Final results for the year ended 31 October 2018
(‘Idox‘ or ‘the Group‘ or ‘the Company‘)
Final Results for the year ended 31 October 2018
Idox plc (AIM: IDOX), a leading supplier of specialist information management solutions and services, is pleased to announce its results for the year ended 31 October 2018.
- Consolidated revenue:
o for the continuing business, excluding our Digital business disposed of on 2 November 2018, of £67.4m (2017: £73.8m restated – see note 1); and
o for all Group operations, including our disposed Digital Business, of £73.7m (2017: £85.9m restated).
- Adjusted EBITDA*:
o for the continuing business, excluding our Digital business, of £14.4m (2017: £16.5m restated); and
o for all Group operations, including our disposed Digital Business, of £11.6m (2017: £15.7m restated).
- Net debt position at 31 October 2018 of £31.8m (2017: £32.6m) comprising cash of £5.5m, third party borrowings of £25.8m and long term 2025 bond of £11.5m (2017: cash of £3.2m, third party borrowings of £24.6m and long term, 2025 bond of £11.2m).
- Adjusted profit before tax** £7.9m (2017: £10.3m)
- Adjusted EPS** for the continuing business, excluding our Digital Business 2.28p (2017: 2.18p).
- Adjusted EPS** for all Group operating, including our disposed Digital Business 1.72p (2017: 1.97p).
- No proposed dividend (2017: 1.040p) as the business transitions to a more stable platform.
- Post year end, banking arrangements extended to February 2020.
The above highlights are based on adjusted results. Reconciliations between adjusted and statutory results are contained within these financial statements. The statutory equivalents of the above results are as follows:
- Loss before tax £29.5m (2017: £2.8m profit) for continuing operations, including an impairment charge of £33.2m (2017: £2.7m). Loss on discontinued operations of £9.8m, including an impairment charge of £6.2m.
- Basic EPS of (8.72)p (2017: 0.09p).
* Adjusted EBITDA is defined as earnings before amortisation, depreciation, restructuring, acquisition costs, impairment, corporate finance costs and share option costs. Share option costs are excluded from Adjusted EBITDA as this is a standard measure in the industry and how management and our shareholders track performance.
** Adjusted profit before tax and adjusted EPS excludes amortisation on acquired intangibles, restructuring, impairment and acquisition costs.
- Ongoing review and transition to fully integrate prior year acquisitions and refocus operations on our core profitable and cash generative activities to maximise shareholder value.
- Appointment of new leadership team to drive value in the business with the appointment of Chris Stone as Non-Executive Chairman, David Meaden as Chief Executive Officer and Rob Grubb as Chief Financial Officer.
- Strategic focus on, and continued investment in Public Sector Software (PSS) which represented 47% of total Group Revenues and 84% of Adjusted EBITDA* in FY2018, including discontinued operations. Disposal of Digital business, cementing focus on software and related services for the Group.
- Review of revenue recognition policies (including adoption of IFRS 15) and practices with a focus on sustaining and improving levels of recurring revenues and visibility of revenues more generally:
o Exit annualised recurring revenue run rate as at 31 October 2018 was £32.4m (as at 31 October 2017: £33.4m restated).
o Our contracted order book for software and services has more than doubled to £9.4m at 31 October 2018 (2017: approximately £4.0m), an increase of £5.4m reflecting revenue recognition commensurate with our performance obligations.
- Improved cash conversion from realisation of prior period debtor and accrued income balances, and better cash terms for new deals signed.
- A continued focus on reducing costs as the Group adjusts its cost base to align more directly with its re-focused business model to drive increased profitability. This trend is expected to continue through FY2019 and beyond.
David Meaden, Chief Executive of Idox said:
This has been a challenging year for Idox. The business has faced a number of challenges resulting from previous leadership decisions and there has been significant work to re-establish the necessary disciplines and rigor required for future success. I am pleased that we have been able to establish a more cohesive model and clear business practices to drive the business forward and whilst there is much to be done, I believe we are well placed to grow the business and improve shareholder value over the coming years.
A number of corrective actions have been undertaken. The Digital operation was disposed of, eliminating future liabilities and ensuring the business is focused on its software assets and related services which are at the core of our business model. In addition, we have established a more integrated model for future sales, development, delivery and support activities, allowing the business to benefit more substantially from a unified approach. During the second half of the year we have ensured that the treatment of revenue is in line with our ongoing service obligations and that we have a clear focus on margins and cash across the group. As a result, we exit the year in a much stronger position and I am especially grateful to our staff who as well as showing resilience during the early part of the year are embracing new processes and ways of operating.
