Idox Group Regulatory News (IDOX)

14 December 2011

IDOX plc

Adjusted pre-tax profits* jump 36%; increased diversification and visibility of revenues

IDOX plc (AIM: IDOX, 'IDOX' or the 'Group'), a leading independent supplier of software and services, announces its final results for the year ended 31 October 2011.

Financial highlights

·; Revenues up 23% to £38.6m (2010: £31.3m); strong acquisition performance and successful management of core revenues

·; EBITDA rose by 33% to £11.6m (2010: £8.7m)

·; Adjusted pre-tax profit* up 36% to £10.9m (2010: £8.0m)

·; Profit before tax £5.6m (2010: £4.9m) after a higher non-cash amortisation charge related to acquisitions made and a higher non-cash share option charge

·; Adjusted EPS* increased 41% to 2.47p (2010: 1.75p), Basic EPS 1.31p (2010: 1.07p)

·; Final proposed dividend 0.36p (2010: 0.35p), total for year 0.60p (2010: 0.45p), 33% increase

·; £2.4m net debt at period end (2010: £0.9m net debt) after funding £4.3m of acquisitions

·; Established market leading position in the Engineering Document Management and Control market with the acquisitions of McLaren Software and, post year-end, CTSpace

* Adjusted pre-tax profit & EPS excludes amortisation, exceptional restructuring and corporate finance charges and share option costs

Martin Brooks, IDOX Chairman, said:

"This has been a transformative year for us. The acquisition of McLaren Software in December 2010 and CTSpace in November 2011 has enabled us to extend our core technology skills into a number of international highly regulated asset intensive industries. The acquisitions position us as a key vendor in the engineering document management market, with a global presence and the capability of offering both enterprise wide and Software as a Service (SaaS) to a growing customer base. We now have a second major market focus for the Group, which also opens up opportunities in a number of higher growth markets outside the UK and Europe.

"We have also been actively developing our capabilities in managed services, resulting in a number of high-profile client wins including Westminster City Council. This is causing a shift to longer-term recurring revenues, providing our business with greater visibility.

"We are confident that our strategy of diversifying revenue streams both operationally and geographically will enhance our resilience to current macroeconomic challenges."

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About IDOX plc

IDOX plc is a supplier of software solutions and services principally to the UK public sector and increasingly to the wider corporate sector. It is the leading applications provider to 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 Group provides public-sector organisations with tools to manage information and knowledge, documents and content, business processes and workflow as well as connecting directly with the citizen via the web.

These capabilities were extended via the acquisition ofMcLaren Software in 2010 into the related area of engineering document management and control applications, serving many leading international companies in industries such as oil & gas, mining, utilities, pharmaceuticals and transportation. More recently the acquisition of CTSpace has established IDOX as a leading vendor in this market.

IDOX also supplies decision support content and additional specialist services via the IDOX Information Solutions business, as well as transforming approaches to knowledge and content management via consultancy and training in the UK and internationally.

In addition, it provides these specialist skills to customers through its TFPL branded recruitment division.

For more information see www.idoxplc.com

Strategic overview

The 12 months to 31 October 2011 have been a transformative year for IDOX. The acquisition of McLaren Software extended the Group's core technology skills into international highly regulated asset intensive industries, providing access to many higher growth markets outside the UK and Europe.

The post year-end acquisition of CTSpace has further established the Group as a significant vendor in the Engineering Document Management and Control market and with McLaren Software has established a second major market focus for the Group.

IDOX's diversification into new verticals in the private sector maintains the Group's emphasis on generating high levels of recurring revenues and on building long-lasting supportive relationships with customers. At the same time it lowers the Group's reliance on revenue from the public sector in the UK and provides access to global markets.

IDOX remains a significant provider of complex large scale document management and related systems to UK local government. The Group is now the clear UK market leader in Land and Property software solutions providing some 63% of all UK planning systems.

