IDOX plc: Half Year Results for the six months ended 30 April 2019

IDOX plc

Half Year Results for the six months ended 30 April 2019 

IDOX plc (AIM: IDOX, “Idox”, “the Company” or “the Group”), a leading supplier of specialist information management solutions and services, today announces its unaudited half year results for the six months ended 30 April 2019.

Financial highlights

  • Stable financial performance during a period of significant transformation.
  • Consolidated revenue for the continuing operations, excluding our Digital business, of £31.5m (H1 2018: £31.8m).
  • Recurring revenue increased to 54% (H1 2018: 48%).
  • Adjusted EBITDA for the continuing operations, excluding our Digital business, of £4.4m (H1 2018: £4.6m).
  • Statutory loss after tax for continuing operations of £2.2m (H1 2018: loss of £32.5m).  Loss after tax on discontinued operations of £0.6m (H1 2018: £7.9m, including an impairment charge of £6.3m).
  • Net debt of £25.4m as at 30 April 2019 (30 April 2018: £26.0m); comprised cash of £6.8m, bank debt of £20.9m, and a listed bond of £11.3m (30 April 2018: cash of £10.4m, bank debt of £24.9m, and a listed bond of £11.5m).
  • The Group retains significant headroom within its existing facilities and continues to have good support and dialogue with our main lenders Natwest and Silicon Valley Bank.

Operational highlights

The first half of FY19 has seen extensive transformation throughout the Group as we have addressed historical issues and established improved operational execution, financial management and strategic focus across all parts of the Group.

  • New Executive Directors, Chairman and Non-Executive Directors.
  • Appointment of new senior managers throughout the business.
  • Exit of loss-making Digital division.
  • Focus on our core 3 business units of: Public Sector Software, Engineering Information Management, and our Content business delivering Grants, Information & Compliance solutions.
  • Rationalisation of property portfolio, with ongoing work to manage down costs.
  • Transition to more appropriate accounting judgements, including revenue recognition.
  • Improved operational governance and financial support throughout the Group.
  • Significant increase in annuity revenue, providing improved visibility of recurring revenues and a strong platform for future growth.
  • Confident all material legacy issues identified and resolved; now looking to future and strategy.

Current trading

  • Stronger operational and financial performance is expected in the second half and future years as the Group benefits from the rationalisation work undertaken over the past 12 months.
  • Management remain confident in the outlook and prospects of the business. Adjusted EBITDA for the full year is expected to be similar to that reported for the Group’s continuing operations for the previous year and an increase of approximately 25% compared to previous year Group Adjusted EBITDA of £11.6m including our disposed Digital Business.

* Adjusted EBITDA is defined as earnings before amortisation, depreciation, restructuring, acquisition, impairment, corporate finance and share option costs. 

David Meaden, Chief Executive of Idox, commented: 

“My first twelve months in the business has seen a significant transformation as we have worked closely with all of our stakeholders to overcome the legacy issues identified and create a more stable platform from which to build value for shareholders customers and staff. 

I am pleased by the progress we have made in such a short period of time. We have now addressed the many legacy issues the business faced and can focus on driving future performance, built upon our core strengths of software and deep domain understanding. 

We continue to explore ways to accelerate the Group’s strategy, and are currently assessing a strategic, earnings enhancing bolt-on acquisition which would strongly enhance the Company’s technological capabilities and our market leading positions. 

We remain confident in the outlook for the Group and remain ambitious in securing and improving margins and cash generation. We are focussed on growing the Group by cross-selling to our customers, expanding the applicability of our existing products and extending our reach to new areas where there is good opportunity to create further value.” 

This announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) No 596/2014.  

For further information please contact: 

Enquiries: 

Idox plc                                                     +44 (0) 870 333 7101

Chris Stone, Non-Executive Chairman
David Meaden, Chief Executive
Rob Grubb, Chief Financial Officer

N+1 Singer (NOMAD and Broker)              +44 (0) 20 7496 3000

Shaun Dobson / Jen Boorer
Tom Salvesen (Corporate Broking) 

For more information see www.idoxplc.com and @Idoxgroup

CHAIRMAN’S STATEMENT

Introduction

I was pleased to have the opportunity to join Idox in November last year, and work with David Meaden and the rest of the Board of Idox. The results we are announcing today do not represent the full story of the work that has been done to deal with some historic issues that were preventing us from driving the business forwards. I am pleased to say that although it has taken a lot of time, distracting Management from the real business of delivering valuable software and services to our substantial client base, this work is now complete. The swift and decisive action taken has ensured that the business is now in much better shape, with a much stronger management team and I fully expect that this will lead to a sustained improvement in the Group’s financial performance over the coming years. 

