Annual Report 2016

Performance highlights

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Annual Report 2016
CEO LETTER

WE ARE ON TRACK REALIZING OUR VISION

Looking back on 2016, I am pleased to say that our results are satisfactory. We have delivered above our initial growth and earnings targets for the year and in line with our revised non-GAAP¹ and GAAP guidance. We are performing in line with our Vision 2020 to grow SimCorp by more than 10% annually over the long term and to continually improve our profit margin.

Klaus Holse - Annual Report 2016

2016 has been a year of strong growth for SimCorp, achieving non-GAAP revenue of EUR 307.7m – an improvement of 12.4% measured in local currencies – and a non-GAAP operating profit (EBIT) of EUR 80.0m – an improvement of the non-GAAP EBIT margin by 1.4%. We have achieved top-line growth rates above the overall projected market growth2 as a result of securing a number of new, large clients. Particularly in North America, we are building momentum and proudly welcoming world-leading asset manager Franklin Templeton, among others, to the extended SimCorp family. 

We have yet again improved our profitability while investing around 20% of our annual revenue back into our platform development to ensure we can continue to deliver on our value proposition of ‘One System for a Complex World’. Our continued investment into one fully integrated platform is high compared to that of our competitors’ and our results prove the sustainability of this strategy.

Growth in old and new markets

As another testimony to our one-system strategy, we have delivered strong results despite a market that is characterized by long and complex decision processes. We also continue to see consolidation among the leading players in the industry, which is leaving many asset managers struggling with outdated solutions and legacy systems that are not able to meet the changing demands of a complex world. 

Our growth has not only been generated in North America, we have also won new large clients in a mature market like Sweden and in new markets like Italy and Spain. Hence, we continue to see growth potential across all our markets, but with the single biggest growth potential in North America, where, so far, we only have a 5% market share. 

In 2017, we will continue to pursue the market opportunities we see in Italy and Spain, establishing new operations in the two countries and forming a new ‘Southern Europe’ regional entity also encompassing operations in France. To ensure a consolidated, more efficient operational setup, we will also form a new ‘Northern Europe’ entity by merging the current Nordic and Benelux operations. 

We are confident that our value proposition will allow us to further expand our position and win additional market share across all markets in the near term.

Meeting client demands by building solutions and relationships 

The core of our business model is to offer solutions that meet our current and future clients’ changing demands. We continue to future-proof the SimCorp Dimension® platform by investing in the technology behind the platform and the functionality of the platform itself.

Keeping a close relationship and an open dialogue with our clients about their challenges and ambitions is essential for us to be able to offer the best possible support. Maintaining a high client satisfaction (Net Promotor Score) is part of our company culture and our efforts over the past years have moved us up above the industry benchmark, achieving a position as best-in-class in 2016.

Employees – the fundament of our success

Our results and the ability to realize future potential strongly depend on our talented employees. I’m proud to say that we have seen a dedicated effort from everyone in the organization to achieve our goals in 2016. In the past year, we have grown our organization by more than 100 employees to support our growth ambitions, keeping a strong focus on maintaining operational momentum.

SimCorp has a strong ambition to be an attractive employer and be able to attract and retain the best people in the industry. To achieve this, we offer personal and professional development opportunities, international career challenges, management excellence programs, and competitive benefits; constantly developing our offering within all these areas. Attracting and retaining talent will always be a high priority for SimCorp.

Strategy status, 2017 agenda and outlook

In 2015, we launched our Vision 2020 and, as already mentioned, our growth and profitability in 2016 have met targets. However, the demand for solutions is changing fast and the vendors that can keep up with the pace of change will be the winners. To stay competitive, we continue to evaluate our results and fine-tune our strategic targets. 

In 2017, we will keep North America at the center of our growth strategy and we expect solid results. In addition, we will maintain our uniquely integrated front office solution, our ASP delivery offering, and our alternative investments solution as strategic priorities. 

In 2017, we will start offering standard platforms. We believe that standard platforms will not only shorten the implementation time and minimize project risk, but also provide an increased confidence in the selection process and shorten the time to value for our clients. 

We believe this new strategic initiative will be a competitive differentiator, as it will enable us to increase solution quality and attract clients who prefer to embark on an implementation project with a fixed scope, deadline, and price. New and existing clients who choose a standard platform will always be able to request a reconfiguration of this platform at a later stage. 

While adding new initiatives like standard platforms, looking back, our strategy and business model have been validated by satisfactory 2016 results. In 2017, we are determined to stay the course and, given unchanged macroeconomic conditions, we expect to meet our Vision 2020 of long-term double-digit annual growth and improved profitability.

