Final Results

RNS Number : 1335X
IDOX PLC
08 January 2014
 



8 January 2014

 

IDOX plc

 

IDOX plc (AIM: IDOX, 'Idox' or 'the Group'), a leading supplier of software and services, announces final results for the year ended 31 October 2013.

 

 

Highlights

·     Revenues from continuing operations up 3% to £57m (2012: £55m*);

-  Engineering Information Management Division revenues now 34% of total (2012: 32%)

-  33% of revenues generated internationally (2012: 33%) with growth in mainland Europe and a decline in the US

 

·     Adjusted EBITDA** fell 9% to £15.0m (2012: £16.6m)

·     Adjusted profit before tax*** £13.2m (2012: £14.8m)

·     Profit before tax down 5% to  £7.5m (2012: £7.9m) 

·     Adjusted EPS*** 3.53p (2012: 3.83p), Basic EPS 2.17p (2012: 1.94p)

·     Final proposed dividend of 0.4p (2012: 0.4p), total for year 0.7p (2012: 0.675p), 4% increase over last year

·     In 2013, 61% of Public Sector revenue and 51% of EIM revenue were from recurring business

Completed and integrated £2m of acquisitions funded by cash flow and acquisition debt facility resulting in year-end net debt of £19.8m (2012: £21.5m)

·      Idox Elections appointed by Norwegian Ministry for general election

·     Acquisition of Artesys International extending geographical reach of Engineering Information Management into Africa

·     Since September, EIM division has won three new contracts worth over $5.5m

·     Disposal of non-core recruitment business TFPL Limited

 

Martin Brooks, Chairman of Idox, commented:

"Despite the disappointments in 2013, the Group has continued to develop its market leading positions in its two technically linked chosen markets of Public Sector Software and Engineering Information Management.

Operational and managerial issues were identified earlier in the year and an ongoing corrective programme is underway, already resulting in a good recovery in the second half of the year, which generated £9.2m of EBITDA in H2, ahead of last year. The Group's portfolio of businesses has also been simplified with a greater focus on our higher margin activities going forward. We have continued to enjoy good competitive wins in our Public Sector business and we have also been able to demonstrate this in the Engineering Information Management market by announcing three new major contracts since September.

As a result the Group starts the new financial year in an improved position in terms of capability, reliability and revenue visibility going forward."

 

* Adjusted from £57.9m due to sale of TPFL Ltd in June 2013

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

*** Adjusted profit before tax and adjusted EPS excludes amortisation, restructuring, acquisition and share option costs

 

 

 

Enquiries:

 

Idox plc                                                                                        +44 (0) 20 7332 6000

Martin Brooks, Chairman

Richard Kellett-Clarke, Chief Executive

 

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

Shaun Dobson / Nick Donovan

 

Leander (Financial PR)                                                                +44 (0) 7795 168 157

Christian Taylor-Wilkinson

 

 

About Idox plc

 

Idox plc is a supplier of specialist document management collaboration solutions and services to the UK public sector and increasingly to highly regulated asset intensive industries around the world in the wider corporate sector.

 

Its Public Sector Software Division is the leading applications provider to UK local government for core functions relating to land, people and property, such as its market leading planning systems and election management software. Over 90% of UK local authorities are now customers. The  Division provides public sector organisations with tools to manage information and knowledge, documents, content, business processes and workflow as well as connecting directly with the citizen via the web. It also supplies, predominantly to the public sector, decision support content such as grants and planning policy information as well as related specialist services.

 

The Engineering Information Management Division delivers engineering document control, project collaboration and facility management applications to many leading companies in industries such as oil & gas, architecture and construction, mining, utilities, pharmaceuticals and transportation around the world.

 

The Group employs over 500 staff located in the UK, the USA, Europe, India and Australia.

For more information see www.idoxplc.com

 

Chairman's Statement

 

2013 was a disappointing year for Idox, following an outstanding 2012. Our core Public Sector Software Division (PSS) has continued to perform strongly, but our Engineering Information Management Division (EIM) failed to complete the required number of large scale Enterprise software sales in the period, although most of these prospects remain to be completed in what continues to be a substantial pipeline. Therefore profit before tax from continuing operations fell by £429,000 on a modest £1.9 million rise in continuing Group revenues.

 

As a result we have taken a number of positive actions including strengthening and deepening our senior management team overall where there have been a number of significant changes, particularly in the EIM division which begins the year under new leadership. This includes adding to the group management capability by recruiting a corporate lawyer.  This process will culminate in the appointment of a new Group CFO to the Board.

 

During the year we have also taken the opportunity to restructure and simplify Idox by disposing of the non-core recruitment division TFPL Limited. We have refocused the business on our core two divisions; Public Sector Software (PSS) and Engineering Information Management (EIM). Our Information Solutions business which largely supplies the public sector with content has been absorbed and integrated into the PSS division. This continuing integration process together with the termination period of a number of UK building leases will afford us considerable cost rationalisation opportunities in the current financial year.

 

We continue to place greater emphasis on longer term customer relationships in our PSS division and increasingly in EIM as well, through managed service and "zero infrastructure" client agreements utilising our data centres and cloud based solutions. In PSS we have been successful in winning a number of notable clients from our competition on this basis and we are now adopting this model for EIM which has already proven successful, with the award of long-term extensions to two existing document management managed service contracts, worth over USD 3 million in total for the first year.

