First Derivatives registers drop in profits in H1 2021
First Derivatives plc (LON:FDP) today posted its financial results for the six months to end-August 2020 (H1 2021), with revenues marking a slight rise from a year earlier but profits falling.
Group revenue increased by 3% to £119.6 million in H1 2021 from £116.7 million registered in the equivalent period a year earlier. Let’s note that First Derivatives registered a rise in revenues in the first four months of the fiscal year.
Highlights for H1 2021 include 12% growth in software license revenue driven by 10% growth in recurring software revenue in FinTech and 46% growth in recurring revenue in Industry. This growth was tempered by a broadly neutral performance in both consulting and MarTech.
As a result of FD’s continued investment, particularly in its Kx customer success team, gross margin reduced slightly to 40% (H1 2020: 41%).
Currency rates and the timing of holidays taken had an impact on FD’s performance in the period. In the first four months, currency had a positive impact of 2%, while in the last two months the impact was -2%, resulting in a negligible impact on the period as a whole. Fewer holidays taken relative to the prior year resulted in a contribution to growth in the first four months of 3% compared to neutral in the last two months, providing a total benefit of 2% in the period.
Total R&D increased by 37% to £7.7 million and sales and marketing costs increased by 2% despite lower event and marketing expenditure, particularly in the first quarter. FD continued to increase its sales headcount and expects sales and marketing costs will continue to increase in future periods. Administrative costs were flat as FD invested in its leadership team and central functions and controlled costs in other areas.
Adjusted profit before tax decreased by 19% to £10.7 million (H1 2020: £13.3m) held back by increased financing costs and higher depreciation and software amortisation charges. Financing costs include a £0.9 million increase in interest charges relating to the additional debt facilities drawn down in June 2019 to complete the acquisition of Kx Systems and the drawdown of £34.2 million from FD’s available debt facility as part of its mitigation against the impact of COVID-19. Reported profit before tax decreased by 12% to £7.4 million (H1 2020: £8.4m).
Reported profit after tax decreased by 8% to £6.1 million (H1 2020: £6.6m) and reported diluted earnings per share decreased by 10% to 21.8p per share (H1 2020: 24.2p).
The adjusted profit after tax for the period of £8.8 million (H1 2020: £10.9m) represented a decrease of 19%.
The Group generated £24.3 million of cash from operating activities before taxes paid (H1 2020: £16.4m) representing 113% conversion of adjusted EBITDA (H1 2020: 74%). The period benefitted from a focus on cash collection, including from revenue recognised in H2 2020 where the cash was received during H1 2021.
At the period end, net debt was £30.6 million (H1 2020: £60.2m).
The Board has not declared an interim dividend (H1 2020: 8.50p per share) in light of the continuing uncertainty regarding COVID-19 and will review this position at the time of the full-year results.
In terms of outlook, the Group stated:
“The outcome for the full year remains uncertain, with a wider range of possible outcomes than is typical. Despite this uncertainty, we anticipate our high level of repeat and recurring revenue will underpin our performance for the full year. We are confident in our strategy and excited by the growth opportunities in the medium term and will continue to invest to maximise our market position”.