Our primary focus remains supporting and growing with our clients. We have strong products that are essential for high performing organisations, including our large portfolio of public bodies, seeking to modernise and transform the way they improve their services.
We ended FY2018 in a much stronger position than we started it. The markets in which we operate remain resilient and we now have a strong leadership team with a clear focus on clients and execution of our strategy of product and operational execution to drive increased profitability and cash generation. I am confident this momentum will continue strongly into FY2019 as we deliver success.
This announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) No 596/2014.
For further information please contact:
Idox plc +44 (0) 870 333 7101
David Meaden, Chief Executive
Rob Grubb, Chief Financial Officer
N+1 Singer (NOMAD and Broker) +44 (0) 20 7496 3000
Shaun Dobson / Jen Boorer (Corporate Finance)
Tom Salvesen (Corporate Banking)
About Idox plc
For more information see www.idoxplc.com @idoxgroup
ANNUAL FINANCIAL REPORT ANNOUNCEMENT
The extracts below are from the Annual Financial Report 2018. Note references refer to notes included in this Annual Financial Report Announcement 2018.
2018 has been a very busy year for Idox, with significant changes in operating the businesses we own, accounting practices we apply, as well as changes to executive and non-executive leadership. Due to legacy issues, from the complex integration of 6PM and the accounting irregularities disclosed in the 2017 annual report, and decisions made by the previous leadership, it is difficult for any business to stay totally focused on the day to day demands of winning and delivering work for its clients when there is so much upheaval all around. I was appointed in November and my priority as Chairman of our Company is to help put that upheaval behind us and drive a focus on the core activities necessary to support our customers and rebuild value for shareholders.
The restoration of value needs to start with a “back to basics” approach. Idox has been successful for many years in following a strategy of building discrete software and software enabled services businesses around specific Intellectual Property (IP) assets. This niche focused strategy has allowed us to build market leading positions in a number of very attractive market segments, where we enjoy the benefits of delivering differentiated products and services to customers that deliver tangible and lasting value for them. This allows us to build long lasting relationships based on mutual value creation. The power of such a niche strategy is evident in the length of many of our relationships, the depth of penetration in the segments we target, and the margins that we enjoy as a result of the differentiated value that we deliver.
Unfortunately, some of our more recent acquisitions did not fit our IP led model. The Digital businesses in particular were smaller, pure service businesses. Such businesses can be very successful but tend to be very reliant on an individual or small group of founder/owners and if these individuals leave, there can be challenges to maintaining revenues which we experienced in the year with our Reading Room and Rippleffect acquisitions. The option of trying to rebuild these businesses without any clear differentiation in very competitive markets was considered to be unlikely to deliver satisfactory shareholder value, leading to the decision to dispose of them. This was at negligible value but did staunch quite serious continuing losses and removed future liabilities.
The acquisitions of 6PM and Halarose, by contrast, have brought some very interesting IP to the Group that we hope to build into successful, growth businesses. However, in the case of 6PM, we paid a very full price for a company that had a number of issues of its own to resolve before we could start the process of fully integrating it into the rest of the Idox Group. We also had to wrestle with some complex accounting issues that absorbed a lot of our resources in getting to a satisfactory conclusion. All of this has delayed the realisation of some of the value that we expect from this business, but I am pleased to say that the integration process is now well under way.
With the disposal of the Digital division completed, we can now concentrate on driving value from the businesses in the Group, all of which have significant IP at their core. This emphasis combined with the creation of a single Head of Division for the Public Sector and Health division is designed to make it easier to identify and deliver new solutions and services that will deliver increased customer value, at the same time as leveraging our scale and skills to be more efficient in everything that we do. We have an excellent slate of products and services, an enviable customer list, and a talented and committed workforce. The task for the Chief Executive and his leadership team is to drive improved performance from these assets, but I have every confidence in them. David Meaden has made a very impressive start in his role and has moved swiftly to strengthen the team in some key positions.
The Group continued its focus on providing digital solutions and services to the public sector in the United Kingdom, complemented by our Content business in Europe and Engineering Information Management business servicing customers across the world. The key to our success is to ensure we deliver better user results and productivity improvements for customers through focusing on usability, functionality and application of integrated digital technologies and solutions.
