Analyst Briefing Note Brady

ComTech Analyst Briefing Note Brady PLC Overview Brady PLC (Brady) has provided trading and risk management solutions into the metals sector since its inception in 1985 listing on the AIM (the junior London Stock Market) in 2004, In 2007, the company brought in a new management team headed by CEO Gavin Lavelle and that team has proven successful in executing the company’s strategy of growth via organic development supplemented by acquisitions. Over the last several years, the company has gone from strength to strength, broadening its product range and expanding into new commodities, markets and geographies.

Brady is the largest Europe-­‐based Energy and Commodity Trading and Risk Management (ECTRM) vendor and is regarded as the leading vendor in the metals sector. However, it also offers a number of CTRM and related solutions for global energy, ags and softs and is the market leader in North American recyclables. Its offerings in trading and risk management are designed to enable producers, consumers, financial organizations and trading companies to manage all of their commodity transactions in an integrated solution -­‐ including pre-­‐deal analysis, trade capture, risk management, foreign exchange, credit risk, logistics, cash management, physical operations, settlement, back office, financials, accounting and treasury.

With more than 300 customers worldwide, Brady ranks amongst the top five vendors of CTRM solutions, and is the only currently publically traded CTRM vendor, providing the company access to a variety of institutional investors and funding with which to continue to pursue strategic acquisitions and further invest in its technology and products. Brady has been consistently profitable and maintains a strong balance sheet.

Financial Results Brady PLC is a public company listed on the London Stock Exchange’s AIM market and, as a result, publishes its financial results for public review. Brady posted revenues of 29.4m GBP in the 2013 financial year, 4% higher than 2012 revenues while EBITDA was down 37% to 3.7m GBP. Brady had a strong sales year in 2013 with 16 new significant contracts, but £3.2mill of license revenue was deferred due to their conservative revenue recognition policy. Recurring revenues are now 57% of Group revenues, up 14% to 16.6m GBP and the company finished the year with 7.2m GBP of net cash. The geographic make-­‐up of Brady’s revenues in 2013 were £21.2 million in EMEA, £6.8 million in the Americas (following the first full year of contribution from Brady Recycling) and £1.4 million (2012 -­‐ £2.4 million) in Asia. In-­‐line with the company’s stated strategy, revenues associated with cloud delivery have grown year-­‐over-­‐year, providing an increasingly predictable revenue stream.

Product Set and Technology Base

Brady’s solutions are built on a service-­‐oriented architecture (SOA), using the latest industry standard technologies. Brady’s Enterprise Services layer provides a framework of open and extensible business, data and presentation services. These services are employed across Brady’s solution set but can also be used to augment other third party solutions or to provide a consolidated enterprise-­‐wide view of operations and risk. Brady’s solutions are also web enabled allowing them to be deployed in the Cloud or traditionally on-­‐premises.

Brady is actively promoting its Cloud Services as they believe those services deliver much greater flexibility and superior levels of security, compliance and availability, as well as allowing customers to reduce total cost of ownership. Their Cloud Services are delivered using dedicated high availability environments running in state-­‐of-­‐the-­‐art data centers. Its solutions and services can be accessed securely via the internet or using other standard connectivity options, and have built in redundancy and resilience to help ensure operational performance is maintained in the event of hardware failure. From their Cloud, Brady can make available, almost immediately, everything from a single service to a full product (comprised of many services). Integration with other solutions is

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At a Glance

Company Background Founded: CEO:

Offices:

Employees: Website:

1985 Gavin Lavelle UK Norway France Switzerland USA Singapore 220 (Est.) bradyplc.com

Products Brady Energy – ETRM, logistics, data management and cross-­‐border settlement Brady Commodities – Physical trading risk and derivatives for metals and mining, agricultural and soft commodities Brady Recycling – Trading and processing for recycled metals

Market Profile (ComTech Est.) Customers by Geography Americas

EMEA

AsiaPac including Aust.

23% 72% 5%

Customers by Market Segment Commodity (metals, ags and softs) Producers/Traders 42% Energy Producers/Traders 46% Recycling

12%

Financial Results – EOY 2013 Revenue EBITDA

$48 M illion USD $6 M illion USD

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straightforward and solutions can be scaled quickly and easily to meet the changing needs of a client’s business. By employing their SOA and Cloud Technologies, Brady’s aim is to deliver a powerful and flexible set of ‘best of breed’ enterprise solutions and services.

