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Ideagen PLC   -  IDEA   

Preliminary Results

Released 07:00 17-Jul-2019

RNS Number : 7530F
Ideagen PLC
17 July 2019
 

Ideagen PLC

("Ideagen" the "Company" or the "Group")

Preliminary Results

Ideagen PLC (AIM: IDEA), a leading supplier of Integrated Risk Management software to highly regulated industries, announces its unaudited preliminary results for the year ended 30 April 2019.

 

Financial Highlights

·      Revenue increased 29% to £46.7 million (FY2018: £36.1 million)

Recurring revenues represented 67% (FY2018: 62%) of total revenues

SaaS revenues increased by 63% to £13.7 million (FY2018: £8.4 million)

Underlying organic revenue growth* of 8% (FY2018: 11%)

·      Annual Recurring Revenue book (ARR) was up 44% at approximately £36.4 million (FY2018: £25.3 million)

·      Adjusted diluted EPS*** increased by 15% to 4.8 pence (FY2018:4.19 pence)

·      Adjusted EBITDA** increased by 30% to £14.3 million (FY2018: £11.0 million)

·      Adjusted PBT*** increased by 26% to £12.2 million (FY2018: £9.7 million)

·      Cash generated from operations of £13.4 million (FY2018: £9.1 million) representing 94% (FY2018: 83%) of adjusted EBITDA** before a net payment of £1.1 million (FY2018: £0.3 million net receipt) received from option holders in the prior year for taxes on options exercised

·      Net debt as at 30 April 2019 was £1.3 million (FY2018: net cash of £0.8million)

·      Proposed final dividend of 0.188 pence per share - Making a total dividend of 0.278 pence per share for the year which represents a 15% increase over the FY2018 dividend of 0.241 pence per share

 

Operational Highlights

 

·      Acquisition of InspectionXpert Inc adding 900 US manufacturing customers, IP, growing SAAS recurring revenues and a platform for further growth in North America

·      Acquisition of Morgan Kai adding 400 Internal audit customers, doubling the size of our internal audit business

·      Acquisition of Scannell Solutions a Software as a Service (SaaS) company that has developed a functionally rich content enabled Environmental, Health, and Safety platform

·      77% increase in SaaS bookings (FY2018: 174%)

·      Strong international growth with 87% (FY2018: 78%) of all new SaaS logo wins outside of the UK

·      273 new logo SaaS customer wins including Glaxo SmithKline, Keolis, Green Climate Fund, Boston Biomedical, Fidelity National Finance, Air Nostrum, Immunomedics Inc

·      140 new logo on-premise customer wins including Transport For London, Cancer Research UK, Thompson Aero Seating, Addiko Bank, TP Aerospace, SAMREF

·      Strong account management with significant contract extensions from Triumph Group, Pfizer, Regeneron Pharmaceuticals, Meggitt PLC, Thales Group, International Energy Agency

·      Continued high levels of customer retention with support and maintenance contract renewal rate of 95% (FY2018: 96%)

·      Ongoing product innovation and investment across all products with strong emphasis on cloud

 

*        Comparison calculated on a pro-forma basis as if acquisitions had been in the Group for the same period in the previous year

**      Before share-based payments and exceptional items

***    Before share-based payments, amortisation of acquisition intangibles and exceptional items     

 

Ben Dorks, Chief Executive of Ideagen, commented: "The Group's focus this year was on the execution and delivery of our growth strategy, both organically and through acquisitions, whilst continuing the transition to a SaaS based business model. We are pleased to report that we have achieved our objectives this year, significantly increasing the Group's global footprint, particularly in the US, and delivered another year of strong revenue and profit growth, underpinned by excellent cash generation.

Trading since the year end has remained robust and we continue to see strong demand for our products from new potential customers. The acquisition of Redland post the period end has further enhanced the Group's portfolio of products and growing recurring revenues. Furthermore, the repeat business derived from more than 4,000 customers, provides the Board with confidence in the prospects for the Group for the current year and beyond."

The information communicated in this announcement includes inside information for the purposes of Article 7 of Regulation 596/2014 

Enquiries:

 

Ideagen plc

01629 699100

David Hornsby, Executive Chairman

Ben Dorks, Chief Executive

 

Graeme Spenceley, Chief Financial Officer

Joe O'Brien, Investor Relations

 

 

 

finnCap Limited

020 7220 0500

Henrik Persson, James Thompson (Corporate Finance)

 

Alice Lane (ECM)

 

 

 

Canaccord Genuity Limited

020 7523 8000

Simon Bridges

 

Richard Andrews

 

 

About Ideagen plc

Ideagen is a UK-headquartered, global technology company quoted on the London Stock Exchange AIM market (Ticker: IDEA.L).

The Group provides software and services to organisations operating within highly regulated industries such as aviation, banking and finance and life science, with operational premises spread throughout the UK, EU, US, Middle East and SE Asia.

With an excellent portfolio of software products including Q-Pulse, Coruson, Pentana Audit, Pentana Risk and PleaseReview, Ideagen helps its clients reduce costs, improve operational efficiency, strengthen compliance and oversight and anticipate and manage every detail of risk.

Currently, more than 4,700 organisations use Ideagen's products including seven of the top 10 UK accounting firms, all of the top aerospace and defence companies and 75% of the world's leading pharmaceutical firms.

Ideagen's diverse and varied customer base includes many well-known, global brands such as British Airways, Aggreko, BAE, Ryanair, US Navy, KLM, BBVA, Bank of New York, Commerzbank, Meggitt, Heineken, Johnson Matthey, Haeco Group and European Central Bank. As well as this, Ideagen counts 250 hospitals across the UK and US amongst its client base.

Ideagen directly employs over 500 members of staff and is present in every continent globally.

