Final Results for the year ended 31 October 2018

RNS Number : 6702Q

IDOX PLC

21 February 2019

 

Idox plc

('Idox' or 'the Group' or 'the Company')

Final Results for the year ended 31 October 2018

Idox plc (AIM: IDOX), a leading supplier of specialist information management solutions and services, is pleased to announce its results for the year ended 31 October 2018.

Financial highlights:

·      Consolidated revenue:

o  for the continuing business, excluding our Digital business disposed of on 2 November 2018, of £67.4m (2017: £73.8m restated - see note 1); and

o  for all Group operations, including our disposed Digital Business, of £73.7m (2017: £85.9m restated).

·      Adjusted EBITDA*:

o  for the continuing business, excluding our Digital business, of £14.4m (2017: £16.5m restated); and

o  for all Group operations, including our disposed Digital Business, of £11.6m (2017: £15.7m restated).

·      Net debt position at 31 October 2018 of £31.8m (2017: £32.6m) comprising cash of £5.5m, third party borrowings of £25.8m and long term 2025 bond of £11.5m (2017: cash of £3.2m, third party borrowings of £24.6m and long term, 2025 bond of £11.2m).

·      Adjusted profit before tax** £7.9m (2017: £10.3m)

·      Adjusted EPS** for the continuing business, excluding our Digital Business 2.28p (2017: 2.18p).

·      Adjusted EPS** for all Group operating, including our disposed Digital Business 1.72p (2017: 1.97p).

·      No proposed dividend (2017: 1.040p) as the business transitions to a more stable platform.

·      Post year end, banking arrangements extended to February 2020.

Statutory Equivalents

The above highlights are based on adjusted results. Reconciliations between adjusted and statutory results are contained within these financial statements. The statutory equivalents of the above results are as follows:

·     Loss before tax £29.5m (2017: £2.8m profit) for continuing operations, including an impairment charge of £33.2m (2017: £2.7m). Loss on discontinued operations of £9.8m, including an impairment charge of £6.2m.

·      Basic EPS of (8.72)p (2017: 0.09p).

* Adjusted EBITDA is defined as earnings before amortisation, depreciation, restructuring, acquisition costs, impairment, corporate finance costs and share option costs. Share option costs are excluded from Adjusted EBITDA as this is a standard measure in the industry and how management and our shareholders track performance.

** Adjusted profit before tax and adjusted EPS excludes amortisation on acquired intangibles, restructuring, impairment and acquisition costs.

Operational highlights:

·      Ongoing review and transition to fully integrate prior year acquisitions and refocus operations on our core profitable and cash generative activities to maximise shareholder value.

·      Appointment of new leadership team to drive value in the business with the appointment of Chris Stone as Non-Executive Chairman, David Meaden as Chief Executive Officer and Rob Grubb as Chief Financial Officer.  

·      Strategic focus on, and continued investment in Public Sector Software (PSS) which represented 47% of total Group Revenues and 84% of Adjusted EBITDA* in FY2018, including discontinued operations. Disposal of Digital business, cementing focus on software and related services for the Group.

·      Review of revenue recognition policies (including adoption of IFRS 15) and practices with a focus on sustaining and improving levels of recurring revenues and visibility of revenues more generally:

o  Exit annualised recurring revenue run rate as at 31 October 2018 was £32.4m (as at 31 October 2017: £33.4m restated).

o  Our contracted order book for software and services has more than doubled to £9.4m at 31 October 2018 (2017: approximately £4.0m), an increase of £5.4m reflecting revenue recognition commensurate with our performance obligations.

·      Improved cash conversion from realisation of prior period debtor and accrued income balances, and better cash terms for new deals signed.

·      A continued focus on reducing costs as the Group adjusts its cost base to align more directly with its re-focused business model to drive increased profitability. This trend is expected to continue through FY2019 and beyond.

David Meaden, Chief Executive of Idox said:

This has been a challenging year for Idox. The business has faced a number of challenges resulting from previous leadership decisions and there has been significant work to re-establish the necessary disciplines and rigor required for future success. I am pleased that we have been able to establish a more cohesive model and clear business practices to drive the business forward and whilst there is much to be done, I believe we are well placed to grow the business and improve shareholder value over the coming years.

A number of corrective actions have been undertaken. The Digital operation was disposed of, eliminating future liabilities and ensuring the business is focused on its software assets and related services which are at the core of our business model. In addition, we have established a more integrated model for future sales, development, delivery and support activities, allowing the business to benefit more substantially from a unified approach. During the second half of the year we have ensured that the treatment of revenue is in line with our ongoing service obligations and that we have a clear focus on margins and cash across the group. As a result, we exit the year in a much stronger position and I am especially grateful to our staff who as well as showing resilience during the early part of the year are embracing new processes and ways of operating.

Our primary focus remains supporting and growing with our clients. We have strong products that are essential for high performing organisations, including our large portfolio of public bodies, seeking to modernise and transform the way they improve their services.

We ended FY2018 in a much stronger position than we started it. The markets in which we operate remain resilient and we now have a strong leadership team with a clear focus on clients and execution of our strategy of product and operational execution to drive increased profitability and cash generation. I am confident this momentum will continue strongly into FY2019 as we deliver success.

This announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) No 596/2014.

For further information please contact:

Idox plc                                                                                              [phone]

David Meaden, Chief Executive

Rob Grubb, Chief Financial Officer

N+1 Singer (NOMAD and Broker)                                                    [phone]

Shaun Dobson / Jen Boorer (Corporate Finance)

Tom Salvesen (Corporate Banking)

About Idox plc

For more information see www.idoxplc.com @idoxgroup

ANNUAL FINANCIAL REPORT ANNOUNCEMENT

The extracts below are from the Annual Financial Report 2018. Note references refer to notes included in this Annual Financial Report Announcement 2018.

CHAIRMAN'S STATEMENT

Introduction

2018 has been a very busy year for Idox, with significant changes in operating the businesses we own, accounting practices we apply, as well as changes to executive and non-executive leadership. Due to legacy issues, from the complex integration of 6PM and the accounting irregularities disclosed in the 2017 annual report, and decisions made by the previous leadership, it is difficult for any business to stay totally focused on the day to day demands of winning and delivering work for its clients when there is so much upheaval all around. I was appointed in November and my priority as Chairman of our Company is to help put that upheaval behind us and drive a focus on the core activities necessary to support our customers and rebuild value for shareholders.

The restoration of value needs to start with a "back to basics" approach. Idox has been successful for many years in following a strategy of building discrete software and software enabled services businesses around specific Intellectual Property (IP) assets. This niche focused strategy has allowed us to build market leading positions in a number of very attractive market segments, where we enjoy the benefits of delivering differentiated products and services to customers that deliver tangible and lasting value for them. This allows us to build long lasting relationships based on mutual value creation. The power of such a niche strategy is evident in the length of many of our relationships, the depth of penetration in the segments we target, and the margins that we enjoy as a result of the differentiated value that we deliver.

Unfortunately, some of our more recent acquisitions did not fit our IP led model. The Digital businesses in particular were smaller, pure service businesses. Such businesses can be very successful but tend to be very reliant on an individual or small group of founder/owners and if these individuals leave, there can be challenges to maintaining revenues which we experienced in the year with our Reading Room and Rippleffect acquisitions. The option of trying to rebuild these businesses without any clear differentiation in very competitive markets was considered to be unlikely to deliver satisfactory shareholder value, leading to the decision to dispose of them. This was at negligible value but did staunch quite serious continuing losses and removed future liabilities.

