years ago. So management can be justifiably pleased with progress.

Nevertheless, the AGM last week should give them pause for thought and serve as a warning for other companies going through periods of rapid change. Shareholders voted against the acceptance of the Remuneration Report, criticising the loose arrangement that had been used to remunerate the President & CEO and the CFO over the past year. This had resulted in the payment of “one-off”, large equity awards to re-establish a position of “fairness” (according to the Annual Report). The shareholders were however willing to agree the new Remuneration Policy and the setting up of a Long Term Incentive Plan which now establishes more rigorous benchmarks and targets against financial performance and shareholder returns.

I won't enter into a lengthy discussion of management pay and the issue of the escalation of top executive rewards, but the lesson is clear. Setting remuneration in a rapidly developing company is difficult and requires high levels of communication and trust between executives, NEDs and shareholders. Paysafe now seems to have got things sorted, but shareholder grumblings over pay can only diminish the brand of any financial services company.

It’s always gratifying to hear success stories from TechMarketView Little British Battler companies.

Indeed, Cambridge-based data analytics firm, Featurespace, has featured many times in UKHotViews and does so again with news of a further $9m (£6.2m) funding round led by US-based VC TTV Capital along with existing investors including Imperial Innovations, Nesta, Cambridge Angels and Cambridge Capital Group. Imperial led a £3m funding round for Featurespace almost exactly two years ago (see IVO believes in Featurespace innovation), following an initial £1.5m round in 2012 (see here).

Founded in 2005 as an analytics consultancy, Featurespace was among the first companies to participate in the TechMarketView Little British Battler programme in 2012 (see our first Little British Battler report). Now the company styles itself as ‘a global leader in machine learning fraud prevention using Adaptive Behavioural Analytics’. Onwards and upwards!

'Transforming Legacy' is one of our core themes for the UK Business Process Services (BPS) market in 2016 (see Predictions 2016 Business Process Services). As the adoption of Business Process Automation and other digital technologies accelerates, the need to transform the ‘legacy' business has become a critical do-or-die issue for providers.

'Legacy’ applies to BPS providers who have focused too heavily on Lift-and-Shift BPO to grow their business and build market share. And it also applies to others who haven’t moved fast enough to embed new technologies and services across their BPS operations, and have become over-weight and sluggish in their ability to grow and innovate.

BPS providers have to set the pace for their customers, transforming their own operations in order to support their customers in their own digital transformation agendas. The reason - they cannot profess to be expert in digital if they are not genuinely embedding these approaches across their own businesses. This often means taking some very tough decisions, to radically improve operating productivity and efficiencies through the use of new BPA and digital technologies.

Subscribers to TechMarketView's BusinessProcessViews research stream can read the analysis of and implications for BPS providers in our new report here - 'Transforming Legacy' - Critical for BPS providers in the Digital Era.

If you're not yet a subscriber and would like to become one, please contact Deb Seth (dseth@techmarketview.com) who will be happy to help.

FIS is leveraging its scale in the US to drive faster growth in its international operations and we expect to see a rapid advance in the company’s UK business over the next few years. In 2016 the inclusion of the recently-acquired Sungard business for a full year and further progress with both banking incumbents and challengers are likely to push FIS well into the top ten SITS providers to the UK Financial Services sector. The scale advantaged, platform-based approach of FIS, together with the expanded portfolio and customer list acquired along with Sungard should enable FIS to be a major contender as the UK banking sector continues its process of digitalisation and renewal.

The latest report from the FinancialServicesViews research stream, “FIS – Building in the UK”, explains how FIS is looking to build on its a strong position with several of the larger UK banks and making its mark within the growing ranks of the Challengers.

This report is available to subscribers here. If you want to enquire about a subscription, please contact Deb Seth in our Client Services team.