I-nexus Global. Regulatory News (INX)

28 May 2020

i-nexus Global plc

("i-nexus", the "Company" or the "Group")

Half Yearly Report

i-nexus Global plc (AIM: INX), a leading provider of cloud-based Strategy Execution software solutions designed for the Global 5000, today provides its unaudited results for the six months ended 31 March 2020.

Financial Highlights

· Group Revenue £2.27m (H1 19 £2.31m)

o Recurring revenue £2.03m (H1 19 £1.89m)

o Services revenue £0.24m (H1 19 £0.41m)

· Loss before tax £2.16m (H1 19 £1.91m)

· Significant cost reduction measures implemented in January 2020, reducing Group costs across all categories by £0.25m per month, not including those staff on furlough as a result of COVID-19

· 25 employees furloughed from 1 April 2020 representing a further but temporary combined monthly cost reduction of ~£0.1m

· Cash overdraft at 31 March 2020 of £0.14m (Cash and cash equivalents at 30 September 2019: £1.53m, 31 March 2019: £4.76m), due to significant increase in overdue debtors in March 2020 as COVID-19 impact was felt globally, the majority of which have since been collected

o Cash & cash equivalents at 27 May 2020: £0.29m

Operational Highlights

· Continued expansion within existing customer accounts

· A significant product release - i-nexus Summer 2020 - will be available from July, starting with early access for existing customers. This release introduces an entirely new interface for Workbench, the company's flagship product.

· i-nexus Pulse and Advisor, new mobile applications for mobile workers and executive reporting respectively, have been successful in early adopter programmes and will be made available to all customers as part of this release

· We continue to actively engage with Consulting Partners, undertaking targeted joint marketing initiatives designed to enhance thought leadership of both parties and attract leads to each via our mutual communities

Outlook

· As the temporary global shutdown and associated uncertainty continues, the Group is experiencing longer sales cycles as existing and potential customers focus on business continuity planning and postpone procurement decisions for new software

· Two existing customer upsells were secured post period end, taking our total YTD upsell % to over 10%, higher than FY19

· Current cash & cash equivalents of £0.29m at the date of this report, our blue chip debtor book along with upcoming renewals and a reduced cost base provide comfort that the Company's funding position is adequate for the remainder of the current financial year, but in the longer term will depend on sales to existing and potential customers, the timing of which cannot be forecast with any certainty

· As a result, alongside preparing an additional cost reduction plan that could be implemented, if required, the Board is in the early stages of reviewing strategic options to introduce fresh capital to the business

Simon Crowther, Chief Executive, of i-nexus Global plc, commented: "We continue to believe the market opportunity for enterprise level strategy execution software is significant, and for the growing area of Hoshin Kanri based tools in particular. The breadth of our platform and its proven ability to run complex strategy programmes at depth and scale, across thousands of employees in multiple geographies, puts us in a good position to benefit from this evolving market once the initial impacts of COVID-19 have reduced."

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About i-nexus Group plc

i-nexus supports some of the largest global companies in running, improving and changing their businesses through the provision of a scalable, enterprise-grade, cloud-based Continuous Improvement ("CI") and Strategy Execution ("SE") software platform. The platform is in use at global blue-chip businesses, predominantly based across the US and Europe, helping customers execute key strategic goals throughout all levels and divisions of their organisations.

The Group's software supports Hoshin Kanri, a strategy development methodology first introduced in the 1960s in Japan and born out of lean, six sigma and operational improvement theory. Hoshin Kanri (directly translated as "direction execution") is a systematic planning, implementation and review methodology which, when implemented, aims to ensure that the strategic goals of a company are properly communicated to all employees and that they drive progress and action at every level of the business.

i-nexus is headquartered in Coventry, UK.

BUSINESS REVIEW

The challenges experienced in the prior financial year continued into the first half of the year, with new business generation lower than we had initially anticipated. While we secured two new contracts early in the period, with one new and one existing customer, the sales team were unable to build on this early promise.

As a result, we implemented a restructuring of the business in January 2020 to preserve cash while maintaining the right structure to support our existing customers, secure new business and continue the development of our strategy execution software. This restructuring resulted in a 20% reduction in staff numbers, predominantly within the sales team and a 15% reduction in Group overheads by the end of the period. This was accompanied by a refresh of our go to market strategy.

