Idox plc

Half Year Results for the six months ended 30 April 2020

Idox plc (AIM: IDOX, “Idox”, “the Company” or “the Group”), a leading supplier of specialist information management software and solutions to the public and asset intensive sectors, is pleased to announce its unaudited half year results for the six months ended 30 April 2020 (“H1 2020”).

Financial highlights

· Revenue increased by 13% to £35.1m (H1 2019: £31.0m restated), including 10% organic growth, driven primarily by an increase in revenues in our Public Sector Software business.

· Recurring revenues represented £18.7m, 53% of total revenues (H1 2019: £16.9m, 54%).

· Revenue visibility is strong, with 90% of FY2020 revenues contracted, in line with the Board’s expectation. The Group has an orderbook of non-recurring revenues of £13.8m which will be realised across the current and future periods.

· Adjusted EBITDA* increased by 133% to £9.6m (H1 2019: £4.1m restated) representing a material Adjusted EBITDA* margin improvement to 27% (2019 H1: 13% restated).

· Statutory profit before tax for continuing operations of £0.3m (H1 2019: loss of £2.6m restated).

· Net debt at 30 April 2020 of £14.3m (30 April 2019: £25.4m, 31 October 2019: £26.4m), a material reduction following strong cash generation in the period.

· New banking arrangements put in place in December 2019 for a £35m, three-year revolving credit facility. The Group’s banking facilities have been fully drawn to provide maximum flexibility in the current Covid-19 pandemic environment.

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

Operational highlights

The first half of FY2020 has seen continued strategic delivery following the extensive transformation across the Group in FY2019. Idox enters the second half of FY2020 with strong momentum. Highlights include:

· The Group continues to focus on its ‘Four Pillars’ programme, to improve revenues, margin, communication, and organisational simplicity.

· Further consolidation of operations, including combining management structures and sharing resources for our UK Engineering Information Management (EIM) and Grants businesses with our core Public Sector Software business, and all customer technical support to a single platform throughout the Group.

· Completed the final integration of 6PM, with a complete exit of our non-core Irish and Maltese operations, and consolidation of all processes into our core Public Sector Software business.

· New Group-wide CRM system deployed, and new marketing strategies established. Significant focus on improving account management and expanding market shares, closely aligned to product management strategies.

· Implemented a programme of staff engagement to improve communication and provide support to all our colleagues in their roles and improve general well-being.

· Continuing integration of our acquired Tascomi local authority business (July 2019), including progressing our roadmap to offer a cloud solution to more of our existing customers.

Current Trading and Covid-19 Pandemic Update

The assessments performed and disclosed in our FY2019 reporting in early April remain valid and the current year financial performance is expected to be in line with existing expectations. Cash collection during the pandemic has exceeded our expectations, and operationally the Group continues to win new work and deliver services largely as anticipated. We have seen a greater slow-down in new EIM business than anticipated due to the recent pressures in the oil and gas sector. However, the benefit of its high levels of existing recurring revenue means it is not reliant on winning new work in this area. All other parts of the Group remain robust as expected despite the impact of the Covid-19 pandemic on the global economy. Net debt at 31 May 2020 was £14.0m, including £32.2m of available cash following the full draw-down of banking facilities.

Our staff continue to work from home effectively, which we anticipate will continue in the short to medium-term whilst we continue planning for a phased return to our offices. Idox has benefitted from the fact that its business model has, for a number of years, included a large number of employees operating remotely. Therefore, the move to home working across the Group was seamless and readily adopted and has ensured we have had suitable structures in place to monitor employee health and wellbeing.

David Meaden, Chief Executive of Idox said:

“We have made strong financial and operational progress in the first half of FY2020, building on the transformation from last year and executing effectively with the new management team in place. I am particularly pleased with our progress in consolidating our operational activities and improving our account management, both of which will lead to better customer outcomes and stronger operating margins.

“We continue to focus the Group’s activities on being a market-leader in our chosen niches within public-sector verticals and consolidating our operations to drive higher margins and stronger cash generation. Alongside these operational improvements we are looking to expand our presence in both our existing and closely adjacent markets to increase our scale and enhance growth.

