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Maiden figures for FreeAgent

Digital creating ‘sea change’ in accounting

Ed Molyneux
Molyneux: ‘sea change’

Small firms’ increasing adoption of digital technologies is creating a “sea change” in the the way accountants work, according to FreeAgent chief executive Ed Molyneux.

Initiatives such as the Government’s Making Tax Digital, which represents the biggest change to tax administration in the UK for a generation, are forcing businesses and the profession to change the way they handle their book-keeping.

Under Making Tax Digital all businesses except the very smallest (those with turnover below £10,000) will be required to manage their tax affairs digitally, and update HMRC at least quarterly with summary accounting information.

In a statement accompanying the accounting software company’s first annual figures since it floated on the London Stock Exchange, Mr Molyneux said HMRC has confirmed that some businesses will start to be impacted from April 2018 and by 2020 all businesses will be within the MTD regime.  He said FreeAgent is well placed to support these businesses as MTD progresses. 

“We have been starting to observe a sea-change in the attitudes of accounting professionals towards cloud accounting. The benefits of sharing a single accounting picture with clients have become more widely understood,” he said.

“And micro-business owners themselves have increasingly high expectations of all aspects of their lives being catered for digitally, driven by the stratospheric rise of e-commerce and social media. Those clients’ expectations in their dealings with their accountant are no exception.

“The ramifications for the accounting profession are tremendous. As software becomes increasingly capable of automating bookkeeping, accounting, reporting and even compliance, accountants find themselves needing to reposition as higher-value-add (and higher-margin) advisors.

“For most accountants this is a welcome shift, allowing them to support a larger number of businesses at lower cost.”

However, he also warned that the company is exposed to “less favourable changes in legislation”, including the Government’s recent reform of the way companies contracting for services in the public sector are treated for tax.

He said this decreases the likelihood that public sector service providers will choose to operate via a Personal Services Company (PSC).

“We did not see a material impact on our revenue in the period – these changes came into force as the period ended – but this may not preclude a future impact on the growth of revenue from our PSC-serving practice customers. We remain vigilant for any evidence of change in our customer behaviours,” he said.

During 2017, FreeAgent increased revenue by 41% to £8 million. The gross profit margin remained strong at 82%, despite the lower margin development income earned in the year.

The adjusted EBITDA loss for the year rose from £200,000 to £700,000,  reflecting investments in customer acquisition, particularly in the practice channel.

Financial Highlights

·     Revenue increased by 41% to £8.0m (FY 2016: £5.7m)

·     Gross profit increased by 38% to £6.6m (FY 2016: £4.8m)

·     Gross profit margin 82% (FY 2016: 84%)

·     Adjusted EBITDA £0.7m loss (2016: £0.2m loss) reflects planned investments in customer acquisition, particularly in the practice channel

·     Net loss of £2.9m, including share-based payment expense of £0.8m, as the Group continues to invest in scaling its business (2016: £1.3m)

·     Statement of Financial Position strengthened with £4.3m of net cash at year end (31 March 2016: £1.8m)

·     Loss per share of 13p (2016: 43p)

·     Annualised Committed Monthly Recurring Revenue (ACMRR) at period end increased by 26% to £8.6m (Mar 2016: £6.8m)

·     Residual lifetime value of future subscription payments from the Group’s current customer base increased to £34m (31 March 2016:  £26m)


Operational Highlights

·     Accounting Practice Clients strengthened to 33,147 (FY 2016: 16,705)

·     Direct Clients increased to 17,500 (FY 2016: 15,741)

·     High levels of customer satisfaction – Net Promoter Score (NPS) of 72 and low direct customer churn rates averaging 1.6% during the year

·     Successful placing of £8m of new equity and admission to “AIM” (Alternative Investment Market of the London Stock Exchange) in November 2016

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