As with many software companies, we are an agile business and well-equipped to facilitate remote working. Our staff have been working from home since 20 March 2020, with no disruption to the Company's continuity of service. While we enjoy the benefit of the majority of revenue being recurring and with contracts paid annually in advance, and saw some good early pipeline activity in February and early March, the impact of COVID-19 globally from mid-March onwards has, not surprisingly, significantly curtailed enterprise software investment spend in the short-term. As a result, we have seen contract discussions put on hold for the time being, both with existing and potential customers. The extent of the impact has varied by sector, with for example opportunities within the automotive sector badly affected, but food and health less so. Overall, the current live opportunities reaching the point of contractual commitment has significantly slowed. However, where there are cases of "business as usual" the relevance and value of i-nexus is being shown and we are encouraged by some movement in the new business pipeline in recent weeks. One delighted client quoted: "With i-nexus we now have consistent scorecard reporting across an increasing number of business units, giving us real-time insight and the confidence we are investing in the right activities for growth".

The timing of our period end, being 31 March, coincided with the point at which many of our end markets had entered a period of lock-down, and saw our debtor receipts significantly impacted. However, this has now largely stabilised with the majority of debts collected and debtor days returning towards their normal range. We remain alert to the risk of renewed slippage in cash collections.

In order to protect the business and preserve our existing cash resources, we have initiated further operational and cost saving measures since the period end, including the furloughing of staff, further reductions in overheads and salary reductions. As a result, the business is currently operating at a profit & loss account break even position.

While this has clearly been a challenging period which may continue for some time, we believe the quality and visibility of our revenue, as well as the breadth of our customer base provides us with a level of resilience. We have secured two upsell contracts with existing customers post period end and we are focused on only nurturing sales leads with more mature, larger organisations with the right structure to benefit from and be able to implement our software.

Throughout this time, our teams in the UK and US have responded well to the changes implemented, for which we are extremely grateful.

Innovation

Following the investment in the platform over the last 12 months there will be a major software release called i-nexus Summer 2020 in July, this is the next generation of our core product, i-nexus Workbench, introducing a new user experience to match the modern interface introduced in i-nexus Pulse and i-nexus Advisor that are in a successful and encouraging early adopter program with certain clients.

Partners

We continue to develop relationships with potential channel partners, to extend our market reach. Although early days, these relationships are leading to opportunities for i-nexus with mature operational excellence and strategy execution customers who recognise the challenges of in-house implementation platforms. Joint marketing initiatives are being undertaken and we expect to see more of these in the coming months to benefit both parties. Our consulting partners have also been affected by COVID-19, seeing their own pipe slow down and facing substantial uncertainty. They also recognise that innovation and new approaches will be key to emerging from the lockdown successfully and we are working with them on various initiatives accordingly.

Market opportunity

We continue to believe that the market opportunity for enterprise level strategy execution software is significant, and for the growing area of Hoshin Kanri based tools in particular. The breadth of our platform and its proven ability to run complex strategy programmes at depth and scale, across thousands of employees in multiple geographies, puts us in a strong position to benefit from this evolving market once the initial impacts of COVID-19 have reduced. The cloud and mobile abilities of our products mean they can be used remotely and our platform has increased relevance at a time when organisations are having to make significant strategy adjustments, to course correct for the impacts of COVID-19 on their businesses.

Current Trading and Outlook

We have secured two new contracts with existing customers since period end and continue to explore additional contract discussions with both existing and potential customers. However, the impact of COVID-19 has caused sales cycles to extend and has curtailed investment into enterprise software in the short-term. This situation has made it increasingly difficult to forecast future sales.

In order to address this situation, we have implemented measures to reduce our cost structure and attain a monthly operating breakeven position which, coupled with an improved cash position post period end, our blue chip debtor book and upcoming contract renewals, provides the Board with comfort that the Company's funding position is adequate for the remainder of the current financial year.

However, i-nexus' continuing viability in the longer term will depend on two factors: securing new sales to existing and potential customers, the timing of which cannot be forecast with any certainty; and our ability to continue to align our cost base with our revenues as the economy emerges from lockdown, which presents additional challenges because of the irregular profile of our cash receipts. Your Board is therefore mindful that access to additional capital resources would provide i-nexus with greater security and allow flexibility to develop and execute its medium term recovery and growth plan. As a result, alongside preparing an additional cost reduction plan that could be implemented, if required, the Board is in the early stages of reviewing strategic options to introduce fresh capital to the business.