 

CHAIRMAN'S STATEMENT

I am pleased to report on another strong performance for the year to 30 April 2019, representing Ideagen's 10th consecutive year of revenue and EBITDA growth. The Group met or exceeded all key financial and operational objectives for the year including targets for revenue, profitability, organic growth, cash generation and customer retention.

These results are underpinned by Ideagen's world class customer base, strong global reach, outstanding product set and proven and effective management team. These are the first set of results that we have announced following the appointment of Ben Dorks as Chief Executive in May 2018 and the board are delighted with the progress made under Ben's leadership.

The Group continues to source and execute acquisitions and has an extensive pipeline of opportunities that would increase our product capability, scale and recurring revenues, which the Board expect would further enhance shareholder value for the long term.

The Group has a clear vision for the future and has a number of growth and financial objectives for the coming years. These are based on achieving a targeted £100 million in run rate revenue by 2022, with recurring revenues representing a minimum of 75%, EBITDA margins at 30% and operating cash collection in excess of 90% of EBITDA. The Board believes that approximately £70 million in revenue will be achieved from our current business through organic growth with £30 million being generated through acquisitions.

'C Level' Management

In May 2018, Ben Dorks was appointed as Chief Executive to provide the necessary operational leadership for the Group. I moved from Chief Executive to Executive Chairman, to focus on M&A activities and the 3 year strategic plan.

Over the past 12 months, the Group has also recruited and promoted a number of key individuals to provide the necessary depth and breadth of senior management to support our continued growth. During the year Ian Hepworth, formerly Divisional CTO at Thompson Reuters was appointed as Chief Technical Officer and Arun Varma, formerly Global Vice President of Marketing at Kaspersky as Chief Marketing Officer. Both Ian and Arun have an excellent pedigree having worked at a senior level with global innovators and leaders such as RAC, Nokia, Cambridge University Press and Segura Systems during their careers. In April 2019, Paul Marshall was promoted to Chief Customer Officer as the Group continues to drive customer success and the ongoing expansion of its products within the customer base. Paul is an Ideagen veteran of over 10 years, having served as a Project Consultant, Sales Manager and Head of Sales and is a trusted advisor to many of Ideagen's most strategic customers. They join Alex Hewitt (Chief Legal Officer), Barnaby Kent (Chief Operating Officer) and Graeme Spenceley (Chief Financial Officer) to make up Ben's senior leadership team.

Market Opportunity

The Board is confident in the long-term prospects of the Group. The Integrated Risk Management market was, according to Gartner, worth $5.4 billion globally in 2018 and is estimated to be growing at 13% per annum. We believe we have a compelling business platform that has been significantly enhanced over the past year through the acquisitions of InspectionXpert, Morgan Kai and Scannell Solutions and the acquisition of Redland in the current year.

Highly regulated organisations require the tools we provide to help them identify, assess and manage corporate risk while complying with international industry standards. Many of these organisations are only in the early stages of adopting an enterprise-wide approach. The Board believes that the Group's cloud solutions will be a particular growth area for the Group which will increase the percentage of total revenues derived from recurring contracts providing further visibility of earnings.

Dividend

In line with our progressive dividend policy and reflecting our continued confidence in the prospects for the Group, the Board is pleased to propose a final dividend of 0.188 pence per share making a total dividend of 0.278 pence for the year (FY2018: 0.241 pence) an increase of 15%. Subject to approval at the forthcoming AGM, the final dividend will be payable on 26 November 2019 to shareholders on the register on 8 November 2019. The corresponding ex-dividend date is 7 November 2019. 

The success of Ideagen is the result of the excellence and dedication of our employees and on behalf of the Board, I would like to thank all of them for their continued hard work. The new financial year has started well and I look forward to continuing our track record of growth and delivering on our strategic objectives.

David Hornsby

Executive Chairman

 

CHIEF EXECUTIVE'S REVIEW

I am delighted to report that 2019 has been another successful year for Ideagen. We have reported another year of solid financial performance during which our organic revenue growth was approximately 8% and ARR grew 44%. I am encouraged by the success in our priority international markets which continue to form a significant expansion opportunity.

Excellent strategic progress has been made, in particular with the three acquisitions completed during the year. This has strengthened our product range and keeps us well-placed to support our customers and capitalise on the significant market opportunities ahead.

Total revenue of £46.7 million (FY2018: £36.1 million), represented overall growth of 29% and adjusted EBITDA grew 30% to £14.3 million (FY2018: £11.0 million). A key financial metric for the Group continues to be adjusted EPS and I am pleased to report an increase in adjusted diluted EPS of 15% to 4.8 pence for the year (FY2018: 4.19 pence).

Market drivers and growth opportunities

Ideagen operates in a global market with a number of drivers for structural growth. Businesses around the world need innovative solutions to help them meet increasingly stringent compliance, quality, safety, and regulatory risk requirements.

Ideagen's product-market strategy is focussed in two areas:

QHSE - Quality, Health & Safety and Environmental Management - covering:

·      Compliance with existing and new standards, laws and regulations

·      Conformance with customer requirements, including, for example, new pressures for risk-based shop floor quality management in manufacturing supply chains

·      Efficiency and productivity in quality, safety and environmental management; for example, being able to comply with new or more stringent requirements without increasing headcount in the compliance team

·      Improving performance in these areas, for example by reducing the number of safety incidents in which employees are harmed, ensuring that important quality audits are passed successfully

 

ARC - Audit, Risk and Compliance Management - covering:

·      Pursuit of sustainable competitive advantage through risk-based compliance and oversight

·      Establishing a strong governance model to deliver resilience, compliance and strategic goals

·      Productivity of internal audit teams through automation of their business processes

·      Compliance with laws and regulations such as SOX, UK Companies Act, SM&CR or ASC 275

·      Stewardship of brand and reputation

  

These key market opportunities overlaid with vertical concentration in aviation, aerospace, automotive and defence manufacturing, life sciences, healthcare, financial services and banking; provides global opportunity for growth with the accelerating shift towards a cloud economy.

