A company that relies on the major financial institutions for business may sound like an unpromising prospect given the funeral mood of the global markets, but Phillip Blundell, has no such worries.

The urbane CEO of Intelligent Environments, which provides online software products for financial services organisations and their customers, particularly in the credit card and investment markets, believes that banks will need to continue investing in their web-based services.

‘We don’t see banks as being able to slow down their software spend for at least another couple of years because they haven’t actually replaced the systems they were trying to replace.’

The company’s year-end results for 2007 were boosted by four big client wins – including RBS Europe and Barclaycard – with revenue rising by 43 per cent to £6.2 million, while operating profit doubled to £900,000. Net cash stands at just under £1 million.

This organic growth came after around £1 million was invested in boosting Intelligent Environments’ infrastructure, such as hiring 19 new members of staff (bringing the total to 50) and £500,000 on research and development.

It’s quite a change in fortunes for a company that’s been on the junior exchange for a decade. Blundell says part of the problem has been that the banks invested large sums to develop their systems between 1999 and 2001 to find that only five per cent of customers went online. It took the advent of broadband for people to turn to the web for financial products and, while the banks expected demand to be ten to 15 per cent, it’s now over 50 per cent.

‘Overall, online is a very large channel, whereas five years ago it was less than ten per cent,’ says Blundell.

Intelligent Environments provides a white label service. The travel agency, Thomas Cook, has formed a partnership with Barclaycard to produce a credit card that dispenses with the need for travellers cheques. ‘Barclaycard don’t have the retail infrastructure that Thomas Cook are used to and that’s what we provide,’ explains Blundell.

The contracts with clients often last for five years but during the past 18 months royalty fees have been introduced to complement the recurring source of revenue. ‘Instead of charging an upfront license, we share the volumes and receive a usage fee,’ he says.

A royal move
This has been achieved by partnering with organisations such as First Data and Unisys. Blundell says: ‘When global companies like these come on board, they always sell on a usage basis and that’s how we’ve managed to introduce a change in how we receive payments. They sell on our behalf and impose this pricing on their customers.’

It’s worth noting that only two per cent of revenues arose from royalties in the year end 2007 results. Intelligent Environment’s broker anticipates this could rise to 40 per cent by 2010.

The international reach of the organisations also provides a great opportunity for scalability. ‘Our partnership with these companies is mainly outside the UK. Our major opportunities going forward are in Western Europe and Eastern Europe particularly, plus the Middle East. Our partners are bringing some very big customers to the table.’

Blundell acknowledges the company has been something of a slow burner and its backers, which include Marlborough Fund Managers and AXA Framlington, have needed to take a long-term view of their investment.

But now the various pieces appear to be falling into place and the plan is to double profits over the next 18 months. If there is a challenge, it’s retaining key staff – true of any fast growth venture – and ensuring that the partners keep promoting the online products.

‘If the partners stop selling, that’s a big issue. The key for is to get more sales bodies and get them working in tandem with their sales guys,’ says Blundell.

Intelligent Environments	AIM	£7.82m	4.75p	0.00p
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