Advanced Computer Software is a good example of a SITS company that is benefiting from government spending cuts. Its FY11 results show its health and care applications and managed services are in demand despite, or in some cases because of, pressure on NHS and local authority budgets.
As a whole, ACS is a company making, in CEO Vin Murria’s words, “good all round solid progress”. Turnover is up 4% organically (216% inorganically) to £95.4m primarily reflecting the acquisition of COA Solutions in February last year. Adjusted EBITDA (before £15.4m in amortisation and other bits) was £24.1m, up from £7.2m the year before, but PBT was down slightly at £3.2m (FY10: £4.2m) as a result of higher financing costs.
The Health & Care division grew 10% organically to £20m thanks to sales of recently launched products and a better performance from its community care products. But it’s the 365 Managed Services business that is really “motoring”. The division, which offers a full outsourcing solution from desktop to data centre delivery, increased turnover by 15% organically to £11.8m. In particular, Murria reports strong demand for ‘shared services’ from local authorities keen to use technology to reduce their costs. The move to the Cloud is also a focus for the business with 450 of ACS’s 7,000 customers already ‘cloud-enabled’ (either via public cloud, private cloud or what ACS term ‘application cloud’.)
But FY11 did not see growth across the board at ACS. The Business Solutions division - which largely comprises COA’s financial and human capital management systems and competes directly with Unit 4 - saw revenues decline 1% as a result of a 4% drop in private sector revenue. A change of management team at the unit during year has apparently remedied the situation and its performance is said to be back on track. We’ll have to wait for ACS’ interims to judge whether this really is the case.
One thing we were particularly pleased to see from today’s results is more cross-selling at ACS. According to Murria, cross-selling was a significant contributor to the Group’s results, particularly between the 365 Managed Services division and the public sector part of Business Solutions. We’d expect to see more of the same in the future as ACS’ public sector customers look to known suppliers to help them cut costs, and more customers move to the Cloud.
We can also expect further acquisitions to drive inorganic growth. Murria seems particularly focused on bolt-on purchases in the Business Solutions space (a CRM or e-procurement system perhaps?). An acquisition along these lines would add both to the customer base and to the functionality that ACS’ systems can provide creating more cross-selling opportunities. Further M&A activity in the health or care space isn’t out of the question of course, but valuations in the sector remain high thanks to private equity interest and Murria isn’t one to pay over the odds.