The Public Sector software business accounted for 68% of Group revenues (2010: 77%). During the period, the Group has further expanded the business into full service provision covering software, consulting, managed services, full off-premise hosting, and integrated cloud-based services. As a result, the proportion of longer-term shared and managed service contracts as part of the Group's revenue mix has generated a greater level of recurring revenues.

The development of the Group both in its markets and geographic diversity, has been accompanied by an evolution in its management structure and its capability to develop business and successfully integrate acquisitions. The Group moved to a divisional business structure, supported by Group functions such as technology and finance, a process that was completed by the internal appointment of Andrew Riley as managing director of IDOX's Public Sector software business.

Outlook

The Group has started the current financial year with a very strong order pipeline across all businesses. The shift in focus toward long term relationships and recurring revenues in its Public Sector software market may marginally impact top line revenues in this business with a move away from pure licence based sales.

The acquisition of McLaren Software and CTSpace has enabled the Group to extend its core technology skills into the private sector on a global scale, providing access to verticals including pharmaceuticals and oil and gas.

In 2012, IDOX will streamline its development activities to ensure that each initiative has broad applicability across all divisions. This strategic initiative in development may result in a small increase in capitalised development costs in the year.

Whilst the economic climate remains challenging, the Group continues to reinforce its position as the centre of excellence in its chosen domains. The Board is confident that its strategy of diversification of revenue streams both operationally and geographically will enhance the Group's resilience to current macroeconomic challenges and enable it to report good organic growth this year. Trading in the current year has started in line with the Board's expectations.

Financial review

Group revenues grew by 23% to £38.6m (2010: £31.3m) reflecting the full year impact of acquisitions made in 2010 and maiden contributions from acquisitions of McLaren Software and LalPac in 2011.

The Public Sector software business, which accounted for 68% of Group revenues, delivered revenues of £26.1m (2010: £24.1m), of which around 66% were recurring (2010: 62%). On a like-for-like basis, excluding acquisitions and revenues from the large one-off Scottish executive contract which was completed in 2010, revenues in the Public Sector software business were marginally higher than 2010.

There continues to be a shift in new orders within the public sector business toward longer term managed service contracts, such as IDOX's contract with Westminster City Council, which contributed to a 14% increase in new orders compared to 2010. This trend, combined with a high level of recurring revenues in acquired businesses, helped recurring maintenance and managed services revenue in the public sector business grow by 15% to £17.2m.

McLaren Software, which was acquired in December 2010 and operates in the Engineering Document Management and Control ("EDMC") market, delivered a maiden contribution to revenues of £4.7m, which represented organic growth of 27% over the same period prior to its acquisition. Growth came from strong licence sales in new geographies such as Australia with sales to Chevron and Queensland Gas and also from sales to new customers in capital-intensive industries, such as Arcelor Mittal.

The Solutions business increased revenues by 12% to £4.7m (2010: £4.2m) as a result of a full year contribution from Grantfinder, acquired in May 2010. Recurring revenues, which are derived from subscriptions to the UK's leading grants information database, have increased to 70% (2010: 62%) and it is encouraging that in the current market environment subscription renewals have remained stable.

The Recruitment business revenues grew by 3% to £3.1m (2010: £3.0m). Gross profit increased by 27% to £1.4m (2010: £1.1m) due to a strong performance in the specialist permanent recruitment business.

Group Gross margins continued to improve, reaching 87% (2010: 83%), with increases in all four businesses. Public Sector software margins of 89% (2010: 87%) improved due to the growing recurring maintenance and managed service revenues and the EDMC business achieved gross margins of 94%.

The increased scale and recurring content subscription revenues within the Solutions business generated margins of 93% (2010: 92%). The continuing shift within the Recruitment segment toward permanent placements resulted in gross margins of 44% (2010: 39%).

Operating costs increased to £21.9m (2010: £17.3m) as a result of the acquisitions made in the previous and current financial years. On a like-for-like basis, excluding acquisitions, overheads were 1% higher.

EBITDA increased by 33% to £11.6m (2010: £8.7m) reflecting the maiden contribution from acquisitions, managing core revenues in a challenging environment, increasing gross margins and close control of operating costs. As a result, EBITDA margins increased to 30% (2010: 28%).