 

The extension of the business into international markets has continued and now includes the PSS division where we have won a significant portion of the Norwegian government election management business. We now have an EIM presence in Africa's fast growing energy sector via our acquisition of Artesys, and the large Enterprise sale we secured with PSEG Nuclear in New Jersey, USA has deepened our increasing involvement with the nuclear industry in three continents. Despite the disappointments in EIM, the division has increased its overall significance to the Group accounting for 34% of revenues (2012: 32%), with EMEA sales enjoying positive momentum. We remain confident that opportunities in North America, where the historic focus of our business is, as well as across the rest of the world, will come through this year and in the future as large organisations start committing greater amounts of their generally improving cash reserves to corporate asset infrastructure renewal and development.

 

In terms of governance and risk management, we took on board that we needed to strengthen and deepen our management capability as we are now a much larger global organisation than we were last year, with our clients operating across many industries and across much of the developed and developing world.  Idox has had a long tradition of running a very lean business in terms of costs and people and we now recognise that we need more depth and capability across the Group to manage our newer activities around the world and provide more cover and support when needed in critical management positions. In addition, the complexities of the sales process for both software and services in large global organisations means we need to be more competitive in terms of management skills.   We have achieved this during the last year by external recruitment, internal promotion and some departures which will put us in a much stronger position for 2014. 

 

We have also continued to add to the capability and independence of our board by recruiting Jeremy Millard of Smith Square Partners and lately of Rothschild as a financially and technically experienced Chartered Accountant and City professional in the TMT sector. Jeremy joins the board as a non-executive director.  Jeremy was awarded a first class honours engineering degree at Cambridge and honed his operational management skills at Mars and the Ministry of Defence before moving into corporate finance. During the year Christopher Wright stood down as our longest serving non-executive director having joined the board ahead of Idox's flotation. Christopher's international investment banking and management background, together with his advice on the board has been of great value and we wish him well for the future. This board development process will continue in the current financial year with the further appointment of an experienced non-executive director familiar with the larger size of organisation to which we aspire.

 

Notwithstanding the disappointing trading year, the board proposes subject to shareholder approval a final dividend of 0.4p, resulting in a total of 0.7p for the year, a modest 3.7% increase over 2012, in line with maintaining our progressive dividend policy.

 

I would like to thank our staff, advisers and shareholders for their support in what has been a challenging year for the Group. Such difficult times require that extra degree of fortitude, but the board believes that, following the streamlining of the business and operational and management changes that have been implemented, the Group is now better positioned to build on its underlying strengths and high market share in its two chosen markets to deliver an improved 2014.



 

Chief Executive's Review

 

We are disappointed to report a set of results for the Group for the year which are below our expectations at the start of 2013, although they do not truly represent the substantial improvements that have been made this year. We do believe we have made good progress and are laying good foundations to make further progress in the years ahead.

 

We started the year with some challenging, and over optimistic goals and objectives, and immediately met some head winds that blew us off course. Illness, macro-economic and market factors, growth pains from the merger of several businesses, and the loss of key staff all contributed to a slow start to the year. The recovery has been challenging alongside addressing a number of issues in the business, but the strong second half performance attests to resolving those issues.

 

The PSS division started the year slowly but gathered momentum throughout the period resulting in our most successful year yet in market share gains with over 108 new systems (2012: 76) won in the year. The challenge in 2013 which depressed revenues, came from the change in mix away from software purchases to more managed and hosted solutions.  Although signed order value was 69% up on the previous year, recognisable revenue is only marginally up. The division ended the year with over 90% market share in its core target markets and with encouraging wins in other local government departments where we have been asked to assist in delivering improved services at lower cost.

 

This year has seen the division begin to expand into overseas territories, winning its first frame work agreement for elections in Norway and supplying to 30% of the Norwegian market. 2014 will see further investment to sow the seeds for overseas expansion in 2015.  The division has continued to improve its operational efficiency as well as successfully deliver all its services on time, thus building on our goal to be the partner of choice for local government.

 

The EIM division had a challenging year. The 31% growth in revenues in 2012 which added size and complexity to the business, the roll-out of large contracts, the addition of two acquisitions, and the impact of large macro-economic factors deferring decisions in the customer base, caused a few problems which it has taken time to respond to. The expected growth in Asia and the execution of large enterprise deals were delayed due to customer nervousness around economic factors and a focus to improve return on existing assets, rather than to invest in the future. The integration of our acquisitions have proven challenging both in cultural fit and language issues, but this is close to being behind us. We started the year looking to strengthen the management team and this has taken the whole year to achieve with new management in professional services, and the appointment of a new divisional CEO. 

 

In spite of all of this the division still managed to introduce new mobile Apps, web-based enquiry tools, communication and interoperability interfaces between the various systems, internationalisation of the products, Building Information Management (BIM)  compliance for Architectural Engineering and Construction (AEC) customers, integrated document and facilities management, as well as upgrades to the customer interfaces, and to broaden the ability of the systems to extend from feed, design, deliverables, into operations with the acquisition of Artesys. Artesys is also close to delivering an upgrade to their solution in collaboration with Documentum using their D2 platform.  New contract wins were disappointing as they were in line with the previous year's activity levels, excluding last year's two large enterprise sales wins.

McLaren also launched its first BPO service in the year and it has subsequently expanded this by the year end.

 

The Information Solutions division was merged into the PSS division to streamline the business and drive further operating efficiencies. Its project work continued to be adversely affected by government cut backs and it did not manage to increase its managed content service revenues. The Dutch business grew market share but this was offset by the reduction in the Dutch government grant rate.

