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IRIS Group publishes its accounts

At last we have a copy of the IRIS Software Group's accounts. They were signed off on the 18th December 2008 and apparently filed with Companies House on 11th February 2009. They are for the trading period 27th June 2007 to 30th April 2008 (in effect the 10 months immediately following the IRIS/CSG deal) and are for the entire group – not just the legal software division everyone is familiar with. As the accounts are complex, reflecting the finance deals surrounding the creation of the group, we'll just report the headline figures here and leave you to wade your way through the attached PDF copy of the accounts.

IRIS Software Group Ltd – Profit & Loss
Revenue: £95m
Loss for the period: £29m
Balance Sheet
Non Current Liabilities Borrowings: £520m
Net liabilities: £28m
Goodwill: £396m

The accounts also reveal that IRIS paid £1.8m to acquire the legal IT vendor OPSIS in June 2008 and a further £4.5m to acquire MSS/AlphaLaw in November 2008.

The group's chairman concludes his report with the comment that “IRIS Software Group is highly successful, showing significant growth potential and cash generation.”

5 replies on “IRIS Group publishes its accounts”

Can someone help me out here? If I'm losing £29 million a year, how long will it take me to pay off a debt of £396 million?

The “period” in question is 10 months (take a couple of days). Presumably therefore it is reasonable to state the annualised losses to be just under £35m.
Iris are unlikely to have got any significant benefit from a reduction in interest rates as H&F will have got a threshold below which there is no benefit. I would guess they are paying between 7% and 8% on this money. £520m @ 7% = £36.4m per annum. At 8% it is £41.6m.
If their annualised revenues are £114m they may be paying between 32% and 36.5% of their total revenue on servicing the interest on the debt.
They have borrowed 4.5 times their turnover which is only sustainable if you have no intention of paying off the debt. As a result they must be looking to make some value and do a trade sale. This will be done by cutting staff and services, not by investing. In any event finding a buyer at the moment for this business is going to be almost impossible
They have stated an operating profit of £32m. It would be reasonable to value the business at 6 times earnings, possibly at 8. If you are feeling bullish in a rising market and no recession you might be able to stretch that a bit further. Their annualised operating profits are £38.4 which gives a valuation on the business of between £230m and say £380m (if you are lucky). In the current climate it is difficult to see the business being worth more than £300m against a debt of £520m.
I am not an accountant of a financial expert but this company is in deep trouble. I did enjoy doing the sums though.
I think the Chairman has a new pair of rose tinted glasses.

Frankly it's a car crash and the debt in the balance sheet appears to be £520m rather than £396m.
I bet the previous owners can't believe they got it away for £500m right at the peak of the market in 2007. The investor world is beginning to describe it as the Northern Rock of UK Software houses!!
In terms of your calculations I would summarise by saying that their debt is actually roughly 15 times the operating profit line i.e. a 15 year sentence of debt repayment assuming every bit of cash went on the debt. Add in the interest and it's more like 25 to 30.
In terms of value a really good software business of this size, with organic growth, might get 6 times EBITDA. This would lead you to conclude £210m top whack as an enterprise value, now with £500m of debt!! Of course any potentially buyer will see it as you have done i.e. a mess and it's a buyers market.
Where does this business go now? If you looked at it on a personal basis it’s a bit like you’re on £35,000 a year and you fancy a mortgage of 15 times your salary to buy that house for £500,000. It’s 2007 and Northern Rock say here you go!! Come forward to 2009 and you’re a very worried person – and many would say daft for even considering taking on a debt like that.
Be it a customer or a member of staff you're looking down a very long barrel of debt.

Well it's in black & white (or should I say red) just how bad this whole adventure has been – has Sir Fred been advising?

In 2007 this company (if it was listed) would be described as 'adventurous' by analysts. 2009 it's Woolworths…………….

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