Idox Group Regulatory News (IDOX)

13 January 2015

Idox plc

FINAL RESULTS

For the year ended, 31 October 2014

Idox plc (AIM: IDOX, "Idox", "the Company" or "the Group"), a leading supplier of specialist information management solutions through its two major divisions, Public Sector Software (PSS) and Engineering Information Management (EIM), is pleased to present its final results for the year ended 31 October 2014.

Highlights

· Revenues up 6% to £61m (2013: £57m);

- Organic revenue growth and market share gains in the PSS division

- Revenue growth achieved in EIM division against a backdrop of difficult market conditions

· Adjusted EBITDA* up 9% to £16.4m (2013: £15.1m)

· Profit before tax £7.6m (2013: £7.5m)

· Adjusted EPS** 3.25p (2013: 3.53p), Basic EPS 1.65p (2013: 2.17p)***

· Final proposed dividend of 0.425p (2013: 0.40p), total for year 0.75p (2013: 0.70p), 7% increase over last year

· Successfully provided the majority of electoral services for the Scottish referendum

· Substantially reorganised and refocused EIM division

· Negotiated £40m new banking facilities with Royal Bank of Scotland and Silicon Valley Bank

· Completed acquisition of Digital Spirit GmbH a leading supplier of compliance solutions

Martin Brooks, Chairman of Idox, commented, "I am pleased to report that Idox was restored to good growth in both revenue and profitability in the last 12 months. It was particularly gratifying that our Public Sector Division enjoyed an impressive year, seeing organic revenue grow by 8%, while our Engineering Information Management Division maintained its EBITDA margin of 23%, despite the current challenges in the Oil and Gas market, and while also benefitting from the reorganisation of the business in 2013. 

"We continue our transition from a software business into a specialist workflow solutions business, where our two divisions supply complex information management solutions to our chosen markets where we have domain expertise. We now have approximately two thirds of our total business within the UK public sector, while the North American market saw the majority of our EIM business and in Europe we expect to see further growth in the coming year, following our acquisition of Digital Spirit GMBH in October 2014.

"We have seen more subdued activity in the rest of the world after several years of growth, in-line with current global economic conditions. In contrast, we have seen significant growth in managed and hosted services, as well as SaaS and Cloud based solutions, which has off-set this current fall in activity in the Oil & Gas sector, which currently represents just 11% of the Group's overall business.

"Looking to the future and the current trading year, our Public Sector Division is well placed to benefit from current customer needs, with a move towards end-to-end solutions as part of a renewed drive to efficiency, whereas our EIM division has been positioned to maintain margins until there is a recovery in its international markets."

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

** Adjusted EPS excludes amortisation, restructuring, acquisition, corporate finance and share option costs

*** The current year includes a normalised tax charge (2013: £0.9m tax credit for overseas tax losses) and no write back of deferred consideration (2013: £0.7m).

Extracts of the final results appear below and the full version of the Group's Annual Report and Accounts and notice of AGM will shortly be posted to shareholders and made available on the Company's website, www.idoxgroup.com.

Enquiries:

Idox plc +44 (0) 870 333 7101

Martin Brooks, Chairman

Richard Kellett-Clarke, Chief Executive

Jane Mackie, Chief Financial Officer

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

Shaun Dobson

Alex Wright

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 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, and providing elections management solutions. It also supplies in the UK and internationally, decision support content such as grants and planning policy information and corporates compliance 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 in North America and around the world.

The Group employs over 560 staff located in the UK, the USA, Canada, Europe, India and Australia.

For more information see www.idoxplc.com.

Chairman's Statement

I am pleased to report that Idox restored good growth and profit progression in 2014 following a difficult year in 2013, matching the market guidance given at the end of 2013. Our core Public Sector Software Division (PSS) enjoyed an impressive year seeing organic revenue growth of 8%. The Engineering Information Management Division (EIM) only saw marginal growth in a challenging year in its global markets of 4% on a constant currency basis, and by 1% on a reported basis following adjustments for adverse exchange rate movements. The division did maintain an adjusted EBITDA margin of 23% due to the reorganisation, product improvements and cost rationalisations which were undertaken in 2013. The Group's continuing operations generated £7.6m profit before tax on revenues up 6% to £61m.