Overview

Following another strong financial performance in 2019, Ideagen has the capability and resources to continue to make important investments across the Group. These investments will support further growth in line with our People, Products and Customers. Organic investment will be directed at developing and launching additional world-class products, improving the value-based outcomes for our customer, and recruiting and developing the very best people. We intend to support this organic investment by considering acquisitions that broaden our geographic reach and strengthen our product capabilities. 

Strategic focus areas

In the past year we have increased our focus on our three core business areas that underpin our strategy: People, Products, Customers. This has not only contributed to the strong performance in the period but in a complex and rapidly changing environment, this approach allows us to prioritise and align our resource and developments with customer demand and capitalise on market trends.

We have strengthened the capabilities of all our teams, particularly in development, marketing and sales. With the creation of 4 centres of excellence in Nottingham, Glasgow, Kuala Lumpur and Raleigh (North Carolina). This investment will provide resource, technology and infrastructure to further support the Group's growth strategy.

Our customer strategy continues to mature with the introduction of new customer success profiling, people, and systems. We are pleased with the progress we have made during the period which is demonstrated by the industry high retention rate of 95% of recurring revenue. We had a 30% increase in customer engagement for our Net Promoter Score (NPS) which is a customer loyalty metric measured on a scale of -100 to +100, where NPS of greater than Zero (0) is considered good within the enterprise software space. During the year we established that our overall NPS score is +12 (2018:23). The reduction in score was due to a lower NPS from the acquisitions made in year, like many small businesses, our acquired businesses whilst successful, did not proactively and scientifically manage customer success but are now benefitting from Ideagen's dedicated resource in this area.

This year we have significantly advanced the technology that underpins our customer propositions. The shift to a cloud operational model is a strategic priority, which will continue to evolve through our partnerships with Amazon Web Services and Azure. This innovation means the business is able to scale faster and can continue to support our evolving customer requirements in the UK and international markets.

Corporate Transactions

Ideagen has a strong track record of acquiring companies. During the year we completed three further acquisitions to strengthen our product and technology capabilities, broaden our international reach and customer base, and take us closer to our strategic goal of being global leader in our chosen markets.

The first of these was InspectionXpert (IX) in Raleigh, North Carolina, USA. IX is a profitable and growing Software as a Service (SaaS) company that has developed a digital Quality Inspection solution for the advanced engineering and manufacturing sector. Increasingly OEM's are driving automated inspection initiatives through their supply chains in order to reduce costs and improve product quality. This acquisition further consolidated our position within the fast-growing Quality market and strengthened our US presence.

This was followed by our largest transaction to date, the acquisition of Morgan Kai, a profitable and growing software company that has developed a leading Internal Audit Management product 'MKinsight'. Customers include the UK's National Audit Office, the Federal Reserve, Investec, the New York Stock Exchange, Shell, Bombardier and Blue Cross Blue Shield; with 77% of them being international and 28% in the US. The addition of MKinsight to the Group doubles the existing Ideagen Internal Audit business providing scale, enhanced technology, and a strong competitive position.

Our third acquisition was Scannell Solutions a SaaS company that has developed a functionally rich content enabled Environmental, Health, and Safety platform. This acquisition supports the Group's product roadmap providing the technology and content to accelerate our market leading QHSE strategy.

Together, these acquisitions mean that we now have businesses of genuine scale and ability to execute on the market opportunity.   

The Board remains committed to our ongoing buy and build strategy and expect to complete further acquisitions in the future. Our acquisition strategy focusses on recurring revenues and compelling product offerings, and we apply strict criteria to ensure that acquisitions represent value for shareholders.

 

Operational

Cash generated by operations remained strong in the year at over 90% of EBITDA on an adjusted basis. Net debt as at 30 April 2019 was £1.3 million (30 April 2018: net cash of £0.8million) having raised £19.4 million in September 2018 through a share placing and having paid a total of £28.2 million in consideration and costs for the acquisitions of InspectionXpert, Morgan Kai, Scannell Solutions and IPI (deferred) and £0.6 million in dividend.

The Group continues to benefit from a strong and growing base of recurring revenues, which represented 67% of total revenue in the year (FY2018: 62%). The Group is committed to increasing the percentage of total revenue derived from recurring contracts through the medium-term transition from a traditional licence model to a SaaS subscription-based model. This transition is well underway and recurring SaaS revenues increased by 63% to £13.7 million (FY2018: £8.4 million) with 25% organic SaaS revenue growth.

The Medforce acquisition from FY2018 has been successfully integrated using our mature integration framework which provided the delivery of true synergies and enabled an acceleration of sales execution. The acquisition broadened Ideagen's relationships in our existing core sector of healthcare and provides an additional source of recurring revenue.

Growth: Sales and Marketing

We have seen good performance in terms of new business and customer retention. This includes key wins across all our core markets and geographies within each of our solution areas.

We have invested into our marketing teams to generate qualified sales leads and to enhance the global recognition and reputation of our brand and solutions. This is achieved through content driven product and vertical marketing covering blogs, white papers, webinars, a dedicated digital team and over 50 global events per year. We have increased the number of marketing qualified leads significantly and also introduced a new Sales Development team to support lead generation and qualification.

We sell our products primarily through a direct sales force which generates 97 percent (FY2018 - 95%) of Group revenue. Our sales force operates globally with a focus on UK, Europe, North America, and Asia. The team is organized by both vertical market and product focus area and includes 57 'quota carrying' sales executives and account managers supported by technical sales and domain experts.

We generate revenues from sales to new customers and through repeat licence and services sales to our existing customers. Key highlights of the year have been the success of the Ideagen Sales Excellence Academy and continued growth of our geographical expansion in Asia and the US.

In order to drive growth, we have successfully added new customers to the Group across all of our key verticals, with aviation, financial services and life sciences providing particularly notable success in the year. We also continue to maintain a strong focus on customer success with continuous investment in customer teams, technology, and product enhancement. This has resulted in significant revenues from strong retention of recurring contracts and new projects from our extensive customer base.

