Thank you for standing by, and welcome to the Bravura Solutions FY21 Financial Results conference call. All participants are in a listen session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone.
Thank you, Chelsea. Good morning. My name is Tony Klim. I'm the Chief Executive Officer of Bravura, and I'm joined here by Brent Henley, our Chief Financial Officer. In addition to our FY21 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.
We're also joined here by Nick. 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.
Bravura has achieved its guidance despite the impact of the COVID-19 pandemic and its related lockdowns in all our markets, and particularly so in our largest market in the U.K. There has been significant market uncertainty that has affected business confidence. 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 firms, Aware Super, as our maiden client for our game-changing new digital-first proposition, Sonata Alta. With Delta Financial, we have acquired a market-leading software business in the U.K. to broaden our coverage of the pensions market. We've extended our market leadership through a targeted R&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-19 vaccines roll out and confidence improves, the business continues to position itself to take advantage of the subsequent release of latent client demand. Bravura 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. With those opening comments, if I can take you now to the summary on slide 4. Our full- year results is a tale of two halves. The first half saw lower project work in the U.K. arising from the impact of COVID-19. The second half benefited from an improved operating environment, client wins, and targeted management initiatives.
Monthly 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 Bravura 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&D initiatives, spending AUD 50 million on the development of a suite of microservices, Australian wrap functionality, Sonata Alta, 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 Bravura with a significant and sustainable competitive advantage. We welcomed Delta Financial Systems to the group during the period, expanding our U.K. market offering into complex self-invested pensions.
The acquisition complements Bravura'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 FY21 financial results. As discussed earlier, group and segment revenue and earnings were down, reflecting the impact of COVID-19, particularly in our U.K. business. Although revenue was down AUD 31 million on prior period, overall, through cost control measures, the impact on EBITDA was AUD 8.5 million. Corporate costs came in lower, 4% lower, also benefiting from tighter cost control and lower acquisition costs in FY21 compared to FY20. There are two specific items that we have called out separately in this result, neither of which were assumed in our guidance.
The first is the remeasurement of contingent consideration. Midwinter's performance has not met its vendors' ambitious earn-out targets. Consequently Bravura recognized a AUD 4.6 million gain, so an addition to the P&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 2021 reporting period. Accordingly, AUD 2.4 million has been expensed and recognized as a change in accounting policy. That was a debit to the P&L. Turning to slide 7.
The Delta acquisition, which Tony highlighted, contributed AUD 10.2 million in revenue and AUD 2.3 million 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 U.K. 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, Bravura has consistently delivered revenue growth and margin expansion over the last six 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 U.K. to recur 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-19 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 U.K. 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. Bravura is in a healthy financial position with cash of AUD 74 million and no debt.
During the period, we completed the acquisition of Delta. The maximum possible purchase price of GBP 23 million comprised GBP 14.5 million, which is approximately AUD 27 million upfront, and this was paid in October. An earn-out of GBP 8.5 million, AUD 16 million, is contingent upon meeting certain financial targets over the next two years. Our balance sheet is well-positioned to continue our program of R&D investment across our product ecosystem to meet anticipated client needs.
In FY21, we capitalized approximately AUD 20 million of R&D, which was the figure that we had guided to. Operating cash flows, excluding taxes paid, were AUD 51 million, representing a cash conversion of 105% for the full- year, compared to 56% in FY20. That's operating cash flow to EBITDA conversion. As you can see in the chart, our cash conversion metric appears lumpy on a six-month view, but sits at around 97% over time.
In addition to our significant cash balance, we have also, on the 20th of August, signed a new AUD 30 million unsecured three-year working capital facility with JP Morgan and are moving our global transaction banking and treasury activities to JP Morgan. The facility is currently undrawn. I'll now hand back to Tony, who will take us through the performance of each of the segments and the outlook.
Thanks, Brent Henley. If I can now take you to slide 13, which sets out the performance in our Wealth segment. This segment saw revenue and earnings decline during the period. Most of this decline came through as COVID-19 impacted professional services work in the U.K. Pleasingly, though, our contracted recurring revenue rose 30% during the period.
Along with the Aware Super contract win, additional new or renewed contracts were signed in the U.K., Australia, and New Zealand for microservices, Sonata, Garradin, and ePASS. Approximately AUD 41 million of R&D was incurred in the Wealth segment, of which 47% was capitalized. The spend related predominantly to developing additional microservices, Wrap functionality in Australia, and extending our digital advice capability. Let's turn to slide 14, which sets out performance in our Funds Administration segment. 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 U.K., although to a lesser extent. Contracted revenue, or 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&D spend in the segment was all expensed and focused on enhancing Bravura's GFAS product. I'll now ask Nick to introduce himself and take you through our strategy and outlook. Over to you, Nick.