Brady offers a range of software products and services across all commodities and metals recycling as follows: Brady Energy – Includes ETRM, a comprehensive Energy Trading and Risk Management solution; Brady Energy Logistics, a pan-­‐European solution for balancing, scheduling and nomination of electric power; Brady EDM, an energy data management solution; and Brady Energy Settlement, a cross-­‐border market settlement solution.

Brady Commodities -­‐ CTRM solutions for metals, raw materials, agricultural and soft commodities trading Brady Recycling – Includes CRES, Brady Recycling’s Commodity Recycling Enterprise Solution for commercial recyclers and brokers; and the IMPACT solution for mills/consumers of recycled and bulk commodities

Company Strategy With a solid balance sheet, significant cash reserves and access to a variety of institutional investors via the AIM, Brady PLC has been committed to an aggressive growth strategy and is now challenging the top CTRM vendors in terms of revenues, installed base and span of operations. Executing this strategy, Brady has become one of the top five CTRM vendors on a revenue basis as of 2012. Gavin Lavelle, the company’s CEO, has continued his commitment to invest in existing products, services and technologies, complemented by additional acquisitions, if appropriate, to fuel growth.

The company’s acquisition strategy to date has been mostly additive, acquiring complimentary products that broaden its functional footprint or expand its coverage into new commodities and geographies. For example, starting in the metals derivative and refined metals markets, Brady has extended its solution set to cover metal raw materials, scrap and recycling.

In the European energy markets, Brady’s acquisition of two nominally competitive Norway-­‐based vendors has brought some consolidation to that market -­‐ Navita had a strong footprint in physical energy and Viz in derivatives and risk management. With those acquisitions, Brady has removed both product and management overlap to gain financial efficiency and improve pricing power. With the addition of a pan European power and gas scheduling and nomination solution, Brady now has a comprehensive solution for the majority of the European power markets. This acquisition has also provided Brady a valuable base of over 130 customers for future product up-­‐sell and additional deep industry expertise. Though the integration of the Navita acquisition did require significant time, the Brady energy product line and strategy has now been fully consolidated and the approach seems now to be bearing fruit.

In the softs commodity market, Brady has developed a sizable list of clients for their fully integrated solution platform, with capabilities across trading, risk, operations, settlement, logistics, trade finance and accounting. Though initially developed for the mainland European trading community, Brady has seen significant growth in the Americas, African and Asian continents, most notably in the US cotton market.

Headquartered in London, Brady is the largest native European CTRM vendor and has the broadest product coverage for Europe. While the company is acknowledged as a global leader for metals, it is important to note that 50% of the new business signed in 2014 was outside of Europe, a significant milestone for the comapny. As of the EOY 2013, some 72% of its revenues currently originate in Europe and the Middle East, with the Americas now representing 23% and Asia 5%. Brady is progressively working to continue to establish itself as the de facto leader in Europe across all commodities, while simultaneously further extending its global leadership in metals and extending its geographic footprint globally.

Its CTRM solution for bulk commodities and metals is very competitive and has significant global appeal. In North America, Brady’s recycling product (acquired via SAI) has given the company the leading position in the metals recycling space as well, with 6 of the top 10 North American recycling companies reliant on the software. However, Brady must use its European strength as a springboard with which to challenge globally and in some instances, this may mean adding features and functionality or further acquisitions.

The company is well positioned on the technology side. Its products are based on a set of technologies that facilitate web/cloud delivery and the company has had a good deal of success in growing revenues via its cloud-­‐based offerings in line with their goal of increasing recurring revenues.

The company’s success to date bodes well for future growth as ComTech does expect cloud deployment of CTRM products to grow at a faster rate than traditional licensed on-­‐premises software (15% per annum compared to 3-­‐5% for traditionally installed products). In line with its cloud strategy, Brady has upgraded its services and support capabilities and is able to offer a broad-­‐based package of services around cloud deployment that many of its competitors are not yet able to provide.

Though the company’s acquisitions to date are viewed as “successful”, each new acquisition has potential risk related to the difficulties of integrating technologies, processes and cultures. As has been observed in the past with other vendors, being able to technically integrate and optimize the product portfolio can be difficult, as can the communication of such a strategy to the broader marketplace. To date however, Brady’s acquisitions have been mostly additive and the company has been able to elaborate a coherent marketing and technical story for those acquired products.

