Published: 21 February 2019



Idox plc
('Idox' or 'the Group' or 'the Company')
Final Results for the year ended 31 October 2018 

Idox plc (AIM: IDOX), a leading supplier of specialist information management solutions and services, is pleased to announce its results for the year ended 31 October 2018.

Financial highlights:

  • Consolidated revenue:

 for the continuing business, excluding our Digital business disposed of on 2 November 2018, of £67.4m (2017: £73.8m restated - see note 1); and

 for all Group operations, including our disposed Digital Business, of £73.7m (2017: £85.9m restated).

  • Adjusted EBITDA*:

 for the continuing business, excluding our Digital business, of £14.4m (2017: £16.5m restated); and

 for all Group operations, including our disposed Digital Business, of £11.6m (2017: £15.7m restated).

  • Net debt position at 31 October 2018 of £31.8m (2017: £32.6m) comprising cash of £5.5m, third party borrowings of £25.8m and long term 2025 bond of £11.5m (2017: cash of £3.2m, third party borrowings of £24.6m and long term, 2025 bond of £11.2m).
  • Adjusted profit before tax** £7.9m (2017: £10.3m)
  • Adjusted EPS** for the continuing business, excluding our Digital Business 2.28p (2017: 2.18p).
  • Adjusted EPS** for all Group operating, including our disposed Digital Business 1.72p (2017: 1.97p).
  • No proposed dividend (2017: 1.040p) as the business transitions to a more stable platform.
  • Post year end, banking arrangements extended to February 2020.

Statutory Equivalents

The above highlights are based on adjusted results. Reconciliations between adjusted and statutory results are contained within these financial statements. The statutory equivalents of the above results are as follows:

  • Loss before tax £29.5m (2017: £2.8m profit) for continuing operations, including an impairment charge of £33.2m (2017: £2.7m). Loss on discontinued operations of £9.8m, including an impairment charge of £6.2m.
  • Basic EPS of (8.72)p (2017: 0.09p).

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

Operational highlights:

  • Ongoing review and transition to fully integrate prior year acquisitions and refocus operations on our core profitable and cash generative activities to maximise shareholder value.
  • Appointment of new leadership team to drive value in the business with the appointment of Chris Stone as Non-Executive Chairman, David Meaden as Chief Executive Officer and Rob Grubb as Chief Financial Officer.  
  • Strategic focus on, and continued investment in Public Sector Software (PSS) which represented 47% of total Group Revenues and 84% of Adjusted EBITDA* in FY2018, including discontinued operations. Disposal of Digital business, cementing focus on software and related services for the Group.
  • Review of revenue recognition policies (including adoption of IFRS 15) and practices with a focus on sustaining and improving levels of recurring revenues and visibility of revenues more generally:

 Exit annualised recurring revenue run rate as at 31 October 2018 was £32.4m (as at 31 October 2017: £33.4m restated).

 Our contracted order book for software and services has more than doubled to £9.4m at 31 October 2018 (2017: approximately £4.0m), an increase of £5.4m reflecting revenue recognition commensurate with our performance obligations.

  • Improved cash conversion from realisation of prior period debtor and accrued income balances, and better cash terms for new deals signed.
  • A continued focus on reducing costs as the Group adjusts its cost base to align more directly with its re-focused business model to drive increased profitability. This trend is expected to continue through FY2019 and beyond.

David Meaden, Chief Executive of Idox said:

This has been a challenging year for Idox. The business has faced a number of challenges resulting from previous leadership decisions and there has been significant work to re-establish the necessary disciplines and rigor required for future success. I am pleased that we have been able to establish a more cohesive model and clear business practices to drive the business forward and whilst there is much to be done, I believe we are well placed to grow the business and improve shareholder value over the coming years. 

A number of corrective actions have been undertaken. The Digital operation was disposed of, eliminating future liabilities and ensuring the business is focused on its software assets and related services which are at the core of our business model. In addition, we have established a more integrated model for future sales, development, delivery and support activities, allowing the business to benefit more substantially from a unified approach. During the second half of the year we have ensured that the treatment of revenue is in line with our ongoing service obligations and that we have a clear focus on margins and cash across the group. As a result, we exit the year in a much stronger position and I am especially grateful to our staff who as well as showing resilience during the early part of the year are embracing new processes and ways of operating. 

Our primary focus remains supporting and growing with our clients. 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 improve their services. 

We ended FY2018 in a much stronger position than we started it. The markets in which we operate remain resilient and we now have a strong leadership team with a clear focus on clients and execution of our strategy of product and operational execution to drive increased profitability and cash generation. I am confident this momentum will continue strongly into FY2019 as we deliver success. 

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: 

Idox plc                                                                                              +44 (0) 870 333 7101

David Meaden, Chief Executive

Rob Grubb, Chief Financial Officer

 

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

Shaun Dobson / Jen Boorer (Corporate Finance)

Tom Salvesen (Corporate Banking)

 

About Idox plc

For more information see www.idoxplc.com @idoxgroup

 

ANNUAL FINANCIAL REPORT ANNOUNCEMENT

The extracts below are from the Annual Financial Report 2018. Note references refer to notes included in this Annual Financial Report Announcement 2018.

CHAIRMAN'S STATEMENT

Introduction

2018 has been a very busy year for Idox, with significant changes in operating the businesses we own, accounting practices we apply, as well as changes to executive and non-executive leadership. Due to legacy issues, from the complex integration of 6PM and the accounting irregularities disclosed in the 2017 annual report, and decisions made by the previous leadership, it is difficult for any business to stay totally focused on the day to day demands of winning and delivering work for its clients when there is so much upheaval all around. I was appointed in November and my priority as Chairman of our Company is to help put that upheaval behind us and drive a focus on the core activities necessary to support our customers and rebuild value for shareholders.

The restoration of value needs to start with a "back to basics" approach. Idox has been successful for many years in following a strategy of building discrete software and software enabled services businesses around specific Intellectual Property (IP) assets. This niche focused strategy 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 allows us to build 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.

Unfortunately, some of our more recent acquisitions did not fit our IP led model. The Digital businesses in particular were smaller, pure service businesses. Such businesses can be very successful but tend to be very reliant on an individual or small group of founder/owners and if these individuals leave, there can be challenges to maintaining revenues which we experienced in the year with our Reading Room and Rippleffect acquisitions. The option of trying to rebuild these businesses without any clear differentiation in very competitive markets was considered to be unlikely to deliver satisfactory shareholder value, leading to the decision to dispose of them. This was at negligible value but did staunch quite serious continuing losses and removed future liabilities.

The acquisitions of 6PM and Halarose, by contrast, have brought some very interesting IP to the Group that we hope to build into successful, growth businesses. However, in the case of 6PM, we paid a very full price for a company that had a number of issues of its own to resolve before we could start the process of fully integrating it into the rest of the Idox Group. We also had to wrestle with some complex accounting issues that absorbed a lot of our resources in getting to a satisfactory conclusion. All of this has delayed the realisation of some of the value that we expect from this business, but I am pleased to say that the integration process is now well under way.

With the disposal of the Digital division completed, we can now concentrate on driving value from the businesses in the Group, all of which have significant IP at their core. This emphasis combined with the creation of a single Head of Division for the Public Sector and Health division is designed to make it easier to identify and deliver new solutions and services that will deliver increased customer value, at the same time as leveraging our scale and skills to be more efficient in everything that we do. We have an excellent slate of products and services, an enviable customer list, and a talented and committed workforce. The task for the Chief Executive and his leadership team is to drive improved performance from these assets, but I have every confidence in them. David Meaden has made a very impressive start in his role and has moved swiftly to strengthen the team in some key positions.

Group Strategy

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 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 technologies and solutions.

Following the challenges the Group has faced in the year as outlined above, the Board believes it can bounce back quickly with the steps already taken to rectify the issues identified and reflecting the underlying strengths of the core business, its product offering and its talented people.

Board

I am very pleased to report that the Board was successful in appointing David Meaden as our permanent Chief Executive in June 2018. David has enjoyed a very successful career of over 22 years in Sales Leadership and Chief Executive roles in businesses supplying software and services predominantly to the Public Sector. We are already enjoying the benefits of his insights and experience.

Richard Kellett-Clarke, who had become a Non-Executive Director of Idox in November 2016, stepped in as Interim Chief Executive in December 2017 through to David Meaden's appointment. The Board would like to thank Richard for his commitment during this period.