The majority of the divisions within the Group have performed well, with particular highlights being our European based Content Management business, which enjoyed strong growth in revenue and profit. In addition, I am pleased to report a positive return to growth in orders for our EIM engineering business and we expect the improving trend to continue. Our core Public Sector business had a quieter period while we rigorously worked through the previously reported historic revenue recognition irregularities that were identified. Whilst disappointing, we are reassured that these historic issues are now resolved and we can now focus, once again, on our service proposition and growing our market share. 

I would like to thank the Finance team, led by our new CFO, Rob Grubb, who have implemented and delivered our project to ensure stronger oversight of our core financial management and governance. This will remain a key focus and I am pleased to report that we continue to benefit from strong working capital management and good financial headroom. 

Board

During the period, Rob Grubb joined us as CFO. Rob has made a very positive contribution to the business since he joined, picking up and dealing with many of the more entrenched historic issues. 

We appointed Oliver Scott to our Board as a Non-Executive Director in November 2018. Oliver is a shareholder representative of Kestrel Partners LLP. We also appointed Phil Kelly to our Board as a Non-Executive Director in March 2019. Both Oliver and Phil bring a lot of directly relevant experience to bear in our discussions, and their support to me and the rest of the team is hugely appreciated. 

Laurence Vaughan, my predecessor stepped down in November 2018 after serving for 3 years as Non-Executive Chairman. Barbara Moorhouse, who was with the Board for 3 years, stepped down at our AGM in March 2019 and Richard Kellett-Clarke, who has held many positions in the Group over the past 13 years, stepped down in May 2019. I would like to thank them all for their contributions over the years. 

Auditor

Deloitte LLP continue as our Auditor for the next financial year. 

Dividend

As we rebuild our business, the Board has decided that it would not be the right moment to resume the payment of a dividend. The Board will review the Group’s future dividend policy to ensure an appropriate payout ratio taking into consideration the Group’s expectations of future cash flow generation and long term earnings. 

Christopher Stone
Non-Executive Chairman
22 July 2019

CHIEF EXECUTIVE’S STATEMENT 

Laying Strong Foundations 

My first twelve months in the business have seen a significant transformation. This has involved establishing the relevant operational and financial disciplines necessary for a business of Idox’s stature and complexity, but which had been previously lacking. The foundations that have now been embedded across the business leave us well positioned in the short term and will also support future progress against our strategic objectives. 

In addition, the Board and Executive team have been overhauled during the last 12 months and we continue to attract the talent needed for future success. 

I am pleased that Jonathan Legdon has now joined the business in a senior management role as Chief Operating Officer. Jonathan was Managing Director at NGA Human Resources and has a tremendous track record in running and growing software businesses. 

Andy Jones has also joined as Sales Director for the Public Sector Business. Andy has spent the last 3 years at Capita where he was responsible for sales in the Local Government Software operation. 

We remain confident in both the outlook for the Group and our ambitions to improve margins in our existing business and drive increased cash generation. We anticipate growing our Group by doing more with our existing products and customers and extending this to new areas where there is good opportunity to create further value. 

The Future

It is clear that the future of our business is in cloud provisioned software and related services. We have made strides to accelerate our move into Software-as-a-Service (SaaS) product offerings and have had success in both our Social Care and EIM businesses over the past six months. We will continue to accelerate our new ‘cloud first’ strategy, growing recurring income streams and future earnings visibility. 

The appointments that we have made across the Group have helped to support the hard work of our teams and we continue to raise the bar on what can be achieved and what is expected. 

I am grateful to all our employees for their hard work and determination during this challenging period of transformation as well as for their huge enthusiasm for the required changes we have made to ensure that we have a strong foundation from which to grow. 

Positive Progress

The Chairman has referenced the historic issues we inherited and the inevitable distraction that this has caused within our day-to-day operations. However, we believe that these issues have now been fully addressed over the last six months and we have made substantive progress towards our goal of delivering a simplified business and operating model.  

We are sharing common infrastructure across the Group more effectively and have sharpened our focus on the supply chain and on serving the needs of our clients. There is always more to do, but we believe progress has been swift and effective. 

We have also implemented a number of initiatives that will have the effect of lowering costs and overheads, whilst making the Company more efficient in combining solutions to clients across our chosen sectors. Our focus on the long-term visibility of recurring and repeating revenues has been unrelenting and, alongside our growing SaaS offering, we have made a number of operational changes to reflect our future client service obligations and the true recurring nature of our client contracts.  

