Sirma Group experienced significant revenue growth in 2022 but ended the year with a loss. Is the outlook for this year optimistic?
In 2022, Sirma achieved a growth rate of 25.8%, which is a significant success. The year proved strong with business recovery after COVID-19, as Sirma won several new customers and expanded into new markets. Additionally, we completed a major deal that resulted in the majority stake of Sirma AI (trading as Ontotext) being sold. Later, we negotiated with the EBRD to sell our remaining minority stake, which we finalised in early 2023. The transaction resulted in a negative impact on consolidated earnings.
Sirma Group acquired valuable intangible assets through Sirma AI, with considerable EU funding for our projects. Despite negotiating a competitive price, it did not reflect their true value. The company has reached a stage where these assets must deliver their full revenue and profit potential. Our main competitors have invested large amounts of money in developing similar technology. I name organisations such as Oracle, Microsoft, Neo4J, and Amazon. The Management Board decided to sell the company and use the earnings for expansion to avoid falling behind competitors. Despite a negative profit/loss column, the group still earned a reasonable profit overall.
We must address our concerns about the 2023 outlook head-on and prioritise independent growth. Our M&A plans are subject to change, and we have postponed investment in Turkey. Instead, we are currently in talks with a Romanian company. The IT market is experiencing instability and layoffs in the US and Europe. Additionally, the industry is feeling the negative impact of the conflict in Ukraine, inflation, and clients’ growth slowdowns. Despite these challenges, we remain committed to expanding in 2023, but we must acknowledge that it will take work.
Sirma Group has acquired Sciant, a company with expertise in machine learning, business intelligence, and blockchain. What benefits do you anticipate from this merger?
Sirma Group has shifted to a service-oriented structure following the sale of Sirma AI. We recognised that funding product development through a small and illiquid local stock exchange is not feasible. Therefore, the company has focused on providing specialised solutions in key areas, strongly emphasising its strategic verticals.
The acquisition of Sciant has expanded Sirma’s expertise in the Hospitality, Transport, and Logistics industries. Now, we have access to Sciant’s impressive client roster, which includes major global hotel chains and logistics companies. Adding 140 specialists brings experience working with global companies and a strong position in strategic verticals. Sirma plans to maximise the benefits of this acquisition through marketing and sales, resource utilisation, and technological innovation. Sciant achieved excellent results in 2022 and has maintained its growth pace into 2023. The integration of Sciant is expected to be successful due to shared values and culture.
What adjustments will you make to your acquisition strategy amidst the global uncertainty in
the IT market?
Sirma has a growth strategy involving organic and inorganic means, including acquisitions. We’re cautious when selecting potential companies due to the current struggles in the IT market. The value of a company that has lost its customers lies solely in the people and teams working together. On the other hand, the IT job market has relaxed. In 2022, there was a high demand for programmers with great rewards offered in job advertisements. However, the job market in Bulgaria is currently not as active. There are few actively recruiting companies, and Sirma is one of them.
Sirma is not interested in acquiring companies with declining business as it is not productive for us. We focus on finding companies with prominent clients, successful sales, and profits that are not micro-sized. We aim to create synergies within our strategic verticals and ensure technological compatibility. While these companies may be more expensive, it aligns with our strategy.
The past months have brought breakthroughs in AI. Where will your focus on R&D be?
The process is natural, as with all new technologies. Whilst large language models (LLM) are not a new technology, Open AI has done an excellent job developing and popularising the possibilities of Chat GPT. LLM needs to be combined with other AI technologies to do real work. Our team is currently working on solutions that would work for our clients.
We have been selling our Melinda chatbot to our clients – large organisations, and we are currently integrating LLM technology into it. We are also developing other interesting pilots for using LLM, but we have yet to reach a commercial solution. From its inception, Sirma has had a strong affinity towards AI (founded in 1992 as Sirma AI) we continue to work hard on R&D in this area.