I-nexus Global. Regulatory News (INX)

4 December 2019

i-nexus Global plc

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

Preliminary Results

i-nexus Global plc (AIM: INX), a provider of cloud-based Strategy Execution software solutions designed for the Global 5000, is pleased to provide its preliminary results for the year ended 30 September 2019.

Financial Highlights

·; Group Revenue of £4.8m (2018: £4.7m)

·; Loss before tax of £4.3m (2018: £1.0m)

·; Adjusted EBITDA Loss for the financial year of £4.1m (2018: Loss* £0.6m)

·; Cash & cash equivalents as at 30 September 2019: £1.5m (30 September 2018 of £6.9m)

Operational Highlights

·; Encouraging increase in upsells and cross sells to existing clients, delivering over £35k of additional Monthly Recurring Revenue (MRR) (FY18: £10k)

·; Significant enhancements to product capabilities, including the launch of two additional products into an early adopter program; Pulse and Advisor, designed to reduce the complexity of data entry and improving strategic insight immediately improving customers' ROI

·; Positive progress with our partner programme with focused discussions with several leading strategy consulting organisations joining the programme

Post year end

·; Approximately £20k of additional MRR secured with existing accounts since the start of the current financial year. Continuing the trend seen in FY19 and helping to offset slow new deal conversion.

*After adjusting for the non-recurring administrative expenses of (£0.11m) in 2019 and (£0.18m) and share based payment expense (£0.03m) in 2018

Simon Crowther, Chief Executive, of i-nexus Global plc, commented: "While we did not achieve the level of overall revenue growth we had expected in reported period, the new financial year has started satisfactorily. Despite slower than expected progression, we have a stronger platform from which to grow, having created many exciting developments in our product, extended the reach within our existing accounts, improved partner channel relationships and have received great feedback from new and exciting customers.

We are operating in an attractive, global market, with a wide scope of application for the Group's proven technology, and in which the Group is well placed.

With a clear growth strategy, strong leadership, careful cash management, good governance and a significantly modernised product suite, i-nexus is well positioned to build on our progress to date."

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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 with a sales office in New York, and employs over 90 staff. 

Chairman's Statement

This is our first full year as a plc after our IPO in June 2018 and whilst recognising that in certain respects it has been a challenging year, with new client conversion being slower than anticipated, the team have focused on developing our product range in order to broaden our applicability to clients. I am pleased that the team continue to rise to the challenge of building an international enterprise SaaS business. Many aspects of the business have been transformed from a year ago.

The Company remains focused on developing, delivering and implementing cloud-based Operational Excellence (OE) and Strategic Execution (SE) software as a service ("SaaS") solutions to digitalise our customers' enterprise programmes. Our customers are typically Global 5000 companies running large, complex OE and SE programmes; it is within this setting that our technology platform has the greatest applicability and where it can add most value. Despite our relative size and stage of development, we count a growing number of large, well established enterprises as customers, which are increasingly using i-nexus at the core of their business processes.

As a Board, at IPO we defined three crucial areas of business development to take the business to the next stage, being:

·; Enhance the Company's go to market capabilities

·; Develop our products capabilities

·; Scale the Company's partner programme

The Group has invested significantly in all areas, but the substantial investment made in our go to market teams has not yet delivered the returns we had expected. However, we remain confident that our differentiated and enhanced technology offering, growing applicability and evolving customer relationships leave us well positioned for the future.

The Group has also invested heavily in our Customer Success teams in order to reduce churn and allow us to drive service and upsell revenues. Whilst frustrating that client churn, in particular at the start of the year, offset the progress made with new customer wins and upsells, this investment has resulted in a higher level of engagement with a greater number of prospects and stronger relationships with our existing customer base.

The quality, functionality and evolution of our product is critical to our ability to grow our applicability, retain and expand with our current customers and attract new ones. New EVP of Product, James Davies, has refocused our product strategy to meet the needs of the three distinct sets of users of i-nexus. Details of the advancements made will be covered in detail elsewhere in this report, but as a Board we are excited about where this can take us.

Part of our defined growth strategy is to efficiently expand our market reach through growing our partnerships with specialist consulting organisations. Pleasingly, we have seen a positive response from several organisations wishing to use our platform to replace the currently manual processes with a digital offering to deploy within their corporate clients. Potential partners see this as offering a competitive edge and embedding them more deeply with the organisations they support. It is early days, but traction is increasing and we expect to benefit from delivering lower-cost, high-quality leads for i-nexus.

Notwithstanding the positive progress made, the Board recognises that during this period, sales have fallen short of our expectations. We expect good levels of cash inflows in Q2 from recently secured customer renewals (in some cases also benefiting from improved adoption), however it is vital that the business focuses on tight cash management, as such this is an ongoing key priority of Board and management discussions.