Adjusted pre-tax profit, excluding amortisation, share options costs and exceptional charges, increased by 36% to £10.9m (2010: £8.0m). Pre-tax profit was £5.6m (2010: £4.9m) after an increased non cash amortisation charge of £3.7m (2010: £2.3m) following the acquisitions, an increased non cash share option charge of £1.1m (2010: £0.2m) and exceptional restructuring and corporate finance charges of £0.5m (2010: £0.6m).

Adjusted earnings per share were up 41% to 2.47p (2010: 1.75p). Basic earnings per share were up 22% to 1.31p (2010: 1.07p).

The Board proposes a final dividend of 0.36p, to give a full year dividend of 0.60p (2010: 0.45p). This 33% increase in dividend reflects the Group's strong profitability growth, revenue visibility, healthy operating cash generation and the Board's continuing confidence in the long-term strength of the business.

IDOX ended the year with net debt of £2.4m (2010: net debt £0.9m) after funding the McLaren Software and LalPac acquisitions and retention payments relating to previous acquisitions, totalling £4.3m, a dividend payment of £2m and share buy backs of £0.3m.

Since the end of the financial year the Group has made a further two acquisitions. Interactive Dialogues, a provider of e-learning platforms and content, was acquired on 7 November 2011 for an initial consideration of €2m and will be integrated into the Solutions business. A further €0.2m consideration will be payable in November 2012 subject to fulfilment of certain performance conditions.

CTSpace, which was acquired on 14 November 2011 for £11.6m, is a provider of EDMC solutions and will be integrated with McLaren Software to create an EDMC business. This division is expected to deliver around 30% of Group revenue in 2012, of which 55% is expected to be recurring maintenance and SaaS revenues.

The significantly enlarged EDMC business will be a leading provider of software and solutions to capital-intensive industries worldwide with around 70% of EDMC revenues expected to be generated internationally, predominantly from Europe and the US with a growing business in Australasia.

The recent acquisitions have been funded by new debt facilities provided by its existing bankers, Lloyds Banking Group. A term loan of £12m together with a flexible revolving credit facility of a further £10m have been agreed.

Operational review

The Public Sector software business market faced an unsettled start to the year, with the implementation of the new public sector spending round. This meant that decision cycles lengthened amid the prevailing economic uncertainty. This has now passed and there is greater clarity on the solutions required and budgets available.

Independent market research company, Kable, is forecasting modest growth in the local government software & services market for the next three years. IDOX's Public Sector software business reported like-for-like growth in orders of 14% in the financial year as a result of the introduction of new services and an increased market share.

IDOX has actively developed its management and technical capabilities in managed service or "zero infrastructure" provision for its public sector clients. By the end of 2011, IDOX had consolidated its market leading position serving over 90% of UK local authorities. It also achieved a ten-fold increase in managed service sales over the previous year leading to a further strengthening of its local authority recurring revenues, which grew by 15% to £17.2m.

The introduction of a fully hosted resilient capability resulted in the business signing and delivering four fully-managed offsite solutions - with Westminster, Uttlesford, South Downs National Park and Buckinghamshire County Council - which have a total value of £3.5m. This shift towards managed services provision means that while the Public Sector software business has seen a double-digit increase in sales in the period, reported revenue growth has been marginal. However, with most of these deals running from three to five years, recurring revenues have increased to 66% from 62% the previous year.

In September 2011 the Group launched the Consultee Cloud, a product that allows all planning process stakeholders to complete both internal and external consultations online. In the three months since launch it has signed up in excess of 10% of all local authorities as well as the large consultee organisations.

The acquisition of LalPac strengthened the Group's position in the licensing and environmental health vertical of local government, moving IDOX to a 46% market share in that vertical. Today, the Group offers a compelling case to local government to be more efficient by standardising around one integrated property based platform.

In the engineering document management and control sector, McLaren Software has undergone a year of change. The division's focus on core markets and on delivering solutions and domain expertise have resulted in a 27% year on year increase in revenue. This includes significant big customer wins with blue chip companies like Chevron, Arcelor Mittal and Queensland Gas.