People

At 30 April 2019 Ideagen had 442 (2018: 423) employees based across its UK and international office network, with the majority located at our Centres of Excellence: Nottingham HQ (UK), Glasgow (UK), Kuala Lumpur (Malaysia), Raleigh (US). A combined total of 120 (2018: 57) people are based internationally.

The organisation is committed to significant investment within our development teams, with 35% of resource dedicated to this area, primarily based in Nottingham and Malaysia. Ideagen maintains its focus upon building domain expertise within core markets and delivering excellence across the customer base. As a result, the Group has 21% within Sales & Marketing, and 31% in Customer Delivery, Support and Success

Ideagen continues to believe a broad talent pool across the company is the best way to ensure sustainable growth, as such it is pleased to confirm 48% of employees have been with the Group for 3 or more years, and 31% have been with the company 6 years or more. The Group is delighted that this traditionally male dominated sector continues to see strong growth in female applications, resulting in an improved ratio of 64% (2018: 67) male to 36% (2018: 33) female.

I am immensely proud to work every day with such a committed and talented team and delighted to see it reflected in positive feedback from customers.

Current Trading & Outlook

Trading since the year end has remained robust and we continue to see strong demand for our products from new potential customers. With acquisitions made during the previous year performing well, and with a base of over 4,700 customers generating growing recurring revenues and repeat business the Board has every confidence in the continued prospects for the Group.

Ben Dorks

Chief Executive Officer 

 

Case Study - Cadence Bank

A subsidiary of Cadence Bancorporation, Cadence Bank N.A. is a regional bank with $17.6 billion in assets. Cadence operates 98 branch locations in Alabama, Florida, Georgia, Mississippi, Tennessee and Texas, and provides corporations, middle-market companies, small businesses and consumers with a full range of innovative banking and financial solutions.

 Like many businesses today, Cadence Bank recognised a need for their audit and risk functions to be as integrated as possible in order to remain agile in a volatile, uncertain and increasingly complex business risk environment. This led to the audit group looking for a software solution that allowed them to work fluidly with the rest of the business and provide the Enterprise Risk Management group with a complete view of their collective risks in a single, easy-to-access system.

 "We pride ourselves on being very resourceful and responsive to our clients so that we can build long lasting relationships," says Lana Blackmon, Vice President and Audit Group Manager at Cadence Bank. "To do this, every arm of the bank needs to be aware of their existing and emerging risks. We have utilised Pentana Audit as a complete GRC tool. Our Enterprise Risk Management Group collects risk and control assessments from the different lines of business, and we utilize those risk and control self-assessments to test and assess the controls, ensuring they are operating just as they are designed to."

Lana explains that with the use of Pentana, the risk culture within Cadence has evolved into something much more proactive and constructive:

"It's been an incredibly effective way for us to build the risk culture within the organization. Our lines of business are now accustomed to seeing their risks and controls regularly, they are used to being tested on them, and can see how the conversation really flows.

Cadence have come to release a wealth of time and cost savings since implementing Pentana Audit, especially in their communication channels.

 "With Pentana, we can communicate very well with our other second and third line of defence functions, as well as our CRM group and our lines of business. With everything in the system paperless, with this baseline understanding from all the different groups that use it, we avoid a lot of time wasting trying to translate from one system to another. Everyone understands when we say we're looking at the entity risk, or we're looking at a review risk."

"Pentana Audit has given us a level of discipline and consistency that has led to us getting some really satisfactory reviews from regulators. In future, we want to do more on risk assessments, and build the product out more to other lines of business. We are also looking for ways to leverage the information in Pentana to produce some advanced reports that incorporates all the key information management need to make decisions."

Case Study Wales Research and Diagnostic PET Imaging Centre

Wales Research and Diagnostic PET Imaging Centre is a major facility which is part of Cardiff University, and was a result of a £16.5 million investment by the Welsh Government. It provides researchers and doctors with a far greater ability to detect malignant tissue and track the effects of drugs in incredible detail.

In highly regulated environments such as the pharmaceutical sector, where not only is there pharmaceutical legislation to deal with but radiation legislation among others, it is essential to have a good quality management system in place to ensure regulator requirements are met consistently. In previous roles within other organisations Professor Marshall has seen the use of paper-based documentation systems, however these were incredibly time consuming and managing change proved difficult with draft versions spending time on different desks waiting for review and sign off. Although risk assessments have always been controlled documents the continued adoption of quality risk management approaches in pharmaceutical manufacturing meant that this paper-based risk assessment approach was no longer appropriate.

 Q Pulse is widely known in the Medical Physics industry and is broadly used across the fields of Radiotherapy and Nuclear Medicine where a strong quality management system is essential to meet the stringent regulatory requirements. 

Professor Marshall said: "Given the key role that quality management and risk management play in complying with regulations such as the Environmental Permitting Regulations (2010), Ionising Radiation (Medical Exposure) Regulations (2017), The Carriage of Dangerous Goods and Use of Transportable Pressure Equipment Regulations 2009, Good Manufacturing Practice and many more, a robust electronic risk management system is essential to ensure compliance. The introduction of Q-Pulse Risk has been beneficial in ensuring we increase our compliance in an efficient manner."

 "During the training and installation of Q-Pulse Risk, it became apparent that we were underutilising the Incident and Occurrence modules, which are key to unlocking the potential of the system. As a result, we transferred numerous papers forms into electronic forms where data can be captured using the Q-Pulse iPad app now. As a result, we now have access to more data in an electronic format." In addition, the installation of Q-Pulse Risk has also enabled the migration to a paper free clean room, reducing the risk of contamination of the facility. The team now has visibility of the effectiveness of their controls and risks to patients, staff and the business which enables them to better manage their business as well as ensuring the safety of patients and staff. The goal is to migrate all risk assessments to Q-Pulse Risk and complete the migration of paper-based forms to the Occurrences and Incidents module. A significant part of the business process has already been transferred, and it is clear to see that the work involved in completing this migration will significantly improve the management of the facility and processes.

