Published: 14 April 2020



Idox plc
('Idox' or the 'Group' or the 'Company')
FY19 Results

ldox plc (AIM: IDOX), a leading supplier of specialist information management software and solutions to the public and asset intensive sectors, is pleased to report its financial results for the year ended 31 October 2019.

The Group’s audit has now been finalised with an unmodified audit opinion and the Group reports its final results in line with its trading update of 16 March 2020. This follows earlier announcements that extra time was taken during the audit to ensure that the accounting and disclosure of items identified in respect of prior periods was complete, which was then subsequently extended by the FCA’s moratorium on the publication of results due to Covid-19.

Idox along with most companies has been impacted by the emerging Covid-19 pandemic. We continue to assess the impact of the Covid-19 pandemic on the business, taking actions to mitigate or limit the impacts on our organisation where we can and supporting our staff, customers and partners in dealing with the emerging situation. As part of the preparation of our FY19 results, the Group has carefully assessed the likely impact of the Covid-19 pandemic on our business and considered specifically changes in the way we engage with our customers, staff, supply chains and banking partners. Idox is fundamentally resilient to the Covid-19 pandemic due to the Group's high recurring revenue base, its focus on public sector markets and the high proportion of staff that routinely work from home. The Group retains significant liquidity with cash and available committed bank facilities and has strong headroom against financial covenants. We continue to monitor the situation as it continues to evolve and adapt our approach as required.

Financial highlights:

  • Revenue of £65.5m (2018: £66.4m for continuing business, restated for prior year adjustments as disclosed in note 4). 
  • Revenue visibility significantly improved, with annualised recurring revenue run rate at 31 October 2019 up 20% to £38.9m following adoption of IFRS 15 (16% organic).
  • Order book for contracted software and services up 29% to £12.1m. 
  • Adjusted EBITDA*: £14.4m (2018: £13.6m, restated) for continuing business. Adjusted EBITDA* margin improved to 22% (2018: 20%, restated).
  • Cash conversion of Adjusted EBITDA* to net cash from operating activities improved to 86% (2018: 72%, restated).  Free cashflow of £4.4m (2018: £4.2m inflow).
  • Adjusted EPS** for continuing operations 1.30p (2018: 2.23p, restated).
  • Net debt*** at 31 October 2019 down 17% at £26.4m (2018: £31.8m).
  • Post year end, new banking arrangements put in place for a £35m, three-year revolving credit facility.

Statutory Equivalents:

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

  • Loss before tax £0.03m (2018: £30.2m loss, restated) for continuing operations, including an impairment charge of £Nil (2018: £33.3m). Loss before tax on discontinued operations of £0.6m (2018: £9.7m).
  • Basic EPS loss of 0.26p (2018: loss 6.67p, restated) for continuing operations. Basic EPS loss of 0.14p (2018: loss 2.19p) on discontinued operations.

Alternative Performance Measures

These items are excluded from statutory measures of profit to present a measure of cash earnings from underlying activities on an ongoing basis. This is a standard methodology in the capital markets in which we operate and how management, shareholders and other stakeholders track performance.

* Adjusted EBITDA is defined as earnings before amortisation, depreciation, restructuring, acquisition costs, impairment, financing costs and share option costs. Share option costs are excluded from Adjusted EBITDA as this is a standard measure in the industry and how management and our shareholders track performance.

** Adjusted profit before tax and adjusted EPS excludes amortisation on acquired intangibles, restructuring, financing, impairment and acquisition costs.

*** Net debt is defined as cash less third party borrowings less long term bond.

Operational highlights:

  • New Board, new senior management and finance teams, with improved accounting practices; enhanced employee, customer and shareholder engagement; full integration of prior period acquisitions; and improved governance throughout the organisation.
  • Disposed of our loss-making Digital business in November 2018 which was classed as discontinued operations in the prior year accounts.
  • Settled a number of operational legacy issues, including disposal of surplus offices, resolved all outstanding material litigation, resolved a number of customer disputes and initiated focus on recurring revenue, ceased loss-making or unsustainable products, and secured long-term supply arrangements with a number of key software partners.
  • Acquired Tascomi, a cloud-native supplier of solutions to our core Local Authority property and environmental services markets, in July 2019 to enhance the Group's technological capabilities and market leading positions.
  • The acquisition was funded by a £7.4m equity placing.
  • Established new sales and marketing methodologies to identify our strongest markets and align existing and new resources to maximise the growth opportunities we are presented with.
  • A continued focus on managing costs to drive increased profitability, and a focus on achieving positive trading terms with our partners to ensure a high level of cash conversion and generation from our operations.

David Meaden, Chief Executive of Idox said:

“This has been a turnaround year for Idox. We enter FY20 on a sound footing having secured new financing arrangements, reduced debt, improved recurring income and overhauled our governance structures, addressing the material legacy issues impacting the Group over the previous 18 months. Our attention is now focussed on customer and employee engagement, growing in our chosen markets and improving margins and cash. We have strong products that are essential for high performing organisations, including our large portfolio of public bodies, seeking to modernise and transform the way they deliver their services.

Cash conversion in the Group has improved notably within the year compared to prior periods, as our revenues and profit are closer linked to services we provide and so more tightly aligned to payments the Group receives for work delivered to our customers. Following the improvements seen in FY19, the Board has full confidence in the Group’s future prospects and currently intends to introduce a final dividend in respect of the year ending 31 October 2020.

We have a high degree of confidence that we will continue to create value at Idox for employees, customers, shareholders and other stakeholders as we build on the achievements of FY19 and deliver on the ambitious targets we have set ourselves for FY20 and beyond”.

For further information please contact:
Idox plc                                                   +44 (0) 870 333 7101
Chris Stone, Non-Executive Chairman
David Meaden, Chief Executive
Rob Grubb, Chief Financial Officer

Peel Hunt LLP (NOMAD and Broker)       +44 (0) 20 7418 8900
Edward Knight
Nick Prowting
James Steel

MHP Communications                              + 44 (0) 203 128 8100
Reg Hoare                                                  idox@mhpc.com
Patrick Hanrahan
Amy O’Sullivan

About Idox plc
For more information see www.idoxplc.com @Idoxgroup

ANNUAL FINANCIAL REPORT ANNOUNCEMENT

The extracts below are from the Annual Financial Report 2019. Note references refer to notes included in this Annual Financial Report Announcement 2019.

CHAIRMAN’S STATEMENT

Introduction
I joined our company as Chairman in November 2018, and reflected that the financial year ending in October of that year had been very busy, with the management team and Board spending a lot of time on issues that needed to be resolved for the good of all of our stakeholders, but which were not directly linked to delivering value for our customers.

More recently Idox along with most companies has been impacted by the emerging Covid-19 pandemic. We continue to assess the impact of the Covid-19 pandemic on the business, taking actions to mitigate or limit the impacts on our organisation where we can and supporting our staff, customers and partners in dealing with the emerging situation.

Idox is a very resilient business, as the core of our Group operates in public sector markets which we anticipate will continue to be robust; in the normal course of business a high proportion of staff are long-term homeworkers meaning the challenges and impact of the switch to predominantly remote working is much lower than for many other organisations. In addition, we have high levels of recurring and repeating revenues, and can continue to deliver products and services remotely with no  need for physical contact. We also have significant headroom in our banking facilities following the successful re-negotiation that was completed on 19 December 2019. We remain very vigilant as to the impact of the pandemic, and we are in a strong operational and trading position to react as necessary. Further details regarding the impact of the Covid-19 pandemic and the Group’s response are provided in the Going Concern disclosures included within note1.

As the year ended 31 October 2019 has unrolled, further issues relating to historic accounting and management practices emerged, resulting in various prior period restatements and a number of improvements to our overall governance and controls framework as detailed in our Audit Committee Report and notes to our financial statements. I am pleased to say that, following the audit, all of these issues have been dealt with effectively, and all the indicators, the balance between order book, utilisation, revenue and cash, tell us that there are no more of these historical issues to emerge. I understand the frustration of our shareholders that we have had to spend so much time on these legacy issues, and that they have consequently impacted our expected performance, but I am happy to report that we are at the end of this phase of the Idox story. Our Executive Management Team (EMT) has done an excellent job in working through the issues, dealing with them quickly and in a transparent way, and putting the business on a good footing to go forwards.

A major component of the stabilisation programme has been a significant upgrade in our management team. We have welcomed new colleagues to lead our Finance, Software Development, Operations and Sales organisations, and as a result, we have a much stronger team, with the skills and experience to drive the business forwards as we focus on the core of our business, building and delivering products and services that deliver clear value for our customers. This is not a new strategy. As I stated in last year’s Annual Report, our strategy of building discrete software and software enabled services businesses around specific Intellectual Property (IP) assets has allowed us to build market leading positions in a number of very attractive market segments, where we enjoy the benefits of delivering differentiated products and services to customers that deliver tangible and lasting value for them. This has led to us building long lasting relationships based on mutual value creation. The power of such a niche strategy is evident in the length of many of our relationships, the depth of penetration in the segments we target, and the margins that we enjoy as a result of the differentiated value that we deliver. Now that we have dealt with the distractions, and associated cost burdens, of the legacy issues, we can concentrate on doubling down on this strategy, and expect to see the benefits of that focus lead to a significant improvement in our own margins.

Last year I wrote in my report about disposing of businesses that had been acquired that did not fit our model. This year I am very pleased to report that, in contrast, we have completed an acquisition that fits our model perfectly. We are thrilled that, with our shareholders support, we have been able to complete the acquisition of Tascomi Limited. Tascomi is a business that has been built from the ground up as a very flexible, cloud-native software business, with its core applications targeted at our markets of Land and Property management. This is an essential direction of travel for the Group and  bringing the Tascomi business together with our existing operations will accelerate our own progress to the cloud significantly, as well as adding some very talented engineers to our teams. We are very pleased to welcome them all to the Group.

As with all rebuilding programmes, there is a huge amount of work that goes on in the background to get the foundations right. The benefits of these improvements are not immediately obvious, but it is essential to put the time and effort in to get this stage right so that the value we all want from the further, more obvious work, can be realised. I believe we are now at this stage.