The pressures being exerted around the world on organisations by COVID-19 underline the importance of being able to roll out amendments to strategy swiftly and effectively. We believe the answer to being able to do this at scale, with a remote workforce, lies in software and is likely to present opportunity for the technology sector going forward.

FINANCIAL REVIEW

Reported revenue

Total recognised revenue remained steady at £2.27m (H1 19: £2.31m). The Group signed one new customer (H1 19: seven) under a recurring contract paid annually in advance.

Revenue from recurring contracted software subscriptions increased 7% to £2.03m (H1 2019: £1.89m), while revenue from associated professional services decreased to £0.24m (H1 2019: £0.41m) due to lower new customer deployments.

Monthly Recurring Revenue ("MRR") at the period end was £340k (H1 19 £335k). The addition of a new customer, and strong growth in certain accounts (a 10% increase over the opening base) was offset by churn and contractions at others. While the reported customer churn at the start of the period was frustrating, it has become clear that selling i-nexus to "immature" accounts rarely delivers a lasting relationship. We are now qualifying out such prospects, such that we follow opportunities that represent a long term and growing partnership for us.

Gross Margin

Gross margin in the year was 73% (H1 19: 75%) after accounting for commission payable to the Group's business partners. Gross margin has decreased, as expected, as the Company embarked on an improvement programme for our hosting capabilities leading to some temporary duplication of costs. Reported gross margin is the blended gross margin over both recurring software subscriptions and professional services.

Overheads

Overheads (defined as the aggregate of staff costs and other operating expenses but excluding those costs included in cost of sales) increased in the period to £3.83m ( H1 19: £3.60m).

Included in these costs were a number of items that were higher than last year and are worth noting: Severance and redundancy payments of ~£0.13m (H1 19: £0.03m), the acceleration of £0.13m of marketing costs relating to event costs where we do not expect to see the return as a result of COVID-19 and a larger than previously seen bad debt provision of £0.07m (H1 19: £0.03m).

Since early 2020 we have steadily reduced our cost base. Our headcount was reduced by 18 in January with associated redundancy costs of ~£0.05m. We have undertaken a full review of our non staff related costs and made savings equating to £25k per month, a 15% saving and the elimination of all business travel since March will save a further £40k per month compared to historical run rates. In addition, we have furloughed 25 staff and all remaining Directors and employees not furloughed have accepted a salary sacrifice of ~15%.

As a result we enter H2 with a monthly cost base ~£0.25m lower than that in place at the start of H1 plus £0.08m of monthly cost being paid by government and representing staff on furlough.

Capitalised development costs amounted to £178k in the period (H1 19 £55k), reflecting the significant enhancement in our product as planned which we expect to see a return on in the future.

The Group's loss before taxation was £2.19m (H1 19: loss £1.92m). This loss is after redundancy and severance costs of £0.13m compared to £0.03m in H1 2019, a bad debt provision of £0.07m against a specific debtor.

Cash flow

Despite the closing debt position at period end of £0.14m, (30 September 2019: cash of £1.54m) liquidity has improved post period end as overdue debtors amounting to ~£0.6m have been recovered successfully and we believe that our debtor book is solid.

Gross debt at 31 March 2020 was £0.32m (31 March 2019: £0.52m) of which £0.16m was payable within one year.

The Group experienced a net outflow of funds from operating activities of £1.41m (H1 2019 £1.73m).

The Group will continue to apply treasury and foreign currency exposure management policies to minimise both the cost of finance and our exposure to foreign currency exchange rate fluctuations.

Today's cash and debtors combined are £1.6m. This along with some further renewals from June onwards forms the basis for our funding position for the second half year to 30 September 2020, but in the longer term it will depend on sales to existing and potential customers, the timing of which cannot be forecast with any certainty currently. In addition to those measures already taken to protect our long-term cash position we have other mitigation means available to us including the extension of the salary sacrifice scheme and furlough scheme, the negotiation of additional payment deferrals with HMRC and other COVID-19 related business relief schemes. The Board is regularly monitoring the options available to us.

