Having suffered a 2% decline in FY11 (see Good growth for Unit4 but not in the UK), it looks like the performance of Unit4’s UK business improved in Q1.
In its trading update, the company states that Group revenues increased by 3% to Eur115.3m, and that North America, Canada, Asia Pacific, UK and Norway experienced “above average revenue growth”. Assuming that means above the average for the company as a whole (rather than above the market average), it sounds like the UK grew in the first three months of the year. In addition, the insinuation is that Unit4’s Continental European businesses, such as Spain and Germany, didn’t fare so well. Indeed, its EBITDA decline of 5% to Eur18m (gross margin increased from 91.2% to 92%) was partly due to costs of Eur2m related to “reorganisation” in Spain.
Also impacting EBITDA was increased investment in sales & marketing. Unit4 states its objective is to grow its SaaS and subscription business whilst maintaining or growing traditional license revenue. That’s not an easy feat when some traditional contracts are being converted to SaaS. However, we are aware, particularly in the UK public sector, of the amount of effort that Unit4 is putting into taking market share from the larger ERP players such as Oracle and SAP. And it could well be perfect timing as UK Government organisations look to lower cost solutions.
In UK Government, Unit4 has much to play for; having primarily concentrated on smaller local government agencies in the past, there is plenty of scope for moving into larger councils as well as central government. The company is also investing in new initiatives such as PAYG analytics. Nonetheless, the outlook remains cautious in the current trading environment with growth and revenue expected in the single digit range for the full year.