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 (EIM) business servicing customers across the world. The key to our success is to ensure we deliver better user results and productivity improvements for customers through focusing on usability, functionality and application of integrated digital and increasingly cloud-based technologies and solutions.

As a result of the work described above to fully rectify the legacy problems and deal with the challenges the Group has faced in the year, the Board believes that our business will progress very positively now with a strong improvement in margins and cash generation. We operate in very good markets, with excellent market positions and insights, and we have every confidence that we can continue to deliver growing value from these positions for our customers and all other stakeholders.

Board
FY19 has seen a number of changes to the Board of Directors:

  • On 1 November 2018, Rob Grubb joined us as Chief Financial Officer. Rob has brought strong relevant experience of leading the finance function of a publicly quoted technology business, having been CFO of Gresham Technologies from 2009 to 2018.
  • On 1 November 2018, Oliver Scott was appointed as a Non-Executive Director, and Chair of the Nomination Committee. Oliver is a founding Partner of Kestrel LLP, a fund management business which currently holds approximately 10.13% of Idox shares.
  • On the 19th November 2018, Laurence Vaughan resigned from the Board with immediate effect. Following this, I was appointed to the position of Chairman on 22 November 2018.
  • On 29 March 2019, Barbara Moorhouse stepped down from the Board following the Group's Annual General Meeting (AGM) having completed her three year term of office in January 2019. I would like to thank Barbara for her contribution to Idox since 2016 and in particular her work as Chair of the Remuneration Committee from December 2018.
  • On 29 March 2019, Phil Kelly was appointed as a Non-Executive Director, and Chair of the Remuneration Committee. Phil has served as a non-executive director of several listed and private companies in the software and related services sector, and is currently a non-executive director of Castleton Technology plc.
  • On 3 April 2019, Richard Kellett-Clarke stepped down from the Board. I would like to thank Richard for his contribution to Idox in both Executive and Non-Executive roles dating back to 2005.

In addition to the changes listed above, Jeremy Millard has continued in his role as Non-Executive Director, and Chair of the Audit Committee throughout FY19.

Each member of the Board brings different skills and experience to the Board and the Board Committees and I am pleased with this balance which has supported the effectiveness of the Board throughout FY19.

I am satisfied that there is sufficient diversity in the Board structure to bring a balance of skills, experience, independence and knowledge to the Group however I intend to keep this balance under review and continued assessment.

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 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.

Acquisitions
As highlighted above, during the financial year the acquisition of Tascomi Limited was completed in line with our strategy. Tascomi represents an expansion of our Local Government offerings and creates synergies and opportunities for cost savings in existing products within the Group, which have contributed in a small part to this year’s financial results. The Board believes Tascomi will deliver earnings enhancing contributions in future periods.

The acquisition was funded by means of a placing of new shares which raised gross proceeds of £7.4 million.

Dividends
The Board has decided no final dividend will be paid (2018: £Nil) for FY19 bringing the total for the year to £Nil (2018: £Nil). This decision was reached after a full consideration of the pace of recovery in our business.

Following the improvements seen in the Group in FY19, the Board has full confidence in the Group’s future prospects and currently intends to introduce a final dividend in respect of the year ending 31 October 2020.

Summary and Outlook
Although this financial year did not turn out exactly as anticipated, the fundamental plan and strategy have held up as expected. The Group enjoys an exceptionally strong market position in the public sector, good products, and has opportunities for growth and improving financial performance.

The new leadership team has made a great start to the new financial year, delivering a strong first quarter of trading and securing new long-term bank facilities. I am confident of the Group’s future prospects.

Finally, I would like to extend my thanks to the entire workforce of the Group, who have maintained their focus on looking after the most important asset of our business, our customers. Our colleague’s expertise and diligence have continued to  deliver the support and value that our customers expect, and we are fortunate to have them choose Idox.

Chris Stone
Chairman

CHIEF EXECUTIVEʼS REVIEW

Overview
It has been an intense and transformative year at Idox. The Chairman has referenced the unexpected issues that emerged. It has required a very determined and focussed effort from a talented group of people to lead the business through this set  of circumstances and I am grateful to the newly constituted EMT for embracing the challenge so readily and for their hard  work and single-minded approach. That we have been able to address the issues so effectively and establish a strong basis  for future success has required a commitment and focus across the Group and I would like to record my own thanks for the  engagement of all our staff and their commitment to creating value for our clients during this period.

We have been determined to restore the fortunes of the Group by having a laser like focus on the areas where we create distinctive value. As such, the year saw us dispose of the Digital business that required a series of bespoke, non-repeatable solutions and add the market leading, repeatable SaaS solution provided by Tascomi to our offerings in regulatory and licencing services. We believe these activities are important in the key Local Government market and support our future growth plans.

During the year we have continued to focus on the Four Pillars initiative. This is well communicated across the Group and allows all employees to actively participate on improving the business through a focus on revenue, margins, simplification and communication.

Revenue
We have established strong business controls across the Group to ensure we fully understand the financial and operational implications for each piece of business that we engage in. This ensures that we do not pursue revenue for the sake of growth, but that we focus upon our IP and value propositions and the certainty of delivering lasting value to customers. We have improved the amount of recurring revenue in the business and this provides a strong foundation for future growth in both revenues and margins.

Margins
Having captured business, we have focussed on cost management, professional services productivity, delivery of value through the supply chain and standardised ways of working wherever possible. We believe we are well positioned to sustain and improve margins in the business moving forward as we gain share in our respective markets. I said that our focus during the year would be on cash generation and I am pleased to report a further reduction in our ongoing net debt position of £5.4m.

Simplification
We have also focussed on simplifying our business model. During the course of the year we have driven closer integration across previously diverse acquisitions. The supplier list has reduced by two-thirds from approximately 3,000 at the end of FY18 to approximately 900 at the end of FY19. In addition, we have integrated our support operations and reduced the number of service desks from 6 to 2 providing a more coherent and consistent interaction with clients. Our intention is to consolidate this further and create a single service facility during FY20.

In FY19 we have also reduced the number of supporting technologies and platforms in use across our Group. We have consolidated our activities on a single ERP system and although there is further work to do, we are now using systems and information across the business to much greater effect.

During the year we disposed of our London property lease previously used in conjunction with the Digital business. After the year end we closed the Group’s remaining operations in Malta, following the disposal of the small emCare business having transferred healthcare activities fully to the UK, and exited the Group’s scanning activities based in the Republic of Ireland (ROI) that were originally acquired as part of the 6PM transaction.

Communication
Much of our focus this year has been on re-engaging with staff, listening and establishing disciplines across the business that are practical, and that add value. Having set the goal to substantially improve our internal communications we now have an internal magazine, a news channel, CEO broadcasts, relevant and targeted divisional updates, town hall meetings, product videos, and our series of Regional Events, all rounded off by employee engagement surveys to see how we are doing against these goals. I believe these things have been important in reshaping our business and encouraging greater  collaboration and open dialogue. I wish to express my gratitude to everyone that has been involved and engaged with this programme.

Products
The year has also seen us take significant steps forward with our product portfolio. Each product set now has a clear roadmap for future development, leading to a much clearer engagement with the existing and potential clients that we serve. We believe we have strong technology platforms supporting our core offerings and we have made it clear that as we move forward, a SaaS first strategy is vital, offering our clients the most flexibility possible in their chosen solutions. We were delighted during the year to add Tascomi to our Local Government offering, providing clients with market leading SaaS capabilities. We plan to add further products to the Tascomi platform in due course.

The disposal of the Digital business in November 2018 ensured that Idox focuses on niche solutions to the public sector and other regulated markets. In each of these areas we produce software that elegantly resolves complexity and which we invest in for the long term to support our customer’s evolving needs. Whilst the Digital operation was delivering bespoke solutions to unique client needs, our business is now solely focussed on delivering comprehensive repeatable software solutions that we support and maintain with long term contracts.

Having taken a number of corrective measures, we are now well positioned to push the business forward and to deliver greater customer and shareholder value.

Public Sector Software
During the period, revenue reduced by 3% following the adoption of IFRS 15 and generally a more balanced approach to revenue growth. We have sought to improve or exit low-earning or loss-making revenue generating activities in the year which has led to an overall decrease in revenues recorded but higher margin and cash generation overall. We saw new Local Government client wins at South Staffordshire and Wakefield for the EDMS product and a further extension on behalf of the Northern Ireland Planning Portal for our Planning Solution. This continues the existing relationship along with additional developments of the system.

We have also seen a number of customers enter into new long-term contracts for existing products, for example Winchester City Council signed a new 4-year contract for the Uniform product and a number of other distinct products. Midlothian Council also extended their existing agreement a further 5 years moving their deployment to our cloudbased hosted environment.

Leeds City Council made a further 5 year commitment to our Uniform solution, Idox will also be performing a full operational review to help the Council ensure that they continue to maximise their use of technology both now and in the future. The London Port Authority also became a new customer for our licensing solution with a 3-year contract.

During the year we have seen six new customers for our Social Care Education Health and Care Hub (EHC) enabling collaboration of EHC assessments, plans and reviews. The EHC Hub continues to be a vehicle for significant cultural change within Local Authorities providing live case tracking and 24/7 access to information for thousands of parents, carers and  young people involved in statutory SEND (Special Education Needs and Disabilities) processes. Across our customers, the Hub is now being used to create, manage and review over 55,000 EHC Plans in England. We have also partnered with Westminster City Council to develop an innovative new Family Hub which enables multi-agency working with vulnerable families.

Our CAFM (Computer Aided Facilities Management) product has enjoyed a successful year with a number of new deals including West Midlands Combined Authority and Serco Justice and Immigration. In all we won 10 new customers including Apex Hotels, Bank of China and Canford Healthcare.

In Healthcare, we signed a deal with Virgin Care Services to provide our Lilie software in support of Cheshire West and Chester Council as well as Bolton NHS Foundation Trust. We also secured a long-term five-year extension for iFIT across 3 sites within the Betsi Cadwaladr Health Board, along with continued commitments from Gloucester, North Devon and Cumbria.