  

FINANCIAL AND OPERATIONAL REVIEW

Financial Review

Revenue for the year ended 30 April 2019 increased by 29% to £46.7 million (FY2018: £36.1 million). Within this, pro-forma organic revenue growth was 8% (FY2018: 11%). This is calculated based on a comparison with pro-forma revenue for FY2018 of £43.3 million which includes revenues for Medforce Technologies, InspectionXpert, Morgan Kai and Scannell for the equivalent period that they were owned by the Group in FY2019.

Revenues are analysed by revenue type in note 2.

Recurring revenues are a key strategic focus and they have grown strongly because of both the continuing emphasis on growing sales of our SaaS/Subscription-based products and the acquisitions of businesses with high levels of recurring revenues. The Annualised Recurring Revenue (ARR) book amounted to £36.4million at April 2019, an increase of 44%.

Total recurring revenues increased by 40% to £31.2 million (FY2018: £22.2 million) representing 67% (FY2018: 62%) of overall revenues. This proportion has improved consistently since 2016 when recurring revenues represented only 53% of total revenues.

SaaS revenues increased by 63% to £13.7million (FY2018: £8.4 million) representing 29% (FY2018: 23%) of Group revenue. Support & Maintenance revenues continued to grow both through new perpetual licence sales and through the acquisitions of Medforce and Morgan Kai where significant proportions of recurring revenues have historically come from the perpetual licence model. Support & Maintenance revenues increased by 27% to £17.5 million (FY2018: £13.8 million) but represented a slightly reduced proportion of total revenues at 37% (FY2018: 38%) due to the focus on SaaS growth.

Professional services revenues represented 11% (FY2018: 14%) of total revenues. This decline is due to a lower proportion of professional services revenues inherent within the businesses acquired over the last two years and the increasing proportion of SaaS sales which require less configuration work.

Licence & Software development kit sales, increased to £9.7 million (FY2018: £8.3 million) representing 21% (FY2018: 23%) of total revenue in line with the increasing emphasis on SaaS sales.

Adjusted EBITDA increased by 30% to £14.3 million (FY2018: £11.0 million) and the adjusted EBITDA margin remained stable at 30.6% (FY2018: 30.5%). Gross margin improved slightly to 91.6% (FY2018: 91.2%). Operating costs continue to be tightly controlled representing 61.1% (FY2018: 60.7%) of revenue, however we recognise the need to continue targeting investment in our staff and the operational systems of the business to support continued organic growth and to provide a strong, scalable platform for the integration of future acquisitions.

The Group has significant intangible assets, primarily from the acquisitions that it has made. Amortisation of acquisition intangibles of £7.5 million (FY2018: £5.8 million) represents the majority of the total depreciation and amortisation charge of £9.4 million (FY2018: £7.1 million). Amortisation of development costs amounted to £1.4 million (FY2018: £1.0 million).

The share-based payment charge of £1.5 million (FY2018: £1.9 million) relates to the Group's equity-settled share option schemes including the Long-Term Incentive Plan and the Share Incentive Scheme for employees. The charge included £0.4 million (FY2018: £0.3 million) of national insurance costs on the exercise of non-tax efficient options. The remainder of the share-based payment charge does not represent a cash cost to the Group.

The Group incurred costs of £1.3 million (FY2018: £0.4 million) in acquiring the businesses of InspectionXpert, Morgan Kai and Scannell during the year. Only Medforce was acquired in the previous financial year. During the year we have significantly restructured the Group's development function and reduced the number of offices we operate which has resulted in a restructuring cost of £0.5 million (FY2018: £0.2 million).

The adjusted Group tax charge is analysed in note 5 and amounted to £1.5 million (FY2018: £1.0 million). This has been adjusted to exclude the deferred tax effects associated with the amortisation of acquisition intangibles and share based payment charges. The adjusted Group tax charge represents 12% (FY2018: 10%) of adjusted profit before tax of £12.2 million (FY2018: £9.7 million). The increased tax rate is largely due to the increased level of profits earned in the United States which attract higher rates of tax than in the UK. The Group's use of R&D tax credit claims and tax deductions linked to the exercises of share options in particular have significantly reduced the Group's liability to UK corporation tax on FY2019 profits.

As a result of the above, adjusted diluted earnings per share increased by 15% to 4.80 pence (FY2018: 4.19 pence).

The Group's financial position has continued to strengthen during the year with net assets increasing to £73.7 million (FY2018: £50.5 million).

The value of intangible assets increased to £90.7 million (FY2018: £60.3 million) mainly as a result of the three acquisitions completed during the year. The Group capitalised £2.7 million (FY2018: £2.2 million) of R&D development costs during the year which represented 5.75% (FY2018: 6.2%) of total revenues. The increase is mainly due to costs capitalised in respect of the products being developed by the businesses acquired during the year and the prior year.

Starting with the purchase of Medforce in April 2018, the Group's approach to the funding of acquisitions has been more evenly balanced between using debt and equity together with the Group's own cash generation. The strong cash flow and recurring revenue profile of the business mean that the Group has been able to secure relatively inexpensive debt funding. The acquisitions of Medforce, InspectionXpert and Scannell were funded through increases in the Group's Revolving Credit Facility and the acquisition of Morgan Kai was primarily funded through a heavily oversubscribed share placing which raised £19.4 million net of costs.

Cash generated by operations during the year amounted to £12.3 million (FY2018: £9.4 million) representing cash conversion of approximately 86% (FY2018: 85%) of adjusted EBITDA. However, this cash conversion figure was impacted by the receipt, prior to the FY2018 year-end, of £1.1 million of cash from option holders to cover payroll taxes arising on the exercise. The subsequent payment of this £1.1 million of taxes has therefore negatively impacted cash generated by operations during the year to 30 April 2019. Excluding this, cash generated by operations would have represented approximately 94% (FY2018: 83%) of adjusted EBITDA.