The acquisitions of 6PM and Halarose, by contrast, have brought some very interesting IP to the Group that we hope to build into successful, growth businesses. However, in the case of 6PM, we paid a very full price for a company that had a number of issues of its own to resolve before we could start the process of fully integrating it into the rest of the Idox Group. We also had to wrestle with some complex accounting issues that absorbed a lot of our resources in getting to a satisfactory conclusion. All of this has delayed the realisation of some of the value that we expect from this business, but I am pleased to say that the integration process is now well under way.

With the disposal of the Digital division completed, we can now concentrate on driving value from the businesses in the Group, all of which have significant IP at their core. This emphasis combined with the creation of a single Head of Division for the Public Sector and Health division is designed to make it easier to identify and deliver new solutions and services that will deliver increased customer value, at the same time as leveraging our scale and skills to be more efficient in everything that we do. We have an excellent slate of products and services, an enviable customer list, and a talented and committed workforce. The task for the Chief Executive and his leadership team is to drive improved performance from these assets, but I have every confidence in them. David Meaden has made a very impressive start in his role and has moved swiftly to strengthen the team in some key positions .

Group Strategy

The Group continued its focus on providing digital solutions and services to the public sector in the United Kingdom, complemented by our Content business in Europe and Engineering Information Management business servicing customers across the world. The key to our success is to ensure we deliver better user results and productivity improvements for customers through focusing on usability, functionality and application of integrated digital technologies and solutions.

Following the challenges the Group has faced in the year as outlined above, the Board believes it can bounce back quickly with the steps already taken to rectify the issues identified and reflecting the underlying strengths of the core business, its product offering and its talented people. 

Board

I am very pleased to report that the Board was successful in appointing David Meaden as our permanent Chief Executive in June 2018. David has enjoyed a very successful career of over 22 years in Sales Leadership and Chief Executive roles in businesses supplying software and services predominantly to the Public Sector. We are already enjoying the benefits of his insights and experience.

Richard Kellett-Clarke, who had become a Non-Executive Director of Idox in November 2016, stepped in as Interim Chief Executive in December 2017 through to David Meaden's appointment. The Board would like to thank Richard for his commitment during this period.

There were a number of other changes to the Board during the period. In March 2018 Andrew Riley left his role as Chief Executive, in April 2018 Peter Lilley, Senior Non-Executive Director and Chair of the Nomination and Remuneration Committee, ceased to be a Board member and in August 2018 Jane Mackie stepped down from her role as Chief Financial Officer.

On 1 November 2018 Rob Grubb joined us as Chief Financial Officer. Rob brings strong relevant experience of leading the finance function of a publicly quoted technology business, having been CFO of Gresham Technologies from 2009 to 2018. On the same date, Oliver Scott was appointed as a Non-Executive Director, and Chair of the Nomination Committee. Oliver is a founding Partner of Kestrel LLP, a fund management business which currently holds approximately 10.21% of Idox shares.

On the 19th November 2018, Laurence Vaughan resigned from the Board with immediate effect. Following this, I was appointed to the position of Chairman on 22nd November 2018.

On 7 January 2019 it was announced that Barbara Moorhouse will step down from the Board at the Group's forthcoming Annual General Meeting (AGM) having completed her three year term of office in January 2019. I would like to thank Barbara for her contribution to Idox since 2016 and in particular her work as Chair of the Remuneration Committee from December 2018.

I am very pleased to have the opportunity to take up this position. Idox is a business with some great strengths and some very exciting opportunities to grow and deliver value. I am looking forward to working with the team to realise that value.

Corporate Governance

We are cognisant of the important responsibilities we have in respect of Corporate Governance and shaping our culture to be consistent with our objectives, strategy and business model which we set out in our strategic report and our description of principal risks and uncertainties. The Idox group is committed to conducting its business fairly, impartially, in an ethical and proper manner, and in full compliance with all laws and regulations. In conducting our business, integrity is the foundation of all company relationships, including those with customers, suppliers, communities and employees.

Dividends

The Board has decided no final dividend will be paid (2017: 0.655p) for FY2018 bringing the total for the year to nil (2017: 1.04p). In reaching this decision, the Board has taken into account the disappointing results for the year and the ongoing efforts to transition the business to a more stable footing.

Summary

Following a challenging year for the Group a number of substantive changes and re-tooling of the business have taken place. Idox enjoys an exceptionally strong market position in the public sector, good products, opportunities for growth and improving financial performance. The new leadership team will make customers, shareholders and our staff their priority and I am confident of the Group's future prospects.

Finally, I would like to extend my thanks to the entire workforce of the Idox Group, who have maintained their focus on looking after the most important asset of our business - our customers. Our colleague's expertise and diligence have continued to deliver the support and value that our customers expect, and we are fortunate to have them choose Idox.

Chris Stone

Chairman

CHIEF EXECUTIVE'S REVIEW

Overview

I have been impressed with both the quality and comprehensive range of solutions offered by the Group; we have a fundamentally strong business offering excellent solutions to attractive core markets. More than that, I have seen first-hand the commitment and determination of the team here at Idox to deliver to its clients, shareholders and wider stakeholders. I am leading a very capable company that is now focused on delivering tangible customer and shareholder value.

The markets in which we operate have a continued need for high quality products and an increasing need for expert support and service. It is well documented that the effects of persistent austerity and the pressure to deal with increasing frontline demands have driven our clients beyond the simple message of 'digital by design'.

Statutory and legislative complexity mean that clients operations' are not satisfied easily by 'build your own' digital solutions. Clients are increasingly searching for cost effective measures that combine the opportunities offered by direct connection to citizens with 'ready-now' products and services that accelerate business change and enable more effective working.

As such the 'back to basics' approach highlighted by the Chairman means that the coming year will see a laser focus on customers, colleagues and cash. We have an excellent customer list which has been created by delivering outstanding value. This will continue to be the number one priority for everyone in our business. There have been distractions that have interfered with this focus over the recent past, but it will be the focus of our entire Group, at all levels.

We also need to ensure that our colleagues, who have maintained an admirable focus on supporting their customers during this difficult period, continue to feel motivated and committed to Idox. We are fortunate to have so many talented people who have chosen Idox as the place for them, and we must make sure that commitment is rewarded and maintained.

And finally, we need to focus on cash. The new leadership team has already delivered a strong performance in improving our working capital, but there is more to do in that area.

Over the coming year our approach is to continue to build our market positions, focusing on our clients' needs and integrating our teams and structures to offer a comprehensive service to their extended requirements.

We have initiated a programme labelled, 'The 4 Pillars' with a focus on improving the quality of Revenue, EBITDA, Cashflow and a continued simplification of the organisation.

As a result of the actions taken since the half year, the Group now has a much better framework in place for future success; we have attended to unnecessary costs, restructured businesses, processed impairment charges, focused our teams, and introduced more appropriate contract pricing and terms. Whilst a number of challenges remain, I now have a much clearer view of the potential and optimal shape of the business going forward.

In future years we therefore expect that the Group's financial performance will benefit from an optimised cost base and a stronger commercial focus on organic growth, recurring revenues and cash conversion. 

We are delivering a simplified business and operating model. The effect will be to make the Group more efficient in combining solutions to clients across its chosen sectors. We will focus on improving the long-term visibility of recurring and repeating revenues and ensure that all products and business areas are core to delivering shareholder value.

Appropriate contract pricing and contract terms have been implemented across the Group to increase recurring revenue and reduce the reliance on up front licence fees, which will improve the quality of our earnings. We have also seen a greater number of larger contract wins and this combined with strong client retention bode well for the future.