In Transport we agreed contracts with Highways England to drive integration between Urban Traffic Management and Control systems. During the year we have focussed on concluding a number of significant projects and moving clients to live operation including WECA Bristol.

Our Elections team supported over 100 authorities to deliver the Local Elections and European Parliamentary election in May. With less than 7 weeks' notice for delivering the poll, the Group supported customers covering over 12 million electors. Idox was contracted to print 3.8 million election documents and train 7,000 polling staff.

Idox also ran managed services across 17 sites to verify the statements and ballots of over 650,000 postal voters. In addition, our Elections business won a contract from the Cabinet Office to implement phases 1 and 2 of the Government's Canvass Reform programme, involving several hundred days of design, development, test, deployment and support, and will allow customers to improve their annual electoral canvass.

We also deployed the electronic ballot counting solution on the island of Malta, enabling votes to be counted electronically for the first time. Used in the European and local elections in late May, the solution cut the count duration from a previous record of several days down to a few hours, making Malta one of the first EU countries to issue their official European election results.

Engineering Information Management (EIM)
The Engineering division saw a revenue reduction of 8% as it continues to transition solutions and customers from an on-premise deployment model to a SaaS delivery which directly impacts the revenue profile of contract wins. In addition, we have sought to improve or exit low-earning or loss-making revenue generation activities in the year which has led to an overall decrease in revenues recorded but higher margin and cash generation overall.

EIM continues to progress with its market leading, cloud-based FusionLive product which affords the Group greater EBITDA margins and revenue visibility. In the first half of the year we secured a 5-year contract for our new offering FusionLive with Wood PLC to manage its projects with Exxon Mobile. Other new clients to select FusionLive as their new cloud technology platform included the LNG (Liquid Natural Gas) owner operators NextDecade and GNL, and the engineering company IPS.

A number of new projects in the AEC (Architecture, Engineering and Construction) and transport space in Europe were contracted and BNP Paribas renewed its commitment to our solution for a further two years beyond their current contract term.

We released a new engineering tag extraction tool to support the digitalisation initiatives within the asset-intensive energy industries. This capability will be fully integrated into our cloud platform in FY20 to provide an additional and significant  differentiator in the EPC (Engineering, Procurement and Construction) and Owner Operators markets.

A number of important services projects on our Enterprise platform were contracted and delivered, including Sacramento Municipal Utility District, BC Hydro and Sonatrach.

During the year new talent was brought into the organisation including the appointment of a new divisional sales manager from within the industry and we have subsequently restructured the sales team, aimed at providing a greater focus on the UK and the USA in the coming year and in particular, the energy markets, where we believe that we can capitalise on the successful projects delivered during FY19.

Content
The Content division has continued to trade strongly with a 6% growth in revenue, 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. Other notable contracts in the year were secured with Sto Group, Chevron and Groupe ADP.

There were further wins for our RESEARCHconnect and GRANTfinder products at Imperial College London, Swansea University, a consortium of South African Universities and Orbit Heart of England Housing & Care. The Wildlife Trusts signed a national contract for GRANTfinder in March. The University Grenoble Alpes committed to a 4-year contract for Open4Research and the Welsh Government renewed their Open4Business contract along with re-commitments from the London Borough of Islington, and Technische Universitat Munchen.

London Fire Brigade and the Greater London Authority procured a new 4-year shared services agreement for data library and information services.

The Grants team also had several notable successes including contracts with BITS, N2000 and LightSense SME II, Accenture and ICT Netherlands.

Outlook 
We continue to explore ways to accelerate the Group's strategy and are confident that we have the right team and engagement throughout the organisation to deliver improved value for all our key stakeholders. 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 Officer

Financial Review
The financial year ended 31 October 2019 has been a year of transition for the Group with a number of operational and finance processes being re-established. In particular the Group has adopted a strong focus on sales and commercial governance to ensure that only earnings-enhancing revenues are pursued. This approach has resulted in improving Adjusted EBITDA and improved cash generation from the operations of the Group compared to prior periods.

Prior period adjustments have been recorded in respect of Revenue and Onerous Contracts following extensive and detailed product and contract reviews. Results in respect of FY18 presented have been restated to reflect these prior year adjustments. Further details are included in the Report of the Audit Committee and note 1 to the Group financial statements.

The following table sets out the revenues and Adjusted EBITDA for each of the Group's segments from its continuing activities:

 

 

 

Restated 

 

 

 

 

FY19

FY18

Variance

 

 

£000

£000

£000

%

Revenue

 

 

 

 

 

- Public Sector Software

 

    41,642

42,539

(897)

-2%

- Engineering Information Management

 

       9,170

    10,003

(833)

-8%

- Content

 

    14,680

    13,872

808

6%

- Total

 

    65,492

66,414

(922)

-1%

 

 

 

 

 

 

Revenue

 

 

 

 

 

- Public Sector Software

 

64%

64%

 

 

- Engineering Information Management

 

14%

15%

 

 

- Content

 

22%

21%

 

 

 

 

 

 

 

 

Adjusted EBITDA*

 

 

 

 

 

- Public Sector Software

 

    11,052

    10,469

583

6%

- Engineering Information Management

 

       1,410

       1,361

49

4%

- Content

 

       1,899

       1,809

90

5%

- Total

 

    14,361

    13,639

722

5%

 

 

 

 

 

 

Adjusted EBITDA margin

 

 

 

 

 

- Public Sector Software

 

27%

25%

 

 

- Engineering Information Management

 

15%

14%

 

 

- Content

 

13%

13%

 

 

- Total

 

22%

21%

 

 

 * See page 1 for definition of Adjusted EBITDA

Public Sector Software 
The PSS division, which now includes Health, due to shared common resources within PSS, accounted for 64% of Group revenues (2018: 64%), delivered revenues of £41.6m (2018: £42.5m). 

 

 

 

Restated

 

 

 

 

FY19

FY18

Variance

 

 

£000

£000

£000

%

Public Sector Software Revenues

 

 

 

 

 

- Recurring

 

    24,144

    19,239

4,905

25%

- Non-Recurring

 

    17,498

    23,300

(5,802)

-25%

 

 

    41,642

42,539

(897)

-2%

- Recurring*

 

58%

45%

 

 

- Non-Recurring**

 

42%

55%

 

 

* Recurring revenue is defined as revenues associated with access to a specific ongoing service, with invoicing that typically recurs on an annual basis and underpinned by either a multi-year or rolling contract. These services include Support & Maintenance, SaaS fees, Hosting services, and some Managed Service arrangements which involve a fixed fee irrespective of consumption. 

** Non-Recurring revenue is defined as revenues without any formal commitment form the customer to recur on an annual basis.

Non-recurring product and services revenue decreased by 25% primarily as a result of the IFRS 15 adoption exercise in our Local Authority business which has resulted in less revenue being recognised as product, and more revenue allocated to ongoing support and maintenance, and hosting obligations, commensurate with our ongoing costs and obligations for those services. Recurring revenues conversely increased markedly year on year as a result.

Adjusted EBITDA increased by 6% to £11.1m (2018: £10.5m), delivering a slightly improved EBITDA margin of 27% (2018: 25%). We continue with our efforts to consolidate individual business units and products within PSS to drive efficiency and anticipate further margin improvement as we continue to leverage our common resources.

Engineering Information Management 
The EIM division accounted for 14% of Group revenues (2018: 15%) with revenue of £9.2m (2018: £10.0m). The business continued its transition from a traditional on-premise deployment to a SaaS solution.

EIM saw a fall in revenue due to a continued emphasis on SaaS and managed service deals with the orders won being traded over future years.  

 

 

 

Restated

 

 

 

 

FY19

FY18

Variance

 

 

£000

£000

£000

%

Engineering Information Management

 

 

 

 

 

- Recurring

 

       7,100

       7,285

(185)

-3%

- Non-Recurring

 

       2,070

       2,718

(648)

-24%

 

 

       9,170

    10,003

(833)

-8%

- Recurring

 

77%

73%

 

 

- Non-Recurring

 

23%

27%

 

 

Adjusted EBITDA increased by 4% to £1.4m (2018: £1.4m), delivering a slightly improved EBITDA margin of 15% (2018: 14%). We continue to control costs tightly as the business transitions from its previous on-premise infrastructure to its present SaaS-led business model.

Content 
The Content division in the UK and Europe had revenue growth of 6% to £14.7m (2018: £13.9m), driven in the main by continued success in our Dutch consultancy business, and German and Belgian compliance businesses. All other business in the division performed as expected. 

 

 

 

Restated

 

 

 

 

FY19

FY18

Variance

 

 

£000

£000

£000

%

Content

 

 

 

 

 

- Recurring

 

       4,492

       4,059

433

11%

- Non-Recurring

 

    10,188

       9,813

375

4%

 

 

    14,680

    13,872

808

6%

- Recurring

 

31%

29%

 

 

- Non-Recurring

 

69%

71%

 

 

Adjusted EBITDA increased slightly to £1.9m (2018: £1.8m), delivering a consistent EBITDA margin of 13% (2018: 13%). We continue to explore ways to improve EBITDA margin, both through targeting higher-margin revenue activities, and also actively managing cost.

Loss Before Tax 
The following table provides a reconciliation between adjusted EBITDA and statutory loss before taxation.

 

 

 

Restated

 

 

 

 

FY19

FY18

Variance

 

 

£000

£000

£000

%

 

 

 

 

 

 

Adjusted EBITDA

 

    14,361

    13,639

722

5%

 

 

 

 

 

 

Depreciation and Amortisation

 

    (9,128)

    (9,319)

191

-2%

Restructuring costs

 

    (2,155)

       (436)

(1,719)

394%

Acquisition (costs) / credits

 

       (174)

          856

(1,030)

-120%

Impairment

 

               -

  (33,255)

33,255

-100%

Financing costs

 

       (368)

       (336)

(32)

10%

Share option costs

 

       (859)

         (50)

(809)

1,618%

Net finance costs

 

    (1,702)

    (1,339)

(363)

27%

 

 

 

 

 

 

Loss before taxation

 

          (25)

  (30,240)

30,215

-100%

The reported loss before tax was £0.03m (2018: £30.2m loss).

