Thank you for standing by, and welcome to the bravura Solutions FY 'twenty one Financial Results Conference Call. All participants are in a listen
My name is Tony Klim. I'm the Chief Executive Officer of Provura, and I'm joined here by Martin Dieter, our Chief Financial Officer. In addition to our FY 2021 results this morning, we've also announced that I'll be stepping down from the CEO role. After 10 years as CEO and with the business now well positioned to navigate current emerging market trends, now is the right time for the business to be taken forward under renewed leadership and for me to consider the step in my career. So we're also joined here by Incy.
Nick has played an essential part in making the business as strong as leadership roles at BRAVURA and having worked closely together with me in developing BRAVURA, no doubt he is the right person to take BRAVURA to the next level of our full year financial results. Probuera has achieved its guidance despite the impact of the COVID-nineteen pandemic and its related lockdowns in all our markets, and particularly so in our largest market in the UK. There has been significant market uncertainty that has affected business confidence and the workplace restrictions have impaired the ability of our clients and prospects to engage and collaborate on major projects. The result of this environment is more evident in our firm number of impressive achievements during the year. We have signed one of Australia's largest superannuation funds, Aware Super, as our maiden clients for our game changing new digital first proposition Sonata Alta.
And with Delta Financial, we have acquired a market leading software business in the UK to broaden our coverage of the pensions market. And we've extended our market leadership through a targeted R and D program that provides clients with the solutions that they are looking for. Now while markets have been tough, our business is resilient. As the COVID-nineteen vaccines roll out and confidence improves, the business continues to position itself to take advantage of the subsequent release of the maintenance client demand. Probuera is emerging stronger as the pandemic eases.
The pandemic has highlighted the greater need for robust technology and automation in a digital first world. And the long term drivers of our growth are as strong as they've ever been. So with those opening comments, if I can take you now to the summary on Slide 4. Our full year results is a tale of 2 halves. The first half saw lower project work in the UK arising from the impact of COVID-nineteen.
The second half benefited from an improved operating environment, client wins and targeted management initiatives. Total recurring revenue now stands at 84% of group revenue, and I'm particularly pleased that contracted recurring revenue is up 15%. The Aware super contract is a landmark deal for Brevera and for the Australian superannuation market. It has generated significant interest from other superannuation funds and we expect to see further wins as a result. We've made excellent progress on our R and D initiatives, spending $50,000,000 on the development of a suite of microservices, Australian wrap functionality, Sonata Ultra, enhancements to our GFAS funds administration platform and the extension of our digital advice capability.
This continued targeted investment directly meets the needs of our clients and provides Probuera with a significant and sustainable competitive advantage. And we welcome Digital Financial to the group during the period, expanding our UK market offering into complex self invested pensions. The acquisition complements Probuera's core Sonata offering and broadens BRAVURA's growing ecosystem of products and services. I'll now ask Martin to take us through the financial results in more detail.
Thank you, Tony. If we turn to Slide 6, this sets out our FY 'twenty one financial results. As discussed earlier, group and segment revenue and earnings were down, reflecting the impact of COVID, particularly in our UK business. And although revenue was down $31,000,000 on prior period, overall through cost control measures, the impact on EBITDA was $8,500,000 Corporate costs came in lower, 4% lower, also benefiting from tighter cost control and lower acquisition costs in FY 'twenty one compared to FY 'twenty. There are 2 specific items that we have called out separately in this result, neither of which were assumed in our guidance.
The first is the re measurement of contingent consideration. Midwinter's performance has not met its vendors' ambitious earn out targets. Consequently, Rugura recognized a $4,600,000 gain, so in addition to the P and L arising from the remeasurement of contingent consideration. The second is a change in accounting policy. In April 2021, IFRIC announced that certain cloud based software implementation costs cannot be capitalized and must be expensed.
In July 2021, ASIC made this change mandatory for the FY 'twenty one reporting period. Accordingly, $2,400,000 has been expensed and recognized as a change in accounting policy. That was a debit to the P and L. Turning to Slide 7. The Delta acquisition, which Tony highlighted, contributed $10,200,000 in revenue and $2,300,000 to EBITDA to our result.