Divisional Review

Digital

The Digital business was disposed of shortly after year end, ensuring that the Group is not exposed to future liabilities and our focus is on software assets and related services. The business had reduced costs substantially during the second half of the year and we wish our ex colleagues well under their new ownership.

Public Sector

Public Sector Software continues to be the focal point of the business. We have a number of market leading products and impressive new technology solutions focused on delivering Smart Government, Smart Healthcare and Smart Cities.

Smart Government

During the year we have seen new contracts for software and hosting services including Sheffield City Council, South Ayrshire, London Borough of Southwark, Wolverhampton City Council, and London Borough of Bexley. Existing clients at Barnet, Westminster, Hammersmith & Fulham, and Aberdeen City Council also extended their existing software and hosting arrangements. Additional new notable contract wins include the Land Registry for data, and integration work to our core Land Charge Solutions which we anticipate will lead to additional work in FY2019 for all of our customer base in this area.

This adds to the success earlier in the year for a new planning solution for the combined Greater Cambridge Planning Service which saw Idox provide a comprehensive shared service solution to one of the largest planning authorities across the South East of England. In Environmental Health there were new wins at Blaby, Litchfield, Clackmannanshire and Harrogate.

We have also seen the return of clients, highlighting that in this complex process and legislative environment, Idox's ability to serve the market is unparalleled. We are delighted to welcome back Copeland Surrey Heath as an Idox Uniform client.

In Computer Aided Facilities Management, we recorded 25 new customers wins achieved this year.

Elections

Elections welcomed a new customer for Elections Management in North Lanarkshire and continued to improve the speed and efficiency of electoral results through our advanced E-Count software, with Malta being the latest client.

The Elections sales team were awarded a contract during October to provide managed services, software and support in future elections over the next 4 years for Aberdeenshire, Aberdeen City, and Highland Councils.

Social Care

The Social Care business has had great success winning new deals for the Information, Advice and Guidance Hub at South Gloucestershire, alongside wins at Lambeth, Blackpool, Wolverhampton, Westminster and Bromley where the Councils will offer a more efficient and transparent way for young people and their families to understand and track their Educational Health and Care (EHC) journeys. Special Educational Needs and Disability (SEND) teams, together with their health and social care partners, will also be able to collaborate on a fully-integrated assessment process, while keeping families fully updated in a way that empowers them to contribute.

Smart Healthcare

In Health, the acquisition of 6PM has proven challenging as was reported in the final results announced on 1^st March 2018. However, the solution offerings are strong and particularly relevant to the current market. The iFIT product line for Asset, Prescribing and Document tracking now has over 30 UK Health Trusts as clients and delivers impressive returns on investment. We were delighted to add Epsom & St Helier University Hospitals NHS Trust, The George Eliot Hospital NHS Trust, North Cumbria, Dudley Group NHS Foundation Trust, and Doncaster & Bassetlaw Teaching Foundation Trust to our growing list of clients. 

Smart Cities

Bristol City Council became the latest Idox client for the Smart Cities proposition, which encompasses the real time control of traffic flows, citizen and passenger assist services and traffic network management. In the second half of the year we welcomed the Greater Toronto Transportation Authority (Metrolinx) as an Idox client, our largest contract in this area to date.

Engineering Information Management (EIM)

As previously reported, the Engineering business has taken the first steps of transitioning to a Software as a Service (SaaS) based model which will result in higher quality, recurring revenue over the longer term.

In the first half of the year we released the new FusionLive SaaS Platform, and subsequently sold the SaaS platform to Clough, a global engineering and construction company Headquartered in Perth, Australia. After its initial one-year trial, Torxen Energy in Canada committed for 3 years to the same platform for its management of operational documents for its Palliser oil sands acquisition in Alberta, the division's first Oil & Gas operations platform delivered on a multi-tenanted cloud platform. In partnership with Catenda, a specialist provider of Building Information Modelling (BIM) solutions, the division delivered a new combined BIM/workflow cloud platform to SNCF to enable it achieve its targets on the EOLE Project, one of the current largest active railway projects in Europe, the RER-E line extension.   

The Division has achieved further success through its partnership with Siveco China with four new deals for the on-premise Opidis platform sold through Engineering, Procurement and Construction companies ('EPC's') in the Far East and is working to expand on this in the coming year.

All of these initiatives and partnerships provide exciting opportunities for growth in the years ahead.

Content

Our international research funding database RESEARCHconnect, signed a further nine universities and research institutes across Europe, including in France, Spain, Sweden and The Netherlands. We now have over 100 clients using our solution.

The Content business also delivered new compliance programmes for a number of worldwide clients, including a range of solutions to facilitate new GDPR regulations.

In our grants business we secured our largest grant to date for BuyBay as part of our service delivering grant applications on a no win no fee basis.

Outlook

Our staff have shown excellent commitment during the year as we have continued to deliver market-leading software solutions that provide strong value and efficiencies for our customers in our chosen markets.

We have ended FY2018 in a much stronger position than we started it with a strong leadership team and clear focus on product and operational execution to drive increased profitability and cash generation, and I am confident this momentum will continue strongly in to FY2019 as we deliver success.

David Meaden

Chief Executive Officer

FINANCIAL REVIEW

Group revenues from continuing operations fell by 9% to £67.4m (2017: £73.8m), mainly due to a fall in revenue within our PSS division.

70% of Group revenues were generated in the UK (2017: 73%). Gross profit earned fell 7% to £58.6m (2017: £62.6m) but the Group saw a slight increase in gross margin from 85% to 87% as a result of cost saving initiatives introduced throughout the year. Earnings before interest, tax, amortisation, depreciation, restructuring, acquisition, impairment, corporate finance and share option costs ("Adjusted EBITDA") decreased by 13% to £14.4m (2017: £16.5m) with Adjusted EBITDA margins decreased by 5% to 21% (2017: 22%) as a result of the lower gross profit earned.   

Performance by Segment

The PSS division, which accounted for 47% of Group revenues (2017: 47%), delivered revenues of £34.3m (2017: £40.8m). Product and services revenue decreased by 21% to £15.7m (2017: £19.9m). Election revenues accounted for £4.5m (2017: £4.7m) of PSS revenues. Election revenue was slightly down on the prior year as 2017 included the May local elections and the General Election. Recurring revenues within the PSS division from maintenance and hosting were £13.9m (2017: £15.3m). Recurring revenues represented 40.6% (2017: 38%) of total PSS revenue. Divisional Adjusted EBITDA decreased by 35% to £9.7m (2017: £15.0m), delivering a 28% EBITDA margin (2017: 37%).

The Digital division accounted for 9% of Group revenues (2017: 15%) with revenue of £6.5m (2017: £12.7m), £6.2m (2017: £12.1m) of revenue classified as discontinued.

The EIM division accounted for 14% of Group revenues (2017: 15%) with revenue of £10.0m (2017: £12.9m). Recurring revenues within the EIM division from maintenance and SaaS were 73% (2017: 60%). EIM saw a fall in revenue due to an increased emphasis on SaaS and managed service deals, continued pressure on per-seat licence prices and oil and gas spending still tight on non-key investment.

The Content division in the UK and Europe had revenue growth of 10% to £13.6m (2017: £12.4m).

The Health division accounted for 13% of Group revenues (2017: 8% in nine months) with revenue of £9.3m (2017: £7.1m in nine months).