Thanks, Tony. Good morning, everybody. My name is Nick Parsons, and I'm honored to step into this role. Tony's been an exceptional leader for the business and will be a tough act to follow. By 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 with Bravura, including leading the sales team in EMEA and leading our operations globally.
I have 1 key message during this leadership transition. In the context of the business and our strategy, 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's 3 primary developments taking place in the market.
First, there is a reduced interest in big bang implementations. Second, there's a need for lower operational costs. Third, there's a need to improve end customer experience. In response, we've evolved our technology strategy to focus on componentization and microservices, cloud, digital, and automation. I'll touch on these more on the following slide. Moving to slide 17, in addition to the 3 primary developments 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 that are under service relative 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 saleable 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 underpinned by a subscription and consumption-based approach. In doing so, the structure of our contracts will allow clients to smooth their fees over the term of the arrangement. 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 FinoComp microservices can be delivered via cloud as well. With our focus on componentization, well, effectively all of our FinoComp products are microservice components, and we have an R&D program underway to build more. We're also gradually componentizing Sonata, and we've launched a new microservice, Stanza, which is currently in deployment with its first customer. With our focus on automation, Sonata Alta, which is being implemented at Aware Super, is a fully automated superannuation offering that's a compelling alternative to outsourcing. Orchestrator and Stanza, which also focus on automation, are now also in deployment with one of our funds administration clients. Turning now to slide 19.
The five key planks 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.
The viewer's market opportunity in our two biggest markets, the U.K. and Australia, is significant. In the U.K., we estimate the total addressable market of more than £1 billion 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 billion of revenue per year. The market here comprises superannuation, platforms, advice, life insurance, investment management, and asset administration. I'll now ask Brent to take us through the financial implications in some more detail.
Thank you, Nick. Let's now turn to slide 21. Our commercial strategy will result 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. As Bravura'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, Brent. Let's turn now to slide 23, which sets out our outlook. The industry structural drivers for our strategy are strengthening, and COVID-19 has emphasized the importance of digital first. We're increasing our total addressable market through the rollout of managed services. The COVID-19 pandemic continues to impact Bravura's key markets. The near-term outlook remains uncertain. However, the sales pipeline remains strong. Demand in the U.K. is beginning to improve, and there are significant opportunities as markets now open in Australia. Bravura currently expects the FY 2022 NPAT growth in the mid-teens relative to FY 2021 adjusted NPAT of AUD 32.3 million. I'll now hand back to Tony Klim.
Thank you, Nick. Brent Henley, Nick, and I now will be very happy to take your questions.
Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Naveen Pattni from E&P. Please go ahead.
Good morning, team. Firstly, Tony, congrats on an excellent career. What Bravura has been able to do in terms of innovation for particularly the platform market in the U.K., I think, has been unprecedented. Congrats on a fantastic career, firstly. The first question I had was just in terms of just reconciling the statements around guidance for FY22. Clearly, there was quite a big uplift in second half FY21, and improvement across the business, particularly in the U.K. If you annualize your second half NPAT of AUD 23 million, you get to AUD 46 million. You're guiding, though, for roughly around AUD 32 million of NPAT into FY22. It's quite a big delta there. I was just trying to understand what are some of the offsets that you expect relative to that second half run rate going to FY22.
Is it license fees, staff cost inflation that we're hearing about occurring in the U.K. or anything else?
Okay. Well, thanks, Naveen, for your kind words. I really appreciate that. I'm going to hand that one to Brent, I think. Brent, are you happy to pick that up?
Yes. Thank you. Hi, Naveen. The AUD 23 million 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 FY22 to not continue at that run rate, as we expect the business in the U.K., under the current view, to pick up more in the second half of FY22 than in the first half. 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, Brent Henley. Just in terms of the R&D. It sort of stepped up that you capitalize anyway. It sort of stepped up from sort of AUD 8 million in the first half to AUD 12 million in the second half. Just thinking about how we should think about that profile into FY 2022 and also into FY 2023.
Yes. I'll take that one as well. We anticipate that the level of capitalization in 2022 for the full- year will be approximately what it was in FY 2021, so about AUD 20 million. We expect that to come down in FY 2023 as these major programs, particularly the microservices and the further work in digitalization, Sonata Alta, come through to completion in the course of FY 2022 going into FY 2023.