Recent Acquisitions Systems Alternatives International LLC (SAI), acquired in November 2012, provides the company with a North American presence and a leading position in the ferrous and non-­‐ferrous metals recycling markets.

Navita, acquired in March 2012 was a leading supplier of ETRM solutions via its POMAX platform with a large installed base particularly in Scandinavian markets. Even with Navita’s more physical energy focus, there was considerable overlap with the VIZ Elviz ETRM solution acquired earlier but the acquisition also added significant capabilities in energy data management (EDM) amongst others. There was also overlap with the Syseca logistics products. The acquisition propelled Brady to the number 1 position in European energy.

Syseca AG, acquired in March 2012, was a Swiss-­‐based European provider of logistics software for electric power. The Syseca solution formed the basis for Brady’s power logistics solution and provides Brady with real leverage in the European energy market as it is able to claim scheduling and capacity nomination connectivity with many TSOs across Europe, to facilitate cross border trading.

VIZ Risk Management, based in Norway and acquired in December 2010, was a supplier of financial and risk management trading software for energy. Its ELVIZ product now forms the basis of the Brady ETRM offering. © Commodity Technology Advisory llc

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Viveo Switzerland, acquired in March 2010, was a provider of CTRM software for metals,soft commodities, oil, gas and metals with a sizable installed base primarily in Central and Eastern Europe. The FinTrade product has become a core product for Brady and continues to be a strong performer while Viveo’s location in Switzerland has also proven to be strategic.

Commodities Software (ComSoft), acquired in January 2009, was the provider of Aquarius, a leading solution for the administration of raw materials, physical metal and associated hedge and risk management. The combination of Brady and ComSoft ensured that Brady became the market leader in metals.

Outlook and Analysis With 57% recurring revenues, consistently profitable and no debt, Brady PLC is well positioned to challenge the current CTRM leaders across all commodities and on an increasingly global basis. To do so, it must continue its strategy of addressing holes in its product lines by either building or acquiring and continue to ensure that its other products both remain functionally competitive and increasingly integrated. Its cloud strategy is proving successful and is further contributing to an already predictable revenue stream; a critical requirement for a publically listed company.

Brady has access to additional capital and has a track record of concluding several successful acquisitions. Though the company has demonstrated several years of good growth, Brady will face a challenge in closing the revenue gap between itself and the top 2-­‐vendors without overstretching itself or sacrificing customer service.

Opportunities • • • • •

As a public company, with a strong balance sheet and no debt, Brady provides excellent visibility into its financials and operations, giving the company an advantage in sales opportunities in which vendor stability is a concern for companies seeking new software.

With comprehensive asset coverage and strengthened global distribution and support, Brady has the opportunity to continue to grow further globally.

Ability to leverage a growing installed base of more than 300 customers for cross selling of additional products and services.

Well positioned to leverage cloud deployed solutions market growth.

Proven ability to identify and make other strategic acquisitions to support its growth and fill in any holes in its geographic and functional coverage.

Risks • • •

Long-­‐term success in global CTRM will require continued penetration into North American markets and increased success selling into Asian markets.

Public company financial visibility does increase risks of damaging market confidence should Brady lose momentum in a traditionally volatile market.

Growth via acquisition does have risk associated with difficulty of integration, retention of skilled and experienced resources, and long-­‐ term retention of acquired client base.

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About ComTech Analyst Briefing Notes Commodity Technology Advisory (ComTech) is the leading analyst organization covering the Energy and Commodity Trading and Risk Management (E/CTRM) technology markets. We provide invaluable insights, backed by primary research and years of experience, into the issues and trends affecting both the users and providers of the applications and services that are crucial for success in markets constantly roiled by globalization, regulation and innovation.

ComTech Analyst Briefing Notes are intended only to provide an overview of a technology, vendor or product of interest in the Commodity Trading and Risk Management market space. These Notes are not an endorsement of any product or vendor and should be viewed only as an additional source of information or data relating to the covered topic.

Disclosures: At the time of this writing, Brady plc is a customer of Commodity Technology Advisory and the company’s management cooperated in the preparation of this ComTech Analyst Briefing Note.

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