Idox plc Final Results FY2019
(‘Idox’ or the ‘Group’ or the ‘Company’)
ldox plc (AIM: IDOX), a leading supplier of specialist information management software and solutions to the public and asset intensive sectors, is pleased to report its financial results for the year ended 31 October 2019.
The Group’s audit has now been finalised with an unmodified audit opinion and the Group reports its final results in line with its trading update of 16 March 2020. This follows earlier announcements that extra time was taken during the audit to ensure that the accounting and disclosure of items identified in respect of prior periods was complete, which was then subsequently extended by the FCA’s moratorium on the publication of results due to Covid-19.
Idox along with most companies has been impacted by the emerging Covid-19 pandemic. We continue to assess the impact of the Covid-19 pandemic on the business, taking actions to mitigate or limit the impacts on our organisation where we can and supporting our staff, customers and partners in dealing with the emerging situation. As part of the preparation of our FY19 results, the Group has carefully assessed the likely impact of the Covid-19 pandemic on our business and considered specifically changes in the way we engage with our customers, staff, supply chains and banking partners. Idox is fundamentally resilient to the Covid-19 pandemic due to the Group’s high recurring revenue base, its focus on public sector markets and the high proportion of staff that routinely work from home. The Group retains significant liquidity with cash and available committed bank facilities and has strong headroom against financial covenants. We continue to monitor the situation as it continues to evolve and adapt our approach as required.
- Revenue of £65.5m (2018: £66.4m for continuing business, restated for prior year adjustments as disclosed in note 4).
- Revenue visibility significantly improved, with annualised recurring revenue run rate at 31 October 2019 up 20% to £38.9m following adoption of IFRS 15 (16% organic).
- Order book for contracted software and services up 29% to £12.1m.
- Adjusted EBITDA*: £14.4m (2018: £13.6m, restated) for continuing business. Adjusted EBITDA* margin improved to 22% (2018: 20%, restated).
- Cash conversion of Adjusted EBITDA* to net cash from operating activities improved to 86% (2018: 72%, restated). Free cashflow of £4.4m (2018: £4.2m inflow).
- Adjusted EPS** for continuing operations 1.30p (2018: 2.23p, restated).
- Net debt*** at 31 October 2019 down 17% at £26.4m (2018: £31.8m).
- Post year end, new banking arrangements put in place for a £35m, three-year revolving credit facility.
Reconciliations between adjusted and statutory earnings are contained within these financial statements. The statutory equivalents of the above results are as follows:
- Loss before tax £0.03m (2018: £30.2m loss, restated) for continuing operations, including an impairment charge of £Nil (2018: £33.3m). Loss before tax on discontinued operations of £0.6m (2018: £9.7m).
- Basic EPS loss of 0.26p (2018: loss 6.67p, restated) for continuing operations. Basic EPS loss of 0.14p (2018: loss 2.19p) on discontinued operations.
Alternative Performance Measures
These items are excluded from statutory measures of profit to present a measure of cash earnings from underlying activities on an ongoing basis. This is a standard methodology in the capital markets in which we operate and how management, shareholders and other stakeholders track performance.
* Adjusted EBITDA is defined as earnings before amortisation, depreciation, restructuring, acquisition costs, impairment, financing costs and share option costs. Share option costs are excluded from Adjusted EBITDA as this is a standard measure in the industry and how management and our shareholders track performance.
** Adjusted profit before tax and adjusted EPS excludes amortisation on acquired intangibles, restructuring, financing, impairment and acquisition costs.
*** Net debt is defined as cash less third party borrowings less long term bond.
- New Board, new senior management and finance teams, with improved accounting practices; enhanced employee, customer and shareholder engagement; full integration of prior period acquisitions; and improved governance throughout the organisation.
- Disposed of our loss-making Digital business in November 2018 which was classed as discontinued operations in the prior year accounts.
- Settled a number of operational legacy issues, including disposal of surplus offices, resolved all outstanding material litigation, resolved a number of customer disputes and initiated focus on recurring revenue, ceased loss-making or unsustainable products, and secured long-term supply arrangements with a number of key software partners.
- Acquired Tascomi, a cloud-native supplier of solutions to our core Local Authority property and environmental services markets, in July 2019 to enhance the Group’s technological capabilities and market leading positions.
- The acquisition was funded by a £7.4m equity placing.
- Established new sales and marketing methodologies to identify our strongest markets and align existing and new resources to maximise the growth opportunities we are presented with.
- A continued focus on managing costs to drive increased profitability, and a focus on achieving positive trading terms with our partners to ensure a high level of cash conversion and generation from our operations.