We closed the Delta acquisition in October, so that was an 8 month contribution to the period. The Delta revenues and contribution are recorded in our Wealth Management segment. And Delta pleasingly has a very high proportion of recurring revenue at about 80%.
If I
move to Slide 8, revenue by geography. You can see that the impact of the decline in revenue year on year was entirely in the UK part of the business. Pleasingly, we saw growth in the Australian market delivered strong revenue growth. Turning now to Slide 9. Notwithstanding the most recent period and the extraordinary circumstances caused by the pandemic we found ourselves in, Bruvoo has consistently delivered revenue growth and margin expansion over the last 6 years.
As vaccination rates roll out across the jurisdictions that we operate in and business confidence returns, We expect the operating environment to improve and in particular, we expect our business in the UK to return to growth as well. Slide 10 sets out our recurring revenue. Contracted recurring revenue was up 15% during the period compared to the prior corresponding period. As discussed earlier, COVID-nineteen has impacted attached recurring revenue where we've seen some project work being reprioritized. It's important to highlight that we anticipate that this work will appear in future periods.
The decline in non recurring revenue is almost all in the UK. The lack of new significant deal wins has seen a decline in implementation work as implementation work from earlier deal wins has been completed. Implementation work from the Aware Super Client win continues to ramp up. Turning to Slide 11, our financial position. Brabura is in a healthy financial position with cash of $74,000,000 and no debt.
During the period, we completed the acquisition of Delta. The maximum possible purchase price of £23,000,000 comprised £14,500,000 which is approximately $27,000,000 upfront, and this was paid in October. And an earn out of £8,500,000 £16,000,000 is contingent upon meeting certain financial targets over the next 2 years. Our balance sheet is well positioned to continue our program of R and D investment across our product ecosystem to meet anticipated client needs. In FY 'twenty one, we capitalized approximately $20,000,000 of R and D, which was the figure that we had guided to.
Operating cash flows, excluding taxes paid, were $51,000,000 representing a cash conversion of 105% for the full year compared to 56% in FY 2020. That's operating cash flow to EBITDA conversion. As you can see in the chart, our cash conversion metric appears lumpy on a 6 month view, but sits at around 97% over time. In addition to our significant cash balance, we have also, on the 20th August, signed a new $30,000,000 unsecured 3 year working capital facility with JP Morgan and are moving our global transaction banking and treasury activities to JP Morgan. The facility is currently under all.
I'll now hand back to Tony, who will take us through the performance of each of the segments and the outlook.
Thanks, Martin. If I can now take you to Slide 13, which sets out the performance in our Wealth Management segment. Now this segment saw revenue and earnings decline during the period. Most of this decline came through as COVID impacted professional services work in the UK. Pleasingly though, contracted recurring revenue rose 30% during the period.
Along with the Aware Super contract win, additional new or renewed contracts were signed in the UK, Australia and New Zealand for Microservices, Sonata, Garridan and EPALCE. Approximately $41,000,000 of R and D was incurred in the Wealth segment, of which 0.47% was capitalized. The spend related predominantly to developing additional microservices, RAP functionality in Australia and extending our digital advice capability. Now let's turn to Slide 14, which sets our performance in our Funds Administration segment. Now this segment also saw revenue and earnings decline during the period.
As with the Wealth Management segment, much of this decline came through as COVID impacted professional services work in the UK, although to a lesser extent. Contracted revenue no, no more, contracted recurring revenue remained broadly stable during the period. Excluding license fees, which are less consistent in nature, segment EBITDA margin is in line with FY 2020. R and D spend in the segment was all expensed and focused on enhancing Probuio's GFS product. So I'll now ask Nick to introduce himself and take you through our strategy and outlook.
Over to you Nick.
Thank you, Tony. Good morning, everybody. My name is Nick Carlson and I'm honored to step into this role. Tony has been an exceptional leader for the business and will be a tough act to follow. Our way of background, I have over 30 years of experience in IT with a specific focus on the financial sector.
I've held a number of senior leadership roles at Privira, including leading the sales team in EMEA and leading our operations globally. I have one key message during this leadership transition. In the context of the business and our strategy, and I intend to lead and drive the strategic evolution we've developed together in the last 12 months. With that key message in mind, I'd like to step through the following slides on our strategy. Moving to Slide 16, there are 3 primary developments taking place in the market.