In addition, McLaren Software has concluded an OEM agreement with Documentum Inc., further supporting the platform as a strategically important partner. The business also continues to build stronger value added partnerships as the domain expert with IBM and Accenture.

The Solutions division was impacted by procurement delays and reductions in project work resulting in minimal revenue growth, but managed to maintain subscription revenues in the core grants business. The acquisition of Interactive Dialogues, an e-learning and certification software business, has added rich content for the legal market, a blue chip private sector customer base and the capability to deliver on-line grants training solutions for the core business. It has also provided a flexible platform for other divisions in the Group to meet the needs of both local and global customer bases.

The Recruitment business saw strong growth in specialist permanent recruitment revenues. The market for contract recruitment remained soft, further hindered by changes in employment law which is moving more clients to direct engagement. The recruitment business overall showed a strong return to profitability, with revenues up 3% and gross profit rising 27%.

Consolidated Statement of Comprehensive Income for the year ended 31 October 2011

Consolidated Balance Sheet

At 31 October 2011

Consolidated Cash Flow Statement

For the year ended 31 October 2011

Consolidated Statement of Changes in Equity

At 31 October 2011

Notes to the announcement

For the year ended 31 October 2011

1 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 available for sale investments.

The financial information set out in the announcement does not constitute the group's statutory accounts for the year ended 31 October 2011 within the meaning of section 434 of the Companies Act 2006. The financial information for the year ended 31 October 2010 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 2011 are expected to be finalised on the basis of the financial information presented by the directors in this preliminary announcement.

2 Segmental Analysis

As at 31 October 2011, the Group is primarily organised into three main business segments, which are detailed below.

Financial information is reported to the Board on a business unit basis with revenue and operating profits split by business unit. Each business unit is deemed a reportable segment as each offer different products and services.

·; Software - providing local authorities with software & managed services which deliver seamless integration and automation from user interfaces through to document storage alongside the development and implementation of proprietary software products for the engineering market

·; Solutions - delivering both an information service and consultancy services to a diverse range of customers across both private and public sectors

·; Recruitment - providing personnel with information, knowledge, records and content management expertise to a diverse range of customers

Segment revenue comprises of 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 tax, interest payments and share option charges. The assets and liabilities of the Group are not reviewed by the chief executive 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 2011 are as follows:

Revenues are attributed to individual countries on the basis of the location of the customer. The new geographic locations disclosed in 2011 are as a result of the acquisition of McLaren Software Group Limited during the current financial year.

The segment results by business unit for the year ended 31 October 2011 are as follows:

Reconciliations of reportable profit

Other financial costs relate to loan interest, exchange differences, bank loan facility fee amortisation and interest receivable which have not been included in reportable segments.

3 Taxation

The tax charge is made up as follows:

Unrelieved trading losses of £6,960,000 (2010: £116,000) which, when calculated at the standard rate of corporation tax in the United Kingdom of 27% (2010: 28%), amounts to £1,879,000 (2010: £32,000). These remain available to offset against future taxable trading profits.

Factors affecting the tax charge in the period:

4 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:

5 Acquisitions

McLaren Software Group Limited

On 13 December 2010, the Group acquired the entire share capital of McLaren Software Group Limited (McLaren) for a consideration of £3.

McLaren is a leading supplier of engineering document management and control applications serving many leading international companies in industries including oil & gas, mining, utilities, pharmaceuticals and transportation.

The acquisition of McLaren extends Idox's core skills in planning and building documents management into the related area of engineering drawings. This will provide Idox with the opportunity of broadening its activities into complementary UK and international markets in both the private and public sector, particularly where the management of complex engineering systems interacts with regulatory oversight.

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

The fair values stated above are provisional. The fair value adjustment for the intangible assets relates to trade names, customer relationships 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.

Other adjustments were made to the accrued income, to bring it in line with group policy, and consultancy fees.