Working capital increased by £0.9 million after adjusting for the £1.1 million of payroll tax liabilities on share options at 30 April 2018. Within this, receivables increased by £3.9 million due to significant organic growth in SaaS billings and increased organic growth in the wider business together with an increased bias of recurring billings in the final quarter on the acquired businesses and in the wider business as a whole. There was also a £2.4 million increase in the deferred revenue creditor as a result of the strong growth in recurring revenues and the additional bias towards final quarter billings.

Free Cash Flow in the year amounted to £6.3 million (FY2018: £6.1 million) representing 44% (FY2018: 55%) of adjusted EBITDA or 13.5% of Revenue. However, adjusting for the cash outflow of payroll taxes on share options referred to above, adjusted Free Cash Flow would have been £7.3 million representing 51% of adjusted EBITDA or 15.7% of Revenue. Adjusted Free Cash Flow before payments of acquisition costs of £0.9 million was £8.2 million representing 58% of adjusted EBITDA or 17.7% of Revenue.

The Group ended the year with net debt of £1.3 million (FY2018: net cash balances of £0.8 million).

Operational Review

Ideagen continues to make strong progress in its drive towards operational excellence, with a core focus on its people, processes, systems and facilities. At 30 April 2019, Ideagen had 442 (2018: 423) employees based across its UK and international office network, with over 50% of these located at the 2 core UK offices of Nottingham and Glasgow. Ideagen maintains an international office presence in the US, Dubai, Bulgaria, and Malaysia; along with a new office in Ireland following the acquisition of Scannell Solutions. A combined total of 120 (2018: 57) people are based internationally. 

In order to facilitate the growth, Ideagen has invested heavily in 'best of breed' cloud systems that have scalability, functionality and reporting at their core. Salesforce.com remains the number one system for the organisation, providing the internal platform for sales and marketing, but is supported by NetSuite in the Accounts function, and then several functionally specific cloud solutions such as Zendesk, Natero, Peakon, Krow, and Jira. These packages are collectively used to provide analytics and Management Information (MI) in support of strategic decision making across Ideagen.

As Ideagen develops, significant resource is invested in benchmarking processes and systems to ensure best practice is standard and that Ideagen remains fit for growth. Ideagen remains committed to relevant accreditations and currently holds Microsoft Gold Partner status, ISO 9001, ISO 27001, and ISO 14001. The Group has membership of a significant number of leading bodies including the Chartered Quality Institute (CQI), Institute of Internal Auditors (IIA), Flight Safety Foundation, and the Institute of Biomedical Science (IBMS).  

 

Graeme Spenceley

Chief Financial Officer

Ideagen plc

 

Group Statement of Comprehensive Income for the year ended 30 April 2019

 

 

Note

2019

 

2018

£'000

£'000

Revenue

2

46,667

 

36,120

Cost of sales

 

(3,900)

 

(3,166)

Gross profit

 

42,767

 

32,954

Operating costs

 

(28,494)

 

(21,936)

Profit from operating activities before depreciation, amortisation, share-based payment charges and exceptional items

 

14,273

 

11,018

 

 

 

 

 

Depreciation and amortisation

 

(9,391)

 

(7,122)

Costs of acquiring businesses

 

(1,268)

 

(426)

Restructuring costs

 

(479)

 

(151)

Share-based payment charges

 

(1,491)

 

(1,880)

Profit from operating activities

 

1,644

 

1,439

 

 

 

 

 

Net finance costs

 

(263)

 

(40)

Profit before taxation

 

1,381

 

1,399

Taxation

4

4

 

130

Profit for the year

 

1,385

 

1,529

 

 

 

 

 

Other comprehensive income

 

 

 

 

Items that may be subsequently reclassified to profit or loss:

 

 

 

 

Exchange differences on translating overseas operations

 

641

 

(133)

Corporation tax on exercise of options

 

537

 

325

 

 

 

 

 

Total comprehensive income for the year attributable to the owners of the parent company

 

2,563

 

1,721

 

 

 

 

 

Unadjusted earnings per share

3

Pence

 

Pence

Basic

 

0.65

 

0.77

Diluted

 

0.62

 

0.74

 

 

 

 

 

Adjusted earnings per share

3

Pence

 

Pence

Basic

 

5.01

 

4.35

Diluted

 

4.80

 

4.19

 

 

 

  Ideagen plc

 

  Group Statement of Financial Position at 30 April 2019

 

 

2019

 

2018

 

 

£'000

 

£'000

Assets and liabilities

 

 

 

 

Non-current assets

 

 

 

 

Intangible assets

 

90,749

 

60,289

Property, plant and equipment

 

1,069

 

787

 

 

91,818

 

61,076

Current assets

 

 

 

 

Trade and other receivables

 

17,547

 

12,482

Cash and cash equivalents

 

6,199

 

5,532

 

 

23,746

 

18,014

Current liabilities

 

 

 

 

Trade and other payables

 

6,043

 

5,400

Current income tax liabilities

 

387

 

147

Short-term borrowings

 

7,500

 

4,750

Deferred revenue

 

18,570

 

12,527

Contingent consideration on business combinations

 

769

 

-

Deferred consideration on business combinations

 

1,269

 

460

 

 

34,538

 

23,284

Non-current liabilities

 

 

 

 

Deferred income tax liabilities

 

7,344

 

5,322

 

 

 

 

 

Net assets

 

73,682

 

50,484

 

 

Ideagen plc

 

Group Statement of Financial Position at 30 April 2019 (continued)

 

 

2019

 

2018

 

 

£'000

 

£'000

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

 

Issued share capital

 

2,198

 