1st, there is a reduced interest in big bang implementations. 2nd, there is a need for lower operational costs. And third, there is a need to improve end customer experience. In response, we've evolved our technology strategy to focus on componentization of microservices, cloud, digital and automation. I'll touch on these more on the following slide.
So moving to Slide 17. In addition to the 3 primary disciplines I touched on in the previous slide, there are 2 additional relevant trends. Individual fund managers and advisor groups are increasingly moving towards providing their own digital wealth management capability as an alternative to traditional retail platforms, opening up additional sales opportunities.
We're also observing a middle tier
of clients with 100 services to the top tier of clients. Delving a little deeper into the evolution of our technology strategy, as well as developing and acquiring new microservices, we're transforming our existing products into smaller, individually salable and deployable microservices. All of our products are or will be delivered as cloud services, and we're increasing the degree of automation our technology provides and ensuring a world class digital experience. Together with the evolution in our technology strategy, our commercial approach is also evolving. Going forward, we anticipate having more client contracts underpin Guy's subscription and consumption based approach.
In doing so, the structure of our contracts will allow clients to move their fees over the term fee management. We see our strategy supporting the outcomes that clients are asking for as well as delivering enhanced longer term value to shareholders. Turning now to Slide 18, I'd like to highlight some of the steps we've taken on each initiative. With our focus on cloud, Sonata is now delivered as a cloud service. More and more clients are now served through the cloud.
Our AdviceOS and Platinum Pro products are cloud delivered and all of our Finnecom microservices can be delivered by our channels. With our focus on componentization, well, completely all of our Financom products are microservices components, and we have an R and D program underway to build more. We're also gradually compensating Sonata, and we've launched a new microservice, Spanza, which is currently in deployment with its first customer. With our focus on automation, Sonata Alpha is being implemented at Aware Super and the fully automated superannuation offering that's compelling alternative to outsourcing. Orchestrator and Standa, which also focused on automation, are now also in deployment with 1 of our fund's administration clients.
Turning now to Slide 19, the 5 key points of our overall strategy are to transition our existing clients to cloud services, use our technology platform to drive scale, flexibility and differentiation, to expand our total addressable market, to deliver an ecosystem of offerings across the value chain and to ensure that we communicate a clear value proposition for all clients. Turning now to Slide 20, the developments in our strategy also see an expansion in our total addressable market. Proveira's market opportunity in our 2 biggest markets, the U. K. And Australia, is significant.
In the UK, we estimate the total addressable market of more than £1,000,000,000 of revenue per year for our products and services. The market comprises retail and institutional fund administration, retail investment and life insurance platforms, discretionary fund managers, corporate defined contribution pension schemes, self invested personal pensions and small self administered pension schemes. In Australia, we estimate the total addressable market to be about AUD 1,000,000,000 of revenue per year. The market here comprises superannuation, platforms, advice, life insurance, investment management and asset administration. I'll now ask Martin to take us through the financial implications in some more detail.
Thank you, Nick. Let's now turn to Slide 21. Our commercial strategy results in 5 key changes. More of our client contracts will be subscription and consumption based. This is already the case with the bulk of our funds administration clients and contracts.
Secondly, we expect to see contracted recurring revenue rise from about 50% currently to about 70% over the coming years. Upfront license fees will still exist, but will be a smaller contribution to revenue and earnings. The revenue and margin profile of each contract and therefore in aggregate will be more consistent over time. And as Brevura's total addressable market expands, our products and services will cover more of the value chain and overall client contract value is expected to increase. I'll hand back to Nick now for the outlook.
Thank you, Martin. Let's turn now to Slide 23, which sheds Santoro outlook. The industry structural drivers for our strategy are strengthening and COVID-nineteen has emphasized the importance of digital first. We're increasing our total addressable market through the rollout of much services. The COVID-nineteen pandemic continues to impact Probuvir's key markets.
