Silverlake Axis keeps focus on both returns and innovation

Economies go through cycles, and most companies inadvertently ride along with the ups and downs. Not many can claim what digital economy solutions provider Silverlake Axis has achieved. “We have been profitable for every year of our operations. Of course, some years, prof­its are up and profits are down, but we have never made a loss,” says group managing di­rector Andrew Tan, in an interview with The Edge Singapore.

For the 3QYF2021 ended March 31, the group reported a 7% y-o-y drop in revenue from RM151.7 million ($50.0 million) to RM140.9 million. However, earnings jumped by 51% y-o-y from RM25.6 million to RM38.7 mil­lion, thanks to lower cost and better margins.

According to its FY2020 Annual Report, Sil­verlake Axis did not record a return on equi­ty (ROE) below 40% from FY2016 to FY2019, barring a 26% figure in FY2018. In FY2020, despite the fallout from the Covid-19 pan­demic, the group still managed to deliver an ROE figure of 25%.

With this track record of achieving a weight­ed ROE of 30% over the last three years, Sil­verlake Axis was named winner for the ROE category, among its peers in the industry cate­gory Software & IT Services; Technology Equip­ment, at this year’s Centurion Club awards.

Tan believes the group’s clear vision on how the business should be run, thereby win­ning this accolade, is something to be proud of. “In recent years, before this volatility in the market, we have been very focused — we’ve been keeping a very firm eye first and foremost on protecting and growing our re­curring revenue segments,” he says.

The group’s recurring revenue segments comprise 75% of its revenue, and comprises maintenance and enhancement services, as well as Software-as-a-Service (SaaS) segments.

Tan highlights that these segments are a “very key part of our business”, adding that these are the most valuable and profitable segment of Silverlake Axis.

Furthermore, it is this recurrent revenue that gives the group the organic resourc­es and confidence to help fund its invest­ments into new growth areas, where re­turns are not immediate. With this steady base, Silverlake Axis is less susceptible to demand-side fluctuations.

The market is constantly changing, but Tan is confident that the group can maintain this momentum to continue growing its earn­ings. He highlights that its net profit margin has been averaging about 30%, as compared to its peers, which record about 20% or less.

Tan points out that many technology com­panies today are more obsessed with achiev­ing higher share prices. They do so by grow­ing the topline aggressively, even if along the way, they lose money for every dollar of rev­enue generated, selling the belief, or hope, that profits will come later. He believes this is not a sustainable way of running a busi­ness: “Our philosophy has always been to consistently demonstrate that we have a sol­id profit model.”

Core businesses

Tan also has an optimistic view of the group heading forward. Most of Silverlake Axis’ cli­ents are banks and FinTech providers, and Tan observes that the pandemic has made them realise that they have to “rapidly transform”.

He says the banks need to be ”digitally-en­abled” to respond to new ways of providing banking services – customers no longer want to walk into a physical branch and line up to speak to a teller. “It is quite widely known in the banks [today] that doing nothing is no longer an option,” he adds.

See also: Silverlake Axis shines with overall and ROE win; Innotek and Multi-Chem win as well

As such, banks are looking into modernis­ing their core banking systems to enable them to remain competitive and are moving toward a more digitalised form of banking. To this end, the rapidly growing FinTech ecosystem is helping to move things along. Tan calls this emerging industry the “integration or meet­ing points of new technology and finance”.

The goal of this industry is to enable “fric­tionless and seamless interaction…between the customer and the providers,” Tan says. An example of such an interaction is eKYC, or us­ing electronic means to do a Know-Your-Cus­tomer process, which is vital in preventing fraud and money laundering for banks and financial institutions.

These processes often involve transactions handling millions, or sometimes hundreds of millions of dollars, which points to a need to be robust, secure and “very, very, resilient”, says Tan. This is because while the process­es have been simplified, the strict standards of bank regulations, compliance and report­ing still remain. And this is where Silverlake Axis comes in. Its solutions have been pro­viding banks with the opportunity to grow in their digital transformation journey.

These core banking solutions have been the backbone of Silverlake Axis, and have been used by 40% of the top 20 largest banks in Asean, with a 100% success track record when implementing projects for customers.

MÖBIUS

Even with this significant market share pro­viding a stable base of maintenance contracts generating recurring income, Silverlake Axis is not resting on its laurels. It has recently pivoted its strategy of simply replacing core banking systems for banks to a SaaS reve­nue model.

In an earlier interview with The Edge Sin­gapore, Tan explains that Silverlake Axis’ rev­enues declined because core system replace­ment is no longer top of the agenda for most banks. Given a more conservative capex, banks are prioritising digital transformation to cut capex spend, rather than the risky and ex­pensive process of core banking replacement.

As such, Silverlake Axis’ SaaS model allows firms to upgrade their banking core gradual­ly instead of rebuilding from scratch, which will cost a lot and carries the risk of cost and schedule overruns.

The group launched its “next-generation banking solution”, called MÖBIUS, in 2018 as an end-to-end banking platform, compris­ing customer experience, process orchestra­tions and core banking system of record, on one platform over a public and private cloud.

Tan highlights a paper published by mar­ket research firm IDC in July 2020, which an­alysed core banking platform architectures by setting out a definition of the attributes of a so-called “next-gen” banking platform. Tan says that MÖBIUS has fulfilled all 25 defini­tions set out in the paper, making MÖBIUS a truly next-gen banking platform.

“It is cloud-native, has a fully digital core banking processing component, is platform-ag­nostic, and can deliver out of the box what we call microservices, that contain all the functionalities of digital banking offerings,” he explains.

MÖBIUS is now implemented in four bank sites, and Tan says the solution is creating sub­stantial interest, not only among the group’s customers but also financial services players.

Moving forward

With a rapidly digitalising world and the group poised to take advantage of it, what’s next for Silverlake Axis?

A key aspect, of course, is to make sure the group’s offerings are up-to-date, are rele­vant, and continue to suit the market demand.

To that end, Tan reveals that Silverlake Axis invests in internal product development as well as scours the technology landscape for anything that might be suitable for its cli­ent requirements.

Tan says that the key competency that the group holds since its founding some three decades ago is product manufacturing and product creation. This is enabled by not only recruiting but also keeping strong talent with­in the group.

This allows Silverlake Axis to “continue to develop world-class products and solutions”, he says, adding that the group will not shy away from investing in building relevant solu­tions for its customers and the marketplace.

Unlike property developers or mall own­ers, the group has hardly any tangible assets. Rather, what really makes the group valuable are its people, who are there “to innovate, to build relevant products, who can sell these products, install, and support these products for our clients”, says Tan.

To this end, Tan is placing a strong em­phasis on retaining Silverlake Axis’ employees with the relevant skill sets in this fast-chang­ing tech landscape. For one, they spend about a full day every fortnight in training and de­velopment programmes to update their skills.

Furthermore, Tan says Silverlake Axis has cultivated a very strong culture that allows “people who want to be at the cutting edge of technology can come and grow with us”. In short, it is about “investing in talented people,” he adds.

He points at the group’s retention numbers, explaining that the overall attrition rate is in the single digits per year. This, Tan thinks, speaks for itself, adding: “This is a strong testament as to how we motivate and retain our key people.”

Moving forward, Silverlake Axis’ key strat­egy will be centred around its MÖBIUS plat­form for its clients, and Tan explains that this will be the future in terms of how the group positions upgrade paths for its current cus­tomers and their products.

In a message to shareholders, Tan point­ed to the group’s track record — “we’ve been here [in this space] solidly for 30 years”, in contrast to competitors that have come and gone, he says, adding: “We’re here for the long game.”