 

 

Outlook

 

The focus for 2014 and beyond is on improving organic growth, operational improvement and innovation.

 

We will continue to concentrate on growing top line revenue in both parts of the business which is now refocused on our two core activies, and look to expand our public sector business into new areas both in the UK and overseas. We also expect to close a large proportion of the EIM pipeline deals, now we have bolstered the senior management team and improved the way we respond to our customers' requirements.

 

Our aim is to continue to grow our non UK revenues and to invest to strengthen our domain specific expertise in our chosen markets.

 

We believe the Group is well placed to benefit from an improving economic outlook and today has the technical capability to deliver unique solutions to its customers and future proof their investment and commitment in Idox's solutions.

 

 

Financial Review

 

Group revenues from continuing operations grew by 3% to £57m (2012: £55m) due to organic growth in the PSS division and the impact of the three acquisitions made during 2012.  The Group maintained the geographical split of its revenues with 33% generated outside of the UK (2012: 33%).  Gross profit earned was 4% higher at £52m (2012: £50m) and the Group saw an increase in gross margin from 90% to 91% as a result of an increased mix of higher margin software business.  Earnings before goodwill, amortisation, depreciation, restructuring, acquisition and share option costs ("Adjusted EBITDA") decreased by 9% to £15.0m (2012: £16.6m) with EBITDA margins of 26% (2012: 30%).

 

 

Performance by segment

 

The Group made a significant step forward to increase the focus of the business with the sale of its recruitment business at the half year.  Following the disposal, the Group has been reorganised into two operating segments; Public Sector Software, the merger of the original public sector business and Information Solutions divisions, and Engineering Information Management.

 

The PSS division, which accounted for 66% of Group revenues (2012: 68%), delivered revenues of £38m (2012: £37.6m). Product and services revenue grew organically by 10% on the previous year.  Election revenue remained stable at £2.4m, reflecting a real decrease from 2012. It benefited from the full year impact of the acquisition of Opt2Vote election managed services business in March 2012, and the expansion of that business into Norway, but this was offset by the absence of revenue from fewer local elections in 2013.  Solutions project income fell by 54% (£0.4m) due to a lack of tenders in poor market conditions.

 

Recurring revenues within the PSS division were 61% (2012: 62%) excluding election revenue.  The decrease in recurring revenues is due to the wind down of the capital value of the managed service contracts acquired in March 2010 for the provision of land and property information solutions.  Renewal rates on grant subscriptions performed well in poor market conditions and remained consistent with prior years.  Divisional Adjusted EBITDA fell by 5% to £10.6m (2012: £11.3m), delivering a 28% margin, a 2% drop on 2012 due to the inclusion of the lower gross margin e-learning and solutions training and information projects business.

 

The EIM division accounted for 34% of Group revenues (2012: 32%) and had revenue growth of 8% to £19.2m (2012: £17.7m).  This growth represents a full year of FMx and seven months of Artesys acquired on 9 April 2013.  Visibility of revenue in the EIM business has also increased during the year with 51% (2012: 48%) of revenues coming from recurring maintenance and Software-as-a-Service ("SaaS") contracts.  The business is also becoming increasingly international within 76% of revenues generated outside the UK; 46% USA, 22% Europe and Asia, and 8% from Australia.

 

EBITDA for the EIM business decreased to £4.4m (2012: £5.3m), 29% of the Group total.   The decrease represents the reduction in licence deals in comparison to 2012 offset by additional contributions from FMx and Artesys plus cost synergies. Margins decreased to 23% (2012: 30%) reflecting the absence of organic growth on licence sales and the impact of integration costs relating to the acquired businesses.

 

 

Profit before tax

 

Within the income statement, we present both profit before tax and adjusted profit before tax which is a performance measure that is not defined by GAAP but which the directors believe provides a reliable and consistent measure of the Group's underlying financial performance.  Adjusted profit before tax and adjusted EPS excludes amortisation, restructuring, acquisition and share option costs.

 

Adjusted profit before tax decreased 10% to £13.2m (2012: £14.8m).  Staff costs increased by 8% to £28m (2012: £26m).  The £2.5m increase in staff costs was due to 12 months of the 2012 acquisitions and 7 months of Artesys.  Real staff costs fell as a result of cost savings.  Other administrative expenses increased by 18% to £8.9m (2012: £7.5m).  48% of the increase was due to a full year of acquisitions and the new acquisition in 2013.  Travel costs increased due to increased revenues in new territories with the elections and EIM businesses.

 

Financing costs reduced from £1.3m to £1.2m and includes interest payable of £0.9m (2012: £0.9m) and amortisation of the loan facility fees of £0.16m (2012: £0.2m). 

 

Reported profit before tax decreased by 5% to £7.5m (2012: £7.9m).  Amortisation of intangibles increased from £4.6m to £5.3m as a result of acquisitions made during the year and a full year of 2012 acquisitions.  Restructuring charges of £0.5m (2012: £0.4m) relate to the integration of acquisitions made during the year plus internal reorganisations.  There was a one off benefit of £0.8m included in acquisition costs related to the release of earn-out obligations on the Opt2Vote acquisition which did not become payable.  Excluding this £0.8m benefit acquisition costs reduced to £0.2m (2012: £1.1m) representing £0.64m acquisition costs for Artesys and other aborted acquisition fees.

 

The Group continues to invest in developing innovative technology solutions and has incurred capitalised Research and Development costs of £1.3m (2012: £0.8m).  Research and development costs expensed in the year were £3.8m (2012: £3.2m).

