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UK - Bond International eyes opportunities in AsiaPac

03 April 2012

Revenue was up 30% to £36.8m from £28.3m in 2010 (restated) at Bond International Software Plc (BDI:LSE), the specialist provider of staffing, HR and payroll software and outsourcing.

Underpinning the group's performance is a 28% increase in recurring revenue to £22.4 million representing 61% of total revenues in 2011 from £17.5 million in 2010 representing 62% of total revenues. Of this, around 6% is like-for-like growth with the remainder arising from acquisitions.  The accounts include a full year from VCG LLC and Strictly Education Solutions Limited both of which were acquired in the second half of 2010. Recurring revenues now cover approximately 85% of the group's administrative expenses (excluding amortisation of intangible assets) compared with 77% last year.

Commenting on the results and the company’s outlook Chief Executive Steve Russell, said, "2011 has been a year of operational progress for Bond as we continue our recovery from the difficult environment of 2009 and 2010. 2012 has begun positively and we are confident that the Asia Pacific market will provide significant opportunities going forward.  It is on this basis that the Board has recommended a dividend of 1.2p per share, a 50% increase on last year. The group faces an exciting period. Our export markets are becoming increasingly active, employment statistics from the USA are very encouraging and there is a new mood of optimism among staffing companies. Our emerging markets in Japan, China and South America represent significant opportunities for growth and our Australian and Hong Kong businesses continue their success. New products are in the portfolio, executive search, corporate recruitment and welfare to work will all be big markets for the group in 2012. Lastly the trend towards outsourcing provides some exciting opportunities for both Payroll Services and Strictly Education.”

The company has three revenue streams. 

The primary revenue stream is recruitment software which accounted for 61% of group revenues in 2011 compared with 59% in 2010 and is, in turn, split between three areas; software sales & services increased to £9.8 million from £7.8 million (26%), software support increased to £8.6 million from £6.4 million (34%) and software rental income increased to £4.2 million from £2.5 million (68%). In total recruitment software revenue increased 35% from £16.8 million to £22.6 million including acquisitions.  Revenue is split between the UK (46%), US (46%) and Asia Pacific (8%). The group feels that 2011 has been a year of improvement for the group particularly in this Division. Whilst not back to the pre-recession levels, the recruitment industry has recovered significantly in both the UK and the USA which remain the principal geographic markets in which the firm operates.

HR and payroll software revenues (13% of group revenues in 2011) are overwhelmingly recurring in nature. In 2011 they fell 3% to £4.8 million from £4.9 million.

Outsourcing (26% of group revenues in 2011) comprises two distinct operations, Strictly Education (80% of outsourcing) provides HR, payroll and other services to schools, primarily in the state sector, and Bond Payroll Services (20% of outsourcing) which provides payroll bureau services to a variety of organisations in both the state and private sectors. In total, revenue for this segment increased 41% from £6.6 million to £9.3 million.

The group's gross margin as a percentage of sales has fallen slightly from 87.8% to 87.2%, reflecting the effect of the first full year of Strictly Education Solutions on the group accounts. The trend towards a greater proportion of consulting services compared with software licences, slowed down in 2011 and this has offset some of the impact of margin erosion.

Administrative expenses have increased by 17%, the majority of this increase is as a result of acquisitions with the underlying increase running at less than 1% per annum.  As a consequence the operating profit before amortisation of all intangible assets, exceptional items and impairment of intangible assets has risen by 136% to £5.2 million (2010: £2.2 million) and operating profit before the amortisation of acquired intangibles is £2.6 million compared with a loss in 2010 of £106,000.

Bond continue to invest a significant proportion of their revenue in enhancing their products, with overall expenditure on development rising to £4.9 million, which is 14% of revenue, compared with £4.1 million in 2010 which was 15% of revenues.

The group has continued to invest in its flagship product, Adapt, as well as configuring new applications using Adapt technology to achieve, where possible, a consistent technical platform across the group. The group has spent significant sums on the on-going development of Bond Talent in preparation for its launch in 2012,  on Vantage which is a product designed for the Executive Search market and Employ, a product designed to support the Government's Work Programme.

The pre-tax loss is £1.4 million compared with a loss of £1.5 million in 2010 as a result of the impairment charge of £1.4 million on goodwill arising from business combinations.  The group continues to benefit from research & development tax credits in the UK which coupled with the impact of the change in UK rates of corporation tax have allowed the group to report a small tax credit in 2011.

Despite a net loss for the year which increased from -£631,000 in 2010 to a loss of -£ 1.9 million in 2011 including the sale Abacus (see below), the board is recommending the payment of a dividend of 1.2p per share which is a 50% increase on last year.

The company made a number of acquisitions and disposals during the year. It sold Abacus Software Limited, its web services division for a £635,000 loss to allow the group to focus on its core activities in recruitment software, HR & Payroll software and outsourcing. It bought Matrix ICT for £100 together with contingent consideration based on the profits of Matrix for the year ended 31 December 2012. This company specialises in the provision of information technology services to state schools and according to Bond complements the existing operations of Strictly Education as well as increasing the customer base.

The group now employs around 500 people in six countries supported by offshore teams in India and the Ukraine. Asia Pacific, where Bond have offices in Sydney, Hong Kong, Shanghai and Tokyo is an increasingly important market for the company’s multi lingual recruitment software. Their Australian office has recently secured one of their largest ever orders, the benefit of which will not be seen until 2012.  They have signed their first clients in Japan, the world's second largest staffing market (see our recent report), and expect to start trading profitably in this market during the course of 2012.

Look at the prospects for the business Martin Baldwin Chairman said, “Whilst we have made considerable progress over the last year there is still uncertainty surrounding the outlook for the UK economy. The recovery is underway in the US and this is reflected in growing confidence in the wider staffing industry. This has led to a strong start to 2012 for our recently merged business. We are moving closer to signing our first significant contract in Japan which has some of the largest recruitment companies in the world and the wider Asia Pacific market is providing some significant opportunities for the revenue growth.  We have also taken our first steps into South America by establishing a small office in Peru.  This will provide us with a base from which we can access some of the fastest growing economies in the world.”

In early trading the company’s share price was up 13.9% at £49.00. This is 5.77% below its 52-week high of 52.00, set on 8 July, 2011 but 8.9% up on a year ago. This means the firms is valued at £15.73 million.

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