Capital expenditure

The Group operates an asset light strategy and has low capital requirements, therefore expenditure on fixed assets is low at 2% of revenue (H1 2019: 6%). This reduction is a result of successfully upgrading our internal infrastructure and equipment for the additional team members hired in the prior year.

i-nexus Global plc

Consolidated Statement of Comprehensive Income

Consolidated Statement of Financial Position

Consolidated Statement of Cash Flow

Consolidated Statement of Changes in Equity

Notes to the consolidated interim report

For the six months ended 31 March 2020

1. General information

i-nexus Global plc (the "Company") is a public limited company domiciled in the UK and incorporated in England and Wales (registered number 11321642) and its registered office is George House, Herald Avenue, Coventry Business Park, Coventry CV5 6UB

The principal activity of i-nexus Global plc ("the Company") and its subsidiary company i-solutions Global Limited (together "i-nexus Global" or "the Group") is the development and sale of Enterprise Cloud based software and associated professional Consultancy services. 

The interim condensed consolidated financial statements were approved for issue on 27 May 2020.

2. Basis of preparation

This unaudited interim condensed consolidated financial information has been prepared under the historical cost convention and in accordance with AIM Rules for Companies. The interim condensed consolidated financial information has been prepared on a going concern basis and is presented in Sterling to the nearest £1.

In line with guidance management has undertaken a detailed assessment to determine the going concern basis. We have evaluated whether the existing or potential impact of coronavirus results in material uncertainties which may cast significant doubt upon the entity's ability to continue as a going concern.

Forecasts are adjusted for reasonable sensitivities that address the principal risks and uncertainties to which the Group is exposed, thus creating a number of different scenarios for the Board to challenge. These scenarios are for 40%, 60% and 100% reductions in our sales delivery forecast for H2. The board believe that a 100% reduction is unreasonably pessimistic given our existing customer base and the diversity of sectors represented in that base, many of whom are still actively talking to us of upsell opportunities. As a result, we have focussed our attention on the other scenarios. In those cases, consideration has been given to the potential actions available to management to mitigate the impact of one or more of these sensitivities, in particular a further review of the discretionary nature of costs incurred by the Group, and a potential extension of the schemes already successfully utilised to reduce cash outlay temporarily. As the Group does not have access to bank debt (beyond temporary overdrafts), does not consider the Group's ability to secure Covid related loans as a probable outcome, and future equity funding is reliant on issues of shares in the parent Company, the Board has instead derived a cost mitigation plan for the scenarios modelled as part of the going concern review. On the basis of this analysis, the Board has concluded that there is a reasonable expectation that the Group will have adequate resources to continue in operational existence for the foreseeable future being a period of at least twelve months from the balance sheet date.

The accounting policies used in the preparation of the interim condensed consolidated financial information are consistent with those set out in the 2019 Annual Report and Accounts. The Group will continue to review its accounting policies in the light of emerging industry consensus on the practical application of IFRS.

The preparation of financial information in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial information and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management's best knowledge of the events or actions involved, actual outturns ultimately may differ from those estimates. The interim information does not include all financial risk management information and disclosures required in annual financial statements; the information should be read in conjunction with the financial information, as at 30 September 2019, summarised in the 2019 Annual Report and Accounts. Risk management policies have been re-evaluated since 30 September 2019 in the light of the Covid 19 outbreak and resulting implications. This is reflected in the risk section 7 below.

The interim condensed consolidated financial information for the six months ended 31 March 2020 and for the six months ended 31 March 2019 do not constitute statutory accounts as defined in Section 434 of the Companies Act 2006 and are unaudited. The financial information for the six months ended 31 March 2020 presents financial information for the consolidated group, including the financial results of the Company's wholly owned subsidiary, i-solutions Global Limited. Comparative figures in the Interim Report for the year ending 30 September 2019 have been taken from the Group's audited financial statements on which the Group's auditors, Saffery Champness LLP, expressed an unqualified opinion.

3. Segmental reporting

The Directors consider that there is one identifiable business segment that is engaged in providing individual products or services or a group of related products and services that comprise the core business.

All of the Group's assets and operations are located in the UK and the USA.

