Annual report 2017

Performance highlights

SimCorp's annual report 2017

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FINANCIAL HIGHLIGHTS 2017
Revenue
SimCorp EBIT margin
SimCorp Free cash flow
Paid dividends
Share buyback program
Total payout

CEO LETTER

GROWTH TARGET MET

2017 was another good year for SimCorp. Driven mainly by increased sales to existing clients and a significant uptick in professional services, we once again delivered on our Vision 2020 target of growing the topline by more than 10% annually.

In 2017, we grew revenue by 12.5% measured in local currencies to EUR 343.4m. I am pleased that we have seen a significant increase in professional services revenue and that our clients continue to expand their use of SimCorp Dimension®, driving...

Klaus Holse

2017 was another good year for SimCorp. Driven mainly by increased sales to existing clients and a significant uptick in professional services, we once again delivered on our Vision 2020 target of growing the topline by more than 10% annually.

In 2017, we grew revenue by 12.5% measured in local currencies to EUR 343.4m. I am pleased that we have seen a significant increase in professional services revenue and that our clients continue to expand their use of SimCorp Dimension®, driving up add-on license revenue. Following 2016, when we signed several major deals with some of the world’s largest asset management firms, we have seen a decrease in number of new wins and our average deal sizes, and hence a lower revenue from new licenses. Therefore, despite good overall 2017 performance, increasing new license revenue is a clear priority for 2018.

CHANGE IN REVENUE MIX

We achieved an operating profit (EBIT) for 2017 of EUR 88.9m and an EBIT margin of 26.0% measured in local currencies. Despite a negative impact from the change in revenue mix, as professional services revenue carries lower margin than license revenue, the EBIT margin was within the guidance given.

In 2017, we welcomed eight new SimCorp Dimension clients, of which one belongs to the world’s top 200 asset managers. Our main growth market, North America, accounted for four of the new clients, with the remainder spread across the rest of our markets. After signing a new client in APAC in 2016, we built further momentum with two new clients in this region in 2017. One of these, Bank of Thailand, is a strong testament to SimCorp Dimension being a preferred solution within the sovereign wealth fund segment. Our client reporting and communications solution, SimCorp Coric®, also performed well and contributed additional three new clients to the list, one of these being among the top 10 global asset managers.

Our professional services revenue grew by more than 30% in 2017. This success derives partly from implementation projects and partly from services that assist our clients with the operation of SimCorp Dimension. A new configuration center in Poland has contributed to lowering the cost and increasing the effectiveness of our implementation services by delivering more standard components.

EMPLOYEES – THE KEY VALUE DRIVER

In the continued effort to grow our business with a best-in-class offering and excellent client services, our employees remain our key value driver. Consequently, being able to attract and retain the best possible talent is of paramount importance.

Our continued growth, a strong market position, and well-reputed solutions all work in our favor when attracting and retaining talent, but the ongoing direct investments in our employees are equally important. Over the last couple of years, we have significantly professionalized our HR function, for instance by establishing a structured career framework, a new leadership training program, and increasing the scope and quality of our training.

In 2017, we welcomed more than 200 new colleagues to the company. 119 of these came through the acquisition of A.P.L. Italiana. While we maintain our strategy of growing SimCorp organically, A.P.L. Italiana – now SimCorp Italiana – was an opportunity instantly to add a highly profitable Italian insurance asset management vendor and its many skilled employees to the SimCorp family. Furthermore, we hired new employees to support mainly the growth in our professional services business and in North America.

Across the company, I am extremely proud of the efforts and performance of our employees in 2017. Their talent and dedication are directly reflected in our clients’ satisfaction, which improved yet again and stays ‘best-in-class’ when benchmarking against similar companies.

STRATEGIC PRIORITIES

SimCorp’s strategic priorities form the ‘stepping stones’ towards realizing our Vision 2020. Based on our achievements in 2017, we only need minor changes to our 2018 priorities.

Conquering the North American market remains a central element of our growth strategy due to the high number of potential clients plus the high growth rate this market has in terms of assets under managment and software spend. We keep the strategic focus on our front office solution, where our continued investments have provided us with one of the strongest offerings in the market; the next step for us is to claim market leadership within this space.

ASP solutions also remain a strategic priority in 2018, but as a part of what will become a broader focus on enabling cloud solutions. The way investment managers operate their businesses is rapidly changing, with a growing need for scale and easy adoption of new solutions. Cloud solutions meet those requirements. Hence, while continuously increasing the operational efficiency of our SimCorp Dimension as a Service offering, our long-term focus will include enabling SimCorp Dimension to be operated in the cloud and developing new cloud-native solutions.

In 2017, we introduced ‘standard platforms’ – the ability to offer our clients more standard, best-practice configurations – as a strategic priority. As mentioned, we already see this positively impacting our services deliveries, which confirms its importance as a strategic priority. Finally, we will keep investing in our alternative investment capabilities to be able to offer the first available cross-asset, front-to-back investment management solution including alternative investments.

Supporting our strategic priorities and general focus on offering a solution that helps our clients stay on the forefront of industry demands means we continue to invest around 20% of our annual revenue back into R&D. Further, recent years’ dedicated focus on agile development has enabled us to secure our clients even better software quality.

With the updated strategic priorities, we remain dedicated to SimCorp’s Vision 2020, and committed to double-digit revenue growth and improved profitability in 2018.