Idox is now a Group with a simplified corporate structure comprising two major divisions, PSS and EIM. We apply our specialist information management skills to our chosen markets in the UK and around the world, with approximately two thirds of business in the UK from public sectors and one third in the global EIM business.

In the year under review our UK public sector business benefitted from a high level of new activity, not the least in the Group's Elections Business; which included providing the electronic management for the Referendum in Scotland. In our traditional Land and Property business we once again increased our market share with a number of competitive wins, including Trafford, St. Helens and Ealing, and we saw growth in managed and hosted services and Cloud based solutions to local authorities, such as Birmingham, South Norfolk, Aylesbury, Shropshire and Highland.

In EIM we have been challenged again by a fall in activity in the Oil & Gas sector, which currently represents just 33% of the EIM division's business. Despite this, in our main market of North America, and also in Africa, we have added some notable business wins amongst the Oil & Gas majors, such as BG Group and Pembina, and we were appointed as the supplier of choice for a fully off-premise hosted solutions by a major US independent E&P company, a leader in the emerging shale gas and alternative extraction industry. In addition, outside this sector, we have made further gains with new client wins in the Utilities sector and other sectors such as Infrastructure. These include Mustang and Eli Lilly.

As part of our executive leadership development we were delighted to appoint Jane Mackie as our new Group Chief Financial Officer in February following a formal executive search conducted outside and within the Group. This is the first time we have made an appointment to the board as a result of an internal promotion and it is a clear sign of the developing scale and sophistication of the Idox Group. Jane was previously Group Financial Controller and joined Idox in 2005 from Grant Thornton UK LLP. She has already put in place new banking arrangements with the Royal Bank of Scotland and Silicon Valley Bank which were announced in September and which will give us the additional headroom to resume an enhanced planned acquisition programme following the past year of consolidation within the Group. The first result of this was the acquisition of Digital Spirit GMBH which was announced in October.

The Board, in reviewing the risk management of the Group, has noted the improvements in the UK and North American economies, but also the greater uncertainties elsewhere in the world and more recently the significant fall in oil prices along with its impact on many emerging economies and the Oil & Gas industry. Historically these do shift over time and while the majority of the business remains UK public sector focused, which plays to our current strengths, we continue to believe that a degree of diversification is prudent. We are pleased that we have a growing relationship with North American shale and alternative energy providers as well as long-term deep customer relationships in the Utilities sector including Nuclear, Hydro and fossil generation as well as an emerging business in the Transmission and Distribution markets. This should help mitigate against any further fall in demand from the Oil & Gas market, should the oil price continue to slide, although at present it still remains a very large addressable market for us.

In developing the business and its governance we are about to commence a formal board recruitment process utilising external consultants to recruit additional non-executive directors with a view to ensuring the continuation of high level board representation with which to take the Group forward. Idox is now a much larger Group than five years ago and, with our ambitions to continue this growth path in an accretive and measured way, the future non-executive leadership is a vital element. We have started this a little later than planned as our focus over the last few months has been to bring the Group back on a sustainable earnings growth path.

In view of this resumption in earnings growth, the Board proposes, subject to shareholder approval at the Group's Annual General Meeting, a final dividend of 0.425p, bringing the total for the year to 0.75p. This represents an uplift of 7% over the previous year, and is in line with both our improved trading and our progressive dividend policy.

I would like to thank our executive leadership team and all our staff for getting the Group back onto a path of sustainable growth, following the setbacks in 2013. We are now far better positioned to continue this by benefitting from the opportunities in the UK and North America in particular, and are ready to take up business elsewhere in the world, despite a very uncertain global economic outlook.

Chief Executive's Review

The Group has had a successful year in its further transition from a software only business to a specialist workflow solutions business in its core markets of public sector, infrastructure, utilities and Oil & Gas. This year saw our total revenues from managed services pass 8% in public sector and the completion of our first hosted, managed solution in EIM.

The Group's strategy remains focused on markets where it can demonstrate highly specialised knowledge and where we can better serve our customers by adding value in content, quality of service and efficiency. We also continue to strengthen our position in the related area of compliance solutions and grants consultancy.