David Meaden, Chief Executive of Idox said:
“This has been a turnaround year for Idox. We enter FY20 on a sound footing having secured new financing arrangements, reduced debt, improved recurring income and overhauled our governance structures, addressing the material legacy issues impacting the Group over the previous 18 months. Our attention is now focussed on customer and employee engagement, growing in our chosen markets and improving margins and cash. We have strong products that are essential for high performing organisations, including our large portfolio of public bodies, seeking to modernise and transform the way they deliver their services.
Cash conversion in the Group has improved notably within the year compared to prior periods, as our revenues and profit are closer linked to services we provide and so more tightly aligned to payments the Group receives for work delivered to our customers. Following the improvements seen in FY19, the Board has full confidence in the Group’s future prospects and currently intends to introduce a final dividend in respect of the year ending 31 October 2020.
We have a high degree of confidence that we will continue to create value at Idox for employees, customers, shareholders and other stakeholders as we build on the achievements of FY19 and deliver on the ambitious targets we have set ourselves for FY20 and beyond”.
For further information please contact:
Idox plc +44 (0) 870 333 7101
Chris Stone, Non-Executive Chairman
David Meaden, Chief Executive
Rob Grubb, Chief Financial Officer
Peel Hunt LLP (NOMAD and Broker) +44 (0) 20 7418 8900
MHP Communications + 44 (0) 203 128 8100
Reg Hoare firstname.lastname@example.org
About Idox plc
For more information see www.idoxplc.com @Idoxgroup
ANNUAL FINANCIAL REPORT ANNOUNCEMENT
The extracts below are from the Annual Financial Report 2019. Note references refer to notes included in this Annual Financial Report Announcement 2019.
I joined our company as Chairman in November 2018, and reflected that the financial year ending in October of that year had been very busy, with the management team and Board spending a lot of time on issues that needed to be resolved for the good of all of our stakeholders, but which were not directly linked to delivering value for our customers.
More recently Idox along with most companies has been impacted by the emerging Covid-19 pandemic. We continue to assess the impact of the Covid-19 pandemic on the business, taking actions to mitigate or limit the impacts on our organisation where we can and supporting our staff, customers and partners in dealing with the emerging situation.
Idox is a very resilient business, as the core of our Group operates in public sector markets which we anticipate will continue to be robust; in the normal course of business a high proportion of staff are long-term homeworkers meaning the challenges and impact of the switch to predominantly remote working is much lower than for many other organisations. In addition, we have high levels of recurring and repeating revenues, and can continue to deliver products and services remotely with no need for physical contact. We also have significant headroom in our banking facilities following the successful re-negotiation that was completed on 19 December 2019. We remain very vigilant as to the impact of the pandemic, and we are in a strong operational and trading position to react as necessary. Further details regarding the impact of the Covid-19 pandemic and the Group’s response are provided in the Going Concern disclosures included within note1.
As the year ended 31 October 2019 has unrolled, further issues relating to historic accounting and management practices emerged, resulting in various prior period restatements and a number of improvements to our overall governance and controls framework as detailed in our Audit Committee Report and notes to our financial statements. I am pleased to say that, following the audit, all of these issues have been dealt with effectively, and all the indicators, the balance between order book, utilisation, revenue and cash, tell us that there are no more of these historical issues to emerge. I understand the frustration of our shareholders that we have had to spend so much time on these legacy issues, and that they have consequently impacted our expected performance, but I am happy to report that we are at the end of this phase of the Idox story. Our Executive Management Team (EMT) has done an excellent job in working through the issues, dealing with them quickly and in a transparent way, and putting the business on a good footing to go forwards.
A major component of the stabilisation programme has been a significant upgrade in our management team. We have welcomed new colleagues to lead our Finance, Software Development, Operations and Sales organisations, and as a result, we have a much stronger team, with the skills and experience to drive the business forwards as we focus on the core of our business, building and delivering products and services that deliver clear value for our customers. This is not a new strategy. As I stated in last year’s Annual Report, our strategy of building discrete software and software enabled services businesses around specific Intellectual Property (IP) assets has allowed us to build market leading positions in a number of very attractive market segments, where we enjoy the benefits of delivering differentiated products and services to customers that deliver tangible and lasting value for them. This has led to us building long lasting relationships based on mutual value creation. The power of such a niche strategy is evident in the length of many of our relationships, the depth of penetration in the segments we target, and the margins that we enjoy as a result of the differentiated value that we deliver. Now that we have dealt with the distractions, and associated cost burdens, of the legacy issues, we can concentrate on doubling down on this strategy, and expect to see the benefits of that focus lead to a significant improvement in our own margins.