On behalf of the Board, I would like to thank all i-nexus staff for the contribution they have made to the successful growth and development of the Group in 2019 through their hard work and collaboration.

In 2020, the Board and management of i-nexus Global plc are focused on improving the execution of our go-to-market strategy and continuing the progress made in 2019 on the other core strategic areas of development identified above, while maintaining the principle of careful cash management and sound governance.

Despite the challenging global headwinds, we look forward to the next 12 months with cautious optimism. During tough economic times large enterprises will focus unremittingly on being ever more competitive and we believe Operational Excellence and Strategy Execution are at the core of achieving these goals. For these enterprises to successfully implement such programmes requires automation and the i-nexus products offer a market leading solution to this challenge.

I look forward to engaging further with shareholders at our AGM in February.

CEO Statement

Though last year was a year of strategic progress across many fronts, as a result of both internal and external factors, this progress did not translate into the level of overall revenue growth we had originally expected.

What we did see as encouraging, and testament to our strategic focus on Customer Success, was a substantial increase in upsells and cross sells to existing clients as our teams worked with customers to unlock the full potential of i-nexus' SaaS solution. This increase in upsells and cross sells and associated service revenue has helped offset slower than expected new deal conversion and the previously reported customer churn early in the year. The benefits of our platform when deployed effectively within method-mature clients is demonstrated by this increasing adoption at our existing client base.

Our Growth Strategy

Strategy Execution is increasingly recognised as a fundamentally important process at the core of every enterprise which only becomes more complex and challenging to manage as the organisation grows. i-nexus' mission is to be synonymous with Strategy Execution; when organisations talk of delivering on their strategy, they should see i-nexus as a preferred solution.

At i-nexus we have a well-developed Hoshin Kanri strategic plan, which we have spent the past year executing on. This has been essential for us to deploy growth capital appropriately and carefully manage our own transformation.

The detail of the priorities we have had this year in terms of delivering on these Strategic Objectives are extensive, however I would like to pull out some key highlights that I think frame this year's result.

During FY19 the Company invested significantly in its Sales and Marketing capabilities. Despite this, our new business performance in the year was below our expectations. This is clearly very disappointing, but we remain encouraged and optimistic as to the quality and the development of our pipeline of new customer opportunities. As a result of the lessons learned in FY19, we are constantly reviewing and refining our approach to new business conversion. We believe that our ability to capitalise on the increased quality and volume of opportunities, both within existing and for new accounts, will improve as we implement further enhancements to our go-to-market strategy.

Where we have seen a stronger return on our investment is our reach within existing accounts. A strong team of Customer Success Executives coupled with experienced new Account Executives have made great inroads in both growing the recurring revenue from our existing accounts and enhancing the visibility in and knowledge of our existing accounts to help de-risk churn.

We now have 100% coverage across all of our customer accounts, both in terms of regular senior level interaction and engagement. The introduction of a market leading success tool means we now have a live dashboard covering a variety of success measures to understand the health of all our accounts. These two things ensure that we really understand the health of a deployment both in terms of driving increasing adoption but also the potential risks or early warning signs that could lead to churn or a reduced renewal. Whilst our success in embedding our solutions with customers and driving reduction in churn will only truly be seen in this coming year, we have seen improved adoption across our customer accounts already. 

This expanded reach within our customers and improved adoption provides i-nexus with the opportunity to add incremental service and recurring SaaS revenues. During FY19, we benefitted from both upsells and cross sells within a number of our existing accounts, delivering over £35k of additional Monthly Recurring Revenue (MRR), comparing favourably to the previous year (FY18: ~£10k). We are seeing a continuation of this trend so far in FY20.

Driving an innovative approach in Product development has also been a strong focus this year in order to grow our applicability to clients and verticals that we can target.

Following a strategic product review earlier this year, i-nexus is pleased to announce that two new products, i-nexus Pulse and i-nexus Advisor, have been made available to select customers as beta products. The revised product suite now includes i-nexus Workbench (historically the company's flagship solution) and the two new products, i-nexus Pulse and i-nexus Advisor, both built on a new cloud-native architecture and both designed as mobile-fast applications supporting a range of different devices.

I-nexus Pulse targets the majority of i-nexus users who need to quickly and easily enter updates to metrics and projects. i-nexus Advisor, on the other hand, provides executives and strategy leaders with real-time visibility through data visualisation into the robustness of strategic plans, delivery of projects against these plans, and the measurable value attributed to the projects towards strategic objectives.