 

 

Taxation

 

The Group's effective tax rate for the year was -12.75% compared to 3% in 2012.  The reduction in the effective rate of tax is the result of recognition of a deferred tax asset in relation to previously unrecognised losses within the EIM business and recognition of a deferred tax asset in respect of share options.  Excluding the effect of recognising the deferred tax asset the effective tax rate was 13%. Unrelieved trading losses of £2,652,000 in the UK remain available to offset against future taxable trading profits.  Unrelieved trading losses arising overseas of £3,286,000 have been recognised during the year.  The board believe the Group will benefit from these tax losses in the future.

 

 

Earnings per share and dividends

 

Adjusted earnings per share fell 8% to 3.53p (2012: 3.83p).   Diluted adjusted earnings per share fell 7% to 3.38p (2012: 3.63p). 

 

Basic earnings per share were up 12% to 2.17p (2012: 1.94p).  Diluted earnings per share increased by 13% to 2.07p (2012: 1.84p). 

 

The Board proposes a final dividend of 0.4p, to give a full year dividend of 0.7p (2012: 0.675p).  Subject to approval at the Annual General Meeting, the final dividend will be paid on 25 April 2014 to shareholders on the register at 11 April 2014.

 

 

Balance sheet and cashflows

 

Idox's balance sheet continued to strengthen during the year and at 31 October 2013 net assets were £44.7m compared to £38.9m at 31 October 2012.

 

Cash generated from operating activities before tax as a percentage of Adjusted EBITDA was 79%, up from 75% in the previous year. 

 

The Group ended the year with net debt of £19.8m (2012: £21.5m) after making acquisition related payments (net of cash acquired) of £1.8m and after total dividends of £2.4m.  The Group's total signed debt facilities at 31 October 2013 stood at £30.4m, a combination of a term loan and flexible working capital and acquisition revolving credit facilities. The working capital facility of £8m is due to expire during the next 12 months, however this is expected to be renegotiated with the bank on similar terms; the Company have not sought written confirmation that the facility will be renewed. The board has considered the headroom in the bank facilities and are comfortable that unless there was a substantial deterioration in trading, Group budgets do not indicate any covenant breaches on the bank facilities currently in place.

 

Deferred income, representing invoiced maintenance and SaaS contracts yet to be recognised in revenue stood at £13.9m at 31 October 2013 (2012: £13.5m), increasing visibility of revenue in the new financial year.

                    Consolidated Statement of Comprehensive Income for the year ended 31 October 2013

 

Continuing operations

Note


2013


As restated

2012




£000


£000







Revenue

2


57,319


55,382

Cost of sales



(5,298)


(5,335)

Gross profit



52,021


50,047

Administrative expenses



(36,967)


(33,430)







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



15,054


16,617

Depreciation



(722)


(589)

Amortisation



(5,388)


(4,609)

Restructuring costs



(525)


(406)

Acquisition costs



664


(1,109)

Share option costs



(499)


(707)







Operating profit



8,584


9,197

Finance income



138


18

Finance costs



(1,209)


(1,273)

Profit before taxation



7,513


7,942

Analysed as:

Adjusted profit before tax



13,261


14,773

Amortisation of intangibles



(5,388)


(4,609)

Restructuring costs



(525)


(406)

Acquisition costs



664


(1,109)

Share option costs



(499)


(707)

Income tax credit / (expense)

3


851


(201)

Profit for the year from continuing operations



8,364


7,741







Discontinued operations

Net results for the year from discontinued operations

4


(519)


(1,036)

Loss on disposal of discontinued operations

4


(322)


-

Net result for the year from discontinued operations



(841)


(1,036)







Total operations






Net result for the year attributable to owners of the parent



7,523


6,705







Other comprehensive income for the year

Items that will be reclassified subsequently to profit or loss:

Exchange gains on retranslation of foreign operations



43


 

61

Other comprehensive income for the year, net of tax



43


61

Total comprehensive income for the year attributable to owners of the parent from continuing operations



7,566


6,766







Earnings per share from continuing and discontinued operations attributable to owners of the parent during the year






Basic earnings per share






From continuing operations

5


2.41p


2.24p

From discontinued operations

5


(0.24p)


(0.30p)

From total operations



2.17p


1.94p







Diluted earnings per share






From continuing operations

5


2.30p


2.12p

From discontinued operations

5


(0.23p)


(0.28p)

From total operations



2.07p


1.84p

                      Consolidated Balance Sheet at 31 October 2013



2013


2012




£000


£000

ASSETS






Non-current assets






Property, plant and equipment



850


817

Intangible assets



69,484


71,371

Deferred tax assets



2,509


1,417

Other receivables



1,723


1,863

Total non-current assets



74,566


75,468







Current assets






Trade and other receivables



17,344


15,050

Cash and cash equivalents


 

3,399


3,640

Total current assets



20,743


18,690







Total assets


 

95,309


94,158



 




LIABILITIES


 




Current liabilities






Trade and other payables



4,662


5,460

Other liabilities



16,790


17,286

Provisions



56


76

Current tax



985


1,020

Derivative financial instruments



66


136

Borrowings



3,732


2,300

Total current liabilities



26,291


26,278







Non-current liabilities






Deferred tax liabilities



4,870


6,101

Borrowings



19,462


22,879

Total non-current liabilities



24,332


28,980

Total liabilities



50,623


55,258

Net assets



44,686


38,900







EQUITY






Called up share capital



3,493


3,485

Capital redemption reserve



1,112


1,112

Share premium account



10,355


10,197

Treasury reserve



(12)


