This morning I attended the Annual General Meeting of D4T4 Solutions Plc (D4T4) at their offices in Sunbury-on-Thames. This is an AIM-listed niche software solutions business which has been listed since 1997, originally on the main market under the name IS Solutions. I did hold the shares years ago but recently bought back a few as the acquisition of Celebrus gives it some real IP as opposed to it being primarily a service business as it used to be. The two founders are still on the board, one as CEO and one as a non-exec director. Peter Simmonds is the Chairman – he also chairs Cloudcall and used to be CEO at DotDigital.
I was surprised to see about 20 private shareholders present. I would have guessed it would be very few in the August holiday season. They had a lot of questions and comments only a few of which I cover here.
The company issued a statement in the morning. It stated trading was “in line with expectations”. But there was a mention of a second-half bias which seems to have spooked the share price today, even though it is likely to be less than last year.
What does the company do exactly? That is not easy to define but it is primarily a data analytics platform used by companies with large amounts of data such as banks. When I ask Peter after the meeting closed what their key USP was he said it is the real-time data analysis which hardly anyone else can do. This explains why one of their main partners is SAS, a very large US analytics business, who resell the software and is by far the largest customer of D4T4 – £15m out of £25m total revenue. This is clearly a risk which prompted several questions in the meeting. But it was explained that there are many more end-user customers and they have been taking steps to get closer to the end customers.
The CEO did say they wanted to expand from two major sales partners to others and had a third in the pipeline.
Note that according to this morning’s announcement more than 80% of their revenue is in dollars so the falling pound will probably help them. This is a typical software business with a very international spread of business who are unlikely to be harmed by Brexit, whatever the form.
The company had a good year last year – revenue up by 37%, and adjusted profits up by 47%. That’s after revising prior year figures because of the adoption of the IFRS15 accounting standard.
One question raised was why did the wages bill rise by 17% when the number of employees remained unchanged. This was explained by the bonuses paid after a good year financially and the fact they were now recruiting staff in the USA who tend to be a lot more expensive.
There was a long discussion over a proposed new LTIP. Concerns were expressed about the non-explicit holding period. I simply voted against it because I just don’t like LTIPs particularly where the performance targets have not been declared. Shareholders have no idea how much it is going to cost them. The Chair of the Remuneration Committee, Peter Whiting, even said at one point that “LTIPs are not a real cost”. He did seem to back down later when I challenged him on this, but he does not like the current accounting treatment. But all share option schemes are a cost on shareholders because of the dilution and hence should be recognised as such in the accounts. It’s very clear that LTIP schemes have enabled the ramping up of total director and senior management pay in companies.
It seems the performance targets will be disclosed in due course. I suggested that a simple cash bonus combined with conventional share options would be better because staff do not value long-term options. However the Chairman said that if they offered market price options rather than nil-cost ones the dilution might double.
The company has just recruited a new CFO and it was mentioned that a lot of candidates asked whether the company had an LTIP scheme in place. Anyway when it came to a vote, via a poll, 99.9% voted FOR the LTIP. There were only two resolutions that got much less than 99% in favour. These were 95% for the Remuneration Report and 95% for re-election of founder John Lythall as a non-exec – probably because of his length of service.
One interesting question that was asked was about tax rates they would be paying. It was mentioned in response that they are looking to use the “patent box” provision which might reduce their tax rate this year to 10%.
Altogether a useful meeting although I did suggest to the Chairman that it would help to have a presentation on what the company actually did as some investors might not be too clear on that. That could be one reason why the company is only moderately rated on fundamentals.
Roger Lawson (Twitter: https://twitter.com/RogerWLawson )
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