Profit Before Tax

	12 months to 31 October 2018 (audited) £000	Restated  12 months to 31 October 2017 (audited) £000
(Loss) / profit before tax for the period	(29,462)	2,790
Add back:
Amortisation on acquired intangibles	4,495	4,444
Restructuring costs	435	377
Acquisition (credits) / costs	(856)	8
Impairment	33,255	2,681
Adjusted profit before tax for the period	7,867	10,300

The reported loss before tax was £29.5m (2017: £2.8m profit) mainly as a result of impairment charges related to the PSS, EIM Digital and Health divisions. The impairments arose from further reassessments of the results following the issues which came to light towards the end of the 2017 financial year and poor performance in 2018 financial year as the business refocused in a number of areas including review of revenue performance obligations and cost structures. This resulted in a total impairment charge of £33.3m in continuing operations and £6.3m in discontinued operations.

Amortisation of acquired intangibles increased marginally to £4.4m (2017: £4.4m). The  profit before tax  for FY2017 has also decreased by £2.7m in relation to prior year adjustments processed in the year as disclosed in note 1.

Amortisation of development costs was £2.8m (2017: £2.3m) and amortisation on software licences was £0.9m (2017: £0.9m). Development costs are amortised over a 1 to 5 year period on a project by project basis and software licences are amortised over 3 years. Acquisition credits of £856,000 (2017: £8,000) relates mainly to a part release of the contingent consideration on Open Objects Limited, reducing the contingent consideration from £1.6m to £0.7m. Restructuring charges of £0.6m (2017: £0.7m) were incurred in the year.

Adjusted profit before tax and adjusted earnings per share are alternative performance measures, considered by the Board to be a better reflection of true business performance than looking at the Group's results on a statutory basis only.

Adjusted EBITDA for continuing operations decreased 14% to £14.4m (2017: £16.5m) impacted by lower margin election revenue in PSS, lower revenue in EIM, and losses in Health. Cost of sales decreased by 21%, partly as a result of the decrease in revenue. The accounting issues previously reported in the Health division around 6PM, where we inherited issues with incomplete accounting records, revenue recognition and inconsistent contractual paperwork have unfortunately led to an impairment in the 2018 financial year amounting to £25.4m.

Administrative expenses increased by 49% to £86.8m (2017: £58.3m), due to the impairment of £33.3m offset with cost savings in the year. 

Finance costs have reduced slightly to £1.8m (2017: £1.9m). The Maltese Stock Exchange bond was issued in 2015 prior to Idox acquiring 6PM at a nominal value of €13m, is repayable in 2025 and has a coupon rate of 5.1%.

The Group continues to invest in developing innovative technology solutions and has incurred capitalised development costs of £3.6m (2017: £4.8m).

Taxation

The effective tax rate ('ETR') for the period was 8.05% (2017: 53.27%).

The main factor for the lower ETR on the net loss before tax position was the impairment processed during FY2018, which is not deductible for tax purposes. Furthermore, non-recognition of losses in Malta, owing to uncertainty over their future utilisation, decreased ETR further.

These downward pressures on ETR were mitigated by adjustments to prior periods and recognition of losses not previously recognised, the latter primarily on account of permitted recognition against outstanding deferred tax liabilities of the same entity.   

Unrelieved trading losses of £1.1m, across the US and France, remain available to offset against future taxable trading profits. This number excludes substantial carried-forward losses not recognised for deferred tax purposes to date, owing to adoption of a prudent loss recognition position. The gross value of these losses not recognised to date totals £10.4m, split across Malta (£7.4m), the UK (£1.7m) and Germany (£1.3m). The Board is hopeful that the Group will benefit from these unrecognised tax losses in future and will be recognised at the point where utilisation becomes more certain.

Earnings Per Share and Dividends

Basic earnings per share fell to (8.72)p (2017: 0.09p) as a result of the impact of the impairment charge. Diluted earnings per share fell to (8.65)p (2017: 0.09p).

Adjusted earnings per share fell to 1.72p (2017: 1.97p) as a result of the impact of the impairment charge. Adjusted diluted earnings per share fell to 1.71p (2017: 1.91p).

The Board proposes a final dividend of nil as the business transitions to a more stable platform, a decrease of 100% on the previous final dividend, giving a total dividend for the year of nil..

Balance Sheet and Cashflows

The Group's balance sheet position deteriorated significantly during the period and at 31 October 2018 net assets had fallen to £49.8m compared to £88.6m at 31 October 2017. The deterioration in net assets is mainly driven by the fall in value of intangible assets due to the aforementioned impairment charge, principally goodwill, from £73.4m to £45.9m, customer relationships, from £21.0m to £13.3m, trade names, from £8.3m to £4.7m and software, from £10.8m to £6m.

Cash generated from operating activities before tax as a percentage of Adjusted EBITDA was 68% (2017: 79%). Cash conversion has historically been impacted by deferred payment deals over 3 to 5 years which have been offered to local authorities and as a result, payments received from customers have become slightly less aligned with when services are provided. The Group has a clear objective to reduce this misalignment going into FY2019 and achieve higher cash conversion from its previous and ongoing activities.

The Group ended the period with net debt of £31.8m (2017: £32.6m), a slight improvement on the previous year.

The Group's total signed debt facilities at 31 October 2018 stood at £30m, a combination of a £7m term loan and £23m revolving credit facility, split £7m with the Royal Bank of Scotland and £23m with Silicon Valley Bank respectively (the "Lenders"). Post year end the group successfully extended its existing banking arrangement with the Lenders to 25 February 2020. The Group anticipates it will still have a net debt position at the point of expiry of the current facilities and therefore expects to enter negotiations to extend the facility in the coming year. Given the improvements in the business, the Group expects to be in a strong position to secure financing on a longer-term basis that is commensurate with its target capital structure, and has no reason to believe it will not be complete.

Under the terms of the extension the revolving credit facility will be increased to £24.5m until 1 June 2019 at which point it will revert to £23.0m until the expiry of this extension, the term loan will be reduced by £1.25m on 30 April 2019, with the balance of £5.75m due at the expiry of this extension and the Group is now subject to additional financial covenants and requires the consent of the Lenders in the event it wishes to propose a dividend. The extension gives Idox a strong platform to continue refocussing its operations, allows the Group to prepare its annual report on a going concern basis and allows the Group time to consider longer-term financing alternatives.  In addition to the signed debt facilities there is a 6PM Maltese Stock Exchange bond issued in 2015 pre-acquisition at a nominal value of €13m; it is repayable in 2025 and has a coupon rate of 5.1%.

Deferred income, representing invoiced maintenance and SaaS contracts yet to be recognised in revenue stood at £17m (2017: £19.8m). Accrued income, representing future cash flows, decreased to £19.2m (2017: £20.6m).

£7.0m of accrued income relates to licences and services that have been delivered to local authorities and revenue recognised but the customer is paying for the licence and services over a period of typically 3 to 5 years. This will result in future cash inflows for the Group. The balance of accrued income is service revenue where work has been completed but the project has not yet reached an invoicing milestone and will convert to cash in the short term.

Impact of IFRS 15

The Group will adopt IFRS 15 Revenue from Contracts with Customers with effect from 1 November 2018 using the cumulative effect method. Software license revenue will now be recognised over the duration of the project implementation period on a percentage completion basis. This has the effect of spreading the recognition of software license revenue over the period of implementation, rather than taking immediate, upfront recognition. There are no changes to the timing of the recognition of Support, Maintenance or Hosting revenue.

