A YEAR OF CHANGE AND
In my report last year, I described 2015 as a year of significant change, as we readied the Company to transition to a new structure, and that change continued through the course of the 2016 financial year. From 1 July 2015, the former divisions of Compliance, Assurance and Standards & Technical Information were amalgamated to form an integrated global Risk Management Solutions Division.
This new division is managed on a matrix basis with regional directors responsible for Asia Pacific (APAC), the Americas, and Europe, the Middle East and Africa (EMEA). Each director is accountable for regional profitability and for Operations, being the delivery of the products and services. Sales, marketing and product strategy are managed on a global basis through the Commercial team. They are supported by regional Human Resources, IT, Finance and Legal teams, all of which report to their respective Global Head. The Property Division, which operates only in Australia, remained unchanged.
I'm disappointed to report that profit growth was relatively flat, although, in light of the enormous amount of change which the Company underwent during the year, it is not altogether surprising. Our underlying EBITDA rose by 4.0% to $131.3m, and our statutory EBITDA by 19.7% to $123.9m, the difference being accounted for by significant items of $7.5m, which related mainly to merger and acquisition and divestment activities, but also in part to the cost of restructuring our operations in EMEA.
Revenue rose by $23.5m, benefitting from the weakness in the Australian dollar. Expenses rose by 1.1%, due to an increase in the size of our sales teams in all regions. This increase is deliberate, as we retain a focus on organic growth, and we expect to reap revenue benefits from the extra sales staff over the course of FY17.
One of the key facets of our change programme has been to become much more customer-centric. A major initiative in this regard was to institute our first ever Voice of the Customer Programme. Between December 2015 and June 2016, we spoke to almost 900 customers from all regions and all portfolios of our Risk Management Solutions and Property Division.
The purpose was to understand what matters most to our customers, how we are performing against their criteria and to use our customers' voice and the insights we glean from them to drive improvements. Those insights have been shared throughout the business and we are taking the necessary actions where areas for improvement have been identified.
The second major initiative to improve our customers' experience when dealing with us has been an upgrade of our online presence through a digital transformation programme. The programme is designed to provide customers with digital and mobile access to SAI Global's broad range of products, and to promote seamless integration of products into their existing risk management solutions.
The first phase of this digital transformation, unveiled in late 2015, saw the launch of the new website, www.saiglobal.com, in 28 markets. Its user-centric design provides our customers with easy access to information and business Standards whenever and wherever they are required to meet the needs of their customers. Since its launch, the website has been visited by almost 700,000 individuals who made over one million site visits and viewed two million pages. The transformation has also transitioned SAI Global to a cloud-based infrastructure, enabling us to evolve as customers' needs change.
The next phase of the programme is the launch of a new eCommerce store providing one-stop, around-the-clock access to purchase our training and eLearning courses, legislation and over one million Standards products. It is expected to be operational in Asia Pacific in September, and to be availablein Europe and the Americas in the second half of FY17.
The store will employ a number of features to enable customers to better manage corporate, food and process risk. It incorporates responsive, mobile-ready design, intuitive search and browsing, and secure customer accounts to facilitate streamlined transaction functionality for an increasingly mobile workforce.
The first half of the year was below expectations as our Assurance business in Australia, China and Indonesia experienced a slowdown. As the new structure was bedded down, however, and as sales staff became more comfortable with their knowledge of our full range of products and services, we started to experience a pick-up in our financial results.
We also initiated some major process changes in our operations area which resulted in substantial increases in our client retention rates and our enquiry handling speed, and a shortening of our turnaround times to get audit certificates to clients.
The APAC region experienced a decline in revenue of 0.5% to $151.6m but EBITDA grew by 3.0% to $56.6m. EBITDA margins increased by 1.3% to 37.4% compared to the previous corresponding period.
Similar to EMEA and APAC, the region went through significant change as we implemented the new operating structure. There was a major effort centred on training customer-facing staff on our entire range of products and services. The training is paying off as we are now discussing integrated risk management solutions with our customers, something which we would never have been able to do under the old structure.
Despite all the change, our customer retention rates are at an all-time high in the Americas and we have also been winning new business. The feedback from our Voice of the Customer Programme interviews indicates that our customers in the region are very happy with the work we are doing for them.
The Americas region achieved revenue growth of 14.9% to $171.3m and EBITDA growth of 15.8% to $55.2m. EBITDA margins increased by 0.2% to 32.2% compared to the previous corresponding period.
The EMEA region had a challenging year, as some major operational issues came to light when the new structure was put in place, causing the loss of a number of small accounts. We had to undertake an extensive and expensive programme to re-engineer the way in which we delivered audits in the region. Our performance at the back end of the year would suggest that we have addressed and resolved the issues around retention.
On a more positive note, we had some excellent new business wins in the region, the revenue from which will be received in the current financial year. This, combined with the improvements to operational performance, should contribute to a far more satisfactory financial result in FY17.
The EMEA region experienced an increase in revenue of 0.8% to $81.0m and a fall in EBITDA of 63.9% to $3.9m. EBITDA margins fell by 8.6% to 4.8% compared to the previous corresponding period.
