Staff increase sees Newry software company First Derivatives' pre-tax profits drop
Newry firm First Derivatives has put a 15% drop in pre-tax profits for the first six months of the year down to an aggressive hiring drive.
First Derivatives provides software and consulting services to the financial services industry, employing over 800 people worldwide.
Interim results for the six months ended August 31 showed a 15% fall in pre-tax profits to £3m, compared to £3.5m for the same period in 2012.
However, turnover was up 25% to £34.4m, and software sales were up 46% to £11m – helping push shares in the firm by more than 60% since January.
The firm – one of just three listed companies in Northern Ireland – said it had spent almost £1m on strengthening the firm's global sales team. It said cash profits would have been 18% in the period after adjusting for the increase in sales salary costs.
First Derivatives' consultancy business boosted revenues by 17% to £23.4m in the first half and overall revenues increased by 24.6% to £34.4m from £27.6m in the same period last year.
The company has operations in London, New York, Stockholm, Singapore, Tokyo, Toronto, Sydney, Dublin, Newry and Hong Kong, with the world's top investment banks, brokers and hedge funds as its customers.
But chief executive Brian Conlon said the operation at its Newry headquarters provided the core strength of the business.
"Our nearshore offering is resonating with our customers," he said.
"Rather than pay the high costs associated with teams in the city or Manhattan, we offer teams of similar quality based in our headquarters in Newry.
"These teams provide a similar level of service but at a much lower cost.
"We distinguish ourselves from similar offerings based in places like India or the Ukraine based on language, capital market expertise, culture, time-zone and the ability to spend time face-to-face with the client on site. As we grow, the size of the projects we bid for in this area is also growing.
"This relatively modest growth in the first half reflects a significant acceleration in our investment in sales staff in Europe, North America and Asia to meet the opportunities developing for the business.
"While this investment in staff has held back profit growth in the first half we anticipate improvements in margin in the second half of the year as the benefit of this significant investment starts to bear fruit."
He added that the company's pipeline had "never been so healthy".
"We have a portfolio of products, each of which addresses a market opportunity of hundreds of millions of dollars or more per annum.
"As our software applications become more established they provide us with an increasing number of prestigious reference customers across our flagship applications. These factors give us confidence in our ability to deliver continued growth in software revenues."
The company was also investing heavily in research and development. The company has won significant business with the Australian Securities and Investment Commission with its surveillance software, signalling big opportunities in regulation and compliance.
First Derivatives has also announced a big contract with the New York Stock Exchange.