There were a number of other changes to the Board during the period. In March 2018 Andrew Riley left his role as Chief Executive, in April 2018 Peter Lilley, Senior Non-Executive Director and Chair of the Nomination and Remuneration Committee, ceased to be a Board member and in August 2018 Jane Mackie stepped down from her role as Chief Financial Officer.

On 1 November 2018 Rob Grubb joined us as Chief Financial Officer. Rob brings 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 the same date, 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 10.21% 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 22nd November 2018.

On 7 January 2019 it was announced that Barbara Moorhouse will step down from the Board at the Group's forthcoming 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.

I am very pleased to have the opportunity to take up this position. Idox is a business with some great strengths and some very exciting opportunities to grow and deliver value. I am looking forward to working with the team to realise that value.

Corporate Governance

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 Idox 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.

Dividends

The Board has decided no final dividend will be paid (2017: 0.655p) for FY2018 bringing the total for the year to nil (2017: 1.04p). In reaching this decision, the Board has taken into account the disappointing results for the year and the ongoing efforts to transition the business to a more stable footing.

Summary

Following a challenging year for the Group a number of substantive changes and re-tooling of the business have taken place. Idox enjoys an exceptionally strong market position in the public sector, good products, opportunities for growth and improving financial performance. The new leadership team will make customers, shareholders and our staff their priority and I am confident of the Group's future prospects.

Finally, I would like to extend my thanks to the entire workforce of the Idox 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.

Chris Stone
Chairman

CHIEF EXECUTIVE'S REVIEW

Overview

I have been impressed with both the quality and comprehensive range of solutions offered by the Group; we have a fundamentally strong business offering excellent solutions to attractive core markets. More than that, I have seen first-hand the commitment and determination of the team here at Idox to deliver to its clients, shareholders and wider stakeholders. I am leading a very capable company that is now focused on delivering tangible customer and shareholder value.

The markets in which we operate have a continued need for high quality products and an increasing need for expert support and service. It is well documented that the effects of persistent austerity and the pressure to deal with increasing frontline demands have driven our clients beyond the simple message of 'digital by design'.

Statutory and legislative complexity mean that clients operations' are not satisfied easily by 'build your own' digital solutions. Clients are increasingly searching for cost effective measures that combine the opportunities offered by direct connection to citizens with 'ready-now' products and services that accelerate business change and enable more effective working.

As such the 'back to basics' approach highlighted by the Chairman means that the coming year will see a laser focus on customers, colleagues and cash. We have an excellent customer list which has been created by delivering outstanding value. This will continue to be the number one priority for everyone in our business. There have been distractions that have interfered with this focus over the recent past, but it will be the focus of our entire Group, at all levels.

We also need to ensure that our colleagues, who have maintained an admirable focus on supporting their customers during this difficult period, continue to feel motivated and committed to Idox. We are fortunate to have so many talented people who have chosen Idox as the place for them, and we must make sure that commitment is rewarded and maintained.

And finally, we need to focus on cash. The new leadership team has already delivered a strong performance in improving our working capital, but there is more to do in that area.

Over the coming year our approach is to continue to build our market positions, focusing on our clients' needs and integrating our teams and structures to offer a comprehensive service to their extended requirements.

We have initiated a programme labelled, 'The 4 Pillars' with a focus on improving the quality of Revenue, EBITDA, Cashflow and a continued simplification of the organisation.

As a result of the actions taken since the half year, the Group now has a much better framework in place for future success; we have attended to unnecessary costs, restructured businesses, processed impairment charges, focused our teams, and introduced more appropriate contract pricing and terms. Whilst a number of challenges remain, I now have a much clearer view of the potential and optimal shape of the business going forward.

In future years we therefore expect that the Group's financial performance will benefit from an optimised cost base and a stronger commercial focus on organic growth, recurring revenues and cash conversion.

We are delivering a simplified business and operating model. The effect will be to make the Group more efficient in combining solutions to clients across its chosen sectors. We will focus on improving the long-term visibility of recurring and repeating revenues and ensure that all products and business areas are core to delivering shareholder value.

Appropriate contract pricing and contract terms have been implemented across the Group to increase recurring revenue and reduce the reliance on up front licence fees, which will improve the quality of our earnings. We have also seen a greater number of larger contract wins and this combined with strong client retention bode well for the future.

Divisional Review

Digital

The Digital business was disposed of shortly after year end, ensuring that the Group is not exposed to future liabilities and our focus is on software assets and related services. The business had reduced costs substantially during the second half of the year and we wish our ex colleagues well under their new ownership.

Public Sector

Public Sector Software continues to be the focal point of the business. We have a number of market leading products and impressive new technology solutions focused on delivering Smart Government, Smart Healthcare and Smart Cities.

Smart Government

During the year we have seen new contracts for software and hosting services including Sheffield City Council, South Ayrshire, London Borough of Southwark, Wolverhampton City Council, and London Borough of Bexley. Existing clients at Barnet, Westminster, Hammersmith & Fulham, and Aberdeen City Council also extended their existing software and hosting arrangements. Additional new notable contract wins include the Land Registry for data, and integration work to our core Land Charge Solutions which we anticipate will lead to additional work in FY2019 for all of our customer base in this area.

This adds to the success earlier in the year for a new planning solution for the combined Greater Cambridge Planning Service which saw Idox provide a comprehensive shared service solution to one of the largest planning authorities across the South East of England. In Environmental Health there were new wins at Blaby, Litchfield, Clackmannanshire and Harrogate.

We have also seen the return of clients, highlighting that in this complex process and legislative environment, Idox's ability to serve the market is unparalleled. We are delighted to welcome back Copeland Surrey Heath as an Idox Uniform client.

In Computer Aided Facilities Management, we recorded 25 new customers wins achieved this year.

Elections

Elections welcomed a new customer for Elections Management in North Lanarkshire and continued to improve the speed and efficiency of electoral results through our advanced E-Count software, with Malta being the latest client.

The Elections sales team were awarded a contract during October to provide managed services, software and support in future elections over the next 4 years for Aberdeenshire, Aberdeen City, and Highland Councils.

Social Care

The Social Care business has had great success winning new deals for the Information, Advice and Guidance Hub at South Gloucestershire, alongside wins at Lambeth, Blackpool, Wolverhampton, Westminster and Bromley where the Councils will offer a more efficient and transparent way for young people and their families to understand and track their Educational Health and Care (EHC) journeys. Special Educational Needs and Disability (SEND) teams, together with their health and social care partners, will also be able to collaborate on a fully-integrated assessment process, while keeping families fully updated in a way that empowers them to contribute.

Smart Healthcare

In Health, the acquisition of 6PM has proven challenging as was reported in the final results announced on 1st March 2018. However, the solution offerings are strong and particularly relevant to the current market. The iFIT product line for Asset, Prescribing and Document tracking now has over 30 UK Health Trusts as clients and delivers impressive returns on investment. We were delighted to add Epsom & St Helier University Hospitals NHS Trust, The George Eliot Hospital NHS Trust, North Cumbria, Dudley Group NHS Foundation Trust, and Doncaster & Bassetlaw Teaching Foundation Trust to our growing list of clients.

Smart Cities

Bristol City Council became the latest Idox client for the Smart Cities proposition, which encompasses the real time control of traffic flows, citizen and passenger assist services and traffic network management. In the second half of the year we welcomed the Greater Toronto Transportation Authority (Metrolinx) as an Idox client, our largest contract in this area to date.

Engineering Information Management (EIM)

As previously reported, the Engineering business has taken the first steps of transitioning to a Software as a Service (SaaS) based model which will result in higher quality, recurring revenue over the longer term.

In the first half of the year we released the new FusionLive SaaS Platform, and subsequently sold the SaaS platform to Clough, a global engineering and construction company Headquartered in Perth, Australia. After its initial one-year trial, Torxen Energy in Canada committed for 3 years to the same platform for its management of operational documents for its Palliser oil sands acquisition in Alberta, the division's first Oil & Gas operations platform delivered on a multi-tenanted cloud platform. In partnership with Catenda, a specialist provider of Building Information Modelling (BIM) solutions, the division delivered a new combined BIM/workflow cloud platform to SNCF to enable it achieve its targets on the EOLE Project, one of the current largest active railway projects in Europe, the RER-E line extension.