Restructuring costs were £2.2m (2018: £0.4m) as the new Management team assessed in detail all operations of the Group in the year; restructuring business units and Group processes to improve the Group's current and future financial performance and prospects.

Acquisition costs of £0.2m (2018: £0.9m credit) relates to the acquisition of Tascomi Limited. The prior year credit was in respect to an adjustment to deferred contingent consideration in relation to a prior period acquisition.

There were no impairments in the year (2018: £33.3m).

Net finance costs have increased to £1.7m (2018: £1.3m) as a direct consequence of the Group refinancing in February 2019 at more expensive terms to the previous financing arrangements. This has since been superseded by improved commercial terms achieved for the Group's new 3-year financing agreed in December 2019.

The Group continues to invest in developing innovative technology solutions and has incurred capitalised development costs of £4.4m (2018: £3.6m).

Taxation 
The effective tax rate (ETR) for the period was (190.07%) (2018: 8.39%).

The main factors for the lower ETR on the net loss before tax position were threefold. New share options granted during the year, some of which were fully-vested on issue, resulted in a significant disallowable P&L impact. This was the same for costs incurred as part of the Digital division disposal and the acquisition of Tascomi.

Lastly, non-recognition of losses in certain jurisdictions, owing to uncertainty over their future utilisation, decreased ETR significantly. The main jurisdiction impact was in France which, alongside non-recognition of current-year losses, elected to derecognise losses brought forward from prior years. This downward pressure on ETR was mitigated slightly by recognition of previously unrecognised losses in Malta, following taxable profits in some of the subsidiaries based there.  

Unrelieved trading losses of £0.4m, across the UK and the US, remain available to offset against future taxable trading profits with both likely to be extinguished during FY20. 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 £11.6m, split across Malta (£7.6m), the UK (£1.7m), Germany (£1.1m) and France (£1.2m). 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 for continuing and discontinued operations improved to (0.41)p (2018: (8.86)p) as a result of the impact of the impairment charge in FY18. Diluted earnings per share improved to (0.41)p (2018: (8.86)p).

Adjusted earnings per share for continuing operations fell to 1.30p (2018: 2.23p) as a result of the impact of the restructuring costs in year. Adjusted diluted earnings per share fell to 1.29p (2018: 2.21p).

The Board proposes a final dividend of £Nil as the business transitions to a more stable platform, giving a total dividend for the year of £Nil.

Balance Sheet and Cash Flows 
The Group's net assets have reduced to £44.6m compared to £47.9m at 31 October 2018. The constituent movements are detailed in the Group's consolidated Statement of Changes in Equity: which are summarised as follows:

 

 

12 months to

31 October 2019

(audited)

£000

 

 

Total Equity as per FY18 Financial Report

49,786

FY19 Prior Year Adjustment

(1,918)

Total Equity as per FY18 Financial Report Restated

47,868

IFRS 15 adoption, net of deferred tax

(9,588)

Transactions with owners (primarily issue of equity in respect of Tascomi acquisition)

8,330

Loss for the year

(1,706)

Non-controlling interest

(113)

Exchange gains on translation of foreign operations

(180)

Total Equity as per FY19 Financial Report

44,611

This movement is principally due to the IFRS 15 adoption, partially offset by the increase in intangible assets in the year of £7.2m due to the acquisition of Tascomi Limited, which was funded by the issue of the equity noted above.

Cash generated from operating activities after tax as a percentage of Adjusted EBITDA was 86% (2018: 72%). Cash conversion has improved within the year as revenues (and therefore profit) are better linked to services and so more tightly aligned to payments the Group receives for work undertaken for our customers (in accordance with full adoption of the principles of IFRS 15).

The Group ended the year with net debt of £26.4m (2018: £31.8m), a significant improvement on the previous year. Net debt comprised cash of £7.0m less bank borrowings of £21.8m and the Malta Stock Exchange listed bond of £11.6m.

The Group's total signed debt facilities at 31 October 2019 stood at £28.8m, a combination of a £5.75m term loan and £23m revolving credit facility, split £5.75m with the Royal Bank of Scotland and £23m with Silicon Valley Bank respectively (the "Lenders"). Post year end, the Group has refinanced with The Royal Bank of Scotland plc, Silicon Valley Bank and Santander UK plc. The new facilities, which comprise a revolving credit facility of £35m and £10m accordion facility, are committed until December 2022, with an option to extend this commitment for a further two years.

Contract liabilities, representing invoiced maintenance and SaaS contracts yet to be recognised in revenue stood at £20.3m (2018: £17.9m). Contract receivables, representing future cash flows, decreased to £7.2m (2018: £18.4m). This reduction is a direct result of the adoption of IFRS 15 and more balanced revenue recognition assessment being made in the year.

The Group has carefully assessed the likely impact of the Covid-19 pandemic on the business and our customers. Idox is fundamentally resilient due to the Group's high recurring revenue base, its focus on public sector markets and the high proportion of staff that routinely work from home. The Group retains significant liquidity with cash and available committed bank facilities and has strong headroom against financial covenants. We continue to monitor the situation and adapt our approach as required.

IFRS 15 
The Group adopted IFRS 15 Revenue from Contracts with Customers with effect from 1 November 2018 using the cumulative effect method. The two most significant impacts of implementing the standard are:

  • Software license revenue previously recognised once a customer commitment was confirmed are now instead recognised over the duration of the project implementation period as milestones are achieved.
  • Where software revenues are unbundled to individually recognise individual performance obligations (notably initial license fees versus ongoing support and maintenance, and hosting obligations) this unbundling is performed against pre-determined criteria to ensure that revenues recognised in the future for ongoing obligations are commensurate with the ongoing costs of those obligations.

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 has been recorded as an adjustment to the opening contract receivables, contract liabilities and retained earnings position. The comparative statement of comprehensive income figures have therefore not been restated.

Further detail regarding the adoption of IFRS 15 is included within note 3, Accounting Policies, and note 5, Segmental Analysis.

Rob Grubb 
Chief Financial Officer

 

 

 

 

Note

 

2019

 

 Restated* 2018

 

 

 

£000

 

£000

Continuing operations

 

 

 

 

 

Revenue

5

 

65,492

 

66,414

Cost of sales

 

 

(19,481)

 

(18,115)

Gross profit

 

 

46,011

 

48,299

Administrative expenses

 

 

(44,334)

 

(77,200)

Operating profit / (loss)

 

 

1,677

 

(28,901)

 

 

 

 

 

 

Analysed as:

 

 

 

 

 

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

5

 

14,361

 

13,639

Depreciation

 

 

(839)

 

(1,106)

Amortisation

 

 

(8,289)

 

(8,213)

Restructuring costs

 

 

(2,155)

 

(436)

Acquisition (costs) / credit

 

 

(174)

 

856

Impairment

 

 

-

 

(33,255)

Financing costs

 

 

(368)

 

(336)

Share option costs

 

 

(859)

 

(50)

 

 

 

 

 

 

Finance income

 

 

172

 

449

Finance costs

 

 

(1,874)

 

(1,788)

 

 

 

 

 

 

Loss before taxation

 

 

(25)

 

(30,240)

 

 

 

 

 

 

Income tax (charge) / credit

 

 

(1,192)

 

2,680

 

 

 

 

 

 

Loss for the year from continuing operations

 

 

(1,217)

 

(27,560)

 

 

 

 

 

 

Discontinued operations

 

 

 

 

 

 

 

 

 

 

 

Loss for the year from discontinued operations

6

 

(602)

 

(9,067)

 

 

 

 

 

 

Loss for the year

 

 

(1,819)

 

(36,627)

 

 

 

 

 

 

Non-controlling interest

 

 

113

 

6

 

 

 

 

 

 

Loss for the year attributable to the owners of the parent

 

 

(1,706)

 

(36,621)

 

 

 

 

 

 

Other comprehensive loss for the year

Items that will be reclassified subsequently to profit or loss:

Exchange losses on translation of foreign operations net of tax

 

 

(180)

 

(133)

Other comprehensive loss for the year, net of tax

 

 

(180)

 

(133)

Total comprehensive loss for the yearT

 

 

(1,999)

 

(36,760)

Total comprehensive loss for the year attributable to owners of the parent

 

 

(1,886)

 

(36,754)

 

 

 

 

 

 

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

 

 

 

 

 

From continuing operations

 

 

 

 

 

Basic

 

 

(0.26)p

 

(6.67)p

Diluted

 

 

(0.26)p

 

(6.67)p

 

 

 

 

 

 

From continuing and discontinued operations

 

 

 

 

 

Basic

 

 

(0.41)p

 

(8.86)p

Diluted

 

 

(0.41)p

 

(8.86)p

*See Note 1 for restatement reconciliation

The accompanying accounting policies and notes form an integral part of these financial statements.

