Vitec Software Group AB: Vitec interim report January - September 2017
Strong cash flow, increased amortization affects profit
Summary for January-September 2017
- · Net sales MSEK 608 (483)
- · Profit before tax MSEK 69,5 (57,6)
- · Operating margin 12,4 % (13,0)
- · Earnings per share before dilution SEK 1,83 (1,56)
- · Cash flow from operations MSEK 162,9 (123,8)
Summary for July-September 2017
- · Net sales MSEK 220 (164)
- · Profit before tax MSEK 15,3 (17,1)
- · Operating margin 8,1 % (11,8)
- · Earnings per share before dilution SEK 0,39 (0,48)
- · Cash flow from operations MSEK 28,8 (17,9)
- · Acquisition of MV-Nordic A/S
Recurring revenues increase by 16% during the quarter and net sales increase by 34%. The result is slightly lower than the same quarter last year due to higher amortization than capitalized development. Adjusted for capitalized development and amortization the quarter's earnings are just over 20% better than last year. The cash flow is also much stronger, over 60 % better than last year.
MV-Nordic A / S, which is part of the Group throughout the quarter, has a turnover of approximately 142 MSEK annually with a much higher cost of goods than the Group in general. Consequently, the gross margin in percent is lower than in the rest of the Group. The operating margin for the entire Group will therefore be lower even though earnings are higher. MV-Nordic also had significant hardware deliveries during the quarter, which further affects operating margin and the share of recurring revenues negatively.
Amortization also affects us more in the third quarter due to unchanged linear amortization but reduced capitalized development in the holiday period. Before 2017, Vitec has applied an amortization period of 5 years for capitalized development costs. Amortization periods were changed at the turn of the year from 5 to 10 years but this only applies to development performed from 2017, previous capitalized development is still amortized for 5 years. Software neither roasts nor flags and based on our experience software has long-term durability. Studies of both our own software and major global software companies points to lifetimes of 15, 20, 25 years and more. An amortization period of ten years is therefore still short, but more in line with actual conditions. A better balance in the accounting between amortization rate and capitalized development costs is lagging, but will be visible within a three-year period. This will also clarify our investment strategy to carry out continuous product development in order to maintain and improve our earnings ability.
On 6 July, Vitec acquired the Danish software company MV-Nordic A / S. The company offers software for the education sector in Denmark, Norway and Sweden. The main product is a cloud-based software for people with read/write disorders. MV-Nordic has annual sales of approximately 142 MSEK with an EBITDA of approximately 14 MSEK. Payment was in cash and a convertible bond with 3 years durability, at full conversion the convertible bond dilutes the capital by 0.8%. We completed the consolidation in the third quarter and the company is included in the segment "Education & Health".
The number of active acquisition dialogues is still at a high level and we continue to allocate resources in orders to maintain and further develop these dialogues Vitec's financial position is good and we are well prepared for future acquisitions, this provides good conditions for continued acquisition-based growth. With the acquisition of well-established companies and a high proportion of recurring revenues, Vitec continues on the path to act in several independent and specialized niches to achieve sustainable profitable growth.
Lars Stenlund, CEO
For more information, please contact
Patrik Fransson, Investor Relations
This information is of such a kind that Vitec Software Group AB (publ.) is legally required to disclose pursuant to the EU's Market Abuse Regulation and the Swedish Securities Market Act. The information was submitted for publication at 08:30 CET on Friday, October 20, 2017.