Signature
Klaus Holse
Chief Executive Officer

1 SimCorp Dimension® order intake made on subscription-based terms to be income recognized in the year the order is signed, as if the orders had been signed on perpetual license terms.
2 The growth of industry assets under management (AUM) toward 2020 is projected at 5%, according to Boston Consulting Group (BCG): ‘Global Asset Management 2016: Doubling Down on Data’, July 2016.

 

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Jesper Brandgaard
CHAIRMAN´S LETTER

OUR STRATEGIC DIRECTION IS CLEAR

2016 was an exciting and satisfactory year for SimCorp and as Chairman of the Board, I am pleased with the company’s development. The results proved that despite challenging market trends, SimCorp has been able to increase its order intake and revenue growth.

 

When we look at the investment management industry, we see an industry that is increasingly challenged by globalization, increasing data volumes, regulation, multi-asset class strategies, and new and more advanced investment instrument types.

The 1,200 largest global asset managers, who are at the forefront of this complex world, are to an increasing degree recognizing that SimCorp’s integrated one-system offering is designed to help meet exactly these challenges. In 2016, we extended the SimCorp family by welcoming new members from the world’s top global asset managers and we expanded our cooperation with many of our existing clients. 

I am very pleased to see that this increased activity is happening both in North America, which is a key growth market, and in our more mature markets. Our key strategic priorities for front office, alternative investments, and ASP delivery will ensure that we future-proof our offering and remain a preferred business partner for the world’s top asset managers.

In our annual review of SimCorp’s financial targets and strategic priorities, we continue to see a strong match between the industry outlook and SimCorp’s offering. This means that, with some minor adjustments of the key strategic priorities, we remain confident in our Vision 2020. In 2017, we will build on our success by constantly focusing on executing the strategy behind this vision. We are confident that the organization has the capabilities required to do so.

Increased dividends and a new share buyback program

According to our dividend policy, we intend to pay dividends of at least 50% of the annual net result. Based on the financial performance in 2016, the Board of Directors intends to propose to the shareholders at the annual general meeting a dividend of EUR 33.3m, equal to DKK 6.25 per share of DKK 1, for the financial year 2016. 

Furthermore, based on the current business outlook and the cash position, we expect to initiate a share buyback program again in 2017. We will introduce a new “Safe Harbor” program, acquiring treasury shares for a forecasted amount of EUR 35m during the period from the release of the Annual Report 2016 to the release of the Annual Report 2017 in February 2018.

Attracting and retaining the right competencies

The Board of Directors is responsible for ensuring that the Board and the Executive Management Board possess the right competencies to further develop SimCorp and promote the long-term interest of the company and its shareholders. To ensure the completeness of the competences of the Board of Directors, the Board will at the coming annual general meeting propose the election of Adam Warby, currently CEO at Avanade, and the re-election of the other existing Board members. If elected, the Board of Directors will then consist of nine members, which we believe will enable an appropriate distribution of tasks and ensure an effective and swift decision-making process. 

To facilitate long-term succession planning for the Board of Directors and to focus on capacity building for the future, it is proposed to establish a Nomination Committee following the annual general meeting, comprising the Chairman, Vice-chairman, one shareholder-elected member, and one employee-elected member.

At the last general assembly in March 2016, our proposal for ensuring a higher degree of retention on the Executive Management Board was withdrawn. Based on the feedback from a number of shareholders and to align with international corporate governance guidelines, we have revised the proposal, so it allows the Executive Management Board to convert their cash bonus to restricted stock units at a 50% discount compared to the original proposal of a 67% discount.

Thank you

I would like to thank everyone at SimCorp for contributing to our 2016 performance. I would also like to express my appreciation to our shareholders and business partners for their trust and co-operation. In particular, I extend my gratitude to our loyal SimCorp Dimension® and SimCorp Coric clients, new as well as existing ones, who continue to place their trust and business with SimCorp, operating on our SimCorp Dimension® and SimCorp Coric platforms.

Signature
Jesper Brandgaard
Chairman of the Board of Directors

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FULL-YEAR 2016 AT A GLANCE
ORDER INTAKE INCREASED 20.3% Y-O-Y
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Order intake: Represents the license value of new licenses and of add-on licenses.

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Adjusted non-GAAP revenue: Total revenue plus an adjustment for net new order inflow on subscription-based license terms as if they were on perpetual terms.

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Non-GAAP EBIT margin: EBIT margin based on total revenue plus an adjustment for net new order inflow on subscription-based license terms as if they were on perpetual terms.

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Secured revenue: Represents the total revenue committed for license, maintenance and professional services, etc.

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License base: The accumulated license order value.

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Free cash flow: Cash flow from operating activities minus cash flow from investment activities.

Annual Report 2016

With a breakthrough in North America and results above the initial targets for the year, SimCorp is on track realizing its Vision 2020 to grow by more than 10% annually on the long term and to continually improve the profit margin.