 

Note

 

 

 

Restated

 

Restated

 

 

 

2019

 

2018

 

2017

 

 

 

£000

 

£000

 

£000

ASSETS

 

 

 

 

 

 

 

Non-current assets

 

 

 

 

 

 

 

Property, plant and equipment

 

 

1,162

 

1,211

 

1,743

Intangible assets

7

 

86,004

 

78,787

 

122,754

Investment

 

 

18

 

18

 

18

Deferred tax assets

 

 

1,368

 

1,107

 

1,086

Total non-current assets

 

 

88,552

 

81,123

 

125,601

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Stock

 

 

77

 

115

 

163

Trade and other receivables

 

 

19,972

 

32,502

 

42,216

Current tax receivable

 

 

251

 

1,382

 

-

Cash and cash equivalents

 

 

7,023

 

5,534

 

3,248

Total current assets

 

 

27,323

 

39,533

 

45,627

 

 

 

 

 

 

 

 

Assets classified as held for sale

 

 

-

 

1,114

 

-

Total assets

 

 

115,875

 

121,770

 

171,228

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Trade and other payables

 

 

7,136

 

7,957

 

10,893

Deferred consideration

 

 

381

 

750

 

1,600

Other liabilities

 

 

23,892

 

21,201

 

25,746

Provisions

 

 

384

 

356

 

427

Current tax payable

 

 

-

 

-

 

190

Borrowings

 

 

21,809

 

3,289

 

3,102

Total current liabilities

 

 

53,602

 

33,553

 

41,958

 

 

 

 

 

 

 

 

Liabilities directly associated with assets classified as held for sale

 

 

-

 

963

 

-

 

 

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

 

 

Deferred tax liabilities

 

 

4,015

 

3,724

 

7,010

Deferred consideration

 

 

74

 

-

 

-

Other liabilities

 

 

1,878

 

1,288

 

1,616

Provisions

 

 

111

 

378

 

645

Bonds in issue

 

 

11,584

 

11,491

 

11,238

Borrowings

 

 

-

 

22,505

 

21,519

Total non-current liabilities

 

 

17,662

 

39,386

 

42,028

Total liabilities

 

 

71,264

 

73,902

 

83,986

Net assets

 

 

44,611

 

47,868

 

87,242

 

 

 

 

 

 

 

 

EQUITY

 

 

 

 

 

 

 

Called up share capital

 

 

4,446

 

4,169

 

4,145

Capital redemption reserve

 

 

1,112

 

1,112

 

1,112

Share premium account

 

 

41,348

 

34,188

 

34,109

Treasury reserve

 

 

(621)

 

(621)

 

(621)

Share option reserve

 

 

1,837

 

1,232

 

1,730

Other reserves

 

 

7,528

 

7,528

 

7,528

ESOP trust

 

 

(365)

 

(399)

 

(349)

Foreign currency translation reserve

 

 

(64)

 

116

 

249

Retained earnings

 

 

(10,500)

 

540

 

39,330

Issued capital and reserves attributable to the owners of the parent

 

 

44,721

 

47,865

 

87,233

Non-controlling interest

 

 

(110)

 

3

 

9

Total equity

 

 

44,611

 

47,868

 

87,242

 

 

 

 

 

 

 

 

The financial statements were approved by the Board of Directors and authorised for issue on 9 April 2020 and are signed on its behalf by:

David Meaden                                                Rob Grubb
Chief Executive Officer                                      Chief Financial Officer                                                                      

The accompanying accounting policies and notes form an integral part of these financial statements. 
Company name: Idox plc                     Company number: 03984070

 

 

 

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

Balance at 1 November 2017

4,145

1,112

34,109

(621)

1,730

7,528

(349)

249

40,669

9

88,581

FY19 Prior period adjustment (note 4)

-

-

-

-

-

-

-

-

(1,339)

-

(1,339)

Restated balance at 1 November 2017

4,145

1,112

34,109

(621)

1,730

7,528

(349)

249

39,330

9

87,242

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 year

-

-

-

-

-

-

-

-

(36,042)

-

(36,042)

FY19 Prior period adjustment (note 4)

-

-

-

-

-

-

-

-

(579)

-

(579)

Non-controlling interest

-

-

-

-

-

-

-

-

-

(6)

(6)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

Exchange movement on translation of foreign operations

-

-

-

-

-

-

-

(133)

-

-

(133)

Total comprehensive loss for the year

-

-

-

-

-

-

-

(133)

(36,621)

(6)

(36,760)

Restated Balance at 31 October 2018

4,169

1,112

34,188

(621)

1,232

7,528

(399)

116

540

3

47,868

IFRS 15 opening adjustment

-

-

-

-

-

-

-

-

(11,532)

-

(11,532)

IFRS 15 deferred tax opening adjustment

-

-

-

-

-

-

-

-

1,944

-

1,944

 

 

 

 

 

 

 

 

 

 

 

 

Issue of share capital

277

-

7,160

-

-

-

-

-

-

-

7,437

Share option costs

-

-

-

-

859

-

-

-

-

-

859

Exercise / lapses of share options

-

-

-

-

(254)

-

-

-

254

-

-

ESOP trust

-

-

-

-

-

-

34

-

-

-

34

Transactions with owners

277

-

7,160

-

605

-

34

-

254

-

8,330

Loss for the year

-

-

-

-

-

-

-

-

(1,706)

-

(1,706)

Non-controlling interest

-

-

-

-

-

-

-

-

-

(113)

(113)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

Exchange movement on translation of foreign operations

-

-

-

-

-

-

-

(180)

-

-

(180)

Total comprehensive loss for the year

-

-

-

-

-

-

-

(180)

(1,706)

(113)

(1,999)

At 31 October 2019

4,446

1,112

41,348

(621)

1,837

7,528

(365)

(64)

(10,500)

(110)

44,611

The accompanying accounting policies and notes form an integral part of these financial statements. 
*relates to a 30% non-controlling interest Six-PM Health Solutions (Ireland) Ltd, a subsidiary of 6PM Holdings plc.

 

 

 

 

 

Restated

 

 

 

2019

 

2018

 

 

 

£000

 

£000

Cash flows from operating activities

 

 

 

 

 

Loss for the year before taxation

 

 

(627)

 

(39,983)

Adjustments for:

 

 

 

 

 

Depreciation of property, plant and equipment

 

 

839

 

1,144

Amortisation of intangible assets

 

 

8,289

 

8,615

Acquisition credits - release of deferred consideration

 

 

(750)

 

(684)

Impairment

 

 

-

 

39,530

Finance income

 

 

(172)

 

(211)

Finance costs

 

 

1,629

 

1,666

Debt issue costs amortisation

 

 

(54)

 

90

Research and development tax credit

 

 

(182)

 

(832)

Share option costs

 

 

859

 

50

Movement in stock

 

 

38

 

48

Movement in receivables

 

 

4,923

 

8,671

Movement in payables

 

 

(3,595)

 

(7,456)

Cash generated by operations

 

 

11,197

 

10,648

 

 

 

 

 

 

Tax on loss refunded / (tax on profit paid)

 

 

1,185

 

(760)

Net cash from operating activities

 

 

12,382

 

9,888

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

Acquisition of subsidiaries

 

 

(6,394)

 

(209)

Net cash arising on disposal of discontinued operations

 

 

44

 

-

Purchase of property, plant and equipment

 

 

(780)

 

(606)

Purchase of intangible assets

 

 

(5,871)

 

(3,868)

Finance income

 

 

172

 

211

Net cash used in investing activities

 

 

(12,829)

 

(4,472)

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

Interest paid

 

 

(1,423)

 

(1,484)

New loans

 

 

8,000

 

6,500

Loan related costs

 

 

(81)

 

42

Loan repayments

 

 

(12,039)

 

(5,500)

Equity dividends paid

 

 

-

 

(2,717)

Issue of own shares

 

 

7,350

 

(53)

Net cash flows from / (used in) financing activities

 

 

1,807

 

(3,212)

 

 

 

 

 

 

Net movement in cash and cash equivalents

 

 

1,360

 

2,204

 

 

 

 

 

 

Cash and cash equivalents at the beginning of the year

 

 

5,534

 

3,248

Exchange gains on cash and cash equivalents

 

 

129

 

82

Cash and cash equivalents at the end of the year

 

 

7,023

 

5,534

The accompanying accounting policies and notes form an integral part of these financial statements.

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 2018 and 31 October 2019 have been reported on, with a qualified opinion for 31 October 2018 by the Group's auditor due to insufficient appropriate evidence available in respect of the acquired sub-group headed by 6pm Holdings plc. The audit opinion in respect of 31 October 2019 is unqualified.

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 2019.

Statutory accounts for the year ended 31 October 2018 have been delivered to the Registrar of Companies. The statutory accounts for the year ended 31 October 2019, prepared under IFRS, are available on the Group's website: https://www.idoxgroup.com/investors/financial-reporting/ and will be delivered to the Registrar in due course. The Group's principal accounting policies as set out in the 2018 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, in addition to levels of contracted and recurring revenue.

It was announced on 19 December 2019 that the Group had refinanced with the Royal Bank of Scotland plc, Silicon Valley Bank and Santander UK plc. The new facilities, which comprise a revolving credit facility of £35,000,000 and £10,000,000 accordion facility, are committed until December 2022, with an option to extend this commitment for a further two years. The new facility is on improved commercial terms with a lower margin grid and standard financial covenants in respect of leverage and cash flow cover.

As the Group has net current liabilities of £26.3m as at 31 October 2019, the Directors have specifically considered whether this represents an indication of an issue with the going concern basis for the Group's accounting, particularly as the corresponding balance as at 31 October 2018 was a net current asset position of £6.1m. The Directors have identified that:

  • the FY19 closing position includes our £21.8m borrowings which are secured for up to five years, being disclosed in less than one year due to the timing of finalising our new banking arrangement post year end, whereas the borrowings in FY18 were in the main disclosed as greater than 12 months due to that refinancing being an extension of additional facilities, and therefore excluded from current liabilities; and
  • in FY19 the Group has seen a large opening adjustment in FY19 that has reduced contract receivables and increased contract liabilities by a total of £12.6m following the adoption of IFRS 15.

After adjusting for these items to present an appropriate year on year comparison, the Group's net current asset position has improved by £2m from FY18 to FY19. Therefore, the Directors do not consider the net current liabilities reported as at 31 October 2019 to be an indicator of any issue with the Group's going concern assessment.

Covid-19 pandemic impact on Going Concern assessment

Idox along with most companies has been impacted by the emerging Covid-19 pandemic. We continue to assess the impact of the Covid-19 pandemic on the business, taking actions to mitigate or limit the impacts on our organisation where we can and supporting our staff, customers and partners in dealing with the emerging situation.

As part of the preparation of our FY19 results, the Group has carefully assessed the likely impact of the Covid-19 pandemic on our business and specifically considered if it creates any material uncertainty in our going concern assessment. We have considered in detail anticipated changes in the way we engage with our customers, staff, supply chains and banking partners as a result of the Covid-19 pandemic. 