(107)

Share options reserve



1,955


1,825

Merger reserve



1,294


1,294

ESOP trust



(142)


(95)

Foreign currency retranslation reserve



145


102

Retained earnings



26,486


21,087

Total equity



44,686


38,900


 





 

 



 


Consolidated Statement of Changes in Equity at 31 October 2013

At 31 October 2013

Called up share capital

 

£000

Capital redemption

reserve

 

£000

Share

Premium

account

 

£000

Treasury reserve

 

 

£000

Share

options

reserve

 

£000

Merger reserve

 

 

£000

ESOP

Trust

 

 

£000

Foreign currency retranslation reserve

£000

 

Retained earnings

 

 

£000

Total

 

 

 

£000

Balance at 1 November 2011

3,463

1,112

10,017

(204)

1,366

1,294

(93)

41

17,375

34,371

Issue of share capital

22

-

180

-

-

-

-

-

-

202

Transfer on exercise of share options

-

-

-

134

(109)

-

-

-

(797)

(772)

Purchase of treasury shares

-

-

-

(37)

-

-

-

-

-

(37)

Share options granted

-

-

-

-

568

-

-

-

-

568

ESOP trust

-

-

-

-

-

-

(2)

-

-

(2)

Equity dividends paid

-

-

-

-

-

-

-

-

(2,196)

(2,196)

Transactions with owners

22

-

180

97

459

-

(2)

-

(2,993)

(2,237)

Profit for the period

-

-

-

-

-

-

-

-

6,705

6,705

Other comprehensive income











Exchange gains on retranslation of  foreign operations

-

-

-

-

-

-

-

61

-

61

Total comprehensive income for the period

-

-

-

-

-

-

-

61

6,705

6,766

Balance at 31 October 2012

3,485

1,112

10,197

(107)

1,825

1,294

(95)

102

21,087

38,900

Issue of share capital

8

-

158

-

-

-

-

-

-

166

 

Transfer on exercise of share options

-

-

-

95

(83)

-

-

-

31

43

Share options granted

-

-

-

-

290

-

-

-

206

496

 

Disposal of share options





(77)




77

-

 

ESOP trust

-

-

-

-

-

-

(47)

-

-

(47)

 

Equity dividends paid

-

-

-

-

-

-

-

-

(2,438)

(2,438)

 

Transactions with owners

8

-

158

95

130

-

(47)

-

(2,124)

(1,780)

 

Profit for the period

-

-

-

-

-

-

-

-

7,523

7,523

 

Other comprehensive income











 

Exchange gains on retranslation of  foreign operations

-

-

-

-

-

-

-

43

-

43

 

Total comprehensive income for the period

-

-

-

-

-

-

-

43

7,523

7,566

 

At 31 October 2013

3,493

1,112

10,355

(12)

1,955

1,294

(142)

145

26,486

44,686

 

 

 

 


 

 Consolidated cash flow statement for the year ended 31 October 2013

 

 



2013


As restated

2012




£000


£000

Cash flows from operating activities






Profit for the period before taxation



7,513


7,942

Adjustments for:






Depreciation



723


589

Amortisation


 

5,388


4,609

Finance income


 

(33)


(18)

Finance costs



973


791

Interest rate swap liability



(70)


136

Debt issue costs amortisation



159


109

Share option costs



499


544

Exchange losses



42


60

Movement in receivables



(1,675)


(2,765)

Movement in payables


 

(1,663)


452

Cash generated by operations



11,856


12,449







Tax on profit paid



(1,728)


(2,560)

Cash generated from discontinued operations



(285)


(154)

Net cash from operating activities



9,843


9,735







Cash flows from investing activities






Acquisition of subsidiaries net of cash acquired



(1,779)


(23,266)

Deferred consideration paid relating to subsidiaries acquired in prior period



(585)


(320)

Purchase of property, plant and equipment



(774)


(523)

Purchase of intangible assets



(1,696)


(1,240)

Disposal of discontinued operation



312


-

Finance income



33


18

Net cash used in investing activities



(4,489)


(25,331)







Cash flows from financing activities






Interest paid



(853)


(620)

New loans



8,900


27,800

Loan related costs



(123)


(430)

Loan repayments



(11,322)


(2,300)

Equity dividends paid



(2,438)


(2,196)

Sale/purchase of own shares


 

241


(610)

Net cash flows from financing activities



(5,595)


21,644







Net movement on cash and cash equivalents



(241)


6,048

Cash and cash equivalents at the beginning of the period



3,640


(2,408)

Cash and cash equivalents at the end of the period



3,399


3,640








 

 

Notes to the announcement

For the year ended 31 October 2013

 

1 ACCOUNTING POLICIES

Basis of preparation

These financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU) and the Companies Act 2006 applicable to companies reporting under IFRS. 

 

The financial statements have been prepared under the historical cost convention as modified by the revaluation of certain financial assets and liabilities, being derivatives at fair value through profit or loss.

 

The financial information set out in the announcement does not constitute the group's statutory accounts for the year ended 31 October 2013 within the meaning of section 434 of the Companies Act 2006.  The financial information for the year ended 31 October 2012 is derived from the statutory accounts for that year which have been delivered to the Registrar of Companies.  The auditors reported on those accounts; their report was unqualified and did not contain a statement under Section 498(2) or (3) of the Companies Act 2006.  The statutory accounts for the year ended 31 October 2013 are expected to be finalised on the basis of the financial information presented by the directors in this preliminary announcement.