The near term outlook remains uncertain. However, the sales pipeline remains strong. Demand in the UK is beginning to improve and there are significant opportunities for Xunatha Healthcare in Australia. Revura currently expects the FY 'twenty two impact growth in the mid teens relative to FY 'twenty one adjusted impact of AUD 32.3 million I'll now hand back to Jamie.
Thank you, Nick. So Martin, Nick and I now will be very happy to take your questions.
Thank you. Your first question comes from Navin Patna from E&P. Please go ahead.
Good morning, team. And firstly, Tony, congrats on an excellent career. I mean, what Brevura has been able to do in terms of innovation for the particularly the platform market in the UK, I think, has been sort of unprecedented. So congrats on a fantastic career, firstly. The first question I had was just in terms of just reconciling the statements around the guidance for 'twenty two.
Clearly, there was quite a big uplift in second half 'twenty one and improvement across the business, particularly in the UK. But if you sort of annualize your second half NPAT of $23,000,000 you get to $46,000,000 You're guiding though for roughly around $32,000,000 of NPAT into 'twenty two. So it's quite
a big delta there. So I
was just trying to understand what are some of the offsets that you expect relative to that second half run rate going to 2022? Is it sort of license fees, staff cost inflation that we're sort of hearing about occurring in the UK or anything else?
Okay. Well, thanks, Naveen, for your kind words. I really appreciate that. I'm going to hand that one to Martin, I think. Martin, are you
happy to pick that up?
Yes. Thank you. Hi, Naveen. Yes, so the CAD 23,000,000 of NPAT in the second half, yes, it was a strong second half, which we guided to, I think, at the half year. There were license fees in that result, which helped improve it.
There were also other project items in there. We're expecting the first half of FY 'twenty two to not continue at that run rate. As we expect, the business in the UK under current view to pick up more in the second half of FY 'twenty two than in the first half. So that's why our guidance isn't simply the second half multiplied by 2. It's more of a balanced structure.
Okay, great. Thank you for that, Man. And just in terms of the R and D, it sort of stepped up that you capitalize anyway, it sort of stepped up from sort of $8,000,000 in the first half to $12,000,000 in the second half. Just thinking about how we should think about that profile into 'twenty two and also into 'twenty three?
Yes. I'll take that one as well. We anticipate that the level of capitalization in 'twenty two for the full year will be approximately what it was in FY 'twenty one, so about $20,000,000 Then we expect that to come down in FY 'twenty three as these major programs, particularly the microservices and further work in digitalization, Sonata Alta come through to completion in the course of FY 'twenty two going into FY 'twenty three.
Okay, excellent. And in terms of your balance sheet, clearly in a strong position from a cash point of view. Just interested in how we should think about your M and A pipeline at the moment. Are there any areas of priority? And just a point of clarification, the 30 millimeters debt facility that you've signed, can that also be used for acquisitions?
Or is it more of a working capital facility?
We continue to have a pipeline of opportunities for M and A. We are considering continuing to consider opportunities. We have nothing imminent at this stage. And yes, so the relationship with JPMorgan, we do have access to facilities for R and D CapEx funding in that working capital facility.
Okay. Great. Thanks, Tim. Appreciate
it. Thank you. Your next question comes from Sophie Caron from Goldman Sachs. Please go ahead.
Hi, Tony, Martin and Nick, thanks very much for taking my question. So the number of new Sonata contracts coming through And then also how much is the Sonata Alta versus the traditional on premise product, please?
So we would expect to see further Sonata Alta sales, particularly in Australia. And as I mentioned, I think there's a lot of interest in the AWARE Super deal. So over the next year, I would say at least 1 or 2 more Alpha sales. I think if we look at the UK, what we're seeing is significant interest in the more modular replatforming models, and we're already providing micro service modules into a number of the big wealth platforms. And indeed, we're actually replatforming 1 of the major UK retail platforms, we can't name it, I'm afraid, using this incremental microservices approach.
So the sales are slightly different. The incremental sales involved in microservices can still be at the scale of the Sunnata sale when aggregated. So it will vary according to markets.
So as
I said, the main interest at the moment in Sunnatra Ultra is in Australia, but we would also like to bring that proposition into the UK.