The Division has achieved further success through its partnership with Siveco China with four new deals for the on-premise Opidis platform sold through Engineering, Procurement and Construction companies ('EPC's') in the Far East and is working to expand on this in the coming year.

All of these initiatives and partnerships provide exciting opportunities for growth in the years ahead.

Content

Our international research funding database RESEARCHconnect, signed a further nine universities and research institutes across Europe, including in France, Spain, Sweden and The Netherlands. We now have over 100 clients using our solution.

The Content business also delivered new compliance programmes for a number of worldwide clients, including a range of solutions to facilitate new GDPR regulations.

In our grants business we secured our largest grant to date for BuyBay as part of our service delivering grant applications on a no win no fee basis.

Outlook

Our staff have shown excellent commitment during the year as we have continued to deliver market-leading software solutions that provide strong value and efficiencies for our customers in our chosen markets.

We have ended FY2018 in a much stronger position than we started it with a strong leadership team and clear focus on product and operational execution to drive increased profitability and cash generation, and I am confident this momentum will continue strongly in to FY2019 as we deliver success.

David Meaden
Chief Executive Officer 

FINANCIAL REVIEW 

Group revenues from continuing operations fell by 9% to £67.4m (2017: £73.8m), mainly due to a fall in revenue within our PSS division.

70% of Group revenues were generated in the UK (2017: 73%). Gross profit earned fell 7% to £58.6m (2017: £62.6m) but the Group saw a slight increase in gross margin from 85% to 87% as a result of cost saving initiatives introduced throughout the year. Earnings before interest, tax, amortisation, depreciation, restructuring, acquisition, impairment, corporate finance and share option costs ("Adjusted EBITDA") decreased by 13% to £14.4m (2017: £16.5m) with Adjusted EBITDA margins decreased by 5% to 21% (2017: 22%) as a result of the lower gross profit earned.    

Performance by Segment

The PSS division, which accounted for 47% of Group revenues (2017: 47%), delivered revenues of £34.3m (2017: £40.8m). Product and services revenue decreased by 21% to £15.7m (2017: £19.9m). Election revenues accounted for £4.5m (2017: £4.7m) of PSS revenues. Election revenue was slightly down on the prior year as 2017 included the May local elections and the General Election. Recurring revenues within the PSS division from maintenance and hosting were £13.9m (2017: £15.3m). Recurring revenues represented 40.6% (2017: 38%) of total PSS revenue. Divisional Adjusted EBITDA decreased by 35% to £9.7m (2017: £15.0m), delivering a 28% EBITDA margin (2017: 37%). 

The Digital division accounted for 9% of Group revenues (2017: 15%) with revenue of £6.5m (2017: £12.7m), £6.2m (2017: £12.1m) of revenue classified as discontinued. 

The EIM division accounted for 14% of Group revenues (2017: 15%) with revenue of £10.0m (2017: £12.9m). Recurring revenues within the EIM division from maintenance and SaaS were 73% (2017: 60%). EIM saw a fall in revenue due to an increased emphasis on SaaS and managed service deals, continued pressure on per-seat licence prices and oil and gas spending still tight on non-key investment. 

The Content division in the UK and Europe had revenue growth of 10% to £13.6m (2017: £12.4m). 

The Health division accounted for 13% of Group revenues (2017: 8% in nine months) with revenue of £9.3m (2017: £7.1m in nine months).

Profit Before Tax

 

 

 

 

 

 

12 months to

31 October 2018

(audited)

£000

Restated

 12 months to

31 October 2017

(audited)

£000

 

 

 

(Loss) / profit before tax for the period

(29,462)

2,790

Add back:

 

 

Amortisation on acquired intangibles

4,495

4,444

Restructuring costs

435

377

Acquisition (credits) / costs

(856)

8

Impairment

33,255

2,681

Adjusted profit before tax for the period

____________

7,867
____________

____________

10,300
____________

 The reported loss before tax was £29.5m (2017: £2.8m profit) mainly as a result of impairment charges related to the PSS, EIM Digital and Health divisions. The impairments arose from further reassessments of the results following the issues which came to light towards the end of the 2017 financial year and poor performance in 2018 financial year as the business refocused in a number of areas including review of revenue performance obligations and cost structures. This resulted in a total impairment charge of £33.3m in continuing operations and £6.3m in discontinued operations. 

Amortisation of acquired intangibles increased marginally to £4.4m (2017: £4.4m). The  profit before tax  for FY2017 has also decreased by £2.7m in relation to prior year adjustments processed in the year as disclosed in note 1. 

Amortisation of development costs was £2.8m (2017: £2.3m) and amortisation on software licences was £0.9m (2017: £0.9m). Development costs are amortised over a 1 to 5 year period on a project by project basis and software licences are amortised over 3 years. Acquisition credits of £856,000 (2017: £8,000) relates mainly to a part release of the contingent consideration on Open Objects Limited, reducing the contingent consideration from £1.6m to £0.7m. Restructuring charges of £0.6m (2017: £0.7m) were incurred in the year. 

Adjusted profit before tax and adjusted earnings per share are alternative performance measures, considered by the Board to be a better reflection of true business performance than looking at the Group's results on a statutory basis only. 

Adjusted EBITDA for continuing operations decreased 14% to £14.4m (2017: £16.5m) impacted by lower margin election revenue in PSS, lower revenue in EIM, and losses in Health. Cost of sales decreased by 21%, partly as a result of the decrease in revenue. The accounting issues previously reported in the Health division around 6PM, where we inherited issues with incomplete accounting records, revenue recognition and inconsistent contractual paperwork have unfortunately led to an impairment in the 2018 financial year amounting to £25.4m. 

Administrative expenses increased by 49% to £86.8m (2017: £58.3m), due to the impairment of £33.3m offset with cost savings in the year.  

Finance costs have reduced slightly to £1.8m (2017: £1.9m). The Maltese Stock Exchange bond was issued in 2015 prior to Idox acquiring 6PM at a nominal value of €13m, is repayable in 2025 and has a coupon rate of 5.1%. 

The Group continues to invest in developing innovative technology solutions and has incurred capitalised development costs of £3.6m (2017: £4.8m). 

Taxation

The effective tax rate ('ETR') for the period was 8.05% (2017: 53.27%). 

The main factor for the lower ETR on the net loss before tax position was the impairment processed during FY2018, which is not deductible for tax purposes. Furthermore, non-recognition of losses in Malta, owing to uncertainty over their future utilisation, decreased ETR further. 

These downward pressures on ETR were mitigated by adjustments to prior periods and recognition of losses not previously recognised, the latter primarily on account of permitted recognition against outstanding deferred tax liabilities of the same entity.    

Unrelieved trading losses of £1.1m, across the US and France, remain available to offset against future taxable trading profits. This number excludes substantial carried-forward losses not recognised for deferred tax purposes to date, owing to adoption of a prudent loss recognition position. The gross value of these losses not recognised to date totals £10.4m, split across Malta (£7.4m), the UK (£1.7m) and Germany (£1.3m). The Board is hopeful that the Group will benefit from these unrecognised tax losses in future and will be recognised at the point where utilisation becomes more certain. 

Earnings Per Share and Dividends 

Basic earnings per share fell to (8.72)p (2017: 0.09p) as a result of the impact of the impairment charge. Diluted earnings per share fell to (8.65)p (2017: 0.09p). 

Adjusted earnings per share fell to 1.72p (2017: 1.97p) as a result of the impact of the impairment charge. Adjusted diluted earnings per share fell to 1.71p (2017: 1.91p). 

The Board proposes a final dividend of nil as the business transitions to a more stable platform, a decrease of 100% on the previous final dividend, giving a total dividend for the year of nil.. 

Balance Sheet and Cashflows

The Group's balance sheet position deteriorated significantly during the period and at 31 October 2018 net assets had fallen to £49.8m compared to £88.6m at 31 October 2017. The deterioration in net assets is mainly driven by the fall in value of intangible assets due to the aforementioned impairment charge, principally goodwill, from £73.4m to £45.9m, customer relationships, from £21.0m to £13.3m, trade names, from £8.3m to £4.7m and software, from £10.8m to £6m. 