The new standard more closely aligns our revenue recognition with the commercial substance of our contracts. The application of IFRS 15 has no impact on the lifetime profitability or cash flows of our contracts, or on the majority of our transactional businesses. Instead, the resulting changes in the timing of revenue and cost recognition more closely aligns our financial results with the timing of the delivery of our sales and services to our clients.

Under the cumulative effect method the impact of the change to IFRS 15 will be recorded as an adjustment to the opening accrued income, deferred income and retained earnings position. The calculated impact on revenue in financial year 2019 is £3.2m This is explained more fully in the Notes to the Accounts.

Rob Grubb

Chief Financial Officer

Consolidated Statement of Comprehensive Income for the year ended 31 October 2018	Note		2018		Restated* 2017
			£000		£000
Continuing operations
Revenue	3		67,443		73,751
Cost of sales			(8,794)		(11,169)
Gross profit			58,649		62,582
Administrative expenses			(86,772)		(58,268)
Operating (loss) / profit			(28,123)		4,314
Analysed as:
Earnings before depreciation, amortisation, restructuring, acquisition costs, impairment, corporate finance costs and share option costs	3		14,417		16,479
Depreciation			(1,106)		(1,077)
Amortisation			(8,213)		(7,665)
Restructuring costs			(436)		(377)
Acquisition credit / (costs)			856		(8)
Impairment			(33,255)		(2,681)
Corporate finance costs			(336)		(33)
Share option costs			(50)		(324)
Finance income			449		363
Finance costs			(1,788)		(1,887)
(Loss) / profit before taxation			(29,462)		2,790
Income tax credit / (charge)			2,481		(670)
(Loss) / profit for the year from continuing operations			(26,981)		2,120
Discontinued operations
Loss for the year from discontinued operations	5		(9,067)		(1,752)
(Loss) / profit for the year			(36,048)		368
Non-controlling interest			6		(9)
(Loss) / profit for the period attributable to the owners of the parent			(36,042)		359
Other comprehensive (loss) / income for the year Items that will be reclassified subsequently to profit or loss: Exchange (losses) / gains on translation of foreign operations			(133)		192
Other comprehensive (loss) / income for the year, net of tax			(133)		192
Total comprehensive (loss) / income for the year attributable to owners of the parent			(36,175)		551
Earnings per share attributable to owners of the parent during the year
From continuing operations
Basic			(6.53)p		0.53p
Diluted			(6.47)p		0.52p
From continuing and discontinued operations
Basic			(8.72)p		0.09p
Diluted			(8.65)p		0.09p

Consolidated Balance Sheet At 31 October 2018	Note						Restated
					2018		2017
					£000		£000
ASSETS
Non-current assets
Property, plant and equipment					1,211		1,743
Intangible assets	6				78,787		122,754
Investment					18		18
Deferred tax assets					1,107		1,086
Other receivables					7,036		8,738
Total non-current assets					88,159		134,339
Current assets
Stock					115		163
Trade and other receivables					26,187		34,005
Current tax					1,084		-
Cash and cash equivalents					5,534		3,248
Total current assets					32,920		37,416
Assets classified as held for sale					1,114		-
Total assets					122,193		171,755
LIABILITIES
Current liabilities
Trade and other payables					7,941		10,893
Deferred consideration					750		1,600
Other liabilities					20,366		25,746
Provisions					90		161
Current tax					-		289
Borrowings					3,289		3,102
Total current liabilities					32,436		41,791
Liabilities directly associated with assets classified as held for sale					963		-
Non-current liabilities
Deferred tax liabilities					3,724		7,010
Other liabilities					1,288		1,616
Bonds in issue					11,491		11,238
Borrowings					22,505		21,519
Total non-current liabilities					39,008		41,383
Total liabilities					72,407		83,174
Net assets					49,786		88,581
EQUITY
Called up share capital					4,169		4,145
Capital redemption reserve					1,112		1,112
Share premium account					34,188		34,109
Treasury reserve					(621)		(621)
Share option reserve					1,232		1,730
Other reserves					7,528		7,528
ESOP trust					(399)		(349)
Foreign currency translation reserve					116		249
Retained earnings					2,458		40,669
Non-controlling interest					3		9
Total equity					49,786		88,581

The financial statements were approved by the Board of Directors and authorised for issue on 20 February 2019 and are signed on its behalf by:

David Meaden

Consolidated Statement of Changes in Equity For the year ended 31 October 2018	Called up share capital £000	Capital redemption reserve £000	Share premium account £000	Treasury reserve £000	Share option reserve £000	Other reserves £000	ESOP trust £000	Foreign currency translation reserve £000	Restated retained earnings £000	Non-controlling interest* £000	Total £000
Restated balance at 1 November 2016	3,640	1,112	13,480	(1,244)	2,222	1,294	(274)	57	44,487	-	64,774
Issue of share capital	505	-	20,629	-	-	6,234	-	-	-	-	27,368
Share option costs	-	-	-	-	324	-	-	-	-	-	324
Exercise of share options	-	-	-	623	(816)	-	-	-	492	-	299
Deferred tax movement on share options	-	-	-	-	-	-	-	-	(452)	-	(452)
ESOP trust	-	-	-	-	-	-	(75)	-	-	-	(75)
Equity dividends paid	-	-	-	-	-	-	-	-	(4,217)	-	(4,217)
Transactions with owners	505	-	20,629	623	(492)	6,234	(75)	-	(4,177)	-	23,247
Profit for the period	-	-	-	-	-	-	-	-	2,325	-	2,325
Prior year adjustment to profit	-	-	-	-	-	-	-	-	(1,966)	-	(1,966)
Non-controlling interest	-	-	-	-	-	-	-	-	-	9	9
Other comprehensive income
Exchange gains on translation of foreign operations	-	-	-	-	-	-	-	192	-	-	192
Total comprehensive income for the period	-	-	-	-	-	-	-	192	359	9	560
Restated balance at 31 October 2017	4,145	1,112	34,109	(621)	1,730	7,528	(349)	249	40,669	9	88,581
Issue of share capital	24	-	79	-	-		-	-	-	-	103
Share option costs	-	-	-	-	50	-	-	-	-	-	50
Exercise of share options	-	-	-		(548)	-	-	-	548	-	-
ESOP trust	-	-	-	-	-	-	(50)	-	-	-	(50)
Equity dividends paid	-	-	-	-	-	-	-	-	(2,717)	-	(2,717)
Transactions with owners	24	-	79	-	(498)	-	(50)	-	(2,169)	-	(2,614)
Loss for the period	-	-	-	-	-	-	-	-	(36,042)	-	(36,042)
Non-controlling interest	-	-	-	-	-	-	-	-	-	(6)	(6)
Other comprehensive income
Exchange gains on translation of foreign operations	-	-	-	-	-	-	-	(133)	-	-	(133)
Total comprehensive income for the period	-	-	-	-	-	-	-	(133)	(36,042)	(6)	(36,181)
At 31 October 2018	4,169	1,112	34,188	(621)	1,232	7,528	(399)	116	2,458	3	49,786