In all our markets there continued to be common austerity drivers, either due to government cost savings, or due to the current global trend to lower prices in order to reduce costs. Idox has developed, and continues to enhance solutions that reduce re-work, lowers risk, cuts cost and guarantees prompt delivery and implementation. We have achieved this through delivering standardisation, integration and streamlining implementation across all our solutions and services. We believe that this allows our customers to simplify operations, and through the integration of data, speed up decision making processes.

This change in focus to solutions and on-domain expertise is in explicit response to changes in public services, and more recently, corporate expenditure, away from IT-led services to total managed services. The difficulty in the traditional approach of competing for internal specialist IT resources for the implementation of operational solutions is being exacerbated by the scarcity of resources due to cost constraints. This leads to delays in making change and driving efficiencies as operational expenditure is held up, and furthermore, the speed of change is slowed by the lack of expertise and the time taken to understand how to resolve the problem. Often the outcome is a best endeavoured solution which may miss the mark adding to the risk and cost. Increasingly, customers are realising that specialist providers of managed solutions know best, as they make services immediately available, and can now switch on solutions quickly in a hosted environment, thus making it easier and less risky to respond.

We believe this change in approach has been held back until now due to the concerns over security and connectivity. However the cyber security specialists are educating the market that by housing all your data in one place poses a greater risk, and therefore it should be distributed to reduce exposure. Connectivity is the same regardless of distance and as this becomes the more established view, we believe the market for managed solutions will accelerate.

Across our public sector market we have built a strong and improving reputation for delivery, quality of solution, speed of delivery and best practice for key roles. Our goal is to continue to build on this and extend our customers' perception of Idox as a capable, credible partner with whom they have confidence in working.

Our goal is to provide even better solutions in partnership with our strategic partners through a continued investment in project management resources, infrastructure, content and domain experts. This year, through the reorganisation of our EIM Division, we are now extending this proven approach across all our areas of expertise.

Public sector revenues grew 8% due to the continued growth in managed services, with a further 52 competitor systems wins from the likes of Trafford, St Helens and Ealing. We expect to build upon this above trend growth in 2015 with further market share wins and more managed services solutions.

The Grants business grew strongly in new accounts in 2014 and for the first time in two years funding rates have remained unchanged. This is already translating to higher services volumes and billings for 2015. Our Compliance business will benefit from the consolidation achieved by the acquisition of Digital Spirit in October 2014 and we expect this to drive revenues in the second half of the year after full integration.

The EIM division's focus in 2014 has been on customer care and delivery of solutions, namely: Investment in project management, clearer product roadmaps and a closer integration between development, product management and customers. The team has substantially changed this year with new faces and internal promotions lead by Peter Russell-Smith who joined us at the start of the year. The emphasis in 2015 is to grow by penetrating further existing accounts and developing a clearer and better partner supplier relationship with them. The focus in sales has also shifted more towards the USA given the strength of their economy and the current investment in shale gas and infrastructure.

EIM revenues from Oil & Gas represent 11% of Group revenues in 2014 and this is forecast to be lower in 2015, reflecting the dramatic slowing of investment in the sector and also our reduced investment made during the year in order to diversify our risk and expend in Infrastructure and Utilities.

The Group continues to focus on improvements in effectiveness and disciplines and cash management. This has resulted in revenues and contribution per head being 5% and 8%, respectively, ahead of the previous year and this is forecast to rise further in 2015.

Outlook

The current trading environment in Public Sector remains unchanged with the pre-Christmas public sector spending announcements in-line with our expectations. Our customers have asked for help in finding better ways of meeting their obligations and we are here to resolve these matters as their partner in providing public services. Therefore, we believe it remains a positive environment for change, which allows Idox the opportunity to look at doing things differently and therefore provides a significant opportunity for growth.

Public sector IT spend is forecast to be flat in 2015. There continues to be investment in new and front line services, but not in infrastructure. In EIM total capital projects are down in Oil & Gas but have not collapsed altogether, and the trend to standardisation to reduce costs will continue and the tougher markets will, we believe, encourage the market to adopt change faster. There continues to be growing investments in Infrastructure and Utilities.