Cash generated from operating activities before tax as a percentage of Adjusted EBITDA was 68% (2017: 79%). Cash conversion has historically been impacted by deferred payment deals over 3 to 5 years which have been offered to local authorities and as a result, payments received from customers have become slightly less aligned with when services are provided. The Group has a clear objective to reduce this misalignment going into FY2019 and achieve higher cash conversion from its previous and ongoing activities. 

The Group ended the period with net debt of £31.8m (2017: £32.6m), a slight improvement on the previous year. 

The Group's total signed debt facilities at 31 October 2018 stood at £30m, a combination of a £7m term loan and £23m revolving credit facility, split £7m with the Royal Bank of Scotland and £23m with Silicon Valley Bank respectively (the "Lenders"). Post year end the group successfully extended its existing banking arrangement with the Lenders to 25 February 2020. The Group anticipates it will still have a net debt position at the point of expiry of the current facilities and therefore expects to enter negotiations to extend the facility in the coming year. Given the improvements in the business, the Group expects to be in a strong position to secure financing on a longer-term basis that is commensurate with its target capital structure, and has no reason to believe it will not be complete. 

Under the terms of the extension the revolving credit facility will be increased to £24.5m until 1 June 2019 at which point it will revert to £23.0m until the expiry of this extension, the term loan will be reduced by £1.25m on 30 April 2019, with the balance of £5.75m due at the expiry of this extension and the Group is now subject to additional financial covenants and requires the consent of the Lenders in the event it wishes to propose a dividend. The extension gives Idox a strong platform to continue refocussing its operations, allows the Group to prepare its annual report on a going concern basis and allows the Group time to consider longer-term financing alternatives.  In addition to the signed debt facilities there is a 6PM Maltese Stock Exchange bond issued in 2015 pre-acquisition at a nominal value of €13m; it is repayable in 2025 and has a coupon rate of 5.1%. 

Deferred income, representing invoiced maintenance and SaaS contracts yet to be recognised in revenue stood at £17m (2017: £19.8m). Accrued income, representing future cash flows, decreased to £19.2m (2017: £20.6m). 

£7.0m of accrued income relates to licences and services that have been delivered to local authorities and revenue recognised but the customer is paying for the licence and services over a period of typically 3 to 5 years. This will result in future cash inflows for the Group. The balance of accrued income is service revenue where work has been completed but the project has not yet reached an invoicing milestone and will convert to cash in the short term. 

Impact of IFRS 15

The Group will adopt IFRS 15 Revenue from Contracts with Customers with effect from 1 November 2018 using the cumulative effect method. Software license revenue will now be recognised over the duration of the project implementation period on a percentage completion basis. This has the effect of spreading the recognition of software license revenue over the period of implementation, rather than taking immediate, upfront recognition. There are no changes to the timing of the recognition of Support, Maintenance or Hosting revenue. 

The new standard more closely aligns our revenue recognition with the commercial substance of our contracts. The application of IFRS 15 has no impact on the lifetime profitability or cash flows of our contracts, or on the majority of our transactional businesses. 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 will be recorded as an adjustment to the opening accrued income, deferred income and retained earnings position. The calculated impact on revenue in financial year 2019 is £3.2m This is explained more fully in the Notes to the Accounts. 

Rob Grubb
Chief Financial Officer

 

Consolidated Statement of Comprehensive Income for the year ended 31 October 2018

 

 

 

Note

 

2018

 

Restated* 2017

 

 

 

£000

 

£000

Continuing operations

 

 

 

 

 

Revenue

3

 

67,443

 

73,751

Cost of sales

 

 

(8,794)

 

(11,169)

Gross profit

 

 

____________
58,649

 

____________
62,582

Administrative expenses

 

 

(86,772)

 

(58,268)

Operating (loss) / profit

 

 

____________
(28,123)

 

____________
4,314

 

 

 

 

 

 

Analysed as:

 

 

 

 

 

Earnings before depreciation, amortisation, restructuring, acquisition costs, impairment, corporate finance costs and share option costs

3

 

14,417

 

16,479

Depreciation

 

 

(1,106)

 

(1,077)

Amortisation

 

 

(8,213)

 

(7,665)

Restructuring costs

 

 

(436)

 

(377)

Acquisition credit / (costs)

 

 

856

 

(8)

Impairment

 

 

(33,255)

 

(2,681)

Corporate finance costs

 

 

(336)

 

(33)

Share option costs

 

 

(50)

 

(324)

 

 

 

 

 

 

Finance income

 

 

449

 

363

Finance costs

 

 

(1,788)

 

(1,887)

 

 

 

 

 

 

(Loss) / profit for the year from continuing operations

 

 

____________
(29,462)

 

____________
2,790

 

 

 

 

 

 

Income tax credit / (charge)

 

 

2,481

 

(670)

 

 

 

 

 

 

(Loss) / profit for the year from continuing operations

 

 

____________
(26,981)

 

____________
2,120

 

 

 

 

 

 

Discontinued operations

 

 

 

 

 

 

 

 

 

 

 

Loss for the year from discontinued operations

5

 

(9,067)

 

(1,752)

 

 

 

 

 

 

(Loss) / profit for the year

 

 

____________
(36,048)

 

____________
368

 

 

 

 

 

 

Non-controlling interest

 

 

6

 

(9)

 

 

 

 

 

 

(Loss) / profit for the period attributable to the owners of the parent

 

 

____________
(36,042)

 

____________
359

 

 

 

 

 

 

Other comprehensive (loss) / income for the year

Items that will be reclassified subsequently to profit or loss:

Exchange (losses) / gains on translation of foreign operations

 

 

(133)
____________

 

192
____________

Other comprehensive (loss) / income for the year, net of tax

 

 

(133)
____________

 

192
____________

Total comprehensive (loss) / income for the year attributable to owners of the parent

 

 

____________
(36,175)
____________

 

____________
551
____________

 

 

 

 

 

 

Earnings per share attributable to owners of the parent during the year

 

 

 

 

 

From continuing operations

 

 

 

 

 

Basic

 

 

(6.53)p

 

0.53p

Diluted

 

 

(6.47)p

 

0.52p

 

 

 

 

 

 

From continuing and discontinued operations

 

 

 

 

 

Basic

 

 

(8.72)p

 

0.09p

Diluted

 

 

(8.65)p

 

0.09p

 

 

Consolidated Balance Sheet

At 31 October 2018

Note

 

 

 

 

 

Restated

 

 

 

 

 

2018

 

2017

 

 

 

 

 

£000

 

£000

ASSETS

 

 

 

 

 

 

 

Non-current assets

 

 

 

 

 

 

 

Property, plant and equipment

 

 

 

 

1,211

 

1,743

Intangible assets

6

 

 

 

78,787

 

122,754

Investment

 

 

 

 

18

 

18

Deferred tax assets

 

 

 

 

1,107

 

1,086

Other receivables

 

 

 

 

7,036

 

8,738

Total non-current assets

 

 

 

 

____________
88,159
____________

 

____________
134,339
____________

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Stock

 

 

 

 

115

 

163

Trade and other receivables

 

 

 

 

26,187

 

34,005

Current tax

 

 

 

 

1,084

 

-

Cash and cash equivalents

 

 

 

 

5,534

 

3,248

Total current assets

 

 

 

 

____________
32,920
____________

 

____________
37,416
____________

 

 

 

 

 

 

 

 

Assets classified as held for sale

 

 

 

 

1,114

 

-

Total assets

 

 

 

 

____________
122,193
____________

 

____________
171,755
____________

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Trade and other payables

 

 

 

 

7,941

 

10,893

Deferred consideration

 

 

 

 

750

 

1,600

Other liabilities

 

 

 

 

20,366

 

25,746

Provisions

 

 

 

 

90

 

161

Current tax

 

 

 

 

-

 

289

Borrowings

 

 

 

 

3,289

 

3,102

Total current liabilities

 

 

 

 

 

____________
32,436
____________

 

____________
41,791
____________

 

 

 

 

 

 

 

 

Liabilities directly associated with assets classified as held for sale

 

 

 

 

963

 

-

 

 

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

 

 

Deferred tax liabilities

 

 

 

 

3,724

 

7,010

Other liabilities

 

 

 

 

1,288

 

1,616

Bonds in issue

 

 

 

 

11,491

 

11,238

Borrowings

 

 

 

 

22,505

 

21,519

Total non-current liabilities

 

 

 

 