 

Restatement of comparative figures

The Group have restated the 2012 comparative figures to show the results of TFPL Limited as a discontinued operation.

Amounts recoverable on contracts are included in trade and other receivables and represent revenue recognised in excess of payments on account. Amounts recoverable on contracts of £1,863k have been restated for the prior year to disclose this balance as being a non-current asset.  This was previously disclosed in the notes to the financial statements as a long term debtor however it had been disclosed within total current assets on the balance sheet.  This has now been restated for comparative purposes.

 

 

2 SEGMENTAL ANALYSIS

As at 31 October 2013, the Group is primarily organised into two main operating segments, which are detailed below.  On 1 July 2013 the recruitment segment was sold. As Recruitment was a separately identifiable operating segment the results for the period ended 31 October 2013, and comparative periods, have been reclassified as a discontinued operation. On 1st September 2013 following an internal reorganisation, the Information Solutions segment was combined with Public Sector Software. The results for the period are included within the Public Sector Software Segment and the comparative periods have been restated.

 

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 - delivering software and information service solutions to local government customers and public sector organisations across a broad range of departments

·      Engineering Information Management - delivering engineering document management and control solutions to asset intensive industry sectors

 

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 for the year ended 31 October 2013 are as follows:

 



Continuing operations

£000


Discontinued operations

£000


Total operations

 £000


 










 

Revenues from external customers









 

United Kingdom


38,369


1,226


39,595


USA


8,862


-


8,862


Europe


7,990


76


8,066


Australia


1,470


-


1,470


Rest of World



628


5


633


 




57,319


1,307


58,626


 

 

 

 

The segment revenues by geographic location for the year ended 31 October 2012 are as follows:

 




Continuing operations

£000


Discontinued operations

£000


Total operations £000


 

Revenues from external customers










 

United Kingdom



37,237


2,451


39,688


USA



10,635


-


10,635


Europe



5,676


56


5,732


Australia



1,603


-


1,603


Rest of World




231


14


245


 





55,382


2,521


57,903


 

 

 

 

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

The segment results by business unit for the year ended 31 October 2013 are as follows:

Public Sector Software



 

 

 

EIM


 

Total

continuing

operations


Recruitment (discontinued operation)


Total


£000



£000


£000


£000


£000












Revenues from external customers

38,077



19,242


57,319


1,307


58,626

Cost of sales

(3,431)



(1,867)


(5,298)


(717)


(6,015)

Gross profit

34,646



17,375


52,021


590


52,611

Operating costs

(24,004)



(12,963)


(36,967)


(643)


(37,610)

 

Profit  before interest, tax, depreciation, amortisation, impairment, share option costs, acquisition costs and restructuring costs

10,642



 

 

 

4,412


 

 

 

15,054


(53)


15,001












Depreciation

(589)



(133)


(722)


(1)


(723)

Amortisation

(4,138)



(1,250)


(5,388)


-


(5,388)

Impairment on goodwill

-



-


-


(457)


(457)

Share option costs

(415)



(84)


(499)


(12)


(511)

Restructuring

(335)



(190)


(525)


-


(525)

Acquisition costs

841



(89)


752


-


752

Profit before interest and taxation

6,006



2,666


8,672


(523)


8,149

Finance income

132



(64)


68


-


68

Finance costs

(86)



(29)


(115)


-


(115)

Segment profit (see reconciliation below)

6,052



2,573


8,625


(523)


8,102

 

 

 

 

 

 

 

 

The segment results by business unit for the year ended 31 October 2012 are as follows:

Public Sector Software



 

 

 

EIM

 

 

 

Total

Continuing

Operations


Recruitment (discontinued operation)


Total


£000



£000


£000


£000


£000












Revenues from external customers

37,642



17,740


55,382


2,521


57,903

Cost of sales

(3,988)



(1,347)


(5,335)


(1,210)


(6,545)

Gross profit

33,654



16,393


50,047


1,311


51,358

Operating costs

(22,360)



(11,070)


(33,430)


(1,226)


(34,656)

 

Profit  before interest, tax, depreciation, amortisation, impairment, share option costs, acquisition costs and restructuring costs

11,294



 

 

 

5,323


 

 

 

16,617

 

 

 

85


16,702












Depreciation

(463)



(126)


(589)


(7)


(596)

Amortisation

(3,645)



(964)


(4,609)


(9)


(4,618)

Impairment of goodwill

-



-


-


(1,018)


(1,018)

Share option costs

(605)



(102)


(707)


(24)


(731)

Restructuring

(365)



(41)


(406)


(59)


(465)

Acquisition costs

(254)



(815)


(1,069)


-


(1,069)

Profit before interest and taxation

5,962



3,275


9,237


(1,032)


8,205

Finance income

3



1


4


-


4

Finance costs

(13)



(129)


(142)


(4)


(146)

Segment profit (see reconciliation below)

5,952



3,147


9,099


(1,036)


8,063

 

 

 

Reconciliations of reportable profit



2013


2012






£000


£000



Profit








Total profit for reportable segments


8,102


8,063



Group acquisition costs


(88)


(40)



Net financial costs



(1,024)


(1,117)



Discontinued operations loss*



523


1,036



Profit before taxation



7,513


7,942



 

 

Group acquisition costs comprise legal fees in relation to aborted acquisitions.  Net financial costs relate to Group bank loan interest, bank facility fee amortisation and fair value gain on financial derivatives which have not been included in reportable segments.