We believe our continuing approach to adapt to customer needs and to move more towards end-to-end total solutions is driven from knowledge, the application of technology and investment in training and staff improvement. The result of this is to deliver better solutions in public services, the demand for which, we believe, will fuel further growth. The application of these similar approaches and disciplines into our other verticals will, we hope, be adopted by these customers, as long as we focus on the continual improvement of our customer care and management.

The business is both geographically spread and diversified across different verticals and is therefore protected, to an extent, by this division. That is not to say we have not already taken the appropriate steps to protect our margins and focus on the core areas of growth.

Chief Financial Officer's Review

Financial review

Group revenues from continuing operations grew by 6% to £61m (2013: £57m) due to organic growth in the PSS division, strong election activity and the impact of one acquisition made during 2013. The Group maintained the geographical split of its revenues with 31% generated outside of the UK (2013: 33%). Gross profit earned was 4% higher at £54m (2013: £52m) and the Group saw a decrease in gross margin from 91% to 89% as a result of the increase in lower margin managed service election revenues. Earnings before amortisation, depreciation, restructuring, acquisition, corporate finance and share option costs ("Adjusted EBITDA") increased by 9% to £16.4m (2013: £15m) with Adjusted EBITDA margins of 27% (2013: 26%).

Performance by segment

The PSS division, which accounted for 68% of Group revenues (2013: 66%), delivered revenues of £41m (2013: £38m). Product and services revenue grew organically by 8% on the previous year driven by further market share gains and a significant number of local council contract wins for managed services and hosting. Election activity increased on the prior year by nearly double due to the Individual Electoral Registration project, and the low margin managed services for the European elections and the Scottish Referendum. The Grants business in the UK and Netherlands saw double digit growth on the prior period.

Recurring revenues within the PSS division were 47% (2013: 52%). Divisional Adjusted EBITDA increased by 12.5% to £12.0m (2013: £10.6m), delivering a 29% margin, a 1% increase on 2013 (28%) due to cost efficiencies.

The EIM division accounted for 32% of Group revenues (2013: 34%) and had revenue growth of 1% to £19.5m (2013: £19.2m). On a constant currency basis, revenue grew 4% on the prior year with 52% of revenues generated in the US (2013: 46%). Professional services revenue grew 16% due to a substantial reorganisation and refocus in the year.

The level of recurring revenues in the EIM business from maintenance and Software-as-a-Service ("SaaS") were 49% (2013: 51%). Divisional Adjusted EBITDA for the EIM division was flat at £4.4m (2013: £4.4m), 27% of the Group total with margins held at 23% (2013: 23%).

Profit before tax

Adjusted EBITDA increased 9% to £16.4m (2013: £15.1m). Administrative expenses increased 5% to £46m (2013: £43m) with 1% of this increase due to a full twelve months contribution in the year of Artesys. Staff costs increased by 2% on a like for like basis partly due to a reduction in development salaries being capitalised by £0.4m. Despite an increase in bad debts charge to £0.4m (2013: £0.1m), other overheads decreased by 5% on a like for like basis with cost efficiencies achieved through office synergies in the UK.

Financing costs decreased 5% to £1.1m (2013: £1.2m) and includes interest payable of £0.7m (2013: £0.9m) and amortisation of the loan facility fees of £0.23m (2013: £0.16m) following the renegotiation of the new bank facility.

Reported profit before tax was up 1% to £7.6m (2013: £7.5m). Amortisation of intangibles increased £0.6m due to a full year of Artesys, higher research and development additions in 2013 and higher software licence additions. Restructuring charges of £0.4m (2013: £0.5m) relate to the internal reorganisation of the EIM division and the streamlining of corporate functions between London and Newbury into the combined Theale office. Acquisition costs normalised at £0.1m (2013: (£0.6m)) following the one off benefit in 2013 of £0.8m related to the release of earn-out obligations on the Opt2Vote acquisition which did not become payable. Corporate finance costs relate to the one off fees from negotiating a new, two bank, four year banking facility of £40m.