I-nexus Workbench remains focused on the needs of expert users and practitioners. A major release of Workbench is planned for 1H CY20, introducing a new user experience to match the modern interface introduced in i-nexus Pulse and i-nexus Advisor

We have continued to develop relationships with potential channel partners, which is a critical adjunct to our direct sales capabilities. New partners are typically specialist operational excellence and strategy execution consulting firms looking to digitalise their current manual implementations. Across the sector, partners have acknowledged the need for such digitalisation if customers are to realise the true benefits of their operational excellence and strategy execution programmes, also recognising that manual implementation of complex, growing OE and SE programmes is unsustainable. What is positive is that these consulting firms are actively seeking us out, in search of a digital solution to offer their customers to differentiate them within their competitive landscape. This was a significant change in FY19 that we are looking to capitalise on. The challenge is to persuade partners and customers to move from predominantly in-house developed solutions. 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.

Our people

Our people are pivotal in driving us forwards and delivering on our goals. We have invested substantially in new employees this year to support our core strategies and to build out the structures and departments needed by i-nexus going forward. Our employee numbers have increased from 62 at the end of FY18 to 94 as at 30 September 2019. This growth has been tempered in the light of our rate of sales delivery; and the Board has always and continues to consider it key to maintain a careful, balanced approach to growing the business and prudent cash management.

Looking ahead

I am excited about the future. While we did not achieve the level of overall revenue growth we had expected in reported period, the new financial year has started satisfactorily. Despite slower than expected progression, we have a stronger platform from which to grow, having created many exciting developments in our product, extended the reach within our existing accounts, improved partner channel relationships and have received great feedback from new and exciting customers.

We are operating in an attractive, global market, with a wide scope of application for the Group's proven technology, and in which the Group is well placed.

With a clear growth strategy, strong leadership, careful cash management, good governance and a significantly modernised product suite, i-nexus is well positioned to build on our progress to date

CFO's Report

Reported revenue

Revenue was flat at £4.8m (FY18: £4.7m) as both internal and external factors adversely affected our rate of new deal conversion. The Group signed 8 new customers (FY18: 10), all under recurring contracts of at least one year in length, typically paid annually in advance. Upsells and cross sells in our existing accounts were substantially higher in FY19, having added £35k Monthly Recurring Revenue ("MRR") (FY18: £10k). This is clearly encouraging and demonstrates a good initial return on our investments in Customer Success, however some exceptional and in part unexpected customer churn largely outweighed this growth, and we exited FY19 with closing MRR of £340k (FY18 exit MRR: £335k).

Revenue from recurring contracted software subscriptions was £4.0m (FY18: £4.0m) and from associated professional services was £0.8m (FY18: £0.7m). After a sound start to the year in terms of professional services billing, this also weakened in the second half, due to the lack of new deals, giving us the opportunity to invest resource in developing relationships with potential Channel Partners and existing accounts.

Gross Margin

Gross margin in the year was £3.5m, or 74% (FY18: £3.3m, or 69%) after accounting for commission payable to the Group's business partners. This improvement in margin demonstrates the results of our investment program, as anticipated. Reported gross margin is the combined gross margin over both recurring software subscriptions and professional services.

OverheadsOverhead (defined as the aggregate of staff costs, other operating expenses but excluding those costs included in cost of sale, depreciation of tangible assets and amortisation of intangible assets, and share based payment charges) increased in the year from £4.1m to £7.8m. We have managed our post IPO investments in the light of weaker sales delivery to protect our cash position and overall P&L result and savings to our originally projected investment plan have been made without jeopardising our overall strategy for future growth. Included in these overheads was £0.1m of non-recurring administrative expenses. Interest expense at £67k is down on the previous year as debt has been repaid.

Capitalised development costs amounted to £0.6m in the year. The additional development capacity is contributing to the Groups' products marketability and the product enhancements made recently are strategically important to us and our current customers and prospects.

Group Loss before taxation rose from £1.0m in FY18 to £4.3m, a result that reflects the rate of investments made. At this critical stage in i-nexus growth, the investment has been necessary to fuel our ambition to become the leading enterprise software provider in the Strategy Execution market.

Cash Flow

The Group has cash & cash equivalents at the period end of £1.5m (2018: £6.9m). Gross debt at 30 September was £0.4m of which £0.2m was payable within one year.

The Group experienced a net outflow of funds from operating activities of £4.2m (2018 £0.6m). The Group had a cash outflow of £0.4m (2018 £1.5m) from the servicing of its debt finance.

The Group continues 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.

Careful cash management will continue to be a priority focus for management and the Board for the foreseeable future. We regularly undertake scenario planning and create contingency plans accordingly.

The Board's assessment in relation to going concern is included in Note 2 of the financial information. The Group's principal risks and uncertainties are set out in Note 8 of the financial information.

Capital expenditure

The Group operates an asset light strategy and has low capital requirements, therefore expenditure on tangible fixed assets is low at 5% of revenue (2018: 3.4%).

Consolidated statement of comprehensive income for the year ended 30 September 2019

Consolidated statement of financial position as at 30 September 2019

Consolidated statement of changes in equity for the year ended 30 September 2019

Consolidated Statement of cash flows for the year ending 30 September 2019

1. General information

i-nexus Global PLC is a public company limited by shares incorporated in England and Wales (registration number 11321642). The registered office and principal place of business is i-nexus, i-nexus Suite, George House, Herald Avenue, Coventry Business Park, Coventry, CV5 6UB.