Signature
Klaus Holse
Chief Executive Officer

 

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Jesper Brandgaard 
CHAIRMAN'S LETTER

CONTINUED STRONG GROWTH PROSPECTS

SimCorp continued to perform in line with its long-term growth targets in 2017. With a clear strategic direction, a well-defined product offering, and market trends that make its offering increasingly relevant, the prospects for the company remain promising.

2017 was an overall satisfactory year for SimCorp. In a year with a lower inflow of new clients than previous years, I am pleased that the company lifted its services business and increased sales to existing clients significantly, enabling us to still meet the target of growing...

 

SimCorp continued to perform in line with its long-term growth targets in 2017. With a clear strategic direction, a well-defined product offering, and market trends that make its offering increasingly relevant, the prospects for the company remain promising.

2017 was an overall satisfactory year for SimCorp. In a year with a lower inflow of new clients than previous years, I am pleased that the company lifted its services business and increased sales to existing clients significantly, enabling us to still meet the target of growing revenue by more than 10% annually. While North America remains the most important growth market for us, we also need to continue growing our market share in other markets, and following the trend from previous years, we have seen a healthy geographical distribution of new clients.

Again this year, the Board of Directors has overseen SimCorp’s strategy process and reviewed its strategic priorities. The evaluation of the company’s current market position, offerings, and plans against global market trends and demands confirmed the Board’s belief in SimCorp’s Vision 2020, and resulted in only minor adjustments to the strategic priorities.

As Chairman and a shareholder, I am pleased about how SimCorp is positioned to realize its growth ambitions. The investment management industry is becoming increasingly complex. New regulations force firms to introduce further transparency and reporting measures; increasing amounts of data need to be managed and made easily accessible across the business; and there is a general demand for new investment vehicles and more customized services. These trends, in combination with continued regulatory and commercial pressure on investment fees, are forcing investment managers to increase their operational efficiency. In this environment, the business case for integrated investment management solutions is stronger than it has ever been before. The general sentiment among analyst and other experts is that the best way to increase efficiency in this environment is by consolidating the number of systems to establish higher levels of integration and automation across the business. All in all, this creates a strong match between SimCorp’s value proposition of ‘One System for a Complex World’ and prevailing market demands.

DISTRIBUTION OF PROFIT

Total assets has increased by EUR 83.7m from EUR 146.9m at the end of 2016 to EUR 230.6m at the end of 2017. The increase is reflecting an impact of EUR 47.0m related to the acquisition of SimCorp Italiana and the new category ‘contract assets’ of EUR 49.9m that is a result of adopting IFRS 15. A bank loan of EUR 30.0m has been obtained in connection with financing the acquisition.

Due to moving from perpetual licenses to subscription-based licenses, and the introduction of the IFRS 15 accounting standard, we expect a lower level of cash conversion in the coming years, as revenue and thereby profit will be recognized earlier than cash received. Based on this, the Board has evaluated and decided to update SimCorp’s profit distribution policy: instead of paying dividends of at least 50% of the profit on ordinary activities after tax, as previously, SimCorp intends going forward to pay dividends of at least 40%. Additional cash will be used to buy treasury shares depending on other cash requirements. In 2018, cash generation over and beyond what is used for dividend allocation will be used to repay the credit facility established in connection with the acquisition of A.P.L. Italiana (renamed SimCorp Italiana) and consequently, SimCorp does not anticipate initiating a new share buyback program in 2018.

BOARD COMPOSITION

At the Annual General Meeting 2018, the Board proposes to amend the Articles of Association so that the Board going forward consists of four to eight members elected by the shareholders, instead of the current three to six members. This change will serve to assure that we have a sufficient number of suitable candidates for the Audit and Nomination committees and secure a sound basis for successful Board succession.

SimCorp proposes Joan Binstock, formerly CFO and COO at Lord, Abbett & Co. LLC for election to the Board as Patricia McDonald has decided not to seek re-election. Joan has more than 30 years of experience from the financial services industry. She joined Lord Abbett as the Chief Operations Officer in 1999, which means she will be able to draw on an extensive experience with operations, including software selection and implementation. Prior to joining Lord Abbett, Joan had extensive background in financial services. I am very pleased that Joan has expressed her willingness to assume the responsibility on SimCorp’s Board, and I am sure she will be a valuable asset in driving the company forward. Given that the shareholders approve increase in the number of shareholder-elected Board members to four to eight, the Board will recommend the election of Morten Hübbe as a seventh member of the Board at an Extraordinary General Meeting on May 9, 2018.

Morten brings chief executive management experience from a Danish listed company, currently holding the position as Group CEO in Tryg, one of the largest non-life insurance companies in the Nordic region, and hence possesses a solid know-how of working with key stakeholders like investors and regulators.

THANK YOU

On behalf of the Board, I extend a warm thank you to all our clients for their business in the past year, the shareholders for their support and confidence, and last, but not least, our employees for their hard work and strong commitment to realizing the strategy and meeting our goals. I am confident we will steer firmly towards continued growth in 2018.

Signature
Jesper Brandgaard
Chairman of the Board of Directors

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Annual Report 2017

2017 was another good year for SimCorp driven mainly by increased sales to existing clients and a significant uptick in professional services. With organic growth of more than 10%, we continue to deliver against our aspirations of being a growth company driven by innovation.