2,027

Share premium account

 

53,948

 

34,257

Merger reserve

 

1,658

 

1,658

Share-based payments reserve

 

1,440

 

1,148

Retained earnings

 

13,597

 

11,194

Foreign currency translation reserve

 

841

 

200

 

 

 

 

 

Equity attributable to the owners of the parent

 

73,682

 

50,484

 

 

Ideagen plc

Group Statement of Cash Flows for the year ended 30 April 2019

 

 

            2019

 

            2018

 

 

            £'000

 

            £'000

 

Cash flows from operating activities

 

 

 

 

 

 

Profit for the year

 

 

1,385

 

1,529

 

Depreciation of property, plant and equipment

 

463

 

320

 

Amortisation of intangible non-current assets

 

8,928

 

6,802

 

Profit on disposal of property, plant and equipment

 

(7)

 

(6)

 

Share-based payment charges

 

 

1,491

 

1,880

 

Finance costs recognised in profit or loss

 

263

 

40

 

Taxation credit recognised in profit or loss

 

(4)

 

(130)

 

Business acquisition costs in profit or loss

 

1,268

 

426

 

Restructuring costs in profit or loss

 

479

 

-

 

Decrease in inventories

 

-

 

10

 

Increase in trade and other receivables

 

(3,914)

 

(1,447)

 

Decrease in trade and other payables

 

(444)

 

(259)

 

Increase in deferred revenue liability

 

2,438

 

255

 

Cash generated by operations

 

 

12,346

 

9,420

 

Finance costs paid

 

(323)

 

(99)

 

Income tax paid

 

(248)

 

(21)

 

Business acquisition costs paid

 

(915)

 

(204)

 

Restructuring costs paid

 

(479)

 

-

 

Employer's national insurance paid on share-based payments

 

(730)

 

(253)

 

Net cash generated by operating activities

 

9,651

 

8,843

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

Net cash outflow on acquisition of businesses net of cash acquired

 

(27,252)

 

(6,225)

 

Payments of deferred consideration on business combinations

 

(460)

 

(1,640)

 

Payments of contingent consideration on business combinations

 

-

 

(2,057)

 

Payments for development costs

 

(2,683)

 

(2,246)

 

Payments for property, plant and equipment

 

(679)

 

(517)

 

Proceeds of disposal of property, plant and equipment

 

7

 

6

 

Net cash used in investing activities

 

(31,067)

 

(12,679)

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

Proceeds from placing of equity shares

 

20,000

 

-

 

Payments for share issue costs

 

(625)

 

-

 

Proceeds from issue of shares under the share option schemes

 

397

 

833

 

Proceeds from issue of shares under the share incentive scheme

 

90

 

65

 

Cost of free shares purchased under the share incentive scheme

 

(3)

 

(6)

 

New short-term borrowings

 

5,250

 

4,750

 

Repayment of short term borrowings

 

(2,500)

 

(2,000)

 

Equity dividends paid

 

(555)

 

(440)

 

Net cash generated by financing activities

 

22,054

 

3,202

 

 

 

 

 

 

 

Net increase/ (decrease) in cash and cash equivalents during the year

638

 

(634)

 

Cash and cash equivalents at the beginning of the year

 

5,532

 

6,205

 

Effect of exchange rate changes on cash balances held in

foreign currencies

 

29

 

(39)

 

Cash and cash equivalents at the end of the year

 

6,199

 

5,532

 

 

Ideagen plc

Group Statement of Changes in Equity for the year ended 30 April 2019

 

Share

capital

 

Share

Premium account

 

Merger

reserve

 

Share-based payments reserve

 

Retained earnings

 

Foreign

currency translation reserve

 

Total

attributable to owners of the parent

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

£'000

 

£'000

 

 £'000

 

£'000

 

£'000

 

   £'000

 

£'000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 1 May 2018

2,027

 

34,257

 

1,658

 

1,148

 

11,194

 

200

 

50,484

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share placing

141

 

19,859

 

-

 

-

 

-

 

-

 

20,000

Share placing issue costs

-

 

(625)

 

-

 

-

 

-

 

-

 

(625)

Shares issued under share option schemes

27

 

370

 

-

 

-

 

-

 

-

 

397

Shares issued under the share incentive scheme

3

 

87

 

-

 

-

 

-

 

-

 

90

Share-based payments

-

 

-

 

-

 

1,081

 

-

 

-

 

1,081

Shares purchased under the share incentive scheme

-

 

-

 

-

 

(3)

 

-

 

-

 

(3)

Transfer on exercise of share options

-

 

-

 

-

 

(722)

 

722

 

-

 

-

Transfer in respect of share incentive scheme

-

 

-

 

-

 

(64)

 

64

 

-

 

-

Taxation on share-based payments in equity

-

 

-

 

-

 

-

 

250

 

-

 

250

Equity dividends paid

-

 

-

 

-

 

-

 

(555)

 

-

 

(555)

Total transactions with owners recognised directly in equity

171

 

19,691

 

-

 

292

 

481

 

-

 

20,635

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit for the year

-

 

-

 

-

 

-

 

1,385

 

-

 

1,385

Other comprehensive income for the year

-

 

-

 

-

 

-

 

537

 

641

 

1,178

Total comprehensive income for the year

-

 

-

 

-

 

-

 

1,922

 

641

 

2,563

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 30 April 2019

2,198

 

53,948

 

1,658

 

1,440

 

13,597

 

841

 

73,682

 

 

 

Ideagen plc

Group Statement of Changes in Equity for the year ended 30 April 2018

 

Share

capital

 

Share

Premium

account

 

Merger

reserve

 

Share-based payments reserve

 

Retained earnings

 

Foreign

currency translation reserve

 

Total

attributable to owners of the parent

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

£'000

 

£'000

 

 £'000

 

£'000

 

£'000

 

   £'000

 

£'000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 1 May 2017

1,981

 

