RNS Number:5869O
Strategic Thought Group PLC
07 July 2005
STRATEGIC THOUGHT GROUP PLC
("Strategic Thought" or the "Group")
Admission to
the Alternative Investment Market
* Share dealings in Strategic Thought, the London-based software and
services provider which has developed a market-leading risk management
software solution, begin today on AIM.
* Strategic Thought has raised a total of #3.0 million (gross) via a
Placing of 2,500,000 new Ordinary Shares at 120p per share. A further
5,352,050 Ordinary Shares were placed on behalf of existing investors at
120p per share. KBC Peel Hunt is acting as the Group's Nominated Adviser
and Broker.
* The new funds raised will be used to provide additional balance sheet
strength, for implementing the Group's growth strategy and for
acquisitions.
* Strategic Thought's market capitalisation at the Placing Price is
approx. #30m.
* Founded in 1987, Strategic Thought has in recent years, developed a
proprietary enterprise risk management software product, for project,
operational and corporate risk management. This product, called 'Active
Risk Manager' was launched in 2001 and has since has been adopted by over
40 clients including NASA, Boeing, Lockheed Martin, London Underground,
Network Rail and BAE Systems.
* Active Risk Manager, ("ARM") which is a web-based product, provides
organisations with a framework and capability for managing risk on an
enterprise-wide basis. The Directors are not aware of any competitors that
have such an integrated risk management solution.
* ARM is expected to be the key driver of the Group's growth and the
Directors believe that there is an opportunity to establish a large global
installed base of ARM with significant annuity revenue streams.
* The Group operates a separate but complementary business to its Risk
Management operation called Solution & Integration Services ("SIS"). SIS
provides IT consultancy services, solutions and IBM software licences, and
is one of IBM's Premier Business Partners in the UK.
* SIS enjoys a high level of repeat business and clients include Lloyds
TSB, ABN Amro, ING and Vodafone.
* Over the last three years, Strategic Thought's revenues have more than
doubled from #4.3m in the year ended 31 March 2003 to #9.3m for the year
ended 31 March 2005 (2004: #6.9m). Over the same three year period, the
Group has moved from a loss before tax of #0.4m in 2003 to profit before
tax of #1.7m (2004: #0.7m).
* Dividend payments will commence in respect of the period ended 31 March
2006 and the Directors intend to adopt a progressive dividend policy.
Richard Higgs, Chief Executive, commented,
"I am delighted to announce Strategic Thought's admission to AIM.
Active Risk Manager, the risk management software solution that we launched four
years ago, has already established itself as a market-leading solution, as our
client list, which includes Lockheed Martin, NASA, London Underground and BAE
Systems, indicates.
We believe that there is tremendous growth potential to unlock in the product
and that our status as a publicly-quoted company will help us to maintain our
leading position as the market develops.
Together with the management team, I look forward with confidence to our
continuing success."
Enquiries:
Strategic Thought Group PLC Richard Higgs T: 020 8410 4000
KBC Peel Hunt Oliver Scott T: 020 7418 8900
Biddicks Katie Tzouliadis T: 020 7448 1000
STRATEGIC THOUGHT GROUP PLC
KEY STATISTICS
Placing Price 120p
Number of new Ordinary Shares to be placed on behalf of the
Company 2,500,000
Number of existing Ordinary Shares to be placed on behalf of
existing Shareholders 5,352,050
Number of Ordinary Shares in issue on Admission 24,989,600
Market Capitalisation on Placing Price #29,987,520
Percentage of enlarged issued share capital subject to the
Placing 31.42%
Gross proceeds of the Placing #3.0 million
INTRODUCTION
Strategic Thought was founded in 1987 and currently trades through two
profitable operating businesses: Risk Management and Solution & Integration
Services ("SIS").
The Risk Management business owns and licenses Active Risk Manager ("ARM"), a
risk management software system that provides organisations with a framework and
capability for managing risk on an enterprise-wide basis. To date, ARM's largest
customers have come from the aerospace/defence sector and include Boeing,
Raytheon, Lockheed Martin, NASA and the Defence Procurement Agency. Customers
outside these sectors include London Underground, Network Rail, AMEC and AGIP.
The Directors believe that ARM is a market-leading product and are not aware of
any competitors that have such an integrated risk management solution.