Consolidated Statement of Changes in Equity For the year ended 31 October 2018	Called up share capital £000	Capital redemption reserve £000	Share premium account £000	Treasury reserve £000	Share option reserve £000	Other reserves £000	ESOP trust £000	Foreign currency translation reserve £000	Restated retained earnings £000	Non-controlling interest* £000	Total £000
Restated balance at 1 November 2016	3,640	1,112	13,480	(1,244)	2,222	1,294	(274)	57	44,487	-	64,774
Issue of share capital	505	-	20,629	-	-	6,234	-	-	-	-	27,368
Share option costs	-	-	-	-	324	-	-	-	-	-	324
Exercise of share options	-	-	-	623	(816)	-	-	-	492	-	299
Deferred tax movement on share options	-	-	-	-	-	-	-	-	(452)	-	(452)
ESOP trust	-	-	-	-	-	-	(75)	-	-	-	(75)
Equity dividends paid	-	-	-	-	-	-	-	-	(4,217)	-	(4,217)
Transactions with owners	505	-	20,629	623	(492)	6,234	(75)	-	(4,177)	-	23,247
Profit for the period	-	-	-	-	-	-	-	-	2,325	-	2,325
Prior year adjustment to profit	-	-	-	-	-	-	-	-	(1,966)	-	(1,966)
Non-controlling interest	-	-	-	-	-	-	-	-	-	9	9
Other comprehensive income
Exchange gains on translation of foreign operations	-	-	-	-	-	-	-	192	-	-	192
Total comprehensive income for the period	-	-	-	-	-	-	-	192	359	9	560
Restated balance at 31 October 2017	4,145	1,112	34,109	(621)	1,730	7,528	(349)	249	40,669	9	88,581
Issue of share capital	24	-	79	-	-		-	-	-	-	103
Share option costs	-	-	-	-	50	-	-	-	-	-	50
Exercise of share options	-	-	-		(548)	-	-	-	548	-	-
ESOP trust	-	-	-	-	-	-	(50)	-	-	-	(50)
Equity dividends paid	-	-	-	-	-	-	-	-	(2,717)	-	(2,717)
Transactions with owners	24	-	79	-	(498)	-	(50)	-	(2,169)	-	(2,614)
Loss for the period	-	-	-	-	-	-	-	-	(36,042)	-	(36,042)
Non-controlling interest	-	-	-	-	-	-	-	-	-	(6)	(6)
Other comprehensive income
Exchange gains on translation of foreign operations	-	-	-	-	-	-	-	(133)	-	-	(133)
Total comprehensive income for the period	-	-	-	-	-	-	-	(133)	(36,042)	(6)	(36,181)
At 31 October 2018	4,169	1,112	34,188	(621)	1,232	7,528	(399)	116	2,458	3	49,786

Consolidated Cash Flow Statement for the year ended 31 October 2018					Restated
			2018		2017
			£000		£000
Cash flows from operating activities
(Loss) / profit for the period before taxation			(39,205)		788
Adjustments for:
Depreciation of property, plant and equipment			1,144		1,157
Amortisation of intangible assets			8,615		8,468
Acquisition credits - release of deferred consideration			(684)		(478)
Impairment			39,530		2,681
Finance income			(211)		(141)
Finance costs			1,531		1,513
Debt issue costs amortisation			90		119
Research and development tax credit			(832)		(360)
Share option costs			50		324
Profit on disposal of property plant and equipment			-		(13)
Movement in stock			48		109
Movement in receivables			8,476		(671)
Movement in payables			(8,041)		1,343
Cash generated by operations			10,511		14,839
Tax on profit paid			(760)		(1,785)
Net cash from operating activities			9,751		13,054
Cash flows from investing activities
Acquisition of subsidiaries			(209)		(18,064)
Acquisition credit			-		550
Purchase of property, plant and equipment			(606)		(1,596)
Proceeds on sale of investment property			-		397
Purchase of intangible assets			(3,868)		(5,688)
Finance income			211		141
Net cash used in investing activities			(4,472)		(24,260)
Cash flows from financing activities
Interest paid			(1,456)		(1,211)
New loans			6,500		3,500
Loan related costs			42		619
Loan repayments			(5,500)		(9,063)
Equity dividends paid			(2,717)		(4,217)
Sale of own shares			53		21,259
Net cash flows (used in) / from financing activities			(3,078)		10,887
Net movement on cash and cash equivalents			2,201		(319)
Cash and cash equivalents at the beginning of the period			3,248		3,787
Exchange gains / (losses) on cash and cash equivalents			85		(220)
Cash and cash equivalents at the end of the period			5,534		3,248

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

1 BASIS OF PREPARATION

The financial information contained in these condensed financial statements does not constitute the Group's statutory accounts within the meaning of the Companies Act 2006. Statutory accounts for the year ended 31 October 2017 and 31 October 2018 have been reported on, with a qualified opinion, by the Group's auditor due to insufficient appropriate evidence available in respect of the acquired sub-group headed by 6pm Holdings plc. Whilst the financial information included in this Annual Financial Report Announcement has been computed in accordance with International Financial Reporting Standards (IFRS) this announcement, due to its condensed nature, does not itself contain sufficient information to comply with IFRS.

This Annual Financial Report Announcement includes note references that refer to notes in this Annual Financial Report Announcement 2018.

Statutory accounts for the year ended 31 October 2017 have been delivered to the Registrar of Companies. The statutory accounts for the year ended 31 October 2018, prepared under IFRS, will be delivered to the Registrar in due course. The Group's principal accounting policies as set out in the 2017 statutory accounts have been applied consistently in all material respects.

Going Concern

The Directors, having made suitable enquiries and analysis of the accounts, consider that the Group has adequate resources to continue in business for the foreseeable future. In making this assessment, the Directors have considered the Group's budget, cash flow forecasts, available banking facility with appropriate headroom in facilities and financial covenants and levels of recurring revenue.

It was announced on 29 January 2019 that the Group had extended its existing banking arrangements with the Royal Bank of Scotland plc and Silicon Valley Bank until 25 February 2020. The Group anticipates it will still have a net debt position at the point of expiry of the current facilities and therefore expects to enter negotiations to extend the facility in the coming year. Given the improvements in the business, the Group expects to be in a strong position to secure financing on a longer-term basis that is commensurate with its target capital structure, and has no reason to believe this will not be completed.

The Annual Financial Report Announcement was approved by the Board of Directors on 20 February 2019 and signed on its behalf by David Meaden and Rob Grubb.

2 RESPONSIBILITY STATEMENTS UNDER THE DISCLOSURE AND TRANSPARENCY RULES

The Annual Financial Report Announcement for the year ended 31 October 2018 contains the following statements:

The directors confirm that:

·      the financial statements, prepared in accordance with the relevant financial reporting framework, give a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation taken as a whole;

·      the strategic report includes a fair review of the development and performance of the business and the position of the company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and

·      the annual report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the company's position and performance, business model and strategy.

The name and function of each of the Directors for the year ended 31 October 2018 are set out in the Annual Financial Report 2018.

3 SEGMENTAL ANALYSIS

As at 31 October 2018, the Group was organised into five operating segments, which are detailed below.

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 specialist information management solutions and services to the public sector.

·      Engineering Information Management (EIM) - delivering engineering document management and control solutions to asset intensive industry sectors.

·      Content (CONT) - delivering funding and compliance solutions to corporate, public and commercial customers.

·      Digital (DIG) - delivering digital consultancy services to public, private and third sector customers.

·      Health (HLT) - delivering a broad range of innovative solutions to the healthcare market.

Atlas Adviesgroep Twente B.V., acquired in January 2018, is included in the Content segment. On the 1st May 2018 following an internal reorganisation the Knowledge Exchange sub division was transferred to the Content segment.

On 2nd November 2018 the Digital segment was sold. As Digital was a separately identifiable division the results for the period ended 31 October 2018 and comparative period have been classified as a discontinued operation. The allocation of corporate overheads to the Digital segment have remained as continuing as these cost are not clearly identifiable costs of the segment. These cost relate to central overheads which are allocated to segments on a revenue percentage basis.