Idox is fundamentally resilient to the Covid-19 pandemic due to the Group's high recurring revenue base, its focus on public sector markets and the high proportion of staff that routinely work from home. The Group retains significant liquidity with cash and available committed bank facilities and has strong headroom against financial covenants. We continue to monitor the situation as it continues to evolve and adapt our approach as required. 

The exposures identified to date are as follows:

  • Our Public Sector Software business is exposed to government policy in response to the Covid-19 pandemic, notably the recent postponement of the local and mayoral elections originally scheduled for May 2020 to May 2021 which will impact the Elections sub-segment of this business. However, the overall PSS business has strong levels of recurring revenues from a well-established existing customer base and growing markets.
  • Our EIM business has seen significant reduction in travel given its cross-border operations which has had a limited impact but we continue to provide the majority of solutions and service customers remotely. Our EIM business also has strong existing high recurring revenues which account for approximately 80% of its revenue targets, and is well-placed given its increasing focus on cloud-based solutions.
  • Our Content business has operations in Germany and Netherlands, however, the impact of the Covid-19 pandemic to-date has been minimal. We are not anticipating any impact on the UK element of our Content business which is all recurring in nature and in respect of public sector customers. 

The Group has introduced a number of cost controls over new and existing spend which, together with linked Cost of Sale reductions, will mitigate any potential reduction in revenue from the Covid-19 pandemic. Management continue to anticipate future earnings and cash will be in line with its previous expectations. 

We have performed detailed financial forecasting of a number of credible potential Covid-19 pandemic scenarios, as well as severe stress-testing in our financial modelling which includes potential restructuring in order to preserve the Group as a going concern in the event of the most extreme possible impact on our Group of the Covid-19 pandemic.

The key assumptions in these scenarios are:

  • There will be a direct impact period until most of the current restrictions are lifted as well as a recovery period until commercial and social life has broadly returned to normal (recovery period).
  • Revenues from existing support and recurring services contracts will not be materially impacted.
  • Revenues from new business and from current projects will be impacted by delays and some cancellation of procurements in the current pipeline.
  • Cost management actions will be taken, consistent with these assumptions and the impacts experienced.

The scenarios considered most credible for the markets in which we operate and the customer base we have are:

A.    A direct impact period of 3 months and a recovery period of 3 months. This scenario assumes 20% to 50% of procurements are delayed but the majority resume. Project work recovers and any backlog is cleared by the end of the recovery period.

B.    A direct impact period of 6 months and a recovery period of 9 months. This scenario assumes 30% to 70% of procurements are delayed into the recovery period and a number are cancelled. Project work recovers and any backlog is cleared by the end of the longer recovery period.

We are satisfied these are valid and reasonable assumptions and that the scenarios tested are the most appropriate and credible as the Group has high levels of recurring revenue and repeating revenues from a diverse customer base across a number of business units. Both scenario A (our anticipated impact based on current information) and scenario B (further sensitivity test) demonstrate the business is expected to have significant liquidity available from cash in hand and from committed facilities and has strong headroom against financial covenants. In both scenario A and B, the Group is forecasting liquidity in excess of £20m and headroom of at least 100% on financial covenants. Therefore, this supports the going concern assessment for the business.

In our severe stress testing financial modelling we have sought to identify an extreme set of circumstances that would result in the Group breaching banking covenants and extinguishing its available liquidity. In order to create such a set of circumstances we further adjusted scenario B to reduce all Group revenues by 50% for the period April 2020 to June 2021, but with no further action on cost.

Whilst it is informative to identify extreme circumstances to test the Group's liquidity, this scenario is considered highly unlikely due to the high levels of recurring revenues the Group has in respect of software that is often either central to the customer, or a specific regulatory requirement under statute. Furthermore, in the event the Group did find revenues deteriorated further beyond the scenario's modelled, the Group has identified mitigating actions to preserve its liquidity. These actions include reducing any operations that may have become severely loss-making due to the Covid-19 pandemic either through further reduction in operational spend, restructuring of business units, or utilising available government financial support with job retention schemes.   

The Annual Financial Report Announcement was approved by the Board of Directors on 9 April 2020 and signed on its behalf by David Meaden and Rob Grubb.

2 RESPONSIBILITY STATEMENTS UNDER THE DISCLOSURE AND TRANSPARENCY RULES 

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 2019 are set out in the Annual Financial Report 2019.

3 IFRS 15 'REVENUE FROM CONTRACTS WITH CUSTOMERS'

IFRS 15 'Revenue from Contracts with Customers - the standard was adopted for the first time in the year ending 31 October 2019. The Group applied IFRS 15 on a cumulative effect basis from the date of initial application (1 November 2018), without restatement of comparative amounts. The adoption of IFRS 15 does not alter the total contract value, the timing of cash flows or the Group's ability to pay dividends.

IFRS 15 provides a single, principles-based five-step model to be applied to all sales contracts, based on the transfer of control of goods and services to customers. The Group has undertaken a review of all the services and products the businesses provide and the main types of commercial arrangements used with each service and product. Both the UK and the overseas businesses are impacted by IFRS 15 and the most significant impact of implementing the standard is as follows:

  • Software licence revenue: Under previous accounting policies revenue from software licences was mainly recognised as the licences are issued to the customers. For bundled contracts this results in the revenue for software licences being recognised earlier than it would be under IFRS 15 as software licences do not meet the criteria of being a distinct performance obligation. IFRS 15 resulted in the software licence fees in bundled contracts being combined with other promises in the contract, specifically implementation services, and recognised over the implementation term. This resulted in a delay in revenue previously recognised and an increase in contract liabilities going forward. There was no change to the net contract values.
  • Hardware revenue: Under previous accounting policies revenue from hardware was mainly recognised as the hardware is issued to the customers. For bundled contracts this resulted in the revenue for hardware being recognised earlier than it would be under IFRS 15 as hardware does not meet the criteria of being a distinct performance obligation. IFRS 15 resulted in the hardware fees in bundled contracts being combined with other promises in the contract, specifically implementation services, and recognised over the implementation term. This resulted in a delay in revenue previously recognised and an increase in contract liabilities going forward. There was no change to the net contract values.
  •  Quantitative impact: The following table summarises the entries arising from the adoption of IFRS 15: 

 

 

£000

 

 

 

Deferral of revenues previously reported

 

11,880

Eliminate discounting of contract receivables balances greater than one year

 

(348)

Associated deferred tax

 

(1,944)

IFRS 15 impact

 

9,588

  • Quantitative impact: The impact of adoption of IFRS 15 on our financial statements for the year ended 31 October 2019 was as follows:

 

 

 

Restated*

2018

£000

 

 

IFRS 15 Impact

£000

 

Opening

balance

2019

£000

 

 

 

 

 

 

 

Contract receivables

 

18,432

 

(5,872)

 

12,560

Deferred tax asset

 

1,107

 

1,944

 

3,051

Contract liabilities

 

(17,859)

 

(5,660)

 

(23,519)

Retained earnings

 

(540)

 

9,588

 

9,048

*Balances restated for the impact of prior period adjustments as detailed in the next section.

Further detail regarding the adoption of IFRS 15 are included within note 5, Segmental Analysis.

4 RESTATEMENT OF COMPARATIVE FIGURES

Reallocation of Cost of Delivery
There has been a reallocation of £9,588,000 between Administrative expenses and Cost of Sales in the FY18 comparatives to include an element of employment costs within the Cost of Sales to be more representative of gross margin generated from revenue.

This reallocation has no impact on earnings.

Contract Irregularities
In March 2019, the new management team identified a small number of contract documentation irregularities in respect to the 2016 year-end. As part of our more stringent approach to contract monitoring and execution we identified three instances of irregularities in historic customer contracts, signed and recognised in the year ended 31 October 2016 (FY16) that had been inappropriately amended by a small number of employees whom have since left the Idox Group.

These contract irregularities amounted to £497,000, and as a result contract receivables and retained earnings within the opening balance sheet for FY18 have been reduced by £497,000.

Onerous Contract 
Following identification of a loss-making contract during the audit process, it was subsequently identified as an onerous contract that should have been recorded in prior periods.

As a result of this contract being identified, the Audit Committee commissioned a review of all material contracts in the Group and commissioned a report by the Group's Chief Process and Transformation Officer to identify how the onerous contract had not previously been identified. These reviews concluded there were no other such examples of onerous contracts within the Group and resulted in several recommendations to strengthen the link between operational controls and financial reporting which the Audit Committee and Executive Management have fully adopted.

As a result, an onerous contract provision of £911,000 has been recorded and an associated revision to brought-forward retained earnings as at 31 October 2017. This provision has been partially realised by £267,000 in the restated FY18 Consolidated Statement of Comprehensive Income, with a remaining onerous contract provision of £644,000 as at 31 October 2018 and £378,000 as at 31 October 2019.

Other Items 
In addition to the adjustments noted above, there were further contracts identified, during the IFRS 15 review, in which revenue overstatements in prior periods have been identified whereby revenue was recognised by previous Management teams despite not being permissible under IAS 18 Revenue, the applicable accounting standard at the time. Management has concluded whilst these overstatements in respect of prior periods individually are not significant, they are of sufficient quantum cumulatively to be represented as a prior year adjustment in these financial statements.

As a result of these adjustments, the impact on the prior year's results are noted in the table below: 

 

Pre FY18

FY18

 

 £000

 £000

Reduction in revenue

(30)

(1,029)

Increase in administrative expenses

-

(16)

 

(30)

(1,045)

 

 

 

Reduction in contract receivables

(30)

(194)

Increase in accruals

-

(16)

Increase in contract liabilities

-

(835)

 

(30)

(1,045)

Overall 
The following tables summarise the impact of the reclassification of employment costs and the prior period errors in the financial statements of the Group. 