 

*Discontinued operations loss excludes Group costs allocated to the segment relating to acquisition costs relating to disposal.

  

 

 

3 INCOME TAX

 

 

 

The below current year deferred tax credit on discontinued activities arises on the non-utilisation of tax losses in the period up until the sale of TFPL Ltd on 1 July 2013.

 

 




Factors affecting the tax charge in the period:


2013

2012



£000

£000





Profit before taxation on continuing operations


6,669

6,906




Profit on ordinary activities multiplied by the standard




rate of corporation tax in the UK of 23% (2012: 24%)


1,534

1,657





Effects of:




Capital allowances in excess of depreciation


-

17

Other timing differences


-

864

Deferred tax on losses, intangibles and other movements


-

(1,350)

Share option deduction


(36)

(182)

Tax losses utilised


(48)

(689)

Recognition of previously unrecognised deferred tax


(1,744)

(941)

Non-deductible expenses


424

900

Prior year over-provision


(726)

(75)

Non-taxable income


(360)

(3)

Adjustment for tax rate differences in foreign jurisdictions


42

-

R&D enhanced relief


(43)

(10)

Foreign tax suffered


69

13

Deferred tax on acquisitions/disposal


37

-



(851)

201




 

 

 

Movement on trading losses during 2013 are as follows:

 

 

The unrelieved trading losses of £2,652,000 in the UK remain available to offset against future taxable trading profits. Given the high probability that the Group will continue to benefit from these tax losses in the future, the deferred tax asset continues to be recognised. The unrelieved trading losses arising overseas of £2,943,000 have been recognised during the year with the anticipation that the Group will benefit from these tax losses in future. The foreign losses recognised during the year arise mainly in the US, with a small element arising in France. Across the year the total deferred tax asset in respect of unrelieved trading losses has increased £235,000 to £1,175,000.

 

The effective tax rate was (12.75%). The decrease is due to the recognition of historic deferred tax assets within the US entities of the EIM business in relation to losses and other timing differences of £4,492,000. Other factors in the decrease of the tax rate include the origination of tax losses within the EIM business in the UK of £2,439,000, which originated on confirmation of the formalisation of a pre-acquisition intercompany creditor, and an increase in the deferred tax asset recognised in respect of share options of £508,000. A deferred tax asset of £495,000 is recognised at the year-end in relation to share options, based on the expected vesting period and exercise price. These factors combined resulted in a credit to the corporation tax charge of £1,733,000. Without these factors, the effective rate of tax is 13%.













Factors affecting the effective tax rate (ETR) in the period:


2013

% ETR

2012

% ETR



£000

movement

£000

Movement







Profit before taxation on continuing and discontinued operations


6,669


6,906








Profit on ordinary activities multiplied by the standard






Rate of corporation tax in the UK of 23% (2012: 24%)


1,534

23.00

1,657

24.00







Effects of:






Share option deduction


(36)

(0.53)

(182)

(2.63)

Tax losses arising/(utilised) in year


(48)

(0.72)

(692)

(10.01)

Recognition of historic deferred tax


(1,744)

(26.15)

(1,111)

(16.09)

Expenses not deductible for tax purposes


424

6.35

900

13.03

Prior year over-provision


(726)

(10.88)

(75)

(1.09)

Non-taxable income


(360)

(5.40)

(3)

(0.04)

Other


105

1.58

(293)

(4.25)



(851)

(12.75)

201

2.92







 

 

 

 

 

 

4 DISCONTINUED OPERATIONS

 

The Group announced on 1 July 2013 the sale of the recruitment business, TFPL Limited. The TFPL business represented an identifiable division of the Group and as such has been disclosed as a discontinued operation for the year ended 31 October 2013. A single amount is shown on the consolidated statement of comprehensive income representing the post-tax result of the discontinued operation for the period until disposal. Additionally the post-tax loss arising from the disposal of the operation has been recognised within the discontinued operations section of the consolidated statement of comprehensive income.

 

 

Discontinued operation financial performance


Period to

 1 July 2013


Year to 31 October 2012






£000


£000









Revenue





1,307


          2,521

Costs of sale




(717)


       (1,210)

Depreciation and amortisation



(1)


           (16)

Impairment



(457)


(1,018)

Other operating expenses



(655)


      (1,309)

Operating result




(523)


            (1,032)

Finance costs




-


            (4)

Result from discontinued operations before taxation

(523)


          (1,036)

Tax expense




4


-                   

Net operating result from discontinued operations


(519)


           (1,036)

 

 

Disposal of discontinued operation










£000


£000









Total consideration







300

Payment received to settle net assets






100

Net consideration for shares





400

        Less: Assets associated with discontinued operations






(101)

        Costs associated with disposal







  -Staff bonuses




(34)



          -Professional fees




(88)



          -Other expenses and provisions




(499)









(621)

Loss on disposal before taxation




(322)

Taxation




-

Loss on disposal after taxation




(322)

 

 

During the year the TFPL business incurred £420,000 (2012: contributed £154,000) in relation to the Group's net operating cash flows, paid £Nil (2012: £Nil) in respect of investing activities and paid £Nil (2012: £Nil) in respect of financing activities.