Excellent. And then just on the recovery in the UK, I mean, you've mentioned a strong pipeline, but can you just maybe quantify how this sort of compares to last year? And how much of this do you think reflects a bit of pent up demand versus new demand coming through?
I think in relation to existing clients, we're seeing that pent up demand because that's really where we saw the major decline was where we have very large scale implementations with big players who were typically spending several £1,000,000 a year with us. That was the business that was potentially just put on hold. It didn't go away, but just moved to the right. So that's coming back. We're not completely out of the woods yet.
People aren't returning to work in the office at the rate that perhaps some of those organizations might hope. So I think in terms of new opportunities, I think we're already seeing that back at the level pre COVID. So the pipeline is strong with new RFPs and new RFPs coming to market. So that will be the split as I see it.
Excellent. That's really helpful. Thanks for that.
Thank you. Your next question comes from Scott Hudson from MST. Please go ahead.
Yes, good morning, gentlemen. Just a couple of questions from me. Martin, in terms of the Delta acquisition, I think at the Macquarie conference in May, you highlighted that the Delta acquisition would contribute sort of $3,000,000 to $5,000,000 of revenues. Did that eventually? It looked like the NPAT outcome was maybe a
little bit light relative to those expectations. For the in the second half, it contributed about $5,500,000 of revenue. Okay. Thank you.
In terms of the license fee expectations for FY 'twenty 2. I mean, do we expect to see a sharp drop off in that? Are we seeing that the shift in the commercial model, I guess, play out in those license fee expectations for FY 'twenty 2?
We won't see a sharp drop off. We will see perhaps a different mix. I think there might be more licenses in fund administration and less in Wealth Management. But overall, I think that the license overall, the license amounts will be roughly the same as what we did in FY 'twenty one, which was lower than FY 'twenty, if you look at the numbers.
So low double digit license fee revenue? Yes. And then in terms of that, I guess, that sharp drop off in, I guess, U. K. Project work, I mean, is it I guess, is that recovery happening slower than maybe you would have anticipated given the reopening of the UK economy?
Yes. Sorry, again, go on, Martin, you go ahead.
Yes. I was about to hand it to you, Tony, but yes, so why don't you comment on
that? Yes. And I think a little slower. As I mentioned, we're already just really getting back to normal. The changes in July.
And as I said, we're not seeing the return to work at the same at the level perhaps that some of our clients might have expected. And as I mentioned before, one of the key points about these very large scope projects is you do have multiple teams that need to work together, sit around whiteboards, demonstrate software and things like that. So those face to face meetings are quite important. So we're not out of the woods yet, but I think there's a significant upturn on certainly where we were 6, 9 months ago. So it's a gradual improvement, I think.
So does the I guess, do you think calendar year 2022 is, I guess, a more robust period in terms of, I guess, some of that project work that was deferred?
Yes, very much so. Yes.
In light of that, Martin, what are you sort of anticipating for first half, second half split with regards to your FY 'twenty two NPAT guidance?
Yes. So that comes back to the comments that I made to Navin's questions. Yes, we're expecting that the second half of FY 'twenty two will be stronger than the first half. And yes, based on exactly that point, we certainly think that as we currently look at the profile of the pipeline and project opportunities, that looks like it will be stronger in the UK, but that will be picking up in the second half.
Similar split to FY21,
not as extreme. I think it will be more of a yes, so the first half will be lower than the second half to get to our guidance. It won't be as extreme as the impact split that we had in FY 'twenty one, but it will be.
Thanks. In terms of the I guess the Tony, in terms of the outlook for superannuation in Australia, does Sonata Alto need to be I guess fully implemented with Aware before you potentially win new contracts? Or are clients happy to proceed in advance of, I guess, the test case being live in the market?
We can definitely move forward without the completion of the AWARE project. And we're actually talking to a number of players at the moment. So no, they're not going to wait until that project is complete.
Okay. That's all for now. Thank you.
Thank you.
The next
question comes from Brendan Carrick from Macquarie. Please go ahead.
Good morning, everyone. And Tony, I'll let you comment earlier. Congratulations on your tenure. Just a question just around costs. So I think there was some obviously some restructuring costs and reduced cost base last year that came through the business.