Last year I wrote in my report about disposing of businesses that had been acquired that did not fit our model. This year I am very pleased to report that, in contrast, we have completed an acquisition that fits our model perfectly. We are thrilled that, with our shareholders support, we have been able to complete the acquisition of Tascomi Limited. Tascomi is a business that has been built from the ground up as a very flexible, cloud-native software business, with its core applications targeted at our markets of Land and Property management. This is an essential direction of travel for the Group and bringing the Tascomi business together with our existing operations will accelerate our own progress to the cloud significantly, as well as adding some very talented engineers to our teams. We are very pleased to welcome them all to the Group.
As with all rebuilding programmes, there is a huge amount of work that goes on in the background to get the foundations right. The benefits of these improvements are not immediately obvious, but it is essential to put the time and effort in to get this stage right so that the value we all want from the further, more obvious work, can be realised. I believe we are now at this stage.
The Group continued its focus on providing digital solutions and services to the public sector in the United Kingdom, complemented by our Content business in Europe and Engineering Information Management (EIM) business servicing customers across the world. The key to our success is to ensure we deliver better user results and productivity improvements for customers through focusing on usability, functionality and application of integrated digital and increasingly cloud-based technologies and solutions.
As a result of the work described above to fully rectify the legacy problems and deal with the challenges the Group has faced in the year, the Board believes that our business will progress very positively now with a strong improvement in margins and cash generation. We operate in very good markets, with excellent market positions and insights, and we have every confidence that we can continue to deliver growing value from these positions for our customers and all other stakeholders.
FY19 has seen a number of changes to the Board of Directors:
- On 1 November 2018, Rob Grubb joined us as Chief Financial Officer. Rob has brought strong relevant experience of leading the finance function of a publicly quoted technology business, having been CFO of Gresham Technologies from 2009 to 2018.
- On 1 November 2018, Oliver Scott was appointed as a Non-Executive Director, and Chair of the Nomination Committee. Oliver is a founding Partner of Kestrel LLP, a fund management business which currently holds approximately 10.13% of Idox shares.
- On the 19th November 2018, Laurence Vaughan resigned from the Board with immediate effect. Following this, I was appointed to the position of Chairman on 22 November 2018.
- On 29 March 2019, Barbara Moorhouse stepped down from the Board following the Group’s Annual General Meeting (AGM) having completed her three year term of office in January 2019. I would like to thank Barbara for her contribution to Idox since 2016 and in particular her work as Chair of the Remuneration Committee from December 2018.
- On 29 March 2019, Phil Kelly was appointed as a Non-Executive Director, and Chair of the Remuneration Committee. Phil has served as a non-executive director of several listed and private companies in the software and related services sector, and is currently a non-executive director of Castleton Technology plc.
- On 3 April 2019, Richard Kellett-Clarke stepped down from the Board. I would like to thank Richard for his contribution to Idox in both Executive and Non-Executive roles dating back to 2005.
In addition to the changes listed above, Jeremy Millard has continued in his role as Non-Executive Director, and Chair of the Audit Committee throughout FY19.
Each member of the Board brings different skills and experience to the Board and the Board Committees and I am pleased with this balance which has supported the effectiveness of the Board throughout FY19.
I am satisfied that there is sufficient diversity in the Board structure to bring a balance of skills, experience, independence and knowledge to the Group however I intend to keep this balance under review and continued assessment.
We are cognisant of the important responsibilities we have in respect of Corporate Governance and shaping our culture to be consistent with our objectives, strategy and business model which we set out in our Strategic Report and our description of principal risks and uncertainties. The Group is committed to conducting its business fairly, impartially, in an ethical and proper manner, and in full compliance with all laws and regulations. In conducting our business, integrity is the foundation of all Company relationships, including those with customers, suppliers, communities and employees.
As highlighted above, during the financial year the acquisition of Tascomi Limited was completed in line with our strategy. Tascomi represents an expansion of our Local Government offerings and creates synergies and opportunities for cost savings in existing products within the Group, which have contributed in a small part to this year’s financial results. The Board believes Tascomi will deliver earnings enhancing contributions in future periods.
The acquisition was funded by means of a placing of new shares which raised gross proceeds of £7.4 million.
The Board has decided no final dividend will be paid (2018: £Nil) for FY19 bringing the total for the year to £Nil (2018: £Nil). This decision was reached after a full consideration of the pace of recovery in our business.
Following the improvements seen in the Group in FY19, the Board has full confidence in the Group’s future prospects and currently intends to introduce a final dividend in respect of the year ending 31 October 2020.