____________
39,008

 

____________
41,383

Total liabilities

 

 

 

 

____________
72,407

 

____________
83,174

Net assets

 

 

 

 

____________
49,786
____________

 

____________
88,581
____________

 

 

 

 

 

 

 

 

EQUITY

 

 

 

 

 

 

 

Called up share capital

 

 

 

 

4,169

 

4,145

Capital redemption reserve

 

 

 

 

1,112

 

1,112

Share premium account

 

 

 

 

34,188

 

34,109

Treasury reserve

 

 

 

 

(621)

 

(621)

Share option reserve

 

 

 

 

1,232

 

1,730

Other reserves

 

 

 

 

7,528

 

7,528

ESOP trust

 

 

 

 

(399)

 

(349)

Foreign currency translation reserve

 

 

 

 

116

 

249

Retained earnings

 

 

 

 

2,458

 

40,669

Non-controlling interest

 

 

 

 

3

 

9

Total equity

 

 

 

 

____________
49,786
____________

 

____________
88,581
____________

 

 

 

 

 

 

 

 

 The financial statements were approved by the Board of Directors and authorised for issue on 20 February 2019 and are signed on its behalf by:

 David Meaden

 

Consolidated Statement of Changes in Equity

For the year ended 31 October 2018

Called up share capital

£000

Capital redemption

reserve

£000

Share

premium

account

£000

Treasury reserve

£000

Share

option

reserve

£000

Other reserves

£000

ESOP

trust

£000

Foreign currency translation reserve

£000

Restated retained earnings

£000

Non-controlling interest*

£000

Total

£000

Restated balance at 1 November 2016

3,640

1,112

13,480

(1,244)

2,222

1,294

(274)

57

44,487

-

64,774

Issue of share capital

505

-

20,629

-

-

6,234

-

-

-

-

27,368

Share option costs

-

-

-

-

324

-

-

-

-

-

324

Exercise of share options

-

-

-

623

(816)

-

-

-

492

-

299

Deferred tax movement on share options

-

-

-

-

-

-

-

-

(452)

-

(452)

ESOP trust

-

-

-

-

-

-

(75)

-

-

-

(75)

Equity dividends paid

-

-

-

-

-

-

-

-

(4,217)

-

(4,217)

Transactions with owners

____________
505
____________

____________
-
____________

____________
20,629
____________


____________
623
____________

____________
(492)
____________

____________
6,234
____________

____________
(75)
____________

____________
-
____________

____________
(4,177)
____________

____________
-
____________

____________
23,247
____________

Profit for the period

-

-

-

-

-

-

-

-

2,325

-

2,325

Prior year adjustment to profit

-

-

-

-

-

-

-

-

(1,966)

-

(1,966)

Non-controlling interest

-

-

-

-

-

-

-

-

-

9

9

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

Exchange gains on translation of foreign operations

-
____________

-
____________

-
____________

-
____________

-
____________

-
____________

-
____________

192
____________

-
____________

-
____________

192
____________

Total comprehensive income for the period

____________
-

____________
-

____________
-

____________
-

____________
-

____________
-

____________
-

____________
192

____________
359

____________
9

____________
560

Restated balance at 31 October 2017

____________
4,145

____________
1,112

____________
34,109

____________
(621)

____________
1,730

____________
7,528

____________
(349)

____________
249

____________
40,669

____________
9

____________
88,581

Issue of share capital

24

-

79

-

-

 

-

-

-

-

103

Share option costs

-

-

-

-

50

-

-

-

-

-

50

Exercise of share options

-

-

-

 

(548)

-

-

-

548

-

-

ESOP trust

-

-

-

-

-

-

(50)

-

-

-

(50)

Equity dividends paid

-

-

-

-

-

-

-

-

(2,717)

-

(2,717)

Transactions with owners

____________
24
____________

____________
-
____________

____________
79
____________

____________
-
____________

____________
(498)
____________

____________
-
____________

____________
(50)
____________

____________
-
____________

____________
(2,169)
____________

____________
-
____________

____________
(2,614)
____________

Loss for the period

-

-

-

-

-

-

-

-

(36,042)

-

(36,042)

Non-controlling interest

-

-

-

-

-

-

-

-

-

(6)

(6)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

Exchange gains on translation of foreign operations

-
____________

-
____________

-
____________

-
____________

-
____________

-
____________

-
____________

(133)
____________

-
____________

-
____________

(133)
____________

Total comprehensive income for the period

-
____________

-
____________

-
____________

-
____________

-
____________

-
____________

-
____________

(133)
____________

(36,042)
____________

(6)
____________

(36,181)
____________

At 31 October 2018

4,169

1,112

34,188

(621)

1,232

7,528

(399)

116

2,458

3

49,786

 

Consolidated Statement of Changes in Equity

For the year ended 31 October 2018

Called up share capital

£000

Capital redemption

reserve

£000

Share

premium

account

£000

Treasury reserve

£000

Share

option

reserve

£000

Other reserves

£000

ESOP

trust

£000

Foreign currency translation reserve

£000

Restated retained earnings

£000

Non-controlling interest*

£000

Total

£000

Restated balance at 1 November 2016

3,640

1,112

13,480

(1,244)

2,222

1,294

(274)

57

44,487

-

64,774

Issue of share capital

505

-

20,629

-

-

6,234

-

-

-

-

27,368

Share option costs

-

-

-

-

324

-

-

-

-

-

324

Exercise of share options

-

-

-

623

(816)

-

-

-

492

-

299

Deferred tax movement on share options

-

-

-

-

-

-

-

-

(452)

-

(452)

ESOP trust

-

-

-

-

-

-

(75)

-

-

-

(75)

Equity dividends paid

-

-

-

-

-

-

-

-

(4,217)

-

(4,217)

Transactions with owners

____________
505
____________

____________
-
____________

____________
20,629
____________

____________
623
____________

____________
(492)
____________

____________
6,234
____________

____________
(75)
____________

____________
-
____________

____________
(4,177)
____________

____________
-
____________

____________
23,247
____________

Profit for the period

-

-

-

-

-

-

-

-

2,325

-

2,325

Prior year adjustment to profit

-

-

-

-

-

-

-

-

(1,966)

-

(1,966)

Non-controlling interest

-

-

-

-

-

-

-

-

-

9

9

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

Exchange gains on translation of foreign operations

-
____________

-
____________

-
____________

-
____________

-
____________

-
____________

-
____________

192
____________

-
____________

-
____________

192
____________

Total comprehensive income for the period

-
____________

-
____________

-
____________

-
____________

-
____________

-
____________

-
____________

192
____________

359
____________

9
____________

560
____________

Restated balance at 31 October 2017

4,145
____________

1,112
____________

34,109
____________

(621)
____________

1,730
____________

7,528
____________

(349)
____________

249
____________

40,669
____________

9
____________

88,581
____________

Issue of share capital

24

-

79

-

-

 

-

-

-

-

103

Share option costs

-

-

-

-

50

-

-

-

-

-

50

Exercise of share options

-

-

-

 

(548)

-

-

-

548

-

-

ESOP trust

-

-

-

-

-

-

(50)

-

-

-

(50)

Equity dividends paid

-

-

-

-

-

-

-

-

(2,717)

-

(2,717)

Transactions with owners

____________
24
____________

____________
-
____________

____________
79
____________

____________
-
____________

____________
(498)
____________

____________
-
____________

____________
(50)
____________

____________
-
____________

____________
(2,169)
____________

____________
-
____________

____________
(2,614)
____________

Loss for the period

-

-

-

-

-

-

-

-

(36,042)

-

(36,042)

Non-controlling interest

-

-

-

-

-

-

-

-

-

(6)

(6)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

Exchange gains on translation of foreign operations

-
____________

-
____________

-
____________

-
____________

-
____________

-
____________

-
____________

(133)
____________

-
____________

-
____________

(133)
____________

Total comprehensive income for the period

-
____________

-
____________

-
____________

-
____________

-
____________

-
____________

-
____________

(133)
____________

(36,042)
____________

(6)
____________

(36,181)
____________

At 31 October 2018

4,169
____________

1,112
____________

34,188
____________

(621)
____________

1,232
____________

7,528
____________

(399)
____________

116
____________

2,458
____________

3
____________

49,786
____________

 

Consolidated Cash Flow Statement for the year ended 31 October 2018

 

