TIDMIDOX
RNS Number : 4882P
IDOX PLC
29 May 2018
29 May 2018
Idox plc
('Idox' or 'the Group' or 'the Company')
Half Year Trading Update
Idox plc (AIM: IDOX), a leading supplier of specialist
information management solutions and services, today issues a
trading update for the six months ended 30 April 2018, ahead of its
half year results, which are expected to be announced at the end of
July. The Group has announced separately today the appointment of a
new Chief Executive, David Meaden, subject to completion of the
customary regulatory procedures.
Overview
A wide ranging operational and financial review of the business
has taken place in recent weeks in particular in relation to the
Digital division. The Board has taken the actions necessary to
resolve the Group's issues and provide a strong base for future
growth and it expects these changes will enable the business to
deliver improving profitability combined with better cash
generation and improving levels of recurring revenue.
These actions principally relate to the closure of the Group's
lossmaking Digital division, as well as the ongoing alterations to
the Engineering division's business model, and the adoption of
revised contractual terms in various long term contracts as part of
the Group's move to the adoption of IFRS15 for the financial year
commencing 1 November 2018 (which governs accounting for revenue
from contracts with customers). In addition, the Board has also
substantially reorganised divisional reporting lines to both
improve accountability and the ability to cross sell the Group's
products.
The Board therefore now expects the Group's full year Adjusted
EBITDA* to be in the range of GBP13-15m, including the impact of a
c.GBP5m EBITDA reduction in Digital, compared to current market
expectations of around GBP22.8m. However, the underlying
performance excluding the discontinued Digital division is expected
to be in the range GBP18-20m (prior to the effect of cost savings).
The majority of these impacts have been incurred in the first half,
which will result in Adjusted EBITDA* of c.GBP1m (H1 2017:
GBP10.3m) for the period.
Underlying operating performance in the majority of the Group,
including Public Sector and Health, has been as expected with good
delivery of the cost savings identified and previously reported,
and solid order intake. With the closure of Digital, the reduction
to the cost base is now expected to be in excess of GBP10m on
annualised basis (compared to GBP7m announced in the AGM Trading
Update on 19 April 2018).
In summary, in future years the Group's financial performance is
expected to benefit from a reduced cost base, the rationalisation
of Digital, and a stronger commercial focus on recurring revenues
and cash conversion.
* Adjusted EBITDA is defined as earnings before amortisation,
depreciation, restructuring, acquisition, corporate finance and
share option costs.
Chief Executive
The Group has announced separately today the appointment of
David Meaden as Chief Executive. David will join Idox on 1 June
2018 subject to completion of the customary regulatory procedure.
This is a significant appointment for the Group following the
uncertainty over the Group's leadership in the last six months.
David's 22 year experience with Northgate Information Solutions
where he held Board level leadership roles is especially
relevant.
Richard Kellett-Clarke, who has been acting as Chief Executive
on an interim basis since December 2017 will hand over
responsibilities to David Meaden in June and revert to his previous
role as a non-executive director at that time. The Board expresses
its thanks to Richard who stepped into the role at very short
notice and has played an important part in stabilising the business
and leading the various business reviews.
Digital
It is expected that the continued underperformance and losses of
the division combined with anticipated closure costs will depress
Adjusted EBITDA* for the year by c.GBP5m (as stated above). The
strongest elements of this business which are focussed on digital
delivery of the Group's core local government solutions have been
integrated into the Public Sector business. The weaker part which
had been focused on lower margin and highly competitive contracts
in the private sector is being closed. Digital reported revenues of
GBP14.7m and an adjusted operating loss of GBP1.5m in the last
financial year.
Engineering
As previously reported, the Engineering business has been
transitioning to a SaaS based model which will result in higher
quality, recurring revenue over the longer term. This transition
has resulted in short term changes in revenue recognition as a
result of an acceleration in the sales of SaaS-based over licensed
solutions which have adversely impacted reported financial
performance in the division in the first half. As a result, the
Group expects revenues in the division for the year to be
approximately GBP1.5 million lower than its prior expectations, but
expects higher levels of recurring revenue to be reported in future
financial years.
Auditor
The Board is pleased to announce that it intends to appoint
Deloitte LLP as the Group's new auditors, subject to completion of
contracts. They will undertake the review of the Group's half year
results, which are expected to be issued later than usual due to
this change, in the latter part of July 2018.
Cash conversion
The Board has resolved that it is a priority for the Group to
improve its cash conversion which has been consistently poor, in
part reflecting a large balance of accrued income due to a
commercial focus on licence sales rather than long term recurring
revenues. Accordingly, the Board has set an annual target of around
100% cash conversion (defined as cash generated from operating
activities before tax as a percentage of Adjusted EBITDA). It is
expected that significant progress towards this objective will be
made in the remainder of this and the next financial year.
Financial position
Group net debt at the half year stood at GBP25.5m (30 April
2017: GBP28.2m; 31 October 2017: GBP32.1m).
Interim dividend
In light of the lowered expectations for the year and the cash
costs incurred in the first half, the Board has decided to suspend
the interim dividend. The Board's expects to declare a final
dividend for the full year.
Outlook
Following the actions taken, an improved performance in the
Group's second half is anticipated, with trading in May and June
consistent with this. Since the Company's AGM statement in April
new contracts have been won with a number of councils (Bexley,
Angus, Lichfield, Scottish Borders, Southport & Ormskirk) and
NHS trusts (George Eliot, St George's, Abertawe).
Overall, the Board remains confident that the actions taken will
strengthen the Group's position and will deliver an improved
performance in future years, supported by its high level of
recurring and repeating revenues and improving cash conversion.
David Meaden said:
"I am delighted to be joining Idox at this very important point
in its development. I have known Idox for many years as a leading
player in the public sector solutions and services market and am
confident that it has both attractive products and talented people.
I look forward to starting work in June and continuing the
transformation of the business."
Laurence Vaughan, Chairman of Idox said:
"The major review and actions taken reflect our commitment to
deal decisively with the issues faced by the Group during the last
year. Despite the impact on our financial performance this year,
this necessary programme of change has positioned the group to
deliver an improved performance in future financial years.
"I believe that the Group has good growth opportunities through
its continued focus on digital transformation and high quality
governance solutions for the public sector. With new leadership in
place we can look forward to the future with renewed
confidence."
This announcement contains inside information for the purposes
of Article 7 of the Market Abuse Regulation (EU) No 596/2014.
Enquiries:
Idox plc +44 (0) 870 333 7101
Laurence Vaughan, Chairman
Richard Kellett-Clarke, Interim Chief Executive Officer
Jane Mackie, Chief Financial Officer
N+1 Singer (NOMAD and Broker) +44 (0) 20 7496 3000
Shaun Dobson
Liz Yong
MHP (Financial PR) +44 (0) 20 3128 8100
Reg Hoare / Charlie Barker
For more information see www.idoxplc.com
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END
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