Following the challenges the Group has faced in the year as outlined above, the Board believes it can bounce back quickly with the steps already taken to rectify the issues identified and reflecting the underlying strengths of the core business, its product offering and its talented people.
I am very pleased to report that the Board was successful in appointing David Meaden as our permanent Chief Executive in June 2018. David has enjoyed a very successful career of over 22 years in Sales Leadership and Chief Executive roles in businesses supplying software and services predominantly to the Public Sector. We are already enjoying the benefits of his insights and experience.
Richard Kellett-Clarke, who had become a Non-Executive Director of Idox in November 2016, stepped in as Interim Chief Executive in December 2017 through to David Meaden’s appointment. The Board would like to thank Richard for his commitment during this period.
There were a number of other changes to the Board during the period. In March 2018 Andrew Riley left his role as Chief Executive, in April 2018 Peter Lilley, Senior Non-Executive Director and Chair of the Nomination and Remuneration Committee, ceased to be a Board member and in August 2018 Jane Mackie stepped down from her role as Chief Financial Officer.
On 1 November 2018 Rob Grubb joined us as Chief Financial Officer. Rob brings strong relevant experience of leading the finance function of a publicly quoted technology business, having been CFO of Gresham Technologies from 2009 to 2018. On the same date, Oliver Scott was appointed as a Non-Executive Director, and Chair of the Nomination Committee. Oliver is a founding Partner of Kestrel LLP, a fund management business which currently holds approximately 10.21% of Idox shares.
On the 19th November 2018, Laurence Vaughan resigned from the Board with immediate effect. Following this, I was appointed to the position of Chairman on 22nd November 2018.
On 7 January 2019 it was announced that Barbara Moorhouse will step down from the Board at the Group’s forthcoming Annual General Meeting (AGM) having completed her three year term of office in January 2019. I would like to thank Barbara for her contribution to Idox since 2016 and in particular her work as Chair of the Remuneration Committee from December 2018.
I am very pleased to have the opportunity to take up this position. Idox is a business with some great strengths and some very exciting opportunities to grow and deliver value. I am looking forward to working with the team to realise that value.
We are cognisant of the important responsibilities we have in respect of Corporate Governance and shaping our culture to be consistent with our objectives, strategy and business model which we set out in our strategic report and our description of principal risks and uncertainties. The Idox group is committed to conducting its business fairly, impartially, in an ethical and proper manner, and in full compliance with all laws and regulations. In conducting our business, integrity is the foundation of all company relationships, including those with customers, suppliers, communities and employees.
The Board has decided no final dividend will be paid (2017: 0.655p) for FY2018 bringing the total for the year to nil (2017: 1.04p). In reaching this decision, the Board has taken into account the disappointing results for the year and the ongoing efforts to transition the business to a more stable footing.
Following a challenging year for the Group a number of substantive changes and re-tooling of the business have taken place. Idox enjoys an exceptionally strong market position in the public sector, good products, opportunities for growth and improving financial performance. The new leadership team will make customers, shareholders and our staff their priority and I am confident of the Group’s future prospects.
Finally, I would like to extend my thanks to the entire workforce of the Idox Group, who have maintained their focus on looking after the most important asset of our business – our customers. Our colleague’s expertise and diligence have continued to deliver the support and value that our customers expect, and we are fortunate to have them choose Idox.
CHIEF EXECUTIVE’S REVIEW
I have been impressed with both the quality and comprehensive range of solutions offered by the Group; we have a fundamentally strong business offering excellent solutions to attractive core markets. More than that, I have seen first-hand the commitment and determination of the team here at Idox to deliver to its clients, shareholders and wider stakeholders. I am leading a very capable company that is now focused on delivering tangible customer and shareholder value.
The markets in which we operate have a continued need for high quality products and an increasing need for expert support and service. It is well documented that the effects of persistent austerity and the pressure to deal with increasing frontline demands have driven our clients beyond the simple message of ‘digital by design’.
Statutory and legislative complexity mean that clients operations’ are not satisfied easily by ‘build your own’ digital solutions. Clients are increasingly searching for cost effective measures that combine the opportunities offered by direct connection to citizens with ‘ready-now’ products and services that accelerate business change and enable more effective working.
