Allocate Software boosts revenues and profits amid NHS cost cutting

Workforce optimisation specialist Allocate Software (LON:ALL) managed to increase revenues and operating profits (at the EBITDA level) during the year to the end of May in spite of tough conditions in its key healthcare markets.

Indeed, Allocate’s chief executive officer, Ian Bowles, believes that cost-cutting reforms in the UK’s National Health Service will continue to serve as a boon to the company over the long term. “The predominant reason for these reforms is to save money in the NHS and our software helps it do that,” he said in a phone interview with Proactive Investors this morning.

During the 12 months to May 31, revenue increased 37 per cent to £30.1 million, while EBITDA (earnings before interest, tax, depreciation and amortisation) grew 57 per cent to £5.8 million. 

Recurring revenues grew by 68 per cent to £11.6 million, while licence revenue increased 40 per cent to £13 million. Service and support revenue improved 34 per cent to £16.7 million.

The firm’s HealthRoster software gained 26 new NHS Trust customers during the period, making 145 Trusts with HealthRoster in total at the end of the financial year – representing 35 per cent of the 411 Acute, Mental Health and Primary Care Trusts in England and Wales. “26 new contracts with NHS Trusts for HealthRoster is, in my opinion, a phenomenal result,” Bowles told us.

Total healthcare customers worldwide now number 450, including 373 NHS Trusts and 62 Swedish customers of the firm’s Time Care business (which Allocate acquired in November 2009).

Allocate said that the Dynamic Change business it acquired last year has recovered from a slow start and has now improved levels of new business as a result of the benefits of integration with the sales and marketing functions of Allocate.

In Australia, Allocate said that rollout has commenced of a state-wide major contract and the firm has additionally won a new state-wide agreement for its HealthRoster BankStaff product (for temporary staffing) in Queensland. Bowles pointed out that this year Allocate’s revenue from its Australian operations is expected to amount to more than the entire turnover of the firm was just five years ago.

Meanwhile, Allocate’s defence business has secured and begun work on a major contract for NATO in Belgium. Although Allocate sells its workforce optimisation software into other niche markets, Bowles confirmed that the firm’s focus will continue to be on defence and health (which accounted for 79 per cent of revenues in 2011).

Allocate completed two acquisitions after the end of its 2011 financial year. These included the purchase of Australian firm RosterOn, which will increase Allocate’s presence and support its growth in the Asia-Pacific region, and the acquisition of London-based Zircadian Holdings, which is planned to significantly enhance the firm’s product portfolio.

While Allocate’s operating profit and pre-tax profit for 2011 both came in lower, at £866,000 (2010: £1.3 million) and £747,000 (2010: £1.3 million) respectively, this took into account increased amortisation of £4.4 million (2010: £2.1 million) due to acquisitions.

Adjusted earnings per share came in at 23 per cent greater at 6.4 pence during 2011. At the end of May, net cash on Allocate’s balance sheet amounted to £8.4 million (May 31 2010: £2.9 million).

House broker Numis Securities commented: “The strength of [the] recent performance despite the broader challenges facing its healthcare customers is indicative of the strength of Allocate's products and customer relationships in our view.”

Numis upgraded its forecasts for Allocate following the results. For this year, it now expects revenues of £35 million, with EBITDA of £6.3 million and earnings per share of seven pence.

The broker has set a target price of 100 pence for Allocate’s shares, which were trading up 3.9 per cent at 67 pence each at 9:53am today.