Allocate Software has put in a very creditable performance in challenging market conditions, reporting revenue growth of 22% (10% organic) to £36.6m in FY12 and 10% growth in EBITDA (before impairments, shared based payments and acquisition costs) to £6.4m. That’s its sixth consecutive year of strong revenue and ‘adjusted profit’ growth proving once again that it you're in the right 'niche' it's possible to outperform the public sector IT market nicely.
The reorganisation of the NHS did take its toll on the Dynamic Change part of the business though: 37% of Dynamic’s customer base was commissioning Primary Care Trusts (PCTs), which are being abolished under the government’s plans. As a result, management have revised their revenue and profit forecasts for Dynamic Change downwards and taken a £3.9m goodwill impairment charge. This pushed Allocate into the red at the bottom line with a pre-tax loss of £4.5m (FY11: £747k profit). CEO Ian Bowles is confident the issue is now behind them and the Dynamic Change business is ‘beginning to come up the other side’ as Acute trusts and Clinical Commissioning Groups start to purchase the software instead of PCTs.
Indeed, Allocate’s underlying business remains strong. We’re particularly pleased to see recurring revenues up by 36% to 42% of the total (£15.6m), compared to just 21% of total revenue in 2009. UK revenues were up an impressive 19% to £17.9m (although acquisitions played a part of course). By sector, healthcare revenue increased by 13% to £26.3m and defence had a record year delivering revenues of £7.6m (FY11: £4.1m) thanks largely to a multi-million pound deal with the Australian Defence Forces. Moreover, the launch of Allocate’s web based rostering product, HealthRoster V10, in June bodes well for the future – Bowles reports significant early interest in the cloud-based offering.
A key part of Allocate’s strategy is to complement organic growth with carefully selected acquisitions and there was more evidence of that strategy at work today. Allocate has acquired ‘Little British Battler’ RealTime Health for an initial consideration of £1.2m in cash (and an earn-out of up to £6m should some demanding targets be met). We highlighted the patient flow management software provider as one to watch back in February suggesting it would be an excellent fit with Allocate (see RealTime Health: right place, right time) so it’s good to see the union come to pass. RealTime will benefit from access to Allocate’s installed base and sales machine, and its product should sit nicely alongside Allocate’s existing portfolio, opening up new opportunities and driving further cross-selling. Of course we can expect further M&A activity from Allocate over the coming months and years as it strives to meet Bowles’ ambitious target of £100m turnover by FY16/17.