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Serko posts maiden profit in 2018, forecasts 2019 sales growth as Europe expansion costs rise

Wednesday 23rd May 2018

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Serko, the online travel booking software developer, reported a maiden annual profit ahead of an expansion into the Northern Hemisphere and a planned ASX listing next month.

In the year ended March 31, operating revenue, which excludes grants, rose 28 percent from the previous year to $18.3 million, for a net profit of $1.8 million compared with a loss of $3.5 million in 2017. 

The company has been flagging an annual profit for the 2018 year since it posted a $6.2 million loss in 2016, and boosted investor confidence in Nov. 2017 when it reported a first-half net profit of $1.1 million on a 30 percent gain in operating revenue and affirming annual guidance for sales to be between $18 million and $19 million.

"It was really just a laser focus to execution on what we knew we could achieve," chief executive and co-founder Darrin Grafton told BusinessDesk. "The key part of this year's result was showing people we do know our metrics, we know how to do this, we may invest from time to time into growth but they are based on forward contracts. We've moved out of the era to building to find demand, to building to demand, and it's a different type of investment."

The company is forecasting revenue growth between 15 percent and 30 percent in the next year, but no earnings before interest, tax, depreciation and amortisation growth from 2018's $2.2 million, due to the cost of its expansion in Europe and North America.

Earlier this year, the company signed a binding strategic alliance with ATPI Group to deploy its Zeno platform globally, including in the US, Europe, UK, and Asia for the next five years. The first customer site, being the UK, is scheduled to start this quarter.

"As we start to bring on each of the different regions within Europe, we spend a little bit ahead and eventually that catches up," Grafton said. "We don't expect it to increase through that time. We do expect that to correct itself in future years, but we see that this year we'll be investing that for the growth side for the future."

Serko, which listed on the NZX in 2014, announced earlier this month it would join the Australian Securities Exchange via a compliance listing while keeping its primary listing on the NZX. It's targeting a listing date of June 25, it said today.

Grafton said that 95 percent of the company's revenue comes from Australia and it has been talking to a lot of institutions who have a mandate only to invest in Australian listed stocks, so have been locked out of buying into Serko.

"They've been talking to us for quite a while, so strategically it was always something we'd talked about over the years, but it just felt that as we were getting into this stage of our company and expansion globally, it was the right time," Grafton said. "We are a pretty illiquid stock, being that such a high percentage of the company is owned by staff still, but I always say liquidity is available at a price, and you've seen that over the past year with people trading."

The stock was the best performer on the NZX last year, soaring 655 percent, and the shares have continued upwards so far in 2018, up 37 percent.. In early trading today the shares gained 1.3 percent to $3.04. Earlier this month, international investment advisor MSCI added Serko to its Global Micro Cap Index, which will also increase demand from funds which follow that index.


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