Division Review

Digital

During the period we disposed of our Digital business to Fatmedia Limited. This area incurred losses of £9.1m in FY18, including impairments of £6.3m. The disposal was a necessary step in sharpening the Group’s focus on its key market areas and to ensure that resources are appropriately deployed across the remaining businesses. 

Public Sector Software

Our Public Sector Software division has seen a number of customer successes in the period:

  • During the period we saw new Local Government client wins at South Staffordshire and Wakefield for the EDMS product and a further extension of the contract 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.

  • We have seen three new customers for our Social Care Education Health and Care Hub (EHC) enabling collaboration of EHC assessments, plans and reviews. 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 business has enjoyed a successful half year with a number of new deals including West Midlands Combined Authority and Serco Justice and Immigration.
  • In our Health business we signed a deal with Virgin Care Services to provide the Lillie software in support of Cheshire West and Chester Council and secured a long-term five-year extension for iFIT across 3 sites within the Betsi Cadwaladr Health Board.
  • Our Transport business has signed its first agreement with Highways England to drive integration between Urban Traffic Management and Control systems.
  • 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, the 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. 

Engineering

Our Engineering division continues to progress with its market leading, cloud based FusionLive offering:

  • In the first half of the year we secured a five-year contract for our new offering FusionLive with Wood PLC to manage its projects with Exxon Mobile. 
  • NextDecade, a Liquid Natural Gas company based in US, also contracted with us for a new FusionLive deliverables management system.

Content

Our Content division has continued to trade strongly, capitalising on the strong domain knowledge we hold in our key target markets:

  • Our Compliance business delivered an innovative game-based GDPR compliance training solution for Statkraft along with a contract with Stada to communicate compliance training in eleven different languages.
  • There were further wins for our RESEARCHconnect and Grantfinder products with wins at Imperial College London, Swansea University, a consortium of South African Universities and Orbit Heart of England Housing & Care.
  • Our Grants team in the Netherlands had several notable successes including contracts with BITS, N2000 and LightSense SME II.

Outlook

Having resolved a wide range of historic issues we expect our full year performance to be at a similar level to that reported in FY18 for continuing operations, an increase of approximately 25% compared to previous year Group Adjusted EBITDA of £11.6m including our disposed Digital Business. 

We continue to explore ways to accelerate the Group’s strategy, and are currently assessing a strategic, earnings enhancing bolt-on acquisition which would enhance the Company’s technological capabilities and market leading positions. 

We are clear that a cloud first approach across each of our business areas is a strategic necessity and we will continue to invest selectively to grow our capabilities and support our customers. The business has a strong foundation in property and asset-based solutions and this, along with our focus on a broader SaaS provision, will underpin our future strategy and growth. 

David Meaden
Chief Executive
22 July 2019                 

CHIEF FINANCIAL OFFICERS REVIEW 

We have reviewed our revenue recognition and cost accrual practises in the first half of FY19 to ensure our financial performance is always representative of our actual activities during the period, and our balance sheet properly accrues and defers any revenues and costs associated with outstanding performance obligations. 

Our financial stability, control environment and management information are significantly improved since the start of the current financial year and we are generating cash as we consolidate and improve the operational execution of the existing businesses in our Group. 

I would like to place on record my gratitude for the finance teams who have shown strong leadership and energy during this transition phase as we have driven change and engaged with the wider Idox Group to provide financial expertise and support. I am confident these changes will allow much improved quality of financial information for the current financial year and beyond which will lead to enhanced decision-making and improved financial performance. 

Revenues

The Group adopted IFRS 15 Revenue from Contracts with Customers with effect from 1 November 2018 using the cumulative effect method. The application of IFRS 15 has no impact on the lifetime profitability or cash flows of our contracts. Instead, the resulting changes in the timing of revenue and cost recognition more closely aligns our financial results with the timing of the delivery of our sales and services to our clients. Under the cumulative effect method, the impact of the change to IFRS 15 has been recorded as an adjustment to the opening accrued income, deferred income and retained earnings position. The comparative income statement figures have therefore not been restated. 

The following details revenues from our operations: 

H1 2019

H1 2018

Variance

£’m

£’m

£’m

%

Public Sector Software (1)

– Recurring

11.4

9.6

1.8

18.7%

– Non-recurring

8.0

10.6

(2.6)

-24.5%

19.4

20.2

(0.8)

-4.0%

Engineering Information Management

– Recurring

3.5

3.5

0.0%

– Non-recurring

1.1

1.3

(0.2)

-15.4%

4.6

4.8

(0.2)

-4.1%

Content

– Recurring

2.2

Rule 26
Information last updated: 22 July 2019