Tikit, one of the leading independent providers of IT consultancy, services and technology to legal and accounting firms in the UK, North America and mainland Europe, today reports interim results for the six months to 30 June 2011.
• Profit before tax, amortisation of acquired intangibles and share-based charges increased 36% year-on -year to £2.3 million (H1 2010: £1.7 million)
• Strong improvement in operating margin, increasing to 17.1% (H1 2010: 12.6%)
• Recurring support and outsourcing services revenues up 11% to £7.7 million (H1 2010: £7.0million), now contributing 58% (H1 2010: 53%) of total Group revenues
• Earnings per share before amortisation of acquired intangibles and share-based charges up 41% to 11.8p (H1 2010: 8.4p)
• Interim dividend up 25% to 2.5p per share (H1 2010: 2.0p)
• Cash generated from operations in the first half increased 4% over the previous year at £2.4 million (H1 2010: £2.3 million)
• Net cash at period end increased year-on-year by £2.0 million to £4.1 million (H1 2010: £2.1 million)
Commenting on the results, Mike McGoun, Chairman, said; “The Board is very pleased with the progress made in the first half and the Group remains in a strong position to benefit from the gradual improvement in market conditions. The recent launch of a new cloud-based service, Tikit Legal Office, positions the Group well as the trend towards IT outsourcing in the legal industry is beginning to gain acceptance. The fundamentals of our business are strong, and we look toward to the future with optimism.”
An analyst briefing will be held today at 10.30 a.m. at the offices of Tavistock Communications, 131 Finsbury Pavement, EC2A 1NT.
I am pleased to report that the Group’s performance during the six months to 30 June 2011 has resulted in profits significantly higher than the prior year and the Group remains strongly cash generative. Our business has benefited from a gradual improvement in market conditions combined with our focus on higher levels of support services and further sales of Tikit-owned software. We have focused our resources to achieve better service levels and efficiencies in our core operations and also continued our investment in the development of software and outsourcing services that will drive the future profitability of the Group. The acquisition of Carpe Diem in late 2010 has added significantly to our support revenues and overall margin.
We continue to focus on winning and retaining contracted, recurring managed service and support revenues. Combined with higher margin business derived from Tikit-owned software sales, this has resulted in a strong improvement in operating profits and earnings per share.
Total revenues of £13.3 million were slightly ahead of the previous year and, importantly, revenues from our support and outsourcing businesses increased by 11% to £7.7 million (H1 2010: £7.0 million) now contributing 58% of total Group revenues. Support revenues from Tikit-owned software increased by 48% to £3.21 million (H1 2010: £2.17 million).
Profit before tax, amortisation of acquired intangibles and share-based charges increased 36% year-on -year to £2.3 million (H1 2010: £1.7 million) giving a strong improvement in operating margin to 17.1% (H1 2010: 12.6%). Profit before taxation increased by 13% to £1.6 million (H1 2010: £1.4 million), with basic earnings per share up 17% to 8.2 pence (H1 2010: 7.0 pence).
Our balance sheet remains strong. Net assets at 30 June 2011 were £16.9 million (H1 2010: £14.9 million), with net cash balances up £2.0 million to £4.1 million (H1 2010: £2.1 million). The business continues to be cash generative with a net inflow of cash from operating activities in the period of £2.4 million (H1 2010: £2.3 million), representing a conversion into cash of 98% (H1 2010: 123%) of operating profit before depreciation, amortisation and share-based charges. Cash outflow for dividends was £0.60 million in the period (H1 2010: £0.59 million).
Operationally it has been a good first half of the year. Our sales and delivery teams have produced some excellent results. We are very pleased to have won a number of significant new contracts in the UK and Europe, as well as in North America, across all our product lines.
The Group has made good progress with its strategy to improve the product mix with an increased focus on recurring support revenues from Tikit-owned software as well as developing more of our own software. This transition has seen the Group increase the total revenue from sales and support of Tikit software by 38% to £4.0 million (H1 2010: £2.9 million) as well as the release of two key new products – Tikit Legal Office and Tikit ClientConnect.
The North American time recording acquisitions made in October last year have been integrated into the Group and we are benefitting from the planned operational synergies. Throughout all this, our client satisfaction ratings remain very high according to our monthly surveys. Tikit’s core focus continues to be in the law firm market with over 85% of its revenues derived from this sector. The accountancy market is the next largest and is responsible for around 10% of revenues.
Revenues from support and outsourcing have increased by 11% to £7.7 million (H1 2010: £7.0 million), in line with Tikit’s strategy to grow contracted and recurring revenues. Tikit now has over 1,100 clients taking contracted support services, including many in mainland Europe and the USA. Contract retention rates remain at over 95% and the contracted, recurring revenue element of Tikit’s income is responsible for 58% of total revenues.
Support revenues from Tikit’s own software have continued to grow organically and the acquisition of Carpe Diem last year has further strengthened this revenue stream, increasing total revenues by 48% to £3.21 million (H1 2010: £2.17 million). In addition, our outsourced services division continues to grow, with another new client engaging Tikit to provide IT management and delivery.
Total software sales reduced in the first half by 12% to £2.7 million (H1 2010: £3.0 million) but, importantly within this, sales of our own software increased by 13% to £0.84 million over the corresponding period in 2010 (£0.74 million). Software sales accounted for 20% of our total revenues.
Tikit continues to be a leading partner to Autonomy and has, for the sixth consecutive year, been recognised by Autonomy as EMEA partner of the year. We expect to continue our excellent relationship with Autonomy following their acquisition by HP. In the first half, we sold document and content management solutions based on Autonomy software to leading firms such as HW Fisher and Birketts LLP. We have now installed the Autonomy iManage technology in over 110 professional firms and we continue to provide these firms with ongoing support and upgrade services.
In addition, Tikit’s own software such as the Partner for Windows accounting software and Template Management System both sold well in the first half of the year. It was particularly pleasing to see the first substantial sale in the UK of the new Carpe Diem Enterprise time recording software. This comes on the back of a number of large software sales to US law firms.
We continue to develop our own software portfolio and early indications from the market show that both our Tikit Legal Office and Tikit ClientConnect products are timely. The greater acceptance of cloud technology as a delivery platform means Tikit Legal Office should be able to gain market share as our sales and marketing activity increases