The revenue included in the consolidated statement of comprehensive income since 13 December 2011 contributed by McLaren was £4,655k. McLaren also contributed profit of £755k over the same period.

Had McLaren been consolidated from 1 November 2010, the beginning of the Group's financial year, the consolidated statement of comprehensive income would have included revenue of £4,987k and a profit of £395k.

Lalpac Limited

On 5 May 2011, the Group acquired the entire share capital of LalPac Limited (LalPac) for a consideration of £2,575k, which was satisfied as detailed below.

LalPac is one of the UK's leading providers of licensing management software and services, supplying 131 local authorities covering the full range of licensing including Taxi, Private Hire, Gambling and General Licensing functions.

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

The fair values stated above are provisional. The fair value adjustment for the intangible assets relates to trade names, customer relationships 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.

Other adjustments were made to the revenue recognition policy for deferred income in order to bring it in line with group policy.

The contingent consideration of £50k is due and payable on or before 5 May 2012 subject to the successful delivery of a signed, fully irrevocable and binding contract between the Group and a specific customer. Should this contract not be concluded by this date no payment will be made and no further consideration will be due.

The revenue included in the consolidated statement of comprehensive income since 5 May 2011 contributed by LalPac was £685k. LalPac also contributed profit of £191k over the same period.

Had LalPac been consolidated from 1 November 2010, the beginning of the Group's financial year, the consolidated statement of comprehensive income would have included revenue of £1,471k and profit of £304k.

6 Post Balance Sheet Events

The Group signed a revolving loan facility of £10m and an acquisition funding facility of £12m on 14 November 2011.

Interactive Dialogues Limited

On 7 November 2011, the Group acquired Interactive Dialogues Limited and Interactive Dialogues NV ("ID") for a total consideration of €2.2m (£1.9m) in cash. ID is a leading supplier of e-learning and information solutions in Europe enabling organisations to conduct 'dialogues' with employees, customers and suppliers to achieve legislative compliance in areas such as Competition Law and the UK Bribery Act. The company is based in the UK and Belgium and its global client base includes Associated British Foods, Hays, E.ON AG, Alstom, PricewaterhouseCoopers, AB InBev and Xstrata.

An initial payment of €2m has been made on completion and a further €0.2m is payable one year after completion subject to the fulfilment of certain conditions. ID had revenues of €2.4m for the year ended 31 May 2011.

The acquisition of ID extends the range of solutions available within the Idox Information Solutions business and provides Idox with an e-learning platform that will be used to support customers across the Group.

CTSpace

On 15 November 2011 the Group acquired CTSpace, an engineering and construction sector document management and control business, for £11.6m in cash from Sword Group.

CTSpace provides document management and collaboration workflow applications for the global construction and engineering industry and will complement the McLaren Software business that IDOX acquired in December 2010.

CTSpace, which is headquartered in London, had revenues of £12.7m (approximately half of these were generated in Europe and half in North America), which generated EBITDA of £1.7m and pre-tax profit of £1.3m for the year ended 31 December 2010 when CTSpace had net assets of £4.1m. The business had cash at completion of £0.5m. IDOX will fund the acquisition entirely from a new term and revolving credit facility through its existing relationship with Lloyds Banking Group.

CTSpace provides both Software as a Service ('SaaS') and on-premise enterprise solutions, the latter of which leverage an organization's existing investment in leading enterprise content management ('ECM') platforms such as IBM FileNet®, EMC Documentum® or Microsoft SharePoint®. When deployed with leading enterprise content management platforms, CTSpace's products provide an integrated, best practice environment that supports a project's entire lifecycle.

With the existing resources of McLaren Software and the Group's integrated software development resource, the addition of CTSpace brings further scale, efficiencies and enhanced product and development capabilities.

The IDOX Board expects the acquisition to be earnings enhancing in its first year.

Full IFRS 3(R) disclosure has not been included in the financial statements due to the timing of the acquisitions.

7 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 Investec Bank plc, 2 Gresham Street, London EC2V 7QP, Tel: 020 7597 5970 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.