“We remain confident in the current outlook for the Group despite the wider economic and operating challenges of the Covid-19 pandemic. We remain ambitious for the future as we look to build on the strong progress and investments we have made in over the last two years, as well as capitalising on relevant opportunities as they arise.”

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About Idox plc

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

Chairman’s Statement

For the six months ended 30 April 2020

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Introduction

I am pleased to be able to share these strong results. Idox has delivered a very good performance in the first six months of this financial year, and has built on the hard work of the previous periods which dealt with the deep underlying problems inherited by the new management. Having dealt with those issues, we can now see the real strengths of the Idox business coming through into our reported numbers.

Our overall year on year revenue growth of 13% was powered by an exceptionally strong performance in our Public Sector Software (PSS) business which was offset with lower revenues from our EIM and Content businesses. The exceptional work completed across the business to improve our controls and predictability and focus on good quality, recurring revenue led to a significant improvement in our profit margins and more than doubled our underlying EBITDA, which is the core management measure for the Group’s performance. The quality of these earnings was also evident in our cash performance, with a large reduction in our Net Debt to £14.3 million as at 30 April 2020 from £25.4m a year ago.

As we look forward, we expect growth in our PSS business to continue, although not quite at the rate we have enjoyed in the first half of the year, and we expect good performances from our two other divisions. We are taking a cautious approach to our investments and maintaining a careful approach to managing our cash, conscious that it is very difficult to predict how the impact of the COVID-19 pandemic, and the measures taken by governments around the world to contain it, will be felt.

I am extremely pleased that we have been able to manage through the pandemic thus far without making any reduction in staff numbers or using any of the government furlough or loan schemes, reflecting the greater robustness of the business. The performance improvement has been delivered by our colleagues who have worked through many challenges in the previous years, and it is important that we repay that loyalty by keeping a strong forward-looking approach to building our business.

We have taken the opportunity to draw down our full banking facility of £35m to ensure maximum financial flexibility for the business. As well as challenges, this period of change is likely to produce some interesting opportunities and these resources put the Group in a strong position to benefit from potential acquisition and organic investment prospects.

Dividend

As expected, the Board has decided that no interim dividend will be paid (2019: £Nil). Taking into consideration the pace of recovery in our business, and as indicated in the Group’s FY19 Results, the Board currently intends to introduce a final dividend in respect of the year ending 31 October 2020.

Board

We announced the appointment of Alice Cummings to the Board on 14 April 2020. Alice brings highly relevant experience of operating in regulated industries, and in managing high growth businesses in the public sector. We look forward to benefiting from that experience. Alice will take on the role of Chair of our Audit Committee.

Oliver Scott, who joined the Board as a Shareholder representative in November 2018, stepped down on 14 April 2020. Oliver was instrumental in setting in place the changes to senior management and the Board of the past 18 months. I would like to thank him for his important contribution over this period.

We today announce that Jeremy Millard, a Non-Executive Director and Chair of our Audit Committee, intends to step down from the Board on 28 August 2020. Jeremy has played a key role in recruiting and supporting our new management over the past two years as we have reset our revenue and accounting policies and upgraded our control environments. I would like to thank him for all his efforts throughout his time at Idox.

We are satisfied with the composition of the Board but continue to consider the need for additional skills and experiences on an ongoing basis. The Board considers all three of its Non-Executive directors independent.

Auditor

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

Christopher Stone 

Chairman 

12 June 2020

Chief Executive’s Statement

For the six months ended 30 April 2020

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Making the Difference

Twelve months ago, I referenced the strong foundations we had established to support future performance at Idox.

Through our Four Pillars programme of revenue enhancement, margin enhancement, organisational simplification and communication we have driven a comprehensive array of business reforms that provide the underpinning support for much improved performance across Idox.

It is therefore pleasing to report a substantial year on year improvement in the Group’s revenue, margin and cash performance resulting from these initiatives.