 

 

 

Restated

 

 

 

2018

 

2017

 

 

 

£000

 

£000

Cash flows from operating activities

 

 

 

 

 

(Loss) / profit for the period before taxation

 

 

(39,205)

 

788

Adjustments for:

 

 

 

 

 

Depreciation of property, plant and equipment

 

 

1,144

 

1,157

Amortisation of intangible assets

 

 

8,615

 

8,468

Acquisition credits - release of deferred consideration

 

 

(684)

 

(478)

Impairment

 

 

39,530

 

2,681

Finance income

 

 

(211)

 

(141)

Finance costs

 

 

1,531

 

1,513

Debt issue costs amortisation

 

 

90

 

119

Research and development tax credit

 

 

(832)

 

(360)

Share option costs

 

 

50

 

324

Profit on disposal of property plant and equipment

 

 

-

 

(13)

Movement in stock

 

 

48

 

109

Movement in receivables

 

 

8,476

 

(671)

Movement in payables

 

 

(8,041)

 

1,343

Cash generated by operations

 

 

____________
10,511

 

____________
14,839

 

 

 

 

 

 

Tax on profit paid

 

 

(760)

 

(1,785)

Net cash from operating activities

 

 

____________
9,751

 

____________
13,054

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

Acquisition of subsidiaries

 

 

(209)

 

(18,064)

Acquisition credit

 

 

-

 

550

Purchase of property, plant and equipment

 

 

(606)

 

(1,596)

Proceeds on sale of investment property

 

 

-

 

397

Purchase of intangible assets

 

 

(3,868)

 

(5,688)

Finance income

 

 

211

 

141

Net cash used in investing activities

 

 

____________
(4,472)

 

____________
(24,260)

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

Interest paid

 

 

(1,456)

 

(1,211)

New loans

 

 

6,500

 

3,500

Loan related costs

 

 

42

 

619

Loan repayments

 

 

(5,500)

 

(9,063)

Equity dividends paid

 

 

(2,717)

 

(4,217)

Sale of own shares

 

 

53

 

21,259

Net cash flows (used in) / from financing activities

 

 

____________
(3,078)

 

____________
10,887

 

 

 

 

 

 

Net movement on cash and cash equivalents

 

 

____________
2,201

 

____________
(319)

 

 

 

 

 

 

Cash and cash equivalents at the beginning of the period

 

 

3,248

 

3,787

Exchange gains / (losses) on cash and cash equivalents

 

 

85

 

(220)

Cash and cash equivalents at the end of the period

 

 

____________
5,534

 

____________
3,248

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

1 BASIS OF PREPARATION

The financial information contained in these condensed financial statements does not constitute the Group's statutory accounts within the meaning of the Companies Act 2006. Statutory accounts for the year ended 31 October 2017 and 31 October 2018 have been reported on, with a qualified opinion, by the Group's auditor due to insufficient appropriate evidence available in respect of the acquired sub-group headed by 6pm Holdings plc. Whilst the financial information included in this Annual Financial Report Announcement has been computed in accordance with International Financial Reporting Standards (IFRS) this announcement, due to its condensed nature, does not itself contain sufficient information to comply with IFRS.

This Annual Financial Report Announcement includes note references that refer to notes in this Annual Financial Report Announcement 2018.

Statutory accounts for the year ended 31 October 2017 have been delivered to the Registrar of Companies. The statutory accounts for the year ended 31 October 2018, prepared under IFRS, will be delivered to the Registrar in due course. The Group's principal accounting policies as set out in the 2017 statutory accounts have been applied consistently in all material respects.

Going Concern

The Directors, having made suitable enquiries and analysis of the accounts, consider that the Group has adequate resources to continue in business for the foreseeable future. In making this assessment, the Directors have considered the Group's budget, cash flow forecasts, available banking facility with appropriate headroom in facilities and financial covenants and levels of recurring revenue.

It was announced on 29 January 2019 that the Group had extended its existing banking arrangements with the Royal Bank of Scotland plc and Silicon Valley Bank until 25 February 2020. The Group anticipates it will still have a net debt position at the point of expiry of the current facilities and therefore expects to enter negotiations to extend the facility in the coming year. Given the improvements in the business, the Group expects to be in a strong position to secure financing on a longer-term basis that is commensurate with its target capital structure, and has no reason to believe this will not be completed.

The Annual Financial Report Announcement was approved by the Board of Directors on 20 February 2019 and signed on its behalf by David Meaden and Rob Grubb.

2 RESPONSIBILITY STATEMENTS UNDER THE DISCLOSURE AND TRANSPARENCY RULES

The Annual Financial Report Announcement for the year ended 31 October 2018 contains the following statements:

The directors confirm that:

  • the financial statements, prepared in accordance with the relevant financial reporting framework, give a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation taken as a whole;
  • the strategic report includes a fair review of the development and performance of the business and the position of the company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and
  • the annual report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the company's position and performance, business model and strategy.

The name and function of each of the Directors for the year ended 31 October 2018 are set out in the Annual Financial Report 2018.

3 SEGMENTAL ANALYSIS

As at 31 October 2018, the Group was organised into five operating segments, which are detailed below.

Financial information is reported to the chief operating decision maker, which comprises the Chief Executive Officer and the Chief Financial Officer, monthly on a business unit basis with revenue and operating profits split by business unit. Each business unit is deemed an operating segment as each offers different products and services.

  • Public Sector Software (PSS) - delivering specialist information management solutions and services to the public sector.
  • Engineering Information Management (EIM) - delivering engineering document management and control solutions to asset intensive industry sectors.
  • Content (CONT) - delivering funding and compliance solutions to corporate, public and commercial customers.
  • Digital (DIG) - delivering digital consultancy services to public, private and third sector customers.
  • Health (HLT) - delivering a broad range of innovative solutions to the healthcare market.

Atlas Adviesgroep Twente B.V., acquired in January 2018, is included in the Content segment. On the 1st May 2018 following an internal reorganisation the Knowledge Exchange sub division was transferred to the Content segment.

On 2nd November 2018 the Digital segment was sold. As Digital was a separately identifiable division the results for the period ended 31 October 2018 and comparative period have been classified as a discontinued operation. The allocation of corporate overheads to the Digital segment have remained as continuing as these cost are not clearly identifiable costs of the segment. These cost relate to central overheads which are allocated to segments on a revenue percentage basis.

Segment revenue comprises sales to external customers and excludes gains arising on the disposal of assets and finance income. Segment profit reported to the Board represents the profit earned by each segment before the allocation of taxation, Group interest payments and Group acquisition costs. The assets and liabilities of the Group are not reviewed by the chief operating decision maker on a segment basis. The Group does not place reliance on any specific customer and has no individual customer that generates 10% or more of its total Group revenue.

The segment revenues by geographic location are as follows: 

2018

 

 

Continued

 2018

£000

 

Discontinued 2018

£000

 

Total Group

2018

£000


 

Revenues from external customers

 

 

 

 

 

 

 

 

United Kingdom

 

45,778

 

5,995

 

51,773

USA

 

5,194

 

-

 

5,194

Europe

 

15,632

 

205

 

15,837

Australia

 

475

 

-

 

475

Rest of World

 

364

 

21

 

385

 

 

____________
67,443
____________

 

____________
6,221
____________

 

____________
73,664
____________

                   

 

2017

 

 

Continued

 2017

£000

 

Discontinued 2017

£000

 

Total Group

2017

£000

 

Revenues from external customers

 

 

 

 

 

 

 

 

United Kingdom

 

51,479

 

11,442

 

62,921

USA

 

6,989

 

5

 

6,994

Europe

 

14,419

 

658

 

15,077

Australia

 

312

 

-

 

312

Rest of World

 

552

 

28

 

580

 

 

____________
73,751
____________

 

____________
12,133
____________

 

____________
85,884
____________

                   

Revenues are attributed to individual countries on the basis of the location of the customer.  