I noticed on your website there's a few job hires available or at least increasing the amount of opportunities for people across the business. So I'm just wondering about the investment that's required following the reductions in the cost base and how we should think about that going forward?
Yes, I'll take that. Yes, Paul, we
said ramping up, but you care about margin.
Yes. So, yes, we did have cost savings last year. We did a we had a restructuring program, which was largely focused on operational overhead functions as well as some corporate overhead functions. So a large portion of those savings are ongoing. Do you like?
As the business is picking up, as we've just been describing, We have been recruiting for people in some of the newer areas of focus in the business. So to enable us to accelerate building out our microservices, as Nick was describing, as part of our strategy. More resources, we've been hiring more resources for our Sonata Ultra program as well. And also, we are experiencing, which I think is being experienced across the sector around the world, increasing price pressure on technology resources. So we are finding that there is upward pressure on salaries and wages for key staff and key skills across, particularly in the engineering software engineering space.
So they are items that are factored in. We also benefited from, it's perhaps a bit of a perverse benefit, but the lockdowns across all the countries enabled us to make savings in travel costs as well as to some degree, our facilities cost our property costs across the group.
Okay. That's clear. And then maybe just a follow-up on the guidance question. So I think collectively, we've sort of got to the fact that licensing fees are going to be stable or broadly stable compared to last year and there's going to be a second half SKU. In terms of that pipeline of new contracts that you can see in the nearer term, is there any skew in those licensing fees between the first and the second half that's contributing to that second half skew?
No, not really. It's very hard because the licenses are booked generally when the contract is signed, that can be very binary in that sense that it can be here or there or that it can be on the 30th June or the 1st August or so on, which moves those around. So it really depends on the mix of which deal has what sort of a license structure and whether that comes in earlier or a bit later or so on. So I can't really give any more anything clearer on that, sorry.
Yes, that's fine. And then just last one, just on the FY 'twenty one, so it came in at the lower end of the guidance range. License fees are sort of bang in the middle of that $5,000,000 to $8,000,000 range that you had called out for the second half. So is there one thing specifically that you would call out that led you towards the lower end of the range given license fees is sort of in the middle? Just thinking about it from a momentum standpoint, is it sort of UK not recovering as quick as what you thought it was?
Yes, fundamentally,
that's the point. Yes. So we didn't get there were some projects that we anticipated may start in the latter part of the second half. In the UK, that didn't occur. So that was really the balance.
There are a number always a number of moving parts in when we construct the guidance and for the outlook, and that's essentially what occurred.
Okay, that's clear. Thank you.
Thank you. Your next question comes from Bob Chen from JPMorgan. Please go ahead.
Hey, good morning guys. Just a couple of questions for me. Just given the second half margins have jumped around a bit, could you give me a little bit more color on the EBITDA margins between Wealth Management and Fund admin going into next year?
Yes. So we so the Fund Administration margin does vary depending on the amount of licenses through because licenses are 100% margin. So the Fund Administration segment, the margin segment generates relatively consistently, excluding licenses, is about 40%, and we anticipate that to continue. We do have opportunities in FY 'twenty two, which may generate licenses in fund administration, so that the margin may pick up from that, the total margin due to the licenses coming through. But we anticipate fund administration to continue going forward with an underlying, so a margin excluding licenses of approximately 40%.
In the Wealth Management segment, we've been moving on the margins there and progressively those margins are increasing as particularly as Sonata becomes more mature and we're able to further optimize our costs of maintenance and support in Wealth Management, bringing those margins up to 30% and then over 30%. And that trend, we anticipate continuing on into FY 'twenty two.
Okay, great. And then just given that you're transitioning the business more towards the SaaS based business model longer term, like how will that impact your margins in the businesses?
So what we will see there is that if in the cases that and this accounting policy change for SaaS type software has, to a degree, impacted the way particularly SaaS services are accounted for across organizations. But where we continue to provide an instance of the software that is in the client's control, then there is still there will continue to be a license amount that is attributed to that, which is why I said when I was talking about talking through Slide 20, 21, sorry, that we'll continue to see license fees going forward. The move the change that we'll see in our revenue is that a degree of implementation fees and predominantly development fees associated with our projects, they will move into the recurring fees. So the consumption subscription or annual fee for the software. So we'll see implementation fees as a percentage of total revenues reduce and the contracted revenue, the contracted recurring revenue being the sort of annual fees the clients pay for the systems, that component increasing.