As such the ‘back to basics’ approach highlighted by the Chairman means that the coming year will see a laser focus on customers, colleagues and cash. We have an excellent customer list which has been created by delivering outstanding value. This will continue to be the number one priority for everyone in our business. There have been distractions that have interfered with this focus over the recent past, but it will be the focus of our entire Group, at all levels.
We also need to ensure that our colleagues, who have maintained an admirable focus on supporting their customers during this difficult period, continue to feel motivated and committed to Idox. We are fortunate to have so many talented people who have chosen Idox as the place for them, and we must make sure that commitment is rewarded and maintained.
And finally, we need to focus on cash. The new leadership team has already delivered a strong performance in improving our working capital, but there is more to do in that area.
Over the coming year our approach is to continue to build our market positions, focusing on our clients’ needs and integrating our teams and structures to offer a comprehensive service to their extended requirements.
We have initiated a programme labelled, ‘The 4 Pillars’ with a focus on improving the quality of Revenue, EBITDA, Cashflow and a continued simplification of the organisation.
As a result of the actions taken since the half year, the Group now has a much better framework in place for future success; we have attended to unnecessary costs, restructured businesses, processed impairment charges, focused our teams, and introduced more appropriate contract pricing and terms. Whilst a number of challenges remain, I now have a much clearer view of the potential and optimal shape of the business going forward.
In future years we therefore expect that the Group’s financial performance will benefit from an optimised cost base and a stronger commercial focus on organic growth, recurring revenues and cash conversion.
We are delivering a simplified business and operating model. The effect will be to make the Group more efficient in combining solutions to clients across its chosen sectors. We will focus on improving the long-term visibility of recurring and repeating revenues and ensure that all products and business areas are core to delivering shareholder value.
Appropriate contract pricing and contract terms have been implemented across the Group to increase recurring revenue and reduce the reliance on up front licence fees, which will improve the quality of our earnings. We have also seen a greater number of larger contract wins and this combined with strong client retention bode well for the future.
The Digital business was disposed of shortly after year end, ensuring that the Group is not exposed to future liabilities and our focus is on software assets and related services. The business had reduced costs substantially during the second half of the year and we wish our ex colleagues well under their new ownership.
Public Sector Software continues to be the focal point of the business. We have a number of market leading products and impressive new technology solutions focused on delivering Smart Government, Smart Healthcare and Smart Cities.
During the year we have seen new contracts for software and hosting services including Sheffield City Council, South Ayrshire, London Borough of Southwark, Wolverhampton City Council, and London Borough of Bexley. Existing clients at Barnet, Westminster, Hammersmith & Fulham, and Aberdeen City Council also extended their existing software and hosting arrangements. Additional new notable contract wins include the Land Registry for data, and integration work to our core Land Charge Solutions which we anticipate will lead to additional work in FY2019 for all of our customer base in this area.
This adds to the success earlier in the year for a new planning solution for the combined Greater Cambridge Planning Service which saw Idox provide a comprehensive shared service solution to one of the largest planning authorities across the South East of England. In Environmental Health there were new wins at Blaby, Litchfield, Clackmannanshire and Harrogate.
We have also seen the return of clients, highlighting that in this complex process and legislative environment, Idox’s ability to serve the market is unparalleled. We are delighted to welcome back Copeland Surrey Heath as an Idox Uniform client.
In Computer Aided Facilities Management, we recorded 25 new customers wins achieved this year.
Elections welcomed a new customer for Elections Management in North Lanarkshire and continued to improve the speed and efficiency of electoral results through our advanced E-Count software, with Malta being the latest client.
The Elections sales team were awarded a contract during October to provide managed services, software and support in future elections over the next 4 years for Aberdeenshire, Aberdeen City, and Highland Councils.
The Social Care business has had great success winning new deals for the Information, Advice and Guidance Hub at South Gloucestershire, alongside wins at Lambeth, Blackpool, Wolverhampton, Westminster and Bromley where the Councils will offer a more efficient and transparent way for young people and their families to understand and track their Educational Health and Care (EHC) journeys. Special Educational Needs and Disability (SEND) teams, together with their health and social care partners, will also be able to collaborate on a fully-integrated assessment process, while keeping families fully Information last updated: in a way that empowers them to contribute.