 

 

Continued

2018

£000

 

Discontinued

2018

£000

 

Total Group

2018

 £000

 

 

 

 

 

 

 

Recurring revenues

 

31,489

 

3,276

 

34,765

Non-recurring revenues

 

35,954

 

2,945

 

38,899

 

 

____________
67,443
____________

 

____________
6,221
____________

 

____________
73,664
____________

 

 

 

 

 

 

 

 

 

17,335

 

61

 

17,396

 

 

50,108

 

6,160

 

56,268

 

 

____________
67,443
____________

 

____________
6,221
____________

 

____________
73,664
____________

 

 

 

Continued

2017

£000

 

Discontinued

2017

£000

 

Total Group

2017

£000

 

 

 

 

 

 

 

Recurring revenues

 

30,520

 

5,502

 

36,022

Non-recurring revenues

 

43,231

 

6,631

 

49,862

 

 

____________
73,751
____________

 

____________
12,133
____________

 

____________
85,884
____________

 

 

 

 

 

 

 

 

 

19,665

 

31

 

19,696

 

 

54,086

 

12,102

 

66,188

 

 

____________
73,751
____________

 

____________
12,133
____________

 

____________
85,884
____________

Recurring revenue is income generated from customer on a contractual basis. Repeat and recurring revenue amount to approximately 47% of continuing revenue, which is revenue generated from sales to existing customers. 

The segment results by business unit for the year ended 31 October 2018:

 

 

 

 

PSS

£000

 

 

 

EIM

£000

 

 

 

CONTENT

£000

 

 

 

DIGITAL*

£000

 

 

 

HEALTH

£000

 

Continuing

Operations

Total

£000

 

Discontinued

Operations

Digital

£000

 

 

 

Total

£000

Revenue

34,287
____________

10,003
____________

13,604
____________

268
____________

9,281
____________

67,443
____________

6,221
____________

73,664
____________

 

Earnings before depreciation, amortisation, restructuring, acquisition costs, impairment, corporate finance costs and share option costs

9,717
____________

1,361
____________

2,295
____________

(486)
____________

1,530
____________

 

 

 

 

 14,417
____________

(2,834)
____________

11,583
____________

Depreciation

(779)

(196)

(14)

-

(117)

(1,106)

(38)

(1,144)

Amortisation - software licences and R&D

(2,355)

(651)

(176)

-

(536)

(3,718)

(28)

(3,746)

Amortisation - acquired intangibles and order backlog

(2,052)

(468)

(493)

-

(1,482)

(4,495)

(374)

(4,869)

Restructuring costs

(104)

(239)

(38)

(8)

(47)

(436)

(194)

(630)

Acquisition costs

850

-

6

-

-

856

-

856

Impairment

(6,079)

(1,800)

-

-

(25,376)

(33,255)

(6,275)

(39,530)

Share option costs

(46)
____________

-
____________

(4)
____________

-
____________

-
____________

(50)
____________

-
____________

(50)
____________

 

Adjusted segment operating (loss)/profit

(848)
____________

(1,993)
____________

1,576
____________

(494)
____________

(26,028)
____________

(27,787)
____________

(9,743)
____________

(37,530)
____________

Corporate finance costs

 

 

 

 

 

(336)

-

(336)

Finance income

 

 

 

 

 

449

-

449

Finance costs

 

 

 

 

 

(1,788)
____________

-

(1,788)
____________

Loss before Taxation

 

 

 

 

 

 

(29,462)
____________

 

(9,743)

(39,205)
____________

 *Results for the Knowledge Exchange for the period to 30th April 2018. On the 1st May 2018 following an internal reorganisation the Knowledge Exchange sub division was transferred to the Content segment. Results also include the corporate recharge for the Digital segment which remain as continuing as the cost are not clearly identifiable as costs of the segment.

 The restated segment results by business unit for the year ended 31 October 2017: 

 

 

 

PSS

£000

 

 

EIM

£000

 

 

CONTENT

£000

 

 

DIGITAL*

£000

 

 

HEALTH

£000

Continuing Operations

Total

£000

Discontinued Operations

Digital

£000

 

 

Total

£000

Revenue

40,782
____________

12,901
____________

12,421
____________

564
____________

7,083
____________

73,751
____________

12,133
____________

85,884
____________

 

Earnings before depreciation, amortisation, restructuring, acquisition costs, impairment, corporate finance costs and share option costs

14,963
____________

2,146
____________

1,648
____________

(1,265)
____________

(1,013)
____________

16,479
____________

(791)
____________

15,688
____________

Depreciation

(672)

(190)

(18)

-

(197)

(1,077)

(80)

(1,157)

Amortisation - software licences and R&D

(2,198)

(492)

(159)

-

(372)

(3,221)

-

(3,221)

Amortisation - acquired intangibles and order backlog

(2,302)

(468)

(493)

-

(1,181)

(4,444)

(803)

(5,247)

Restructuring costs

(169)

(69)

(87)

-

(52)

(377)

(327)

(704)

Acquisition costs

144

-

-

-

(152)

(8)

-

(8)

Impairment

-

-

-

-

(2,681)

(2,681)

-

(2,681)

Share option costs

(281)
____________

-
____________

(43)
____________

-
____________

-
____________

(324)
____________

-
____________

(324)
____________

 

Adjusted segment operating profit/(loss)

9,485
____________

927
____________

848
____________

(1,265)
____________

(5,648)
____________

4,347
____________

(2,001)
____________

2,346
____________

Corporate finance costs

 

 

 

 

 

(33)

-

(33)

Finance income

 

 

 

 

 

363

-

363

Finance costs

 

 

 

 

 

(1,887)

-

(1,887)

Profit/(loss) before Taxation

 

 

 

 

 

____________ 
2,790
____________

 ____________ 
(2,001)
____________

____________ 
789
____________

 *Results for the Knowledge Exchange for the period to 30th April 2018. On the 1st May 2018 following an internal reorganisation the Knowledge Exchange sub division was transferred to the Content segment. Results also include the corporate recharge for the Digital segment which remain as continuing as the cost are not clearly identifiable as costs of the segment. 

4 DIVIDENDS 

 

 

2018

2017

 

 

£000

£000

 

 

 

 

Final dividend paid in respect of the year ended 31 October 2017

and 31 October 2016

 

2,717

2,627

 

 

 

 

Pence per ordinary share

 

____________
0.655p
____________

____________
0.650p
____________

 

 

 

 

Interim dividend paid in respect of the year ended 31 October 2018

and 31 October 2017

 

-
____________

1,590
____________

 

 

 

 

Pence per ordinary share

 

-p
____________

0.385p
____________

 The Directors have proposed the payment of a final dividend of £Nil per share, which would amount to £Nil (2017: 0.655p). 

5 DISCONTINUED OPERATIONS 

On 12 September 2018 the Group resolved to seek to dispose of the Digital division which carried out the Groups digital consultancy operations. The disposal was effected in order to limit the Group's exposure to future losses and liabilities and improve the working capital position. The disposal was completed on 2nd November 2018, on which date control of the Digital division was passed to the acquirer. 

The results of the discontinued operations, which have been excluded in the consolidated income statement, were as follows:

 

 

 

Restated

 

 

2018

2017

 

 

£000

£000

 

 

 

 

Revenue

 

6,221

12,133

Expenses

 

(15,964)

(14,135)

 

 

 

 

Loss before tax

 

____________
(9,743)

____________
(2,002)

 

 

 

 

Attributable tax expense

 

676

250

 

 

 

 

Net loss attributable to discontinued operations

 

____________
(9,067)
____________

____________
(1,752)
____________

 

 

 

 

During the year, Digital contributed (£1,856k) (2017: (£522k)) to the Group's net operating cash flows, paid £Nil (2017: £Nil) in respect of investing and financing activities.

On 12th September 2018 the board resolved to dispose of the digital consultancy business and negotiations with several interested parties subsequently took place. The sale was completed on 2nd November 2018. These operations have been classified as a disposal group held for sale and presented separately on the balance sheet. Non-current assets were fully impaired at April 2018 with an impairment loss of £6.3m recognised. No further impairment loss has been recognised on the classification of these operations held for sale. 