Okay, excellent. In terms of your balance sheet, clearly you're in a strong position from a cash point of view. Just interested in how we should think about your M&A pipeline at the moment. Are there any areas that have priority? Just a point of clarification, the AUD 30 million debt facility that you 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&A. We are continuing to consider opportunities. We have nothing imminent at this stage. Yes, the relationship with JP Morgan, we do have access to facilities for R&D CapEx funding in that working capital facility.
Okay. Great. Thanks, Tim. Appreciate it.
Thank you. Your next question comes from Sophie Carran from Goldman Sachs. Please go ahead.
Hi, Tony, Martin, and Nick. Thanks very much for taking my questions. The number of new Sonata contracts coming through, and then also how much is the Sonata Alta versus the traditional on-premise product, please?
We would expect to see further Sonata Alta sales, particularly in Australia. As I mentioned, I think there's a lot of interest in the Aware Super deal. Over the next year, I would say at least one or two more Alta sales. I think if we look at the U.K., what we're seeing is significant interest in the more modular re-platforming models. We're already providing microservice modules into a number of the big wealth platforms. Indeed, we're actually re-platforming one of the major U.K. retail platforms, we can't name it, I'm afraid, using this incremental microservices approach. The sales are slightly different. The incremental sales involving microservices can still be at the scale of a Sonata sale when aggregated. It will vary according to markets.
As I said, the main interest at the moment in Sonata Alta is in Australia, but we would also like to bring that proposition into the U.K.
Excellent. Then just on the recovery in the U.K., I mean, you've mentioned a strong pipeline, but can you just maybe quantify how this sort of compares to last year? 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 million GBP a year with us. That was the business that was potentially just put on hold. It didn't go away, just moved to the right. 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. I think in terms of new opportunities, I think we're already seeing that back at the level pre-COVID. The pipeline is strong with new RFPs and new RFIs coming to market. 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.
Yeah, good morning, gentlemen. Just a couple of questions from me. Brent Henley, in terms of the Delta acquisition, I think at the Macquarie Conference in May, you highlighted that the Delta acquisition would contribute sort of AUD 3 million to AUD 5 million of revenues. Did that eventuate? It looked like the NPAT outcome was maybe a little bit light relative to those expectations.
In the second half, it contributed about five and a half million dollars of revenue.
Okay. Thank you. In terms of the license fee expectations for FY 2022, I mean, do we expect to see a sharp drop-off from that? Are we seeing that the shift in the commercial model I guess play out in those license fee expectations for FY 2022?
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. Overall, I think that the license amounts will be roughly the same as what we did in FY21, which was lower than FY20. If you look at the numbers.
Low double-digit license fee revenue.
Yes.
In terms of that sharp drop-off in U.K. project work, is that recovery happening slower than maybe you would have anticipated given the reopening of the U.K. economy?
Yes.
Slower. Sorry, go on, Brent Henley. You go. Go ahead.
Yeah, I was about to hand it to you, Tony, but yeah, so why don't you go on?
Yeah. No, I think a little slower. As I mentioned, we're only just really getting back to normal. The rate change was in July. As I said, we're not seeing the return to work at the level perhaps that some of our clients might have expected. 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. Those face-to-face meetings are quite important. 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. It's a gradual improvement, I think.
Do you think calendar year 2022 is a more robust period in terms of some of that project work that was deferred?
Yes, very much so. Yeah.
Okay. In light of that, Martin, what are you anticipating for first half, second half split with regards to your FY22 NPAT guidance?
Yes. That comes back to the comments that I made to Naveen's questions. Yes, we're expecting that the second half of FY 2022 will be stronger than the first half. 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 U.K., that will be picking up in the second half.
Similar split to FY 2021?
Not as extreme.
Not as extreme.
I think it will be more of a, the first half will be lower than the second half to get to our guidance. It won't be as extreme as the NPAT split that we had in FY 2021, but it will be.
Thanks. Tony, in terms of the outlook for superannuation in Australia, does Sonata Alta need to be fully implemented with Aware before you potentially win new contracts, or are clients happy to proceed in advance of a test case being live in the market?
We can definitely move forward without the completion of the Aware project. We're actually talking to a number of players at the moment. No, they're not going to wait until that project is complete.
Okay. That's all for now. Thank you.
Thank you. Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Your next question comes from Brendan Carrig from Macquarie. Please go ahead.
Good morning, everyone. Tony, I like the other comments earlier. Congratulations on your tenure. Just a question just around costs. I think there was obviously some restructuring costs and reduced cost base last year that came through the business. I notice on your website there's a few job hires available or at least increasing the amount of opportunities for people across the business. 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.
We're certainly ramping up, but you carry that, Martin, yeah.
