Agresso banks record year

Unit4Agresso, the Netherlands based business applications vendor recorded its best result, turning in revenue of €393.6 million ($503.

Unit4Agresso, the Netherlands based business applications vendor recorded its best result, turning in revenue of €393.6 million ($503.7 mill) up 27% from the 2008 figure of €308.8 million ($395 mill). Earnings before tax fell to €19.3 million ($24.7 mill) from €27.1 million ($34.7 mill) due to increased financing costs resulting from the acquisition of CODA. EBITDA increased 70% to €70.1 million ($89.8 mill) from €51.9 million ($66.5 mill.)

During the earnings call Chris Ouwinga, CEO and Edwin van Leeuwen, CFO spent a lot of time going through the detailed numbers, pointing out which countries had fared better than others and where the company had to make cuts. The Spanish economy is in deep recession at the moment and here, Agresso saw the steepest decline in revenue: 5%, followed buy a fall of 2% in Germany. Benelux grew 7% and all other territories saw double digit growth with Norway the stand out performer up 20%.

The split between licenses, services and contracts was per the following chart:

Contracts for Agresso means implementation services. Of particular interest was a chart that showed the company either won against or replaced SAP in nine deals worth a total of €14 million ($18 mill), the largest of which was €5.4 million ($6.9 mill).  Various reasons were given for these successes but chief among them was Ouwinga's assertion that: "Typically these customers can earn back our costs from the maintenance fees they would have paid the competition over a two year period."

On the forward position, the company declined to offer a revenue target for 2009. It did however show sensitivity analysis calculations. During the Q&A, van Leeuwen said the company's license revenue could decline by up to 50% without there being a material impact on EBITDA. Despite this, Ouwinga said that: "We are quite confident this year will give us good results. Many of our country managers were quite positive in the review period." Even so, the company has imposed a salary freeze and while there is no formal hiring freeze, it remains 'very cautious.' the company also suspended payment of a dividend which was pitched as part of a package of measures to ensure the company remains within is borrowing covenants.

Earlier in the year, Agresso acquired CODA which was in the midst of developing CODA2go, an on-demand financial application based on the platform. Agresso said that it is too early to make any definitive statement about revenue progress but that development is on track. A further release of CODA2go is due in April which will see the company deliver AP, AR and GL. One interesting nugget to emerge from the Q&A was Agresso's assertion that in the early stages of CODA2go development, it was clear that a financial application would 'stretch the resources' of the platform and that engineers had engineering work to ensure that a full financials suite will run.

One pointed customer question concerned SAAB, the motor division of which sought bankruptcy protection on 20th February. Ouwinga assured analysts this has no impact on Agresso which is dealing with the defense specialist organization.

Overall, it was an upbeat performance with no signs of panic and an extraordinary degree of transparency on the part of management. This contrasts sharply with US earnings calls where the CEO/CFO are often scripted within an inch of their lives and stick firmly to the minimum disclosure that SEC rules require of them. Most important, Agresso's detailed analysis provides observers with important insights into the relative strengths and weaknesses of service based markets in the EU.


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