There may be some impacts on margin over the next three up to 5 years as more and more clients move to that sort of a model. But over time, as more clients come into this model and as the clients use more of the software, revenue should increase.
Okay, brilliant.
And then just finally, you're obviously working on the implementation for Aware Super. Can you talk a little bit about how much Aware Super is going to contribute to that uplift in earnings for next year?
No, I can't comment on individual contracts and relationships in that sense.
Okay, cool. Thanks.
Thank you. Your next question comes from Andrew Perks from Macquarie. Please go ahead.
Yes, thanks very much, Helen. Just on Slide 21, you have actually talked about this before, but in terms of but I was just interested in where are you on that sort of timeframe in terms of converting to cloud based and consumption based revenue?
Yes. So we're structuring new deals that we enter into, so new projects. We are working to structure this way and it's not something that entirely we're in control of. This is each client, as we work through contracts and arrangements, have their particular requirements for their own internal purposes. So as we negotiate and structure new deals, we're structuring them in this way.
Sorry, all deals will be structured in that new way? Yes. Yes. Okay. Because I suppose just with your competitors, when they move to this model and both, there's a real impact on revenue, particularly because you lose that one off big hit in profits from license fees.
But are you this graph doesn't look so dramatic as what other people have sort of other competitors have seen. So you're saying that it's not really so dramatic for you?
Yes, because our and that's what I was describing for. If the client is provided with their own instance of the software that they have control of, then under the accounting standards, there is a license element to recognize to that. If it is a pure software as a service that the client is taking, where the client is simply a tenant in a multi tenanted system and have no control over the software itself, they don't have their own instance of the software, then it is purely subscription revenue that can be recognized. The vast majority of our arrangements are the former.
Yes. I suppose I'll just give you that chart saying year 4 almost looks great. Year 1, 2 and 3 Sorry, I'm sorry.
No, no, no, no. All right. Yes. So I now understand your question. That chart is a chart of a single contract.
It's not how our revenue how our group revenue changes over years. That just shows the profile. So the graph on the left is for a single contract over the 10 year term of the contract, what would our revenue recognition look like? Is the chart on the left, that's the traditional model. The chart on the right shows it for a single contract in the new model.
I'm sorry.
Yes, that's okay. So you're basically saying that when you move to the new model, when I look at years 1, 2 and 3, it's not really that dramatic. In fact, I mean, others it is quite dramatic. But you're saying when we move to a consumptioncloud, it's not really that dramatic on revenue. Maybe in year 1, could you lose that profit or the profit of the license fee, but it's not dramatic.
Yes, correct.
Like year 2 looks the same. And when you capitalize, I think you said, it was a big capitalization of R and D, 47%. What was it last year? How much did you capitalize last year? What percentage did you capitalize last year?
The percentage is a bit difficult because it's a percentage of how much we spend on R and D. So last year we capitalized about $9,000,000 of software development. Sorry, in FY 2020, we capitalized about $9,000,000 And in FY 2021, we capitalized about $20,000,000
Yes. And as a percentage of total R and D spend, FY 2020 was that $20,000,000 was 47%. That $9,000,000 how much was it as a percentage of FY 2020 spend?
I don't have that number in my head. I'm sorry. It would have been it was a lower percentage, but I don't have that number in front of me.
Thank you. There are no further questions at this time. I'll now hand back to Mr. Klim for closing remarks.
Thank you, Darcy, and thank you all for your questions. Just a couple of concluding remarks. Despite the impact of COVID-nineteen on BRAVIA's U. K. Business, the drivers of our growth remain stronger than ever.
In addition, we've evolved our strategy to put BRAVIA on the best possible footing. And I'm confident that BRABURA will emerge stronger from the pandemic under Nick's leadership. And I'd like to thank you all for your support during my tenure as CEO of BRABURA. And thank you all for dialing in today and for your continuing interest in our business.
That does conclude our conference for today. Thank you for participating. You may now disconnect.