The principal activity of i-nexus Global plc and its subsidiaries (the Group) is that of development and sale of Enterprise cloud-based software on a software-as-a-service (SaaS) basis and associated maintenance, support, software customisation and professional consultancy services.

2. Significant accounting policies

The following principal accounting policies have been used consistently in the preparation of consolidated financial statements.

Basis of preparation

The financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union, in accordance with the IFRS Interpretations Committee ("IFRIC") interpretations, and with those parts of the Companies Act 2006 as applicable to companies reporting under IFRS. The financial statements comply with IFRS as issued by the International Accounting Standards Board (IASB).

The financial statements are prepared in sterling, which is the presentational currency of the company. Monetary amounts in these financial statements are rounded to the nearest £1.

Historical cost convention

The financial statements have been prepared under the historical cost convention except for the following:

·; The business combination of i-Solutions Global Limited by i-nexus Global plc is accounted for under the merger method

·; The use of fair value for financial instruments measured at fair value

Basis of consolidation

The financial statements incorporate the results of i-nexus Global plc and all of its subsidiary undertakings as at 30 September 2019.

The accounting treatment in relation to the addition of i-nexus Global plc as a new UK holding company of the Group fell outside the scope of IFRS 3 'Business Combinations'. The share scheme arrangement constituted a common control combination of the entities. This was as a result of all the shareholders of i-nexus Global plc being issued shares in the same proportion, and the continuity of ultimate controlling parties. The Directors believe that this approach presents fairly the financial performance, financial position and cash flows of the Group.

Going concern

This historical financial information relating to i-nexus Global plc has been prepared on the going concern basis.

The Group prepares regular business forecasts and monitors its projected cash flows, which are reviewed by the Board. 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. In those cases, where scenarios deplete the Group's cash resources too rapidly, consideration is given to the potential actions available to management to mitigate the impact of one or more of these sensitivities, in particular the discretionary nature of costs incurred by the Group, in order to ensure the continued availability of funds. The Board have also taken into account that the Group does not have access to bank debt and securing any additional funding would rely on the future issue of shares or access to non-bank debt.

On the basis of this analysis, after challenging and requiring suitable variations be made to the scenarios presented, 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.

Accordingly, the Group has continued to adopt the going concern basis in preparing its financial statements for the year ended 30 September 2019.

Abridged financial information

The financial information in this announcement which was approved by the Board of Directors does not constitute the Company's statutory accounts for the year ended 30 September 2018. This is the first set of accounts since incorporation of the company on 20 April 2018.

This preliminary announcement has been prepared in accordance with the accounting policies under IFRS as adopted by the EU.

Whilst the financial information included in this preliminary announcement has been prepared in accordance with IFRS, this announcement does not itself contain sufficient information to comply with IFRS. This preliminary announcement constitutes a dissemination announcement in accordance with Section 6.3 of the Disclosures and Transparency Rules (DTR).

3. Revenue and segmental reporting

The Group has one single business segment and therefore all revenue is derived from the rendering of services as stated in the principal activity. The group operates four geographical segments, as set out below. This is consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance, has been identified as the management team comprising the executive directors who make strategic decisions.

The Group has two main revenue streams in each of the years presented, as detailed below:

4. Adjusted EBITDA

5. Loss per share

The loss per share has been calculated using the loss for the year and the weighted average number

of ordinary shares outstanding during the year, as follows:

6. Borrowings

Venture debt

The venture debt is secured by way of a fixed and floating charges over the title of all assets held by i-Solutions Global Limited. The venture debt has a fixed interest rate of the higher of 11.5 per cent. per annum or LIBOR plus 8 per cent. per annum.

The Group borrowings are repayable as follows:

The directors consider the value of all financial liabilities to be equivalent to their fair value.

7. Share capital

Fully paid shares, which have a par value of £0.10, carry one vote per share and carry rights to a dividend.

Reconciliation of movement in shares during the year

Fully paid shares, which have a par value of £0.10, carry one vote per share and carry rights to a dividend.

The company issued no new shares in the year.

8. Principle risks and uncertainties

Although the directors seek to minimise the impact of risk factors, the Group is subject to a number, of those most relevant are as follows:

Customer churn

The Group has experienced falling revenues in relation to certain customers in the past. The reasons for this are varied and our historical ability to invest in our customers was limited. So whilst the ramp up in investments 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. 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.

9. 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.

10. Availability of Report and Accounts

The audited report and accounts for the year ended 30 September 2019 will be published and posted to shareholders in due course. Following publication a soft copy of the report and accounts will also be available to download from the Company's website, www.i-nexus.com.