First Derivatives, the AIM-listed software vendor and IT consultancy focused on the investment bank and hedge fund industry, has delivered impressive growth in the year ended 28 February, with revenue up 44.2% to £36.7m (almost all organic by the way). Its biggest market the UK was up an even more impressive 48% to £15.8m. Group pre-tax profits were up 15.1% to £6.5m, although the margin dipped to 18% vs. 22% in the previous year as a result of a rapid spate of hiring that now sees First Derivatives employ 524 people vs. 385 at the end of 2010. The single acquisition made in the year, in August 2010 of small Canadian consultancy Lakefont Data Ventures, added just £241k in revenue and £24k in net profit in the period. One other bit of good news is that the company secured a £4.3m commitment from Invest Northern Ireland for creation of 359 new jobs over next three years.
First Derivatives is clearly on something of a roll right now. Its software business more than doubled revenue to £12.5m, meanwhile consultancy increased 25% to £24.2m. Going forward First Derivatives is going to be delivering its Delta software products ‘as-a-service’ on a transactional revenue based pricing model following the investments made in FY10 in five data centers in UK, US and Ireland. Of course it will continue to offer a traditional licensing approach.
Nonetheless we expect the SaaS model will prove attractive to its 40 existing customers who are likely to transition to the more flexible pricing and contracting structure, plus it should help the company further grow the customer base further. We might expect the transition will put pressure on revenue and profitability as many other software vendors are finding. So the company may well find it harder to deliver the same level of organic growth from software in the current year.