Summary and Outlook
Although this financial year did not turn out exactly as anticipated, the fundamental plan and strategy have held up as expected. The Group enjoys an exceptionally strong market position in the public sector, good products, and has opportunities for growth and improving financial performance.
The new leadership team has made a great start to the new financial year, delivering a strong first quarter of trading and securing new long-term bank facilities. I am confident of the Group’s future prospects.
Finally, I would like to extend my thanks to the entire workforce of the Group, who have maintained their focus on looking after the most important asset of our business, our customers. Our colleague’s expertise and diligence have continued to deliver the support and value that our customers expect, and we are fortunate to have them choose Idox.
CHIEF EXECUTIVEʼS REVIEW
It has been an intense and transformative year at Idox. The Chairman has referenced the unexpected issues that emerged. It has required a very determined and focussed effort from a talented group of people to lead the business through this set of circumstances and I am grateful to the newly constituted EMT for embracing the challenge so readily and for their hard work and single-minded approach. That we have been able to address the issues so effectively and establish a strong basis for future success has required a commitment and focus across the Group and I would like to record my own thanks for the engagement of all our staff and their commitment to creating value for our clients during this period.
We have been determined to restore the fortunes of the Group by having a laser like focus on the areas where we create distinctive value. As such, the year saw us dispose of the Digital business that required a series of bespoke, non-repeatable solutions and add the market leading, repeatable SaaS solution provided by Tascomi to our offerings in regulatory and licencing services. We believe these activities are important in the key Local Government market and support our future growth plans.
During the year we have continued to focus on the Four Pillars initiative. This is well communicated across the Group and allows all employees to actively participate on improving the business through a focus on revenue, margins, simplification and communication.
We have established strong business controls across the Group to ensure we fully understand the financial and operational implications for each piece of business that we engage in. This ensures that we do not pursue revenue for the sake of growth, but that we focus upon our IP and value propositions and the certainty of delivering lasting value to customers. We have improved the amount of recurring revenue in the business and this provides a strong foundation for future growth in both revenues and margins.
Having captured business, we have focussed on cost management, professional services productivity, delivery of value through the supply chain and standardised ways of working wherever possible. We believe we are well positioned to sustain and improve margins in the business moving forward as we gain share in our respective markets. I said that our focus during the year would be on cash generation and I am pleased to report a further reduction in our ongoing net debt position of £5.4m.
We have also focussed on simplifying our business model. During the course of the year we have driven closer integration across previously diverse acquisitions. The supplier list has reduced by two-thirds from approximately 3,000 at the end of FY18 to approximately 900 at the end of FY19. In addition, we have integrated our support operations and reduced the number of service desks from 6 to 2 providing a more coherent and consistent interaction with clients. Our intention is to consolidate this further and create a single service facility during FY20.
In FY19 we have also reduced the number of supporting technologies and platforms in use across our Group. We have consolidated our activities on a single ERP system and although there is further work to do, we are now using systems and information across the business to much greater effect.
During the year we disposed of our London property lease previously used in conjunction with the Digital business. After the year end we closed the Group’s remaining operations in Malta, following the disposal of the small emCare business having transferred healthcare activities fully to the UK, and exited the Group’s scanning activities based in the Republic of Ireland (ROI) that were originally acquired as part of the 6PM transaction.
Much of our focus this year has been on re-engaging with staff, listening and establishing disciplines across the business that are practical, and that add value. Having set the goal to substantially improve our internal communications we now have an internal magazine, a news channel, CEO broadcasts, relevant and targeted divisional updates, town hall meetings, product videos, and our series of Regional Events, all rounded off by employee engagement surveys to see how we are doing against these goals. I believe these things have been important in reshaping our business and encouraging greater collaboration and open dialogue. I wish to express my gratitude to everyone that has been involved and engaged with this programme.
The year has also seen us take significant steps forward with our product portfolio. Each product set now has a clear roadmap for future development, leading to a much clearer engagement with the existing and potential clients that we serve. We believe we have strong technology platforms supporting our core offerings and we have made it clear that as we move forward, a SaaS first strategy is vital, offering our clients the most flexibility possible in their chosen solutions. We were delighted during the year to add Tascomi to our Local Government offering, providing clients with market leading SaaS capabilities. We plan to add further products to the Tascomi platform in due course.
The disposal of the Digital business in November 2018 ensured that Idox focuses on niche solutions to the public sector and other regulated markets. In each of these areas we produce software that elegantly resolves complexity and which we invest in for the long term to support our customer’s evolving needs. Whilst the Digital operation was delivering bespoke solutions to unique client needs, our business is now solely focussed on delivering comprehensive repeatable software solutions that we support and maintain with long term contracts.
