Defenx PLC (LON:DFX) Chief Financial Officer Philipp Prince caught up with DirectorsTalk for an exclusive interview to discuss their software distribution contract with BV-Tech, de-risking the business, the causes of seasonality and positive future growth
Q1: You’ve just signed a software distribution contract with BV-Tech, can you tell us what that means for Defenx PLC?
A1: Sure. So, if you recall, back in April we announced the start of our strategic partnership with BV-Tech and we also acquired some encryption software from them at the same time as their cash investment in Defenx. So today, this is the next step in that partnership, really enabling us to trade with them and our respective sales teams have been working very hard since April, talking to mutual customers and building a strong pipeline of opportunities. Because BV-Tech is a related party, we need to go through the motions to prove trading with them and so we’re now allowing that to happen so we can talk to their customers and bill their customers most importantly.
Q2: Can you remind us of your relationship with BV-Tech?
A2: The intention, the overall goal really of the relationship with BV-Tech is to, over time, build a long-term strategic partnership, they’re a 29.6% investor in the company, they’re supporting us both in cash terms and in supporting meeting customers. What we intended to do was really accelerate our entry into the corporate market and that would de-risk the business, if you recall, hither to, we’ve really been focussed on channel partners who distribute into the retail end user market, that what we call our B2B2C model and we’re adding on to that corporate activity. We hope that corporate will significantly increase our target market and, over time, improve the quality of our earnings i.e. less churn and better payment terms so de-risking the business and helping us continue our high-growth pattern.
Q3: Now, the trading update, it sounded quite positive but can you tell us a bit more about the seasonality to your business, what causes it?
A3: Seasonality is unfortunately not unusual in this business, it’s essentially driven by, for us, mobile handset launches like Apple or Samsung, typically falling into the 3rd quarter and this drives much of our retail sales into the period from those launches until Christmas so it’s squeezing it in to 2 or 3 months of the year. Everybody else suffers the same issue and we do too and it’s awkward to deal with so approaching the corporate market, we’ll start to flatten out that seasonality, to try and mitigate the fact that most of our sales come in to the second half of the year.
Some of our costs as well are also frontloaded so our sales are backloaded and our costs are frontloaded and obviously that has an impact on first half profits, last year we had a loss in the first half but a substantial profit in the second half.
Q4: With that in mind then, do you think Defenx PLC is positive for future growth?
A4: The short answer is yes, absolutely, we have a strong pipeline and that’s before adding on the benefits of working with BV-Tech, they just make that even more positive. So, we’re confident over time we’ll be able to continue to grow revenue on a profitable basis and improve, like I said before, the quality of those earnings in terms of renewals, churn rates etc. So, we’ve so much of our forecast billing ahead of us in the second half it does make this time of year tricky, it’s all ahead of us and we’ll certainly look to provide much more information on current trading in the interim results in September when we’re much further through the year.
What’s clear from the work so far with BV-Tech is that it will give us access to the corporate market which will de-risk the business, support future growth and diversify us away from a narrow range of channel partners focussed on the retail market.