SIS supplies IT consultancy services, solutions and IBM software licences to
customers in the finance, insurance, banking, telecommunications, transport and
retail sectors. SIS solutions are primarily based around the IBM WebSphere and
Data brands in which it has developed particular expertise. SIS is one of the
leading IBM Premier Business Partners in the UK and major customers include
Courts, Lloyds TSB, Network Rail and Vodafone.
Over the last three years, Strategic Thought Group's revenues have increased
from #4.3 million in the year ended 31 March 2003 to #9.3 million in the year
ended 31 March 2005. In the year ended 31 March 2005, the Group generated profit
before tax of #1.7 million.
The Group's strategy is to pursue opportunities within Risk Management and to
deliver IBM WebSphere solutions. In addition the Directors intend to encourage
more cross-selling between each of the Group's operating businesses. Within Risk
Management, the Directors plan to expand ARM's customer base, improve earnings
visibility further and develop the sales channel by establishing partnerships
with third party organisations. Within SIS, the Directors aim to improve margins
through a combination of expanding the business' target market, developing more
of its own intellectual property and developing additional skills within certain
new IBM technologies. In addition to its organic growth strategy, the Directors
will consider acquisitions of complementary businesses.
The Placing has raised #2.3 million for the Company after expenses which will be
used to provide additional balance sheet strength, for implementing the Group's
growth strategy and for acquisitions.
HISTORY
Strategic Thought was founded by Nick Denning in 1987 as a technology
consultancy specialising in the design and integration of software solutions,
which now represents the SIS business within Strategic Thought.
In 2000, SIS primarily focused its activities on providing consultancy solutions
based solely around the IBM WebSphere brand. This has enabled it to develop
close links with IBM's support and development infrastructure and resulted in
SIS being appointed as an IBM Premier Business Partner. In turn SIS'
relationship with IBM has provided the business with added credibility and
assisted it in winning new customers.
Later in 2000, building on SIS' technical knowledge and expertise as well as on
senior management experience in financial risk management, Strategic Thought
started developing a new software product, Active Risk Manager. The original
vision for ARM was to address an identified and growing need in the market place
for an enterprise wide risk solution. At launch in January 2001, ARM delivered a
project risk management solution. It has since been developed, to complete the
Directors' original vision for the software, into a product that is capable of
managing risks throughout an organisation.
ARM has since been sold to numerous large enterprises in the Defence, Transport,
Aerospace and Construction sectors in the US and Europe. Major ARM licensees
include Boeing, Raytheon, the Defence Procurement Agency and Network Rail.
In May 2004, Herald Ventures invested #650,000 into Strategic Thought, the
principal operating subsidiary of the Group.
BUSINESS OVERVIEW
The Strategic Thought Group trades through two profitable operating businesses:
Risk Management and SIS.
Risk Management and SIS operate as separate business units within Strategic
Thought, although each benefits from its association with the other. The Risk
Management business capitalises on SIS' technical knowledge, integration
expertise and bespoke delivery capability. It also benefits from SIS' close
relationship with IBM, which provides it with introductions to major IBM
WebSphere customers. SIS benefits from access to the Risk Management business'
customers and integration projects providing it with the opportunity to deliver
professional services and develop its own proprietary software solutions.
Strategic Thought currently employs sixty staff and has offices in London (UK)
and Washington D.C.
Risk Management
The Risk Management business owns and licenses ARM, a web-based software system
that provides a risk management framework and capability across the customer's
organisation. ARM is designed to enable managers to identify, monitor and
respond to the risks that their organisations face. These risks may be specific
or general and are typically sub-divided into project risk, operational risk and
corporate risk. The Directors believe that ARM is the first software package to
facilitate such an enterprise-wide approach to risk management.
In the year ended 31 March 2005, the Risk Management business generated a profit
before tax of #1.1 million on revenues of #3.9 million compared to a profit
before tax of #0.3 million on revenues of #1.9 million in the year to 31 March
2004. As at 30 June 2005, the Risk Management business employed eighteen staff,
comprising seven developers, five sales staff, with the balance providing
consultancy and support services.
ARM customers and sales
ARM has been licensed to over 40 organisations since its launch. The software is
applicable to multiple sectors and geographies, although the Directors
identified the defence, construction, space and transportation sectors as the
initial target markets for the software.