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 are as follows:

2018			Continued  2018 £000		Discontinued 2018 £000		Total Group 2018 £000
Revenues from external customers
United Kingdom			45,778		5,995			51,773
USA			5,194		-			5,194
Europe			15,632		205			15,837
Australia			475		-			475
Rest of World			364		21			385
			67,443		6,221			73,664

2017			Continued  2017 £000		Discontinued 2017 £000		Total Group 2017 £000
Revenues from external customers
United Kingdom			51,479		11,442			62,921
USA			6,989		5			6,994
Europe			14,419		658			15,077
Australia			312		-			312
Rest of World			552		28			580
			73,751		12,133			85,884

Revenues are attributed to individual countries on the basis of the location of the customer. 

2018			Continued 2018 £000		Discontinued 2018 £000		Total Group 2018  £000
Revenues by type
Recurring revenues			31,489		3,276		34,765
Non-recurring revenues			35,954		2,945		38,899
			67,443		6,221		73,664
Revenue from sale of goods			17,335		61		17,396
Revenue from rendering of services			50,108		6,160		56,268
			67,443		6,221		73,664

2017			Continued 2017 £000		Discontinued 2017 £000		Total Group 2017 £000
Revenues by type
Recurring revenues			30,520		5,502		36,022
Non-recurring revenues			43,231		6,631		49,862
			73,751		12,133		85,884
Revenue from sale of goods			19,665		31		19,696
Revenue from rendering of services			54,086		12,102		66,188
			73,751		12,133		85,884

Recurring revenue is income generated from customer on a contractual basis. Repeat and recurring revenue amount to approximately 47% of continuing revenue, which is revenue generated from sales to existing customers.

The segment results by business unit for the year ended 31 October 2018:

	PSS £000	EIM £000	CONTENT £000	DIGITAL* £000	HEALTH £000	Continuing Operations Total £000	Discontinued Operations Digital £000	Total £000
Revenue	34,287	10,003	13,604	268	9,281	67,443	6,221	73,664
Earnings before depreciation, amortisation, restructuring, acquisition costs, impairment, corporate finance costs and share option costs	9,717	1,361	2,295	(486)	1,530	14,417	(2,834)	11,583
Depreciation	(779)	(196)	(14)	-	(117)	(1,106)	(38)	(1,144)
Amortisation - software licences and R&D	(2,355)	(651)	(176)	-	(536)	(3,718)	(28)	(3,746)
Amortisation - acquired intangibles and order backlog	(2,052)	(468)	(493)	-	(1,482)	(4,495)	(374)	(4,869)
Restructuring costs	(104)	(239)	(38)	(8)	(47)	(436)	(194)	(630)
Acquisition costs	850	-	6	-	-	856	-	856
Impairment	(6,079)	(1,800)	-	-	(25,376)	(33,255)	(6,275)	(39,530)
Share option costs	(46)	-	(4)	-	-	(50)	-	(50)
Adjusted segment operating (loss)/profit	(848)	(1,993)	1,576	(494)	(26,028)	(27,787)	(9,743)	(37,530)
Corporate finance costs						(336)	-	(336)
Finance income						449	-	449
Finance costs						(1,788)	-	(1,788)
Loss before Taxation						(29,462)	(9,743)	(39,205)

*Results for the Knowledge Exchange for the period to 30th April 2018. On the 1st May 2018 following an internal reorganisation the Knowledge Exchange sub division was transferred to the Content segment. Results also include the corporate recharge for the Digital segment which remain as continuing as the cost are not clearly identifiable as costs of the segment.

The restated segment results by business unit for the year ended 31 October 2017:

	PSS £000	EIM £000	CONTENT £000	DIGITAL* £000	HEALTH £000	Continuing Operations Total £000	Discontinued Operations Digital £000	Total £000
Revenue	40,782	12,901	12,421	564	7,083	73,751	12,133	85,884
Earnings before depreciation, amortisation, restructuring, acquisition costs, impairment, corporate finance costs and share option costs	14,963	2,146	1,648	(1,265)	(1,013)	16,479	(791)	15,688
Depreciation	(672)	(190)	(18)	-	(197)	(1,077)	(80)	(1,157)
Amortisation - software licences and R&D	(2,198)	(492)	(159)	-	(372)	(3,221)	-	(3,221)
Amortisation - acquired intangibles and order backlog	(2,302)	(468)	(493)	-	(1,181)	(4,444)	(803)	(5,247)
Restructuring costs	(169)	(69)	(87)	-	(52)	(377)	(327)	(704)
Acquisition costs	144	-	-	-	(152)	(8)	-	(8)
Impairment	-	-	-	-	(2,681)	(2,681)	-	(2,681)
Share option costs	(281)	-	(43)	-	-	(324)	-	(324)
Adjusted segment operating profit/(loss)	9,485	927	848	(1,265)	(5,648)	4,347	(2,001)	2,346
Corporate finance costs						(33)	-	(33)
Finance income						363	-	363
Finance costs						(1,887)	-	(1,887)
Profit/(loss) before Taxation						2,790	(2,001)	789

*Results for the Knowledge Exchange for the period to 30th April 2018. On the 1st May 2018 following an internal reorganisation the Knowledge Exchange sub division was transferred to the Content segment. Results also include the corporate recharge for the Digital segment which remain as continuing as the cost are not clearly identifiable as costs of the segment

4 DIVIDENDS

		2018	2017
		£000	£000
Final dividend paid in respect of the year ended 31 October 2017 and 31 October 2016		2,717	2,627
Pence per ordinary share		0.655p	0.650p
Interim dividend paid in respect of the year ended 31 October 2018 and 31 October 2017		-	1,590
Pence per ordinary share		-p	0.385p

The Directors have proposed the payment of a final dividend of £Nil per share, which would amount to £Nil (2017: 0.655p).

5 DISCONTINUED OPERATIONS

On 12 September 2018 the Group resolved to seek to dispose of the Digital division which carried out the Groups digital consultancy operations. The disposal was effected in order to limit the Group's exposure to future losses and liabilities and improve the working capital position. The disposal was completed on 2nd November 2018, on which date control of the Digital division was passed to the acquirer.

The results of the discontinued operations, which have been excluded in the consolidated income statement, were as follows:

			Restated
		2018	2017
		£000	£000
Revenue		6,221	12,133
Expenses		(15,964)	(14,135)
Loss before tax		(9,743)	(2,002)
Attributable tax expense		676	250
Net loss attributable to discontinued operations		(9,067)	(1,752)

During the year, Digital contributed (£1,856k) (2017: (£522k)) to the Group's net operating cash flows, paid £Nil (2017: £Nil) in respect of investing and financing activities.

On 12th September 2018 the board resolved to dispose of the digital consultancy business and negotiations with several interested parties subsequently took place. The sale was completed on 2nd November 2018. These operations have been classified as a disposal group held for sale and presented separately on the balance sheet. Non-current assets were fully impaired at April 2018 with an impairment loss of £6.3m recognised. No further impairment loss has been recognised on the classification of these operations held for sale..