 

 

A reconciliation of the profit on disposal to the cash flow from the disposal is given in the table below:

 

Receipt from disposal of discontinued operations


£000

Loss on disposal after taxation


(322)

Assets associated with discontinued operations


101

Costs associated with disposal not yet paid


533

Cash inflow from disposal of discontinued operations


312

 

 

 

 

 

 

5 EARninGS per share

 

The earnings per ordinary share is calculated by reference to the earnings attributable to ordinary shareholders divided by the weighted average number of shares in issue during each period, as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted earnings per share


2013

£000

2012

£000





Profit for the year


7,523

6,705

Add back:




Amortisation


5,388

4,618

Impairment


457

1,018

Share option costs


511

731

Acquisition costs


(664)

1,109

Restructuring costs


525

465

Tax effect


(1,477)

(1,395)

Adjusted profit for year


12,263

13,251

Weighted average number of shares in issue - basic


 

347,231,721

 

346,231,724

Weighted average number of shares in issue - diluted


363,251,868

365,084,253





Adjusted earnings per share


3.53p

3.83p





Adjusted diluted earnings per share


3.38p

3.63p

 

  

 

 

6 ACQUISITIONS

Artesys International

On 9 April 2013 the Group acquired the entire share capital of Artesys International for a total consideration of €2.4m (£2.1m) in cash.  Artesys International provides engineering document control solutions and applications supporting the efficient and safe operation of processing plants.  Opidis, an intelligent P&ID and 3D Plant model navigation tool is used by over 8,000 engineering operations and maintenance professionals to locate validated plant documents and data.  The acquisition of Artesys International adds extended geographic coverage in Europe, Africa and the Middle East and a complimentary portfolio of products, customers, professional services and industry partners to the Group. 

 

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

 

 

 

 

Book value

£000

Provisional

fair value adjustments

£000

 

 

Fair value

£000

Intangible assets

985

(298)

687

Property, plant and equipment

40

-

40

Trade receivables

1,008

-

1,008

Corporation tax

18

-

18

Other receivables

246

-

246

Cash at bank

285

-

285

TOTAL ASSETS

2,582

(298)

2,284





Trade payables

(149)

-

(149)

Provisions for liabilities and charges

(89)

-

(89)

Bank loans

(342)

-

(342)

Other creditors

(172)

-

(172)

Deferred income

(274)

-

(274)

Social security and other taxes

(352)

-

(352)

Deferred tax liability

-

(156)

(156)

TOTAL LIABILITIES

(1,378)

(156)

(1,534)

NET ASSETS



750

Purchased goodwill capitalised



1,314

Total consideration



2,064

 

Satisfied by:

Cash to vendor



2,064

Earn out consideration



-

Total consideration



2,064

 

 

The fair values stated above are provisional.  The fair value adjustment for the intangible assets relates to customer relationships, trade names and software.  A related deferred tax liability has also been recorded as a fair value adjustment.

 

The fair value of trade debtors is equal to the gross contractual amounts receivable.  All debts have been reviewed and are considered recoverable.

 

The revenue included in the consolidated statement of comprehensive income since 9 April 2013, contributed by Artesys was £892,000.  Artesys also made a loss of £311,000 for the same period.   If Artesys had been included from 1 November, it would have contributed revenue of £1,894,000 and a loss after tax of £437,000.

 

Acquisition costs of £64,000 have been written off in the consolidated statement of comprehensive income.

 

 

 

 

 

Innovation Connect (formerly trading as Currency Connect)

 

There have been additional fair value adjustments in respect of the acquisition of Innovation Connect on 3 May 2012.  Since 31 October 2012, management have aligned the company's revenue recognition policy with those of the Group. This change has meant that accrued income is now only recognised when performance obligations have been met and the right to receive the revenue can be measured reliably dependent upon the nature of the individual grant applications. This has resulted in an additional fair value adjustment which has reduced accrued income by £446,000 and increased goodwill by a corresponding amount.

There was a fair value adjustment of £46,000 to tangible fixed assets to align the depreciation policy of the company to the Group policy.

A final fair value adjustment of £58,000 was made to the bad debt provision to align the provision with the Group.

There will be no further fair value adjustments and all opening balances for Innovation Connect are now final.

 

Opt2Vote

 

During the year a fair value adjustment of £13,000 was made in respect of the acquisition of Opt2Vote Limited on 27 March 2012. The adjustment was made to remove an other receivable balance which was deemed to be non-recoverable.

 

There will be no further fair value adjustments and all opening balances for Opt2Vote are now final.

 

FMx

 

There have been two fair value adjustments during the year in respect of the acquisition of FMx Limited on 18 October 2012. An adjustment of £182,000 was made to align the deferred income policy with the Group policy. A further adjustment of £15,000 was made in respect of taxation timing differences.

 

There will be no further fair value adjustments and all opening balances for FMx are now final.

 

 

No additional fair value adjustments have been made in the year in respect of prior year acquisitions.

 

 

Acquisition cash flows

 

Acquisition cash flows in the year are as follows:

 

 

The following contingent considerations were released in the year:

 

No additional fair value adjustments have been made in the year in respect of prior year acquisitions.

 

 

  

7 POST BALANCE SHEET EVENTS

 

On 1 November 2013 the Group issued 816,914 ordinary shares of 1p each in order to satisfy an exercise of an employee share option.

 

8 FURTHER COPIES

 

Copies of this announcement and, on finalisation, the full annual report and accounts will be available, free of charge, for a period of one month from the Company's Nominated Adviser and Broker N+1 Singer Advisory LLP, 1 Bartholomew Lane, London, EC2N 2AX, Tel: 020 7496 3000 or from IDOX plc, 2nd floor, Chancery Exchange, London, EC4A 1AB, Tel: 0870 333 7101.  Copies of the full financial statements will be made available to shareholders in due course.

 


This information is provided by RNS
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