In Health, the acquisition of 6PM has proven challenging as was reported in the final results announced on 1st March 2018. However, the solution offerings are strong and particularly relevant to the current market. The iFIT product line for Asset, Prescribing and Document tracking now has over 30 UK Health Trusts as clients and delivers impressive returns on investment. We were delighted to add Epsom & St Helier University Hospitals NHS Trust, The George Eliot Hospital NHS Trust, North Cumbria, Dudley Group NHS Foundation Trust, and Doncaster & Bassetlaw Teaching Foundation Trust to our growing list of clients.
Bristol City Council became the latest Idox client for the Smart Cities proposition, which encompasses the real time control of traffic flows, citizen and passenger assist services and traffic network management. In the second half of the year we welcomed the Greater Toronto Transportation Authority (Metrolinx) as an Idox client, our largest contract in this area to date.
Engineering Information Management (EIM)
As previously reported, the Engineering business has taken the first steps of transitioning to a Software as a Service (SaaS) based model which will result in higher quality, recurring revenue over the longer term.
In the first half of the year we released the new FusionLive SaaS Platform, and subsequently sold the SaaS platform to Clough, a global engineering and construction company Headquartered in Perth, Australia. After its initial one-year trial, Torxen Energy in Canada committed for 3 years to the same platform for its management of operational documents for its Palliser oil sands acquisition in Alberta, the division’s first Oil & Gas operations platform delivered on a multi-tenanted cloud platform. In partnership with Catenda, a specialist provider of Building Information Modelling (BIM) solutions, the division delivered a new combined BIM/workflow cloud platform to SNCF to enable it achieve its targets on the EOLE Project, one of the current largest active railway projects in Europe, the RER-E line extension.
The Division has achieved further success through its partnership with Siveco China with four new deals for the on-premise Opidis platform sold through Engineering, Procurement and Construction companies (‘EPC’s’) in the Far East and is working to expand on this in the coming year.
All of these initiatives and partnerships provide exciting opportunities for growth in the years ahead.
Our international research funding database RESEARCHconnect, signed a further nine universities and research institutes across Europe, including in France, Spain, Sweden and The Netherlands. We now have over 100 clients using our solution.
The Content business also delivered new compliance programmes for a number of worldwide clients, including a range of solutions to facilitate new GDPR regulations.
In our grants business we secured our largest grant to date for BuyBay as part of our service delivering grant applications on a no win no fee basis.
Our staff have shown excellent commitment during the year as we have continued to deliver market-leading software solutions that provide strong value and efficiencies for our customers in our chosen markets.
We have ended FY2018 in a much stronger position than we started it with a strong leadership team and clear focus on product and operational execution to drive increased profitability and cash generation, and I am confident this momentum will continue strongly in to FY2019 as we deliver success.
Chief Executive Officer
Group revenues from continuing operations fell by 9% to £67.4m (2017: £73.8m), mainly due to a fall in revenue within our PSS division.
70% of Group revenues were generated in the UK (2017: 73%). Gross profit earned fell 7% to £58.6m (2017: £62.6m) but the Group saw a slight increase in gross margin from 85% to 87% as a result of cost saving initiatives introduced throughout the year. Earnings before interest, tax, amortisation, depreciation, restructuring, acquisition, impairment, corporate finance and share option costs (“Adjusted EBITDA”) decreased by 13% to £14.4m (2017: £16.5m) with Adjusted EBITDA margins decreased by 5% to 21% (2017: 22%) as a result of the lower gross profit earned.
Performance by Segment
The PSS division, which accounted for 47% of Group revenues (2017: 47%), delivered revenues of £34.3m (2017: £40.8m). Product and services revenue decreased by 21% to £15.7m (2017: £19.9m). Election revenues accounted for £4.5m (2017: £4.7m) of PSS revenues. Election revenue was slightly down on the prior year as 2017 included the May local elections and the General Election. Recurring revenues within the PSS division from maintenance and hosting were £13.9m (2017: £15.3m). Recurring revenues represented 40.6% (2017: 38%) of total PSS revenue. Divisional Adjusted EBITDA decreased by 35% to £9.7m (2017: £15.0m), delivering a 28% EBITDA margin (2017: 37%).
The Digital division accounted for 9% of Group revenues (2017: 15%) with revenue of £6.5m (2017: £12.7m), £6.2m (2017: £12.1m) of revenue classified as discontinued.
The EIM division accounted for 14% of Group revenues (2017: 15%) with revenue of £10.0m (2017: £12.9m). Recurring revenues within the EIM div
Information last updated: 26 February 2019