33,405

 

1,658

 

961

 

8,081

 

333

 

46,419

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued under share option schemes

40

 

793

 

-

 

-

 

-

 

-

 

833

Shares issued under the share incentive scheme

6

 

59

 

-

 

-

 

-

 

-

 

65

Share-based payments

-

 

-

 

-

 

1,545

 

-

 

-

 

1,545

Shares purchased under the share incentive scheme

-

 

-

 

-

 

(6)

 

-

 

-

 

(6)

Transfer on exercise of share options

-

 

-

 

-

 

(1,337)

 

1,337

 

-

 

-

Transfer in respect of share incentive scheme

-

 

-

 

-

 

(15)

 

15

 

-

 

-

Taxation on share-based payments in equity

-

 

-

 

-

 

-

 

347

 

-

 

347

Equity dividends paid

-

 

-

 

-

 

-

 

(440)

 

-

 

(440)

Total transactions with owners recognised directly in equity

46

 

852

 

-

 

187

 

1,259

 

-

 

2,344

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit for the year

-

 

-

 

-

 

-

 

1,529

 

-

 

1,529

Other comprehensive income for the year

-

 

-

 

-

 

-

 

325

 

(133)

 

192

Total comprehensive income for the year

-

 

-

 

-

 

-

 

1,854

 

(133)

 

1,721

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 30 April 2018

2,027

 

34,257

 

1,658

 

1,148

 

11,194

 

200

 

50,484

 

 

Notes

 

1       Basis of information

The financial information included in this preliminary announcement is unaudited. This information does not constitute the annual report and accounts of the Group for the year ended 30 April 2019 within the meaning of section 434 of the Companies Act 2006. This will be available from www.ideagen.com in due course. The audited annual report and accounts of the Group for the year ended 30 April 2018 has been filed with the Registrar of Companies. The auditor's report on those financial statements was unqualified and did not contain any statement under section 498 (2) or (3) of the Companies Act 2006 and did not include references to any matters to which the auditor drew attention by way of emphasis. The accounting policies applied are consistent with those included in the Group accounts for the year ended 30 April 2018 with the exception of IFRS 9 "Financial Instruments" and IFRS 15 "Revenue from contracts with customers" which the Group has adopted in the year. There was impact on the reported results in the current or previous years as a result of the adoption of IFRS 9 and IFRS 15.

 

2       Revenue

An analysis of the Group's revenue is given below.

 

2019

 

2018

 

£'000

 

£'000

 

 

 

 

Recurring software SaaS/subscription

13,727

 

8,442

Recurring support & maintenance

17,452

 

13,793

Total recurring revenues

31,179

 

22,235

Software licence & development kit revenues

9,694

 

8,339

Professional services

5,307

 

5,052

Other

487

 

494

 

 

 

 

Total revenue

46,667

 

36,120

3       Earnings per share information

 

Basic earnings per share is calculated by dividing the profit for the year attributable to the owners of the Group ('Earnings') by the weighted average number of ordinary shares outstanding during the year. Diluted earnings per share is calculated by dividing Earnings by the weighted-average number of ordinary shares outstanding during the year as adjusted for the effect of all potentially dilutive shares, including share options.

 

In order to better demonstrate the performance of the Group, adjusted earnings per share calculations have also been presented which take into account items typically adjusted for by users of financial statements. The adjusted earnings and earnings per share information are shown below.

 

2019

 

2018

 

£'000

 

£'000

 

 

 

 

Profit for the year (Earnings)

1,385

 

1,529

Adjustments:

 

 

 

Costs of acquiring businesses

1,268

 

426

Restructuring costs

479

 

151

Share-based payment charges

1,491

 

1,880

Deferred taxation on share-based payment charges

1

 

(14)

Amortisation of acquired intangibles

7,548

 

5,819

Deferred taxation on amortisation of acquired intangibles

(1,500)

 

(1,109)

Adjusted earnings

10,672

 

8,682

 

 

 

 

Weighted average number of shares

212,825,943

 

199,462,389

Diluted weighted average number of shares

222,473,572

 

207,133,981

Basic earnings per share

0.65 pence

 

0.77 pence

Diluted earnings per share

0.62 pence

 

0.74 pence

Adjusted basic earnings per share

5.01 pence

 

4.35 pence

Adjusted diluted earnings per share

4.80 pence

 

4.19 pence

4       Taxation

Further information on the taxation credit in the Group Statement of Comprehensive Income is as follows:

 

 

 

 

2019

£'000

 

2018

£'000

 

 

 

 

 

 

Income taxation charge

 

 

987

 

523

 

 

 

 

 

 

Deferred tax credit on amortisation of acquisition intangibles

 

 

(1,500)

 

(1,109)

Deferred tax charge / (credit) on share-based payment charges

 

 

1

 

(14)

Deferred tax charge on development costs

 

 

216

 

227

Other deferred tax charges

 

 

292

 

243

Total deferred taxation credit

 

 

(991)

 

(653)

 

 

 

 

 

 

Total taxation credit

 

 

(4)

 

(130)

 

5       Adjusted profit before taxation and adjusted taxation charge in the Income Statement

 

 

 

2019

£'000

 

2018

£'000

 

 

 

 

 

Adjusted earnings (note 3)

 

10,672

 

8,682

Adjusted taxation charge (below)

 

1,495

 

993

Adjusted profit before taxation

 

12,167

 

9,675

 

 

 

 

 

Taxation credit in the Statement of Comprehensive Income

 

(4)

 

(130)

Add back:

 

 

 

 

Deferred tax credit on amortisation of acquisition intangibles (note 3)

 

1,500

 

1,109

Deferred tax (charge)/credit on share-based payment charges (note 3)

 

(1)

 

14

Adjusted taxation charge

 

1,495

 

993

 

 

 

 

 

Adjusted taxation charge based on adjusted profit before taxation

 

12%

 

10%


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