From 1 July 2015, the products and services offered by Risk Management Services were rearranged into four product portfolios: Learning, Knowledge, Risk Software and Assurance. Each portfolio has a Product Manager who is responsible for the product's profitability on a global basis.
The Learning portfolio enjoyed a welcome turnaround in its eLearning component which had suffered a fall in revenues for several years following some significant IT issues with a new online platform. The other component of the portfolio is classroom training related to Standards, and this faced some challenges as the global economy slowed down. Overall, Learning revenues rose by 10.3% to $79.3m.
The Knowledge portfolio had a steady year, with revenues increasing by 5.7% to $83.2m. In Australia our operations team continues to work effectively and efficiently with Standards Australia. Regrettably, at a corporate level, the relationship with our former parent has deteriorated, as evidenced by a number of claims and counter-claims which both parties have served on each other. These are scheduled to be heard through arbitration in FY17.
The Risk Software portfolio had a strong year, with revenues rising by 17.6% to $52.3m. This is effectively a software business, and enjoys extremely high margins. We are expecting continuing strong growth in the years to come and would be keen to make further acquisitions which would complement our existing Risk platforms following the purchase of Modulo LLC, to which Andrew has already referred.
Assurance experienced a challenging year, and judging by the financial results of our competitors in the sector this has been an industry-wide experience. We have seen significant price competition at the lower end of the market in Australia, a slowdown in our business in China and Indonesia, and customers being slow to transition to the new ISO 9001 and 14001 Standards issued in September 2015. Revenue rose by 0.1% to $183.0m.
As we announced to the market in July, we received unsolicited approaches from competitors interested in acquiring the business, and we are currently conducting a strategic review of the division. We are still at a fairly early stage of the process, and there is no guarantee that a sale will take place.
The Property Division achieved revenue growth of 1.6% (6.1% if the government authority fee pass through component of revenue is excluded) to $172.3m and EBITDA growth of 18.7%. EBITDA margins increased by 2.9% to 19.8% compared to the previous corresponding period. This strong performance has been driven by continued growth within existing BPO clients, growth in new commercial information products as well as contribution in the second half from the new business from NAB Broker and continued efficiency initiatives in our national operations group.
The costs associated with running the Company's headquarters in Sydney, Australia are recorded as Corporate Services, and include the costs associated with maintaining an appropriate governance regime for an ASX200 listed entity with a portfolio of international businesses. The main categories of expenses relate to the CEO and Non-Executive Directors, Information Technology, Finance, Human Resources, Company Secretarial, Legal, Treasury, Investor Relations, Internal Audit and External Audit fees. Costs which can be attributed to an operating division are recharged as corporate allocations.
Corporate costs increased from $15.8m to $18.5m. The increase in Corporate costs was incurred as we establish a capability to drive future growth, including a Mergers & Acquisitions capability and an increased focus on Investor Relations activities.
With the benefit of hindsight, this time last year I was too optimistic about the speed at which we would start to benefit from the formation of the Risk Management Solutions Division. I clearly underestimated the time it would take to refresh and increase our sales team, to cross-train them on our full suite of services and products, for them to start making more bundled sales, and most importantly, for the revenue from those sales to start flowing. I was also unaware of some of the operational issues which would emerge, the resolution of which would incur significant costs and require considerable amounts of management time and effort.
Looking to the future, however, I feel much more confident that the actions we have taken in FY16 have positioned the Company for success in FY17 and beyond. As I mentioned above, we have invested heavily in improving our eCommerce capabilities which should drive increased traffic to our website and increase conversion rates. Our sales and marketing capability has been strengthened, with 25% of the team having joined the business in the last 12 months. We have begun to train our sales team in the broader portfolio and we have begun to see successes from this cross-sell and up-sell strategy. As this knowledge and capability expands across the business, this is expected to drive revenue growth.
Within our risk management product portfolio, we were delighted that during FY16 our Governance, Risk and Compliance software platforms received external recognition. Forrester acknowledged Compliance 360 as one of the Industry leader GRC platforms in their 2016 Wave report and Verdantix awarded our Cintellate Environmental Health and Safety solution "Innovator" status for the first time. These external endorsements are important as they are often a first reference for prospective clients.
We expect substantial growth in the Risk business in coming years, as the compliance obligations on companies around the world only ever appear to be growing, and our software platforms are regarded as ideal solutions for compliance managers across the English-speaking world. We are in the process of "internationalising" the Compliance 360 platform to offer multi-currency, multi-language capabilities, and this should open up significant new opportunities for further growth. In addition, we have customised both the Cintellate and the i2i software platforms for the Asian market and will be launching these products in the new financial year into China, Indonesia and India.
In the Property Division, we see particular upside in the Business Process Outsourcing (Mortgage Services) business. It has a healthy pipeline of opportunities heading in which should provide for continued growth.
In addition to a focus on new business and new products, we are continuing to work on the development of a number of strategic partnerships to further enhance the unique value proposition of our products and services and support the Property Division's organic growth objectives. Together with a continuing drive to improve efficiencies, we remain confident that we have the market position and strategy to maintain EBITDA growth in FY17.
As Andrew has mentioned in his report, at the time of going to press, there has been no transaction concluded in relation to the Assurance business, but regardless of whether or not one takes place, I believe the Company's prospects for FY17 and beyond remain sound.
Chief Executive Officer