Strong Progress

During this reporting period we have seen a significant growth in Group revenues of 13% including organic revenue growth of 10%, adjusted EBITDA margins improved from 13% to 27% and net debt reduced by 43% compared to the same period last year.

We have focussed on aligning the Group’s operations and have established common methods for sales, professional services, development and operations across our Group. This has brought greater flexibility and agility to the business, allowing a focus on value-creating opportunities and for more dynamic allocation of skills to the Group’s priorities.

We have also expended a tremendous amount of effort in unifying the Group’s data assets in both systems and approaches. As a result, we now have a single platform for financial, organisational and sales supporting data, which will make it easier to engage with customers and to better meet their evolving needs.

Having referenced our desire to do more with our existing products, it is pleasing that we have seen some early success in closely adjacent areas for some of our offerings. This includes iAssets implementations into the ambulance sector and the extension of our social care hub into new areas of operation with existing clients.

We have built momentum in the business and our near-term focus remains on our ‘cloud first’ approach to provide customers and our markets with an increasing agility of product and growing recurring income streams and future earnings visibility. There is clear opportunity for cloud-based sales both in our own customer base and our markets more generally.

We have made a great deal of progress over the last reporting period and I believe the business performance has now begun to better reflect the hard work of all our teams over the past two years. The new appointments we have made during the past 12 months have all had a significant impact on our performance and have raised the bar on what can be achieved and what is expected.

The commitment of our teams, their hard work and engagement has been evident, and I am grateful to all our colleagues and their families for their dedication to improving the quality of our business over this period.

The Future

We have now given Idox a platform for growth and importantly have established the necessary confidence across the business to grow organically. In addition, as demonstrated through the acquisition of Tascomi, we are able to add significant value to customers and generate real value for shareholders through acquisitions that improve and complement our core operations as we have demonstrated with the acquisition of Tascomi.

We will remain focussed on what we do well and seek to further enhance our position as the supplier of choice in our chosen niche market areas. 

The ‘Four Pillars’ Programme

Revenue enhancement

Group sales order intake for the six months ended 30 April 2020 was up year over year by 28% despite the effects in the latter months of customers reorganising themselves in line with remote and virtual working.

Sales orders for our Local Government software were up 132% year over year, with significant new wins complemented with a number of major extensions to existing customer contracts. It was particularly pleasing to see a 185% increase in orders which generate recurring revenues. Generally, increases in sales came from our existing customer base due to expansion of functionality and capabilities in our existing solutions.

Order intake in our Elections business was buoyed by the December 2019 UK General Election helping to improve the year on year comparison by 89%.

Sales orders for our Health software product portfolio were up over 106% on a like for like basis with new wins across iAssets, iRecords and our sexual health screening product Lilie. This included our largest ever Lilie contract for Royal Liverpool & Merseyside and an innovative use of iAssets technology to provide assurance for critical equipment situated onboard emergency vehicles in a contract with the Welsh Ambulance Service. Contracted recurring revenues orders increased over 200% on the same period in FY2019.

Computer Aided Facilities Management (CAFM) recorded its largest ever contract with a five-year commitment during the reporting period.

In our EIM division, we have carefully selected the new business opportunities that we pursued, focussing our attention on profitable deals, delivering appropriate margins and cash. Consequently, we have seen order intake in the EIM division reduce due to market conditions. However, this selective focus has supported a much-improved margin.

Orders for our compliance division were down slightly year on year as sales to large European based manufacturing organisations were impacted by the Covid-19 pandemic. Nevertheless, we are starting to see pipeline growth as organisations look to operate within the new online environments, creating opportunities for our virtual learning content.

Margin enhancement

During the reporting period we have seen improvements in margin across all our operations as we have focused on our core businesses and consolidated many of our operational processes. Margin improvements have coincided with more structured engagements with our customers and a more focused product portfolio to ensure we are able to deliver maximum value to our customers.