The major classes of assets and liabilities comprising the operations classified as held for sale are as follows: 

 

 

2018

 

 

£000

 

 

 

Trade and other receivables

 

1,114

 

 

 

Total assets classified as held for sale

 

1,114

 

 

 

Trade and other payables

 

384

Other liabilities

 

579

 

 

 

Total liabilities associated with assets classified as held for sale

 

____________
963
____________

 

 

 

Net assets of disposal group

 

151
____________

 

 

 

  6 INTANGIBLE ASSETS     

 

Goodwill

Customer relationships

Trade names

Software

 

 

Development costs

 

 

 

 

Database

 

 

 

Order backlog

 

 

 

 

Total

 

£000

£000

£000

£000

£000

£000

£000

£000

Cost

 

 

 

 

 

 

 

 

At 1 November 2016

52,646

22,005

11,537

17,074

10,236

569

4,341

118,408

Revaluation of opening balance

-

-

-

 

95

-

(4)

91

Additions

-

-

-

921

4,767

-

-

5,688

Additions on acquisition

24,516

12,312

2,714

5,362

1,545

-

170

46,619

Disposals

-

(3,510)

(1,383)

(7,080)

(3,972)

(569)

(4,200)

(20,714)

Fair value adjustment

101

-

(275)

(275)

-

-

-

(449)

At 31 October 2017

____________
77,263

____________
30,807

____________
12,593

____________
16,002

____________
12,671

____________
-

____________
307

____________
149,643

Revaluation of opening balance

-

-

-

1

17

-

4

22

Additions

-

-

-

222

3,646

-

-

3,868

Additions on acquisition

240

-

-

14

-

-

-

254

Additions on hive-in

-

-

-

14

-

-

-

14

Impairment

-

-

-

-

(1,694)

-

-

(1,694)

Disposals

-

-

-

(189)

(524)

-

-

(713)

Disposals on hive-in

-

-

-

(14)

-

-

 

(14)

Fair value adjustment

61

-

-

(12)

-

-

-

49

At 31 October 2018

____________
77,564
____________

____________
30,807
____________

____________
12,593
____________

____________
16,038
____________

____________
14,116
____________

____________
-
____________

____________
311
____________

____________
151,429
____________

 

 

 

 

 

 

 

 

 

Amortisation

 

 

 

 

 

 

 

 

At 1 November 2016

647

11,239

4,747

9,188

5,263

569

4,236

35,889

Revaluation of opening balance

-

-

-

-

13

-

(3)

10

Amortisation for the year

-

2,085

928

3,104

2,305

-

46

8,468

Impairment

3,231

-

-

-

-

-

-

3,231

Disposals

-

(3,510)

(1,383)

(7,075)

(3,972)

(569)

(4,200)

(20,709)

At 31 October 2017

____________
3,878

____________
9,814

____________
4,292

____________
5,217

____________
3,609

____________
-

____________
79

____________
26,889

Revaluation of opening balance

-

-

-

-

7

-

3

10

Amortisation for the year

-

1,909

859

2,979

2,784

-

84

8,615

Additions on acquisition

-

-

-

5

-

-

-

5

Impairment

27,831

5,754

2,717

2,041

(507)

-

-

37,836

Disposals

-

-

-

(189)

(524)

-

-

(713)

At 31 October 2018

____________
31,709
____________

____________
17,477
____________

____________
7,868
____________

____________
10,053
____________

____________
5,369
____________

____________
-
____________

____________
166
____________

____________
72,642
____________

 

 

 

 

 

 

 

 

 

Carrying amount at 31 October 2018

45,855
____________

13,330
____________

4,725
____________

5,985
____________

8,747
____________

-
____________

145
____________

78,787
____________

 

 

 

 

 

 

 

 

 

Carrying amount at 31 October 2017

73,385
____________

20,993
____________

8,301
____________

10,785
____________

9,062
____________

-
____________

228
____________

122,754
____________

During the year, goodwill and intangibles were reviewed for impairment in accordance with IAS 36, 'Impairment of Assets'. An impairment charge of £25,375,931 (2017: £2,681,000) was processed in the period in relation to the Health division, £6,079,471 (2017: Nil) in relation to the PSS division, £6,274,696 (2017: Nil) in relation to the Digital division and £1,800,000 (2017: Nil) in relation to the EIM division. An impairment charge of £550,000 was processed in the prior year period in relation to a cash refund relating to the historical acquisition price of Rippleffect Limited. 

Fair value adjustments are in relation to the 6PM Group, Halarose Limited and Atlas Adviesgroep Twente B.V.

For this review, goodwill was allocated to individual Cash Generating Units (CGU) on the basis of the Group's operations as disclosed in the segmental analysis. As the Board reviews results on a segmental level, the Group monitors goodwill on the same basis. 

The carrying value of goodwill by each CGU is as follows:

 

2018

2017

Cash Generating Units (CGU)

£000

£000

 

 

 

Public Sector Software: Local Authority

21,803

21,792

Public Sector Software: Transport

-

3,559

Public Sector Software: Social Care

2,443

2,443

Public Sector Software: Computer Aided Facilities Management

4,222

4,222

Engineering Information Management

9,974

11,773

Content

7,413

7,154

Digital

-

2,431

Health

-

20,011

 

____________
45,855
____________

____________
73,385
____________

The recoverable amount of all CGUs has been determined using value-in-use calculations. These calculations use pre-tax cash flow projections based on financial budgets approved by management covering the next five financial years. The key assumptions used in the financial budgets relate to revenue and EBITDA growth targets. Cash flows beyond this period are extrapolated using the estimated growth rates stated below. Growth rates are reviewed in line with historic actuals to ensure reasonableness and are based on an increase in market share. 

For value-in-use calculations, the growth rates and margins used to estimate future performance are based on financial year 2019 budgets (as approved by the Board) which is management's best estimate of short term performance based on an assessment of market opportunities and macro-economic conditions. In the year to 31 October 2018, the Weighted Average Cost of Capital for each CGU has been used as an appropriate discount rate to apply to cash flows. The same basis was used in the year to 31 October 2017. 

The assumptions used for the value- in-use calculations are as follows and are considered appropriate for each of the risk profiles of the respective CGUs: 

Cash Generating Unit (CGU)

Discount rate

Current year

Growth rate

Current year

Discount rate

 Prior year

Growth rate Prior year

Public Sector Software

11.7%

1.5%

11.19%

2%

Engineering Information Management

13.9%

1.5%

10.55%

2%

Content

12.2%

1.5%

12.04%

2%

Digital

N/A

1.5%

11.05%

2%

Health

11.7%

1.5%

10.55%

2%

At April 2018, management conducted a detailed review of the weighted average cost of capital inputs which were used as the basis of the discount rate calculation. This lead to an increase in the discount rates which have been applied, as shown above. 

Individual Weighted Average Cost of Capital were calculated for each CGU and adjusted for the market's assessment of the risks attaching to each CGU's cash flows. The Weighted Average Cost of Capital is recalculated at each period end.  

Management considered the level of intangible assets within the Group in comparison to the future budgets and have processed an impairment charge of £39,530,000 within the year (2017: £2,681,000). This is broken down on a divisional level as; PSS Transport £6,079,000, Health £25,376,000 (2017: £2,681,000), EIM £1,800,000, Digital £6,275,000. 

The Group has conducted sensitivity analysis on the impairment test of each CGU and the group of units carrying value. Sensitivities have been run on the discount rate applied and management are satisfied that a reasonable increase in the discount rate of 1% would not lead to the carrying amount of each CGU exceeding the recoverable amount. 

Sensitivities have also been run on cash flow forecasts for all CGUs reducing the growth rate from 0% to -2%. Management are satisfied that this change would not lead to the carrying amount of each CGU exceeding the recoverable amount. 

7 POST BALANCE SHEET EVENTS 

On 5 November 2018, the Group sold its Digital division to Fat Media Limited, a digital marketing solution provider, for a nominal cash consideration of £1.00. This disposal allows for additional focus on the Group's core operations and further improvements in its operating model. 

It was announced on 19 November 2018 that Laurence Vaughan had stepped down from his role as Chairman. Christopher Stone was appointed as the new Chairman on 22 November 2018. 

It was announced on 7 January 2019 that Barbara Moorhouse will step down from the Board at the Group's next Annual General Meeting. 

It was announced on 29 January 2019 that the Group had extended its existing banking arrangements with the Royal Bank of Scotland plc and Silicon Valley Bank until 25 February 2020. 

8 ADDITIONAL INFORMATION 

Related Party Transactions

No related party transactions have taken place during the year that have materially affected the financial position or performance of the Company. 

Principal Risks and Uncertainties 

The principal risk and uncertainties facing the Group together with the actions being taken to mitigate them and future potential items for consideration are set out in the Strategic Report section of the Annual Financial Report 2018.

END


Rule 26
Updated: 26 February 2019

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