Idox Group Regulatory News (IDOX)

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 Changes in Equity at 31 October 2013

 Consolidated cash flow statement for the year ended 31 October 2013

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:

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

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

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.

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%.