In our PSS division, margins have improved strongly following the previously announced rebasing of our revenue recognition policies and many of our operational processes in the first half of FY2019. Following this transformation in the early part of FY2019, we entered FY2020 with a much higher operating margin which is more representative of the underlying activities and of the long-term margins of the business which we remain ambitious to improve further.

In our Content division, margins improved slightly as we focused on increasing the value we can provide as a trusted provider of content material. These efforts are ongoing, and we anticipate further incremental improvements in margins over the coming years as the business continues to drive operational leverage as it grows.

In our EIM division, we continue to see margin improvement as we consolidate our operations and align processes more closely with our PSS division. Whilst the business continues to transition to its SaaS-based product portfolio, margins are expected to remain stable in the shorter term due to market head winds. Beyond this however, we anticipate margins to increase to typical SaaS-product levels as we increase market penetration and realise the product investments we have made.

Organisational simplification

We have implemented a single CRM solution across the entire Group allowing a co-ordinated approach to strategic customer engagement.

Idox has consolidated all Customer Support across the Group onto a single platform, ensuring end-to-end customer experience is replicated across every technology platform whilst delivering consistent management information and performance statistics. This affords a best practice approach across the software portfolio, leveraging our scale and will lead to an improved customer experience.

We have realigned our Elections sales organisation to operate within the Local Authority team portfolio, providing Idox customers with a more strategic relationship and opportunity to benefit from the wider Idox portfolio of products.

The Group’s activities have been streamlined where inefficiencies have been identified and we have also responded to employee feedback to remove unnecessary organisational complexity. During the period we exited all the operations in Malta and the Republic of Ireland (acquired with 6PM) which were sub-scale, and are also in the process of consolidating our UK operations into a single entity.

Communication

We value employee engagement and see it as a key priority to listen whilst providing our staff with the information and support to contribute to the Group’s success. During the period we have increased support significantly as we completed the Group’s first ever business-wide roadshow directly presenting to all employees in our main locations (two-thirds of all employees), in addition to regular CEO broadcasts, newsletters, training, well-being seminars and regular engagement surveys.

Covid-19 Pandemic

The Group continues to regularly assess the impact of the Covid-19 pandemic on its immediate trading and longer-term prospects. The assessments performed and disclosed in our FY2019 reporting in early April remain valid and the current year financial performance is expected to be in line with existing full year expectations. Additionally, Idox has not needed to participate in any government job retention schemes.

The Group continues to manage carefully the exposures identified, and support our health, local authority and private sector customers to deal with the ongoing impacts arising from the Covid-19 pandemic.

Outlook

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

With reductions in net debt and new long-term banking facilities established we are in good financial health. We are well placed to continue our organic growth and to add to our portfolio of offerings where assets are identified complementary to our core operations.

We are now in our ‘run’ phase, having created a stable baseline of profitable growth and having executed our business plan with greater focus and discipline during the ‘walk’ phase last year; we believe we are building real momentum across the Group to create value for employees, shareholders and other partners.

David Meaden

Chief Executive 

12 June 2020

Chief Financial Officer’s Review

For the six months ended 30 April 2020

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The first half of FY2020 has shown a strong improvement from the first half of FY2019 as the operational and financial processes re-established in FY2019 have now taken effect. Along with improved revenue and adjusted EBITDA, we have seen a significant improvement in cash conversion with net debt reducing 43% to £14.3m (H1 2019: £25.4m).

During finalisation of the Group’s financial statements for year ended 31 October 2019, various adjustments in respect of prior period revenue recognition policies, and an onerous contract were identified. As a result of these adjustments, the comparative figures for the period ended 30 April 2019 have been restated in these financial statements. Further details are included in note 2 to these financial statements.

Revenues

The following details revenues from our operations:

Group revenues from continuing operations increased by 13% to £35.1m (2019: £31.0m).

Revenues from our PSS division were 27% higher at £24.1m (H1 2019: £19.0m) of which £1.1m is attributable to the acquisition of Tascomi. The remainder of the increase is driven by a lower first half of FY2019 due to the revenue policy adjustments recorded in that period.