Having taken a number of corrective measures, we are now well positioned to push the business forward and to deliver greater customer and shareholder value.
Public Sector Software
During the period, revenue reduced by 3% following the adoption of IFRS 15 and generally a more balanced approach to revenue growth. We have sought to improve or exit low-earning or loss-making revenue generating activities in the year which has led to an overall decrease in revenues recorded but higher margin and cash generation overall. We saw new Local Government client wins at South Staffordshire and Wakefield for the EDMS product and a further extension on behalf of the Northern Ireland Planning Portal for our Planning Solution. This continues the existing relationship along with additional developments of the system.
We have also seen a number of customers enter into new long-term contracts for existing products, for example Winchester City Council signed a new 4-year contract for the Uniform product and a number of other distinct products. Midlothian Council also extended their existing agreement a further 5 years moving their deployment to our cloudbased hosted environment.
Leeds City Council made a further 5 year commitment to our Uniform solution, Idox will also be performing a full operational review to help the Council ensure that they continue to maximise their use of technology both now and in the future. The London Port Authority also became a new customer for our licensing solution with a 3-year contract.
During the year we have seen six new customers for our Social Care Education Health and Care Hub (EHC) enabling collaboration of EHC assessments, plans and reviews. The EHC Hub continues to be a vehicle for significant cultural change within Local Authorities providing live case tracking and 24/7 access to information for thousands of parents, carers and young people involved in statutory SEND (Special Education Needs and Disabilities) processes. Across our customers, the Hub is now being used to create, manage and review over 55,000 EHC Plans in England. We have also partnered with Westminster City Council to develop an innovative new Family Hub which enables multi-agency working with vulnerable families.
Our CAFM (Computer Aided Facilities Management) product has enjoyed a successful year with a number of new deals including West Midlands Combined Authority and Serco Justice and Immigration. In all we won 10 new customers including Apex Hotels, Bank of China and Canford Healthcare.
In Healthcare, we signed a deal with Virgin Care Services to provide our Lilie software in support of Cheshire West and Chester Council as well as Bolton NHS Foundation Trust. We also secured a long-term five-year extension for iFIT across 3 sites within the Betsi Cadwaladr Health Board, along with continued commitments from Gloucester, North Devon and Cumbria.
In Transport we agreed contracts with Highways England to drive integration between Urban Traffic Management and Control systems. During the year we have focussed on concluding a number of significant projects and moving clients to live operation including WECA Bristol.
Our Elections team supported over 100 authorities to deliver the Local Elections and European Parliamentary election in May. With less than 7 weeks’ notice for delivering the poll, the Group supported customers covering over 12 million electors. Idox was contracted to print 3.8 million election documents and train 7,000 polling staff.
Idox also ran managed services across 17 sites to verify the statements and ballots of over 650,000 postal voters. In addition, our Elections business won a contract from the Cabinet Office to implement phases 1 and 2 of the Government’s Canvass Reform programme, involving several hundred days of design, development, test, deployment and support, and will allow customers to improve their annual electoral canvass.
We also deployed the electronic ballot counting solution on the island of Malta, enabling votes to be counted electronically for the first time. Used in the European and local elections in late May, the solution cut the count duration from a previous record of several days down to a few hours, making Malta one of the first EU countries to issue their official European election results.
Engineering Information Management (EIM)
The Engineering division saw a revenue reduction of 8% as it continues to transition solutions and customers from an on-premise deployment model to a SaaS delivery which directly impacts the revenue profile of contract wins. In addition, we have sought to improve or exit low-earning or loss-making revenue generation activities in the year which has led to an overall decrease in revenues recorded but higher margin and cash generation overall.
EIM continues to progress with its market leading, cloud-based FusionLive product which affords the Group greater EBITDA margins and revenue visibility. In the first half of the year we secured a 5-year contract for our new offering FusionLive with Wood PLC to manage its projects with Exxon Mobile. Other new clients to select FusionLive as their new cloud technology platform included the LNG (Liquid Natural Gas) owner operators NextDecade and GNL, and the engineering company IPS.
A number of new projects in the AEC (Architecture, Engineering and Construction) and transport space in Europe were contracted and BNP Paribas renewed its commitment to our solution for a further two years beyond their current contract term.
We released a new engineering tag extraction tool to support the digitalisation initiatives within the asset-intensive energy industries. This capability will be fully integrated into our cloud platform in FY20 to provide an additional and significant differentiator in the EPC (Engineering, Procurement and Construction) and Owner Operators markets.
A number of important services projects on our Enterprise platform were contracted and delivered, including Sacramento Municipal Utility District, BC Hydro and S
Information last updated: 14 April 2020