Yes, we did have cost savings last year. We had a restructuring program, which was largely focused on operational overhead functions as well as some corporate overhead functions. A large portion of those savings are ongoing, if 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. 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 Alta program as well. Also, we are experiencing, which I think is being experienced across the sector around the world, increasing price pressure on technology resources.
We are finding that there is upward pressure on salaries and wages for key staff and key skills across, particularly in the software engineering space. 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 costs, our property costs across the group.
Okay. That's clear. Maybe just to follow up on the guidance question. 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 skew. 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 of June or the 1st of August or so on, which moves those around. 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. I can't really give any more.
Okay
anything clearer on that. Sorry.
Yeah, that's fine. Just last one, just on the FY 2021, it came in at the lower end of the guidance range. License fees are sort of bang in the middle of that AUD 5 million-AUD 8 million range that you had called out for the second half. Is there one thing specifically that you would call out that led you towards the lower end of the range, given license fees are sort of in the middle? Just thinking about it from a momentum standpoint, is it just sort of U.K. not recovering as quick as what you thought it was?
Yeah, fundamentally that's the point. Yeah. We didn't. There were some projects that we anticipated may start in the latter part of the second half in the U.K. That didn't occur. That was really the balance. There are always a number of moving parts 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 JP Morgan. Please go ahead.
Hey, morning, guys. Just a couple of questions for me. Given the second half margin sort of jumping around a bit, could you give a little bit more color on sort of the EBITDA margins between wealth management and fund admin going into next year?
Yes. The fund administration margin does vary depending on the amount of licenses through, because licenses are 100% margin. The fund administration segment, the margin that the segment generates relatively consistently, excluding licenses, is about 40%, and we anticipate that to continue. We do have some opportunities in FY22, 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.
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, 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%.
That trend we anticipate continuing on into FY 2022.
Okay, great. Just given that you're transitioning the business more towards a SaaS-based business model longer- term, how will that impact your margins in the businesses?
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. Where we continue to provide an instance of the software that is in the client's control, then there will continue to be a license amount that is attributed to that. Which is why I said when I was talking through slide 21, that we'll continue to see license fees going forward. 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.
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 impact on margin over the next three up to five years as more and more clients move to that sort of a model. Over time, as more clients come into this model and as the clients use more of the software, revenue should increase.
Okay, brilliant. 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. I can't comment on individual contracts and relationships in that sense.
Okay, cool. All right. Thanks.
Thank you. Your next question comes from Andrew Perks from Accordius. Please go ahead.
Yes, thanks very much, Helen. Just on slide 21, you have actually talked about this before, 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?
Yeah. 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. 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.
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 hidden profit from license fees. This graph doesn't look so dramatic as what other competitors have seen. Are you saying that it's not really so dramatic for you?
Yes, that's what I was describing before. 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 for 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.
Yeah
of our arrangements are the former.
Yeah. I suppose I just looking at that chart saying year four onwards looks great. Year one, two and three.
Oh, there, sorry.
you've got a few wobbles.
No. All right. Yeah. I now understand your question. That chart is a chart of a single contract.
Yeah
how our group revenue changes over years. That just shows the profile. 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.
Yeah. Okay.
The chart on the right shows it.
For a single contract in the new model. I'm sorry.
Yeah, that's okay. You're basically saying that when you move to the new model, when I look at years one, two, and three, it's not really that dramatic. In fact, others it is quite dramatic. You're saying when we move to a consumption/cloud, it's not really that dramatic on revenue. Maybe in year one, because you lose all the profit of the license fee, but it's not dramatic.
Yes. Correct.
Year two looks the same. Okay, thanks for it. When you capitalize, I think you said there was a big capitalization of R&D, 47%. What was it last year? How much did you capitalize last? What percentage did you capitalize last year?
The % is a bit difficult because it's a % of how much we spend on R&D. Last year we capitalized about AUD 9 million of software development. Sorry.
That was about.
In FY20 we capitalized about AUD 9 million, and in FY21, we capitalized about AUD 20 million.
Yeah. As a percentage of total R&D spend, FY 2020, that AUD 20 million was 47%. That AUD 9 million, how much was it as a percentage of FY 2020 spend?
I don't have that number in my head. I'm sorry. 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. Thank you all for your questions. Just a couple of concluding remarks. Despite the impact of COVID-19 on Bravura's U.K. business, the drivers of our growth remain stronger than ever. In addition, we've evolved our strategy to put Bravura on the best possible footing. I'm confident that Bravura will emerge stronger from the pandemic under Nick's leadership. I'd like to thank you all for your support during my tenure as CEO of Bravura. 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.