Examples of ARM customers in each of these sectors are set out below:
* Defence - Boeing, Lockheed Martin, Thales, BAE Systems;
* Transport - London Underground, Tubelines, MetroNet and Network Rail;
* Aerospace - NASA, Northrop Grumman, Astrium and Lockheed Martin Space;
* Construction - AMEC and AGIP.
ARM is marketed to these and other customers on a return on investment basis
with ARM having the ability to deliver:
* Project savings: through early identification and management of risks,
organisations are more likely to be able to manage projects on time and on
budget thereby optimising profit margins and minimising the risk of
contractual penalties;
* Resource allocation benefits: budgets can be optimised through improved
planning and a better understanding of contingent liabilities;
* Replacement of existing systems: customers often run various different
in-house systems that are expensive to maintain; and
* Productivity savings: ARM automatically analyses and manipulates data and
also generates standard reports and presentations enabling a more productive
workforce.
To date, ARM customers have tended to be large corporations based in the US and
Europe with annual revenues in excess of US$1 billion. In the year ended 31
March 2005, revenues from US based customers accounted for approximately 59 per
cent. of all ARM licence sales with the balance coming from Europe.
New business is primarily generated through direct sales by a team of five
staff. Typically the first sale of ARM to an organisation is to manage specific
project or operational needs. After this initial sale and the proof of concept,
follow-on sales of additional licences are often made to that customer for its
wider needs. These follow-on orders represent a significant element of the Risk
Management unit's revenue. Revenue generated from existing customers accounted
for approximately 61 per cent. of the Risk Management unit's total revenues in
the year ended 31 March 2004 and for approximately 49 per cent. of the unit's
revenue in the year ended 31 March 2005.
The main sources of new customers are referrals from existing customers,
software and risk management exhibitions and the Group's website. The direct
sales force is augmented by relationships with other organisations in the US and
Europe which provide introductions to potential customers and then work closely
with the Risk Management unit's direct sales force to develop the lead. These
partners include organisations that are specific risk consultancy firms,
technology integration firms and large consultancy groups. Alliance partners
receive introductory commissions of up to 10 per cent. of the gross value of the
software licence sold.
ARM customers are sold an end user licence, a scalable server licence and
additional sub-components as required. Licences are sold on either an outright
sale or a rental basis, although to date the majority have been outright sales.
The end user licence allows an agreed number of users to gain access to the
product either on a named or concurrent basis. In order to use the software, ARM
customers are generally required to subscribe for the standard support service
package at an annual cost of between 15 per cent. and 18 per cent. of the
software purchased.
ARM licences represented approximately 71 per cent. of the Risk Management
unit's revenues in the year ended 31 March 2005 (59 per cent. in the year ended
31 March 2004). In any given year a significant proportion of total ARM licence
revenue is generated from a small group of customers. The Risk Management unit's
top five customers accounted for approximately 57 per cent. of the business'
revenues in the year ended 31 March 2005 (44 per cent. of the business' revenues
in the year ended 31 March 2004). However the top five customers in each of
these years were all different and from year to year, the Risk Management unit
is not reliant on any single customer.
ARM product development
The ARM product continues to develop over a widely defined strategy and the Risk
Management business currently operates a policy of providing new releases of the
ARM software every six months. Being entirely web-based, these upgrades are
installed remotely. The current release is 2.07 with 2.08 in testing and
expected to be released in July 2005.
ARM is sold as a commercial off-the-shelf (COTS) application. However,
enhancements to the product can be provided. These enhancements remain the
property of the Group and are provided to all customers in the next general
release. Where the need for a risk based solution falls outside the scope of the
ARM product roadmap, the solution can be delivered by SIS as a bespoke solution
with full support.
The Risk Management unit employs seven developers in the UK supplemented by
seven developers based in Mumbai, India, who are employed by a third party
organisation but sub-contracted to Strategic Thought on a long-term basis. This
offshore development relationship provides Strategic Thought with additional
low-cost development capability.
Solution & Integration Services (SIS)
Overview
The SIS business supplies IT consultancy services, solutions and IBM software
licences. In particular, the business specialises in mission critical systems
integration projects for customers in the Banking, Telecommunications, Transport
and Retail sectors.