Our Engineering Information Management (EIM) revenues fell 5% to £4.3m (H1 2019: £4.6m) in the period. This decrease is attributable to the ongoing transition of our product-set to our cloud-based solutions FusionLive platform; and an increased focus on profitable revenue following the implementation of sales governance controls across the organisation in the first half of FY2019.

Revenues from our Content business decreased by 9% to £6.7m (H1 2019: £7.4m) due to gains from revenue recognition policy revisions in the first half of FY2019 not recurring in FY2020, and an increased focus on profitable revenue as noted above. Our Content division encompasses grant consultancy solutions delivered from our Netherlands base, compliance software platforms delivered from our teams in Germany and other parts of central Europe, and provision of knowledge databases and bespoke research services provided by our UK-based teams.

Recurring revenues made up 53% (H1 2019: 55%) of all revenues in the period. We continue to prioritise recurring revenues where it is appropriate for us and our customers to drive an increase in revenue visibility and stability generally. We anticipate recurring revenues will continue to build as we look to focus our product portfolio on cloud-based solutions and Software-as-a-Service commercial arrangements.

Earnings

The following table sets out our adjusted and reported earnings from our continuing activities:

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

Adjusted EBITDA for the Group increased 133% to £9.6m (H1 2019: £4.1m). This increase is largely attributable to our PSS division which has increased its revenues whilst maintaining a consistent cost base. Our EIM business recorded an increase in adjusted EBITDA despite lower revenues in the period which reflects changes to its operating model and cost base as part of its transition to SaaS, and a focus generally on higher quality revenues. Our Content division recorded stable EBITDA compared to the prior year despite lower revenues, given an increased focus on costs and similarly a focus on higher quality revenues in the period following improved governance and controls introduced in FY2019.

Our adjusted EBITDA margin for the first half of FY2020 was 27%, up significantly from 13% in the first half of FY2019 given the improvements in revenue. We anticipate adjusted EBITDA margin will be higher for the second half of FY2020 given the anticipated impact of the Covid-19 pandemic on our business with lower revenues anticipated and planned cost actions to mitigate the impact. More generally we consider there is further scope to improve margins in the longer-term as we continue to drive incremental revenues from our cost base, most notably with continued improvements in account management.  

We recorded a statutory profit before taxation for continuing activities of £0.3m (H1 2019: loss of £2.6m). This improvement in pre-tax earnings is the result of the year-on-year increase in EBITDA of £5.5m, offset by higher Depreciation and Amortisation (D&A) due to IFRS 16, Tascomi acquisition and higher levels of investment generally over the past 18 months; and higher interest charges due to larger facilities and exchange rate movements on our Euro-denominated bond. The higher exceptional items is due to the provision required in the first half of FY2020 in respect of our London property, the loss on disposal of exiting our Ireland and Malta operations and the fees associated with our December 2019 refinancing.

Cashflow

The following table sets out our cashflows for the period:

Cashflows from operating activities was £15.5m (H1 2019: £9.5m), up significantly as a result of the underlying adjusted EBITDA of £5.5m, and lower exceptional cash outflows in the period. The Group recorded higher cashflows in investing activities primarily as a result of a £0.3m outflow associated with the Group’s exit from its Irish and Maltese businesses and further investment in the Group’s internal platforms to drive operating efficiencies. Investment in development expenditure capitalised in the period was higher than the previous year as planned at £2.2m (H1 2019: £1.7m).

As a result of these cashflows the Group’s net debt was £14.3m at the end of the period (H1 2019: £25.4m). We anticipate our cash generation will continue to improve as recurring revenues and earnings improve, and the Group has lower exceptional charges.

The Group retains strong liquidity and headroom against the covenant requirements of our committed borrowing facilities which were £35m at the end of the period (H1 2019: £30.3m). The Group’s banking facilities have been fully drawn to provide maximum flexibility in the current Covid-19 pandemic environment.

Rob Grubb

Chief Financial Officer

12 June 2020

Consolidated Interim Statement of Comprehensive Income

For the six months ended 30 April 2020

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