Consolidated Statement of Comprehensive Income

Reclassification

Prior Period Adjustments

31 October 2018

 

 

Contract
Irregularities

Onerous Contract

Other Items

 

 

£000

£000

£000

£000

£000

 

 

 

 

 

 

Loss for the year from continuing operations as originally presented

 

 

 

 

(26,981)

 

 

 

 

 

 

Reclassification of employment costs:

 

 

 

 

 

Cost of sales

(9,588)

-

-

-

(9,588)

Employment costs

9,588

-

-

-

9,588

 

 

 

 

 

 

Restatement due to contract irregularities and other contract reviews:

 

 

 

 

 

Revenue

-

-

-

(1,029)

(1,029)

Cost of sales

-

-

267

-

267

Administrative expenses

-

-

-

(16)

(16)

Income tax

-

-

-

199

199

 

 

 

 

 

 

Loss for the year from continuing operations as restated

 

 

 

 

(27,560)

 

Consolidated Balance Sheet

Contract Irregularities £000

Onerous Contract £000

Other Items £000

31 October 2018

£000

 

 

 

 

 

Opening retained earnings as at 1 November 2017 as presented in FY18 Annual Report

 

 

 

40,669

 

 

 

 

 

Restatement of:

 

 

 

 

FY17 trade and other receivables

(497)

-

(30)

(527)

FY17 provisions

-

(911)

-

(911)

FY17 current tax payable

-

-

99

99

 

 

 

 

 

Opening retained earnings as restated

 

 

 

39,330

 

 

 

 

 

 

 

 

 

 

Closing Net assets as originally presented

 

 

 

49,786

 

 

 

 

 

Restatement of:

 

 

 

 

Trade and other receivables 

(497)

-

(224)

 (721)

Current tax receivable

-

-

298

298

Trade and other payables

-

-

(16)

(16)

Other liabilities

 

 

(835)

(835)

Provisions

-

(644)

-

(644)

 

 

 

 

 

Closing Net assets as restated

 

 

 

47,868

 

 

 

 

 

 

Earnings per share from continuing and discontinued operations

31 October 2018

 

 

Basic EPS as originally presented

(8.72)p

Impact on loss for the year (£000)

(579)

Basic EPS as restated

(8.86)p

 

 

Diluted EPS as originally presented

(8.65)p

Impact on loss for the year (£000)

(579)

Diluted EPS as restated

(8.86)p

5 SEGMENTAL ANALYSIS

As at 31 October 2019, the Group was organised into three 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.

Health is now included in PSS as it shares resources within PSS and is no longer separately identifiable.

On 2nd November 2018 the Digital segment was sold. As Digital was a separately identifiable division the results for the period ended 31 October 2019 and comparative period have been classified as a discontinued operation.

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: 

2019

 

 

Continuing

2019

£000

 

Discontinued

2019

£000

 

Total Group

2019

£000

 

Revenues from external customers

 

 

 

 

 

 

 

 

United Kingdom

 

43,416

 

-

 

43,416

USA

 

5,448

 

-

 

5,448

Europe

 

14,948

 

-

 

14,948

Australia

 

315

 

-

 

315

Rest of World

 

1,365

 

-

 

1,365

 

 

65,492

 

-

 

65,492

                   

 

2018

 

 

Restated
Continuing
2018

£000

 

Discontinued
2018

£000

 

Total
Group
Restated
2018
£000

 

Revenues from external customers

 

 

 

 

 

 

 

 

United Kingdom

 

45,584

 

5,995

 

51,579

USA

 

4,921

 

-

 

4,921

Europe

 

15,070

 

205

 

15,275

Australia

 

475

 

-

 

475

Rest of World

 

364

 

21

 

385

 

 

66,414

 

6,221

 

72,635

                   

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

The segment revenues by type are as follows:

2019

 

 

Continuing

2019

£000

 

Discontinued

2019

£000

 

Total Group

2019

 £000

Revenues by type

 

 

 

 

 

 

 

Recurring revenues - PSS

 

24,144

 

-

 

24,144

Recurring revenues - EIM

 

7,100

 

-

 

7,100

Recurring revenues - Content

 

4,492

 

-

 

4,492

Recurring revenues

 

35,736

 

-

 

35,736

 

 

 

 

 

 

 

Non-recurring revenues - PSS

 

17,498

 

-

 

17,498

Non-recurring revenues - EIM

 

2,070

 

-

 

2,070

Non-recurring revenues - Content

 

10,188

 

-

 

10,188

Non-recurring revenues

 

29,756

 

-

 

29,756

 

 

 

 

 

 

 

 

 

65,492

 

-

 

65,492

 

 

 

 

 

 

 

 

Revenue from sale of goods

 

 

23,247

 

-

 

23,247

Revenue from rendering of services

 

 

42,245

 

-

 

42,245

 

 

 

65,492

 

-

 

65,492

 

2018

 

 

Restated

Continuing

2018

£000

 

 

Discontinued

2018

£000

 

Group Restated 2018

 £000

Revenues by type

 

 

 

 

 

 

 

Recurring revenues - PSS

 

19,239

 

-

 

19,239

Recurring revenues - EIM

 

7,285

 

-

 

7,285

Recurring revenues - Content

 

4,059

 

-

 

4,059

Recurring revenues - Digital

 

-

 

3,276

 

3,276

Recurring revenues

 

30,583

 

3,276

 

33,859

 

 

 

 

 

 

 

Non-recurring revenues - PSS

 

23,300

 

-

 

23,300

Non-recurring revenues - EIM

 

2,718

 

-

 

2,718

Non-recurring revenues - Content

 

9,813

 

-

 

9,813

Non-recurring revenues - Digital

 

-

 

2,945

 

2,945

Non-recurring revenues

 

35,831

 

2,945

 

38,776

 

 

 

 

 

 

 

 

 

66,414

 

6,221

 

72,635

 

 

 

 

 

 

 

 

Revenue from sale of goods

 

 

17,335

 

61

 

17,396

Revenue from rendering of services

 

 

49,079

 

6,160

 

55,239

 

 

 

66,414

 

6,221

 

72,635

Recurring revenue is income generated from customers on an annual contractual basis. Recurring revenue amounts to approximately 55% (2018: 46%) of continuing revenue, which is revenue generated annually from sales to existing customers.

All revenues are recognised over the period of the contract, unless our only performance obligation is to license or re-license a customer's existing user without any further obligations, in which case the revenue is recognised upon completion of the obligation.

All contracts are issued with commercial payment terms without any unusual financial or deferred arrangements and do not include any amounts of variable consideration that are constrained.

The Group's total outstanding contracted performance obligations at 31 October 2019 was £56,410,000 and it is anticipated that 73% of this will be recognised as revenue in FY20.

IFRS 15 adoption
The following table sets out the impact the opening IFRS 15 adjustment has on FY19 and future periods, as at 1 November 2018 when it was recorded:  

 

 

12 months to

31 October 2019

£000

 

 

IFRS 15 adoption opening adjustment (gross of deferred tax)

11,532

 

 

Anticipated realisation:

 

-       FY19

6,026

-       FY20

2,820

-       FY21

1,685

-       FY22

757

-       FY23 - FY25

244

 

11,532

The following table sets out the Group's estimation of the financial reporting of FY19 had IFRS 15 not been adopted: 

 

 IFRS 15

 IAS 18

 

 £000

 £000

 

 

 

 Revenue

   65,492

   59,116

 Cost of sales

(19,481)

(19,481)

 Administrative expenses

(44,334)

(44,334)

 Net finance cost

  (1,702)

  (1,500)

 Income tax charge

  (1,192)

       (19)

 Loss for the year from continuing operations

 (1,217)

  (6,218)

 

 

 

 Net Assets

   44,611

   39,610

Whilst the IAS 18 estimation of FY19 presents lower revenues and a larger retained loss from continuing activities, it is important to note following the introduction of a new Board and Management team, the Group's approach to revenue recognition in FY19 is more cautious than in prior periods irrespective of the distinctions between IAS 18 and IFRS 15.

The changes in the way the revenue is recorded in FY19 and future periods as a result of the adoption of IFRS 15, better reflect the Group's delivery of performance obligations with its customers.

The segment results by business unit for the year ended 31 October 2019: 

 

 

 

 

PSS

£000

 

 

 

EIM

£000

 

 

 

CONTENT

£000

 

Continuing

Operations

Total

£000

 

Discontinued

Operations

Digital

£000

 

 

 

Total

£000

Revenue

41,642

9,170

14,680

 65,492

-

 65,492

 

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

11,052

1,410

1,899

 14,361

-

 14,361

Depreciation

(720)

(93)

(26)

 (839)

-

 (839)

Amortisation - software licences, customer lists, order backlog and R&D

(2,991)

(772)

(340)

 (4,103)

-

(4,103)

Amortisation - acquired intangibles

(3,270)

(440)

(476)

 (4,186)

-

 (4,186)

Restructuring costs

(1,613)

(30)

(512)

 (2,155)

-

 (2,155)

Acquisition costs

(174)

-

-

 (174)

-

 (174)

Share option costs

(850)

-

(9)

 (859)

-

 (859)

 

Adjusted segment operating profit

1,434

75

536

 2,045

-

 2,045

Financing costs

 

 

 

 (368)

-

 (368)

Loss from the sale of discontinued operations

 

 

 

-

(602)

 (602)

Finance income

 

 

 

 172

-

 172

Finance costs

 

 

 

 (1,874)

-

 (1,874)

Loss before taxation

 

 

 

 (25)

(602)

 (627)

The corporate recharge to the business unit EBITDA is allocated on a head count basis in FY19, compared to a revenue basis in FY18.

The restated 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

33,285

10,003

13,604

268

9,254

 66,414

6,221

 72,635

 

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

8,939

1,361

2,295

(486)

1,530

 

 

 

 

 

 13,639

(2,834)

 10,805

Depreciation

(779)

(196)

(14)

-

(117)

 (1,106)

(38)

 (1,144)

Amortisation - software licences, order backlog and R&D

(2,355)

(651)

(176)

-

(536)

 (3,718)

 (3,746)

Amortisation - acquired intangibles

(2,052)

(468)

(493)

-

(1,482)

 (4,495)

 (4,869)

Restructuring costs

(104)

(239)

(38)

(8)

(47)

 (436)

 (630)

Acquisition costs

850

-

6

-

-

 856

 856

Impairment

(6,079)

(1,800)

-

-

(25,376)

 (33,255)

 (39,530)

Share option costs

(46)

-

(4)

-

-

 (50)

-

 (50)

 

Adjusted segment operating (loss) / profit

(1,626)

(1,993)

1,576

(494)

(26,028)

 (28,565)

(9,743)

 (38,308)

Financing costs

 

 

 

 

 

 (336)

-

 (336)

Finance income

 

 

 

 

 

 449

-

 449

Finance costs

 

 

 

 

 

 (1,788)

-

 (1,788)

Loss before taxation

 

 

 

 

 

 

 (30,240)

 

(9,743)

 (39,983)

*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.