The Group continues to invest in developing innovative technology solutions and has incurred capitalised Research and Development costs of £1.0m (2013: £1.3m). Research and Development costs expensed in the period were £5.4m (2013: £4.8m).

Taxation

The Group's effective tax rate for the year was 22.9% compared to (12.8%) in 2013. During the period all brought forward trading tax losses in the UK were utilised, resulting in a greater proportion of UK profits being subject to tax. The lower effective tax rate in 2013 was 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. Other factors decreasing the tax rate in 2013 include the recognition of tax losses in the EIM business in the UK and an adjustment to the deferred tax asset recognised in respect of share options. As trading losses in the UK have all been utilised during the year, this will result in a greater proportion of profits being taxable and an increase in the effective tax rate going forward. There was an increase to trading losses arising overseas, leaving £3.3m available to be utilised in the future, mainly in the US.

Earnings per share and dividends

Adjusted earnings per share fell 8% to 3.25p (2013: 3.53p). Diluted adjusted earnings per share fell 8% to 3.11p (2013: 3.38p).

Basic earnings per share fell 24% to 1.65p (2013: 2.17p). Diluted earnings per share fell by 23% to 1.59p (2013: 2.07p).

Earnings per share were impacted by the tax charge in the year compared to the tax credit in 2013 and the release of the earn out obligations in 2013.

The Board proposes a final dividend of 0.425p, an increase of 7% on the total dividend from prior year. The final dividend will be paid on 24 April 2015 to shareholders on the register at 10 April 2015.

Balance sheet and cashflows

The Group's balance sheet continued to strengthen during the period and at 31 October 2014 net assets were £48.6m compared to £44.7m at 31 October 2013.

Cash generated from operating activities before tax as a percentage of Adjusted EBITDA was 81%, up from 79% in the previous year.

The Group ended the period with net debt of £15.8m (2013: £19.8m), which was ahead of forecast before drawing down £2m to fund the Digital Spirit acquisition on 22 October 2014 and after total dividends of £2.6m. During the year a new four year banking facility was negotiated with Royal Bank of Scotland and Silicon Valley Bank. The Group's total signed debt facilities at 31 October 2014 stood at £40m, a combination of a £17m term loan and £23m revolving credit facility, split £25m Royal Bank of Scotland and £15m Silicon Valley Bank.

Deferred income, representing invoiced maintenance and SaaS contracts yet to be recognised in revenue stood at £13.3m at 31 October 2014 (2013: £14.0m). Accrued income, representing future cash flows from managed service contracts in the PSS division increased to £8.8m (2013: £7.6m).

Consolidated Statement of Comprehensive Income for the year ended 31 October 2014

Consolidated Balance Sheet

At 31 October 2014

 Consolidated Statement of Changes in Equity

At 31 October 2014

Consolidated Cash Flow Statement

For the year ended 31 October 2014

Notes to the announcement

For the year ended 31 October 2014

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 2014 within the meaning of section 434 of the Companies Act 2006. The financial information for the year ended 31 October 2013 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 2014 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 2014, 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 have been reclassified as a discontinued operation.

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

· Engineering Information Management (EIM) - 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 2014 are as follows:

The segment revenues by geographic location for the year ended 31 October 2013 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. Corporate finance costs are in relation to the new banking facility. 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 differences between the total tax charge above and the amount calculated by applying the standard rate of UK corporation tax to the profit before tax, together with the impact on the effective tax rate are as follows:

The effective tax rate for the period was 22.91% (2013: -12.75%). During the period all brought forward trading tax losses in the UK were utilised, resulting in a greater proportion of UK profits being subject to tax. The lower effective tax rate in 2013 was 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 amounting to £4,492,000. Other factors decreasing the tax rate in 2013 include the recognition of tax losses in the EIM business in the UK of £2,439,000 and an adjustment to the deferred tax asset recognised in respect of share options of £473,000.

Movement on trading losses during 2014 are as follows:

As noted above all UK trading losses of £2,652,000 were utilised during the year. The foreign losses recognised during the year of £346,000 arise mainly in the US and it is anticipation that the Group will benefit from these tax losses in future. Across the year the total deferred tax asset in respect of unrelieved trading losses has decreased from £1,175,000 to £658,000.

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.