The major classes of assets and liabilities comprising the operations classified as held for sale are as follows:

		2018
		£000
Trade and other receivables		1,114
Total assets classified as held for sale		1,114
Trade and other payables		384
Other liabilities		579
Total liabilities associated with assets classified as held for sale		963
Net assets of disposal group		151

6 INTANGIBLE ASSETS     

	Goodwill	Customer relation- ships	Trade names	Software	Develop-ment costs	Database	Order backlog	Total
	£000	£000	£000	£000	£000	£000	£000	£000
Cost
At 1 November 2016	52,646	22,005	11,537	17,074	10,236	569	4,341	118,408
Revaluation of opening balance	-	-	-		95	-	(4)	91
Additions	-	-	-	921	4,767	-	-	5,688
Additions on acquisition	24,516	12,312	2,714	5,362	1,545	-	170	46,619
Disposals	-	(3,510)	(1,383)	(7,080)	(3,972)	(569)	(4,200)	(20,714)
Fair value adjustment	101	-	(275)	(275)	-	-	-	(449)
At 31 October 2017	77,263	30,807	12,593	16,002	12,671	-	307	149,643
Revaluation of opening balance	-	-	-	1	17	-	4	22
Additions	-	-	-	222	3,646	-	-	3,868
Additions on acquisition	240	-	-	14	-	-	-	254
Additions on hive-in	-	-	-	14	-	-	-	14
Impairment	-	-	-	-	(1,694)	-	-	(1,694)
Disposals	-	-	-	(189)	(524)	-	-	(713)
Disposals on hive-in	-	-	-	(14)	-	-		(14)
Fair value adjustment	61	-	-	(12)	-	-	-	49
At 31 October 2018	77,564	30,807	12,593	16,038	14,116	-	311	151,429
Amortisation
At 1 November 2016	647	11,239	4,747	9,188	5,263	569	4,236	35,889
Revaluation of opening balance	-	-	-	-	13	-	(3)	10
Amortisation for the year	-	2,085	928	3,104	2,305	-	46	8,468
Impairment	3,231	-	-	-	-	-	-	3,231
Disposals	-	(3,510)	(1,383)	(7,075)	(3,972)	(569)	(4,200)	(20,709)
At 31 October 2017	3,878	9,814	4,292	5,217	3,609	-	79	26,889
Revaluation of opening balance	-	-	-	-	7	-	3	10
Amortisation for the year	-	1,909	859	2,979	2,784	-	84	8,615
Additions on acquisition	-	-	-	5	-	-	-	5
Impairment	27,831	5,754	2,717	2,041	(507)	-	-	37,836
Disposals	-	-	-	(189)	(524)	-	-	(713)
At 31 October 2018	31,709	17,477	7,868	10,053	5,369	-	166	72,642
Carrying amount at 31 October 2018	45,855	13,330	4,725	5,985	8,747	-	145	78,787
Carrying amount at 31 October 2017	73,385	20,993	8,301	10,785	9,062	-	228	122,754

During the year, goodwill and intangibles were reviewed for impairment in accordance with IAS 36, 'Impairment of Assets'. An impairment charge of £25,375,931 (2017: £2,681,000) was processed in the period in relation to the Health division, £6,079,471 (2017: Nil) in relation to the PSS division, £6,274,696 (2017: Nil) in relation to the Digital division and £1,800,000 (2017: Nil) in relation to the EIM division. An impairment charge of £550,000 was processed in the prior year period in relation to a cash refund relating to the historical acquisition price of Rippleffect Limited. 

Fair value adjustments are in relation to the 6PM Group, Halarose Limited and Atlas Adviesgroep Twente B.V.

Impairment test for goodwill

For this review, goodwill was allocated to individual Cash Generating Units (CGU) on the basis of the Group's operations as disclosed in the segmental analysis. As the Board reviews results on a segmental level, the Group monitors goodwill on the same basis.

The carrying value of goodwill by each CGU is as follows:

	2018	2017
Cash Generating Units (CGU)	£000	£000
Public Sector Software: Local Authority	21,803	21,792
Public Sector Software: Transport	-	3,559
Public Sector Software: Social Care	2,443	2,443
Public Sector Software: Computer Aided Facilities Management	4,222	4,222
Engineering Information Management	9,974	11,773
Content	7,413	7,154
Digital	-	2,431
Health	-	20,011
	45,855	73,385

The recoverable amount of all CGUs has been determined using value-in-use calculations. These calculations use pre-tax cash flow projections based on financial budgets approved by management covering the next five financial years. The key assumptions used in the financial budgets relate to revenue and EBITDA growth targets. Cash flows beyond this period are extrapolated using the estimated growth rates stated below. Growth rates are reviewed in line with historic actuals to ensure reasonableness and are based on an increase in market share.

For value-in-use calculations, the growth rates and margins used to estimate future performance are based on financial year 2019 budgets (as approved by the Board) which is management's best estimate of short term performance based on an assessment of market opportunities and macro-economic conditions. In the year to 31 October 2018, the Weighted Average Cost of Capital for each CGU has been used as an appropriate discount rate to apply to cash flows. The same basis was used in the year to 31 October 2017.

The assumptions used for the value- in-use calculations are as follows and are considered appropriate for each of the risk profiles of the respective CGUs:

Cash Generating Unit (CGU)	Discount rate Current year	Growth rate Current year	Discount rate  Prior year	Growth rate Prior year
Public Sector Software	11.7%	1.5%	11.19%	2%
Engineering Information Management	13.9%	1.5%	10.55%	2%
Content	12.2%	1.5%	12.04%	2%
Digital	N/A	1.5%	11.05%	2%
Health	11.7%	1.5%	10.55%	2%

At April 2018, management conducted a detailed review of the weighted average cost of capital inputs which were used as the basis of the discount rate calculation. This lead to an increase in the discount rates which have been applied, as shown above.

Individual Weighted Average Cost of Capital were calculated for each CGU and adjusted for the market's assessment of the risks attaching to each CGU's cash flows. The Weighted Average Cost of Capital is recalculated at each period end. 

Management considered the level of intangible assets within the Group in comparison to the future budgets and have processed an impairment charge of £39,530,000 within the year (2017: £2,681,000). This is broken down on a divisional level as; PSS Transport £6,079,000, Health £25,376,000 (2017: £2,681,000), EIM £1,800,000, Digital £6,275,000.

The Group has conducted sensitivity analysis on the impairment test of each CGU and the group of units carrying value. Sensitivities have been run on the discount rate applied and management are satisfied that a reasonable increase in the discount rate of 1% would not lead to the carrying amount of each CGU exceeding the recoverable amount.

Sensitivities have also been run on cash flow forecasts for all CGUs reducing the growth rate from 0% to -2%. Management are satisfied that this change would not lead to the carrying amount of each CGU exceeding the recoverable amount.

7 POST BALANCE SHEET EVENTS

On 5 November 2018, the Group sold its Digital division to Fat Media Limited, a digital marketing solution provider, for a nominal cash consideration of £1.00. This disposal allows for additional focus on the Group's core operations and further improvements in its operating model.

It was announced on 19 November 2018 that Laurence Vaughan had stepped down from his role as Chairman. Christopher Stone was appointed as the new Chairman on 22 November 2018.

It was announced on 7 January 2019 that Barbara Moorhouse will step down from the Board at the Group's next Annual General Meeting.

It was announced on 29 January 2019 that the Group had extended its existing banking arrangements with the Royal Bank of Scotland plc and Silicon Valley Bank until 25 February 2020.

8 ADDITIONAL INFORMATION

Related Party Transactions

No related party transactions have taken place during the year that have materially affected the financial position or performance of the Company.

Principal Risks and Uncertainties

The principal risk and uncertainties facing the Group together with the actions being taken to mitigate them and future potential items for consideration are set out in the Strategic Report section of the Annual Financial Report 2018.

 

END

 

 

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