6 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 statement of comprehensive income, were as follows:

 

 

 

 

 

 

2019

2018

 

 

£000

£000

 

 

 

 

Revenue

 

-

6,221

Expenses

 

-

(15,964)

Loss on Disposal

 

(602)

-

 

 

 

 

Loss before tax

 

(602)

(9,743)

 

 

 

 

Attributable tax credit

 

-

676

 

 

 

 

Net loss attributable to discontinued operations

 

(602)

(9,067)

 

 

 

 

During the year, Digital contributed £Nil (2018: (£1,856k)) to the Group's net operating cash flows, paid £Nil (2018: £Nil) in respect of investing and financing activities. Expenses for discontinued operations in FY19 relate to disposal costs.

For the year ending 31 October 2018 the Digital operations were 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 was 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:  

 

2019

2018

 

£000

£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

 

 

 

7 INTANGIBLE ASSETS   

 

Goodwill

Customer relation-

ships

Trade names

Software

 

 

Develop-ment costs

 

 

 

Order backlog

 

 

 

Customer lists

 

 

 

 

Total

 

£000

£000

£000

£000

£000

£000

£000

£000

Cost

 

 

 

 

 

 

 

 

At 1 November 2017

77,263

30,807

12,593

16,002

12,671

307

-

 149,643 

Foreign exchange

-

-

-

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

Foreign exchange

-

-

-

-

22

9

-

 31

Additions

8

-

-

2,206

4,351

-

273

 6,838

Additions on acquisition

2,269

1,151

-

4,448

799

-

-

 8,667

Disposals

-

-

-

(5)

-

-

-

 (5)

At 31 October 2019

79,841

31,958

12,593

22,687

19,288

320

273

 166,960

 

 

 

 

 

 

 

 

 

Amortisation

 

 

 

 

 

 

 

 

At 1 November 2017

3,878

9,814

4,292

5,217

3,609

79

-

 26,889

Foreign exchange

-

-

-

-

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

Foreign exchange

-

2

-

-

17

7

(1)

 25

Amortisation for the year

-

1,663

697

2,512

3,172

85

160

 8,289

At 31 October 2019

31,709

19,142

8,565

12,565

8,558

258

159

 80,956

 

 

 

 

 

 

 

 

 

Carrying amount at 31 October 2019

48,132

12,816

4,028

10,122

10,730

62

114

 86,004

 

 

 

 

 

 

 

 

 

Carrying amount at 31 October 2018

45,855

13,330

4,725

5,985

8,747

145

-

78,787

 

 

 

 

 

 

 

 

 

Average remaining amortisation period (years)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

31 October 2019

n/a

7.7

5.8

4.0

3.4

0.7

0.7

 

 

 

 

 

 

 

 

 

 

31 October 2018

n/a

7.0

5.5

2.0

3.1

1.7

n/a

 

During the year, goodwill and intangibles were reviewed for impairment in accordance with IAS 36, 'Impairment of Assets'. An impairment charge of £Nil (2018: £31,455,000) was processed in the period in relation to the PSS division, £Nil (2018: £6,275,000) in relation to the Digital division and £Nil (2018: £1,800,000) in relation to the EIM division.

Impairment test for goodwill
For this review, goodwill was allocated to individual Cash Generating Unit groupings (CGUs) 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. This was previously separated as, Local Authority, Transport, Social Care, Computer Aided Facilities Management and Health.

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

 

2019

2018

Cash Generating Unit Groupings

£000

£000

 

 

 

Public Sector Software

30,737

28,468

Engineering Information Management

9,974

9,974

Content

7,421

7,413

 

48,132

45,855

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 2020 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 2019, 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 2018.

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 Groupings

Discount rate

Current year

Compound Annual Growth Rate

Long term growth rate

Current year

Discount rate

Prior year

 

 

Growth rate Prior year

Public Sector Software

12.4%

5.7%

1.5%

11.7%

1.5%

Engineering Information Management

13.1%

9.9%

1.5%

13.9%

1.5%

Content

11.8%

6.5%

1.5%

12.2%

1.5%

Individual Weighted Average Costs of Capital were calculated for each CGU and adjusted for the market's assessment of the risks attaching to each CGUs 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 £Nil within the year (2018: £39,530,000). The charge in FY18 was broken down on a divisional and then business unit level as; PSS Transport £6,079,000, Health £25,376,000, 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 used 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 EBITDA by 10%. Management are satisfied that this change 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 to 0%. Management are satisfied that this change would not lead to the carrying amount of the PSS and Content CGU exceeding the recoverable amount. A growth rate of 4.9% in EIM would result in CGU carrying amount equalling its recoverable amount. A growth rate of less than 4.9% would result in an impairment in EIM. If growth rates reduced to 0% in EIM, this would cause its CGU carrying amount to exceed its recoverable amount by £5.0m which would result in an impairment in EIM.

Management have further considered the CGUs for which prior period impairments were recorded to reduce the value-in-use of those CGUs to their recoverable amount, and how such carrying values are subject to the current year sensitivities noted above.

Whilst the current year impairment reviews and sensitivities have not provided any indicators of further impairment on these assets, management have considered whether a reversal of the prior period impairment is required and concluded this is not appropriate at this time due to the ongoing transformation and improvement of those businesses.

8 ACQUISITIONS

Tascomi Limited

On 9 August 2019, the Group acquired the entire share capital of Tascomi Limited (Tascomi).

Tascomi is a cloud-native supplier of solutions to Local Authority property and environmental services markets, and will complement the Group's existing Local Authority business within the PSS division.

Goodwill arising on the acquisition of Tascomi has been capitalised and consists largely of the value of the workforce, synergies and economies of scale expected from combining the operations of Tascomi with Idox. None of the goodwill recognised is expected to be deductible for income tax purposes. The purchase of Tascomi has been accounted for using the acquisition method of accounting.  

 

 

Book value

£000

 

 

Fair value

£000

 

 

 

 

Intangible Assets

799

 

799

Property, plant and equipment

83

 

50

Trade receivables

162

 

207

Other receivables

-

 

8

Cash at bank

2

 

2

Total Assets

1,046

 

1,066

 

 

 

 

Trade payables

(239)

 

(239)

Other liabilities

(37)

 

-

Contract liabilities

(661)

 

(875)

Social security and other taxes

(303)

 

(160)

Deferred tax liability

-

 

(941)

Total Liabilities

(1,240)

 

(2,215)

Net Assets

 

 

(1,149)

 

 

 

 

Goodwill arising on acquisition

 

 

2,269

Purchased customer relationships capitalised

 

 

1,151

Purchased software capitalised

 

 

4,448

Total consideration

 

 

6,719

Satisfied by:

Cash to vendor

 

 

6,394

Earn out consideration

 

 

325

Total consideration

 

 

6,719

The revenue included in the consolidated statement of comprehensive income since 9 August 2019 contributed by Tascomi was £536,000. Tascomi also made a profit after tax of £127,000 for the same period. If Tascomi had been included from 1 November 2018, it would have contributed £2,144,000 to Group revenue and a profit after tax of £507,000.

Acquisition costs of £174,000 have been written off in the consolidated statement of comprehensive income.

9 POST BALANCE SHEET EVENTS

Refinancing
It was announced on 19 December 2019 that the Group had refinanced with the Royal Bank of Scotland plc, Silicon Valley Bank and Santander UK plc. The new facilities, which comprise a revolving credit facility of £35,000,000 and £10,000,000 accordion facility, are committed until December 2022, with an option to extend this commitment for a further two years.

Disposal of SIX-PM Health Solutions (Ireland) Limited
The Group agreed on 22 November 2019 to sell its shareholding in SIX-PM Health Solutions (Ireland) Limited, a medical-record scanning business based in Limerick, to its Managing Director for €1. During the year ended 31 October 2019 6PM Ireland Limited recorded revenues of €392,000 (2018: €587,000) and loss before tax on a standalone basis of €378,000 (2018: €12,000 loss).

Disposal of emCare Business
On 31 December 2019, the Group sold the trade and assets of its emCare business to Go plc, a telecoms business based in Malta, for cash consideration of €100,000. During the year ended 31 October 2019 emCare business recorded revenues of €317,000 (2018: €338,000) and profit before tax of €128,000 (2018: €115,000). Despite the profitability recorded in the business in FY18 & FY19, the business was anticipated to become loss-making for the foreseeable future.

UK Corporation Tax
On the 11 March 2020, the UK Government announced its intention to scrap its planned reduction of UK Corporation tax from its current rate of 19% to a reduced rate of 17% starting 1 April 2020. The Group's UK deferred tax assets and liabilities at 31 October 2019 are measured at 17% being the rate previously announced and enacted at the balance sheet date. The impact on our deferred tax balances had they been recognised at the revised rate is as follows:

 

 

Current at 17%

Revised to 19%

 

 

£000

£000

 

 

 

 

Deferred tax assets

 

1,368

1,529

Deferred tax liabilities

 

(4,015)

(4,487)

 

 

(2,647)

(2,958)

Covid-19
The Group continues to monitor the impact of the Covid-19 pandemic. Idox is well placed because of the Group's high recurring revenue base, its focus on public sector markets and the high proportion of staff that routinely work from home.

Further details of our assessment of the impact of the Covid-19 pandemic on the Group is included in the Going Concern disclosures included within note1.

10 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 2019.



Rule 26
Updated: 14 April 2020

Interested in finding out more?
Get in touch to speak to one of our expert team.

Contact Us

Please visit our offices page to see full company listings and individual contact details