NetDimensions (Holdings) Limited (LON:NETD) Chief Financial Officer Matthew Chaloner caught up with DirectorsTalk for an exclusive interview to discuss Morses Club and how it fits into the overall sales growth strategy, high consequence industries, future growth for the company and their £7.2 million successful share placing
Q1: Matthew, a recent client win of yours was Morses Club, how does the win fit in with your overall sales growth strategy?
A1: Yes, thank you, that’s a good question. About two and a half years ago now, when we kicked off our original business plan to grow the top-line sales revenue, we said we were going to focus on clients operating in highly regulated or high consequence industries and one of those industries is financial services. So Morses Club operates within the UK financial services sector so that very much fits in with the type of clients that we want to win going forward to grow our top-line sales revenue.
Q2: Can you define for me what you mean by high consequence industries?
A2: We came up with that phrase a couple of years ago and it really means those industries where there’s dollars or lives at stake so in the case of financial services, if you’re found to be non-compliant there could be heavy fines imposed on you or worse case, your licence to operate is revoked. If you take another industry that we focus on which is the oil and gas industry, there are various health and safety issues on and offshore gas reg and therefore if you’re not compliant or you don’t follow health and safety issues, there could be loss of life or could be a catastrophe for the environment so that’s what we mean by high consequence industries or really another term is highly regulated industry.
Q3: So what are the main high consequence industries that you focus on?
A3: So when we devised the business plan a few years ago, we said we were going to focus on six high consequence industries, one was Healthcare, particularly the US healthcare industry, Life Sciences, Precision Manufacturing and by precision manufacturing we mean manufacturers of trains, automobiles, ship builders, those sort of manufacturers, Transportation and by transportation we mean logistics companies, shipping companies as well as airlines, Financial Services and Energy and energy could include oil and gas extraction, mineral extraction as well as the distribution network for utility companies.
Q4: So could you describe for me then a typical NetDimensions client that operates in high consequence industries?
A4: Sure, yes. They’re normally large multi-national corporations, typically they normally have 5,000 or more users and they operate across many geographies so their requirement for us normally entails multiple languages, they often require some software enhancements and their implementations are often fairly complex and lengthy. So they’re not easy clients to maintain and indeed to win, the sales cycle is normally quite long as well, typically 6-9 months, sometimes over 12 months, but they’re normally large multi-national corporations therefore the average deal size is normally quite high with these clients.
Q5: Why then do high consequence clients chose NetDimensions for their LMS?
A5: I think where we score quite high is on the engineering side so we often get shortlisted with a couple of competitors that we see time and time again and they also have a good learning management system but the engineering side of it, there’s to main things; first of all we have an extensive API library (Application Programming Interface library) and what that means is that we can portalise the learning management system for our clients. So if you take the large multi-national corporation, if he’s rolling out LMS out across various countries, to various partners and distributors, when they log on they want to see their corporate image, their corporate logo and very much want to see the whole touch and feel of their corporate image throughout the whole LMS experience, so through the API library, we quite easily portalise the experience for the client. Secondly, on the engineering side, is the software enhancement so quite often when we deal with a client in a high consequence industry or a highly regulated industry, they’re really requiring quite specific requirements to that LMS especially on the reporting side or some of the functionality. They may have multiple brands within their portfolio and they may need to track the learning path of the same employee through various brands and that’s called multiple assignments to give you one example, so that the degree of software enhancements or customisations amongst high consequence clients is quite high and we score very well in that area, we’re able to customise for the right client quite well for them.
Q6: Brilliant. Where do you see the future growth of the business coming from?
A6: I think there’s two main areas. We see the US healthcare as a huge opportunity, we made an acquisition in March 2013 of a small business in Atlanta and they just supply a bundled LMS and compliance coursework into US hospitals and clinics. I think we’ve got around 45 US hospitals at the moment but there’s about 5,000 plus US hospitals nationwide and it’s a multi-billion dollar market so we’re investing in that division at the moment and with the Affordable Care Act kicking in next year, we think compliance within US healthcare is only going to become more rigorous so we think that market will continue to grow. We grew that business by 40% in 2014 and we expect to have reasonable growth this year as well when we declare our results in January so US healthcare is one industry that we think is going to drive growth going forward. Also in Europe, precision manufacturing, particularly the automotive industry, we’ve got some good traction in that industry in the last couple of years, we won some leading brands, one in the UK and one in Germany and we expect the roll out of these, once they go global, to be good drivers of our future revenue growth going forward.
Q7: Earlier this month, you completed a highly successful share placing, raising about £7.2 million gross, how will these funds be invested?
A7: Part of the funds will be used to increase our engineering and delivery capabilities so I mentioned that we’d won a couple of clients in the high consequence industry, particularly the precision manufacturing in Europe, and we’re now in part-way delivery with those clients and they’re quite lengthy complex implementations so as well as selling the software to the client, we also sell services like implementation, training and indeed the software enhancements and so on, so these require engineers both in Hong Kong, where we do most of our software programme, and also out on the ground in Germany and the UK who are actually doing the implementations and the project management so we’re going to use some of the money to increase our capabilities on our engineering and delivery side and some of the money will be set aside for potential acquisitions, we’ll look at some small acquisitions that can help our footprint in markets like Germany where we see strong potential growth or indeed markets in US healthcare.