4. Loss per share

The calculation of basic and diluted loss per share for the six months to 31 March 2020 was based upon the loss attributable to ordinary shareholders of £1,991,200 (six months to 31 March 2019: £1,891,865, year ended 30 September 2019: £4,035,925) and a weighted average number of ordinary shares in issue of 29,571,610 (six months to 31 March 2019: 29,571,610, year ended 30 September 2019: 29,571,610), calculated as follows:

Weighted average number of ordinary shares

5. Availability of Interim Report

Electronic copies of this Interim Report will be available on the Company's website at www.i-nexus.com.

6. Principle risks and uncertainties

Although the directors seek to minimise the impact of risk factors, the Group is subject to a number of such factors. Those most relevant to our performance in H2 are as follows:

COVID-19 impact

In December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China. In January 2020, this coronavirus spread to other countries, including the United Kingdom, and efforts to contain the spread of this coronavirus intensified. The outbreak and any preventative or protective actions that governments or we may take in respect of this coronavirus may result in a further period of business disruption, reduced customer traffic and reduced operations. Any resulting financial impact cannot be reasonably estimated at this time but may materially affect our business, financial condition and results of operations. The extent to which the coronavirus impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact, among others.

Customer churn

The Group has experienced falling revenues in relation to certain customers in the past and in H1. The reasons for this are varied and our historical ability to invest in our customers was limited. While our investment in customer retention activities is seeing benefits, customer churn is still a risk for the Group and could affect the Group's trading and financial position and prospects.

Failure of strategy execution market to grow at the rate expected

The Directors believe that there is strong evidence supporting the growth in the adoption of Strategy Execution software. However, there can be no assurance that this growth will happen at the rate envisaged by the Directors. This risk is heightened during the Covid-19 crisis. If the market fails to adopt Strategy Execution software at the rate envisaged then this will affect the Group's future success and adversely affect its business, prospects and results of operations and financial position.

The Group may face competition in a rapidly evolving market

The Group may face an increasing amount of competition in the future as the market expands, making entry to it more attractive. The entry into the market of strong, well-funded competitors, including, but not limited to, in-house systems developed by either internal IT departments or third-party consulting firms/system integrators could have a negative impact on sales volumes or profit margins achieved by the Company in the future.

Risks relating to growth plans

The Company's strategy depends upon market acceptance of its solution to support its growth plans. There is a risk that if the i-nexus solution is not accepted by the market as effectively as the Board anticipate, the Company's investment in sales, marketing and development of the i-nexus solution may exceed revenue growth, which could likewise impact upon the Group's financial position and prospects. This is particularly true at the current time, because of the adverse impact of Covid-19 on our ability to engage with existing and potential customer and to close new sales.

7. Forward-looking statements

This announcement may include certain forward-looking statements, beliefs or opinions, including statements with respect to the Group's business, financial condition and results of operations. These forward-looking statements can be identified by the use of forward-looking terminology, including the terms "believes", "estimates", "plans", "anticipates", "targets", "aims", "continues", "expects", "intends", "hopes", "may", "will", "would", "could" or "should" or, in each case, their negative or other various or comparable terminology. These statements are made by the Directors in good faith based on the information available to them at the date of this announcement and reflect the Directors' beliefs and expectations. By their nature these statements involve risk and uncertainty because they relate to events and depend on circumstances that may or may not occur in the future. A number of factors could cause actual results and developments to differ materially from those expressed or implied by the forward-looking statements, including, without limitation, developments in the global economy, changes in government policies, spending and procurement methodologies, and failure in health, safety or environmental policies. No representation or warranty is made that any of these statements or forecasts will come to pass or that any forecast results will be achieved. Forward-looking statements speak only as at the date of this announcement and the Company and its advisers expressly disclaim any obligations or undertaking to release any update of, or revisions to, any forward-looking statements in this announcement. No statement in the announcement is intended to be, or intended to be construed as, a profit forecast or to be interpreted to mean that earnings per share for the current or future financial years will necessarily match or exceed the historical earnings. As a result, you are cautioned not to place any undue reliance on such forward-looking statements.

8. Statement of Directors' Responsibilities

 The Directors confirm to the best of their knowledge that:

 i) The condensed interim financial information has been prepared in accordance with IAS 34 as adopted by the European Union; and

 ii) The interim management report includes a fair review of the information required by the FCA's Disclosure and Transparency Rules (4.2.7 R and 4.2.8 R).

Financial statements are published on the Company's website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Company's website is the responsibility of the Directors. The Directors' responsibility also extends to the ongoing integrity of the financial statements contained therein.