SIS solutions are primarily based around IBM's WebSphere and Data software
brands. As a result of this specialisation, SIS is now one of the Premier
Business Partners of IBM in the UK. As a result SIS consultants have access to
and are involved in the deployment of IBM's latest technologies which enables
them to provide clients with innovative solutions based on market-leading
technology. SIS concentrates on WebSphere Business Integrator, WebSphere
Development and the emergent IBM WebSphere Portal marketplace.
In the year ended 31 March 2005, SIS generated a profit before tax of #0.6
million on revenues of #5.3 million compared to a profit before tax of #0.4
million on revenues of #5.0 million in the year ended 31 March 2004. As at 30
June 2005, SIS employed a total of 24 staff, comprising 17 consultants, three
support staff and three sales staff.
SIS consultancy solutions are provided on either a fixed price or a time and
materials basis. Annual contract values range up to #800,000. Wherever
appropriate, SIS will offer customers ongoing support contracts. In the year
ended 31 March 2005, approximately 49 per cent. of the SIS' revenues were
generated from project related consultancy services, a further 46 per cent. were
generated from the resale of IBM software with the balance generated from other
activities including annual support contracts.
Customers
Over the last five years, SIS has engaged with over 80 customers, the majority
of which have been large companies in the Banking, Telecommunications, Transport
and Retail sectors. Major customers include Courts, Lloyds TSB, Elsevier
Science, Vodafone, Marsh, ING and ABN Amro.
New customer leads are primarily generated from IBM-funded marketing campaigns,
through referrals from existing customers and from user forums organised by IBM.
SIS benefits from a high proportion of repeat business with major clients often
requiring ongoing consultancy projects based around the same technology. Orders
from existing customers accounted for approximately 86 per cent. and 70 per
cent. of the SIS revenues in the years ended 31 March 2004 and 31 March 2005
respectively. Many of the units' largest contracts started as small engagements
which gave SIS the opportunity to demonstrate its capability in delivering
effective and reliable solutions.
GROUP FINANCIAL SUMMARY
Year ended 31 March
2003 2004 2005
#'000 #'000 #'000
Revenue 4,295 6,915 9,250
Gross profit 1,517 2,470 3,997
Profit/(loss) before tax (388) 709 1,731
Profit/(loss) after tax (303) 552 1,365
Cash inflow from operating activities 41 385 2,290
Net assets 166 642 2,443
========= ========= ==========
Revenue growth over the period has been delivered by all parts of the Group with
the greatest growth coming from sales of ARM licences. In the year ended 31
March 2005, revenues included a #1.3 million ARM enterprise licence to Boeing
Corporation and a #0.5 million ARM licence sale to Raytheon, being the highest
value licence sales since ARM was launched.
Due to these large contracts, the proportion of the Group's revenue accounted
for by the Group's ten largest customers increased from approximately 56 per
cent. in the year ended 31 March 2003 to approximately 66 per cent. in the year
ended 31 March 2005.
Higher value ARM licences have improved margins and have more than offset a
slight reduction in margins obtained on the sale of IBM software. The Group's
gross margin over the period increased from approximately 35 per cent. in year
ended 31 March 2003 to approximately 43 per cent. in year ended 31 March 2005.
Wages and commissions over the period have increased as a result of the growth
of the business, higher commissions and bonus payments. Other overheads have
remained stable over the period.
CURRENT TRADING AND PROSPECTS
As at 1 April 2005, the Group had contracted revenues of #0.9 million with a
further #2.7 million of deferred revenue from IBM licence sales made in the year
ended 31 March 2005.
Since 1 April 2005, current trading has been in line with the Group's
expectations and the Directors are encouraged by Strategic Thought's strong
prospect list for new business for this financial year.
The Directors anticipate that the primary source of the Group's future revenue
growth will come from the Risk Management business, mainly through additional
ARM licence sales. In addition to these licence sales, the Directors expect the
Group to continue generating support revenues on all previously sold licences as
well as new licences, resulting in ARM support becoming an increasingly
significant aspect of the Risk Management business.
SIS professional services revenues are projected to increase with ongoing sales
to existing customers being supplemented by new customers. SIS' largest
customer, the overseas operations of Courts, is expected to remain a significant
customer in the current financial year, even though the UK operation of Courts
is in administrative receivership.
The Directors believe that ARM is a market leading product. By capitalising on
the Risk Management business' expertise and reference customers the Directors
believe that there is an opportunity to establish a large international
installed base of the ARM software with significant annuity revenue streams. The
Directors also believe that there is an opportunity for SIS to increase
substantially its professional services customer base and to improve its margins
through the development of its own intellectual property.
STRATEGY
The Group will pursue growth opportunities through primarily organic growth in
Risk Management and SIS. In addition:
* the Directors intend to encourage more cross-selling between the two
units and, in particular, utilise the technical knowledge and skills
within SIS to further develop the integration applications for ARM.
* the Directors will also seek to increase the brand awareness of
Strategic Thought and ARM in order to enhance recognition and
perception.
* the Directors will consider acquisitions and believe that these may
either be skill and competency based businesses to complement SIS, or
businesses with technologies or customer bases that would complement
Risk Management. The Directors are currently researching relevant
opportunities.
REASONS FOR THE PLACING AND USE OF PROCEEDS
The principal reason for the Placing is to raise funds to strengthen the Group's
balance sheet, which the Directors believe will assist the Group when marketing
its products and services to new customers. This additional balance sheet
strength is also expected to demonstrate to Strategic Thought's stakeholders
that the Group has the financial strength to achieve long term brand value for
ARM and SIS. The net proceeds of the Placing will also be used to implement the
Group's strategy set out above and, where appropriate, to fund acquisitions to
the extent that suitable opportunities can be identified to fit the Group's
criteria.
The Directors believe that the Company's AIM status will benefit the Group in a
number of ways which include: raising the Group's corporate profile; providing
the existing shareholders with a more liquid investment; providing the Group
with a more flexible capital structure; and assisting it in attracting,
retaining and incentivising key employees.
THE BOARD OF DIRECTORS
Peter Morgan, Non-executive Chairman, aged 69, was appointed to the board of
Strategic Thought in June 2004. He spent the first 30 years of his career with
IBM, having been an executive director of IBM (UK) and the group director of
marketing for IBM Europe. He left IBM in 1989 to become director general of the
Institute of Directors ("IoD"). While at the IoD, he began a portfolio career
which has included chairman roles at NPI, Pace MicroTechnology plc, SWALEC,
Baltimore Technologies plc and KSCL. He is currently chairman of Technetix Group
Limited and a non-executive director at Oxford Instruments plc and Hyder
Consulting plc.
Richard Higgs, Chief Executive Officer, aged 41, joined Strategic Thought as
Commercial Director in January 1998 and was appointed chief executive officer in
1999. He started his career in software sales with various IT solutions
companies before moving into banking technology with Bankers Trust in the UK and
US. In 1995, Richard founded ADS Systems Limited to develop and deliver trading
systems within Europe. In 1997, SunGard Corporation acquired ADS Systems
Limited's parent company by which time the division had grown to become the
largest contributor to group turnover.
Paul Tuson, Chief Finance Officer, aged 38, was appointed to the board of
Strategic Thought in January 2005. Paul qualified as a chartered accountant in
1991 with KPMG, with whom he worked for seven years in the Thames Valley, Boston
(US) and London. Following this, Paul has held senior finance roles in a variety
of technology and media companies. Prior to joining Strategic Thought, Paul was
finance director of Stream Group plc for four years, during which he led the
company through a successful float on AIM.
Nick Denning, Chief Technical Officer, aged 47, founded Strategic Thought in
1987 and remains actively involved in the Group's technical strategy. Nick
graduated in Mathematics from Cambridge University, and was admitted as a Member
of the British Computer Society in 1987. His early career was spent as a British
Army Officer in the Royal Corp of Signals and subsequently at Logica Space and
Defence Systems, a subsidiary of Logica Plc.
Simon Ricketts, Non-executive Director, aged 50, was appointed to the board of
Strategic Thought in May 2005. Simon is currently chief information officer of
Scottish & Newcastle plc. He was a non-executive director of ITNET plc prior to
its takeover by Serco Group plc, and managing director of ITNET Ltd between 1990
and 1994. Between 1998 and 2003, he was chief information officer of Cadbury
Schweppes PLC. Prior to this he was group operations director of Trebor Bassett
Limited and also held various senior positions in operational research and
management services at British Steel plc.
DIVIDEND POLICY
Following Admission, the Directors intend to adopt a progressive dividend
policy. It is anticipated that dividends will be paid on an annual basis and
will commence in respect of the period ended 31 March 2006.
ENDS
This information is provided by RNS
The company news service from the London Stock Exchange
END
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