Despite a number of factors working against it, Netherlands-based ERP vendor UNIT4 has reported a good performance in FY10. Total revenues increased by 11.1% to EUR421.7 million with license revenues up by 23.4% to EUR74.7 million. UK revenues increased 4% to EUR78 million.
Despite its heavy focus on the government markets in the UK and Scandinavia, UNIT4 also managed to grow organically – by 3%. That’s not as good as rival SAP (see SAP to maintain growth pace in 2011) but impressive considering the public sector market conditions. And considering the performance is set against a backdrop of moving from a traditional model of selling software to a software-as-a service model.
Contract and subscription revenues account for 48% of UNIT4’s revenues. Over the period subscription revenues grew by 31% to EUR26.6 million (including on-premise software sold under subscription). The impact on annual sales is worthy of note – if new software subscriptions during the period had been sold as traditional licenses, the increase in license sales would have been at least EUR21 million. Instead, under the subscription model, the increase in subscription sales was just EUR5 million. If my maths serves me correctly, had new license sales been sold in the traditional manner, organic revenue growth would have been about 7% (rather than 3%). In addition, according to UNIT4, EBITDA would have improved by at least EUR16 million. As it was, EBITDA increased by 14.6% to EUR86.1 million – an improved margin of 20.4% (despite continued investment in FinancialForce.com, its new cloud applications company).
Actually, the ‘what ifs’ are pretty irrelevant, because UNIT4 probably wouldn’t have made the sales under a traditional model at all. The company has moved to offer different delivery models at just the right time. In the public sector in particular, customers are attracted by the possibility of reducing upfront investment while budgets are cut. Combine that with the fact that UNIT4 is marketing a standard solution without the need for expensive customisation and set up costs, and it looks like the company’s onto a winner. Indeed, in the UK this morning it has announced a significant win with Hampshire County Council for the Agresso ERP solution, which has the potential to be offered as a shared service to councils nationwide. The management team is now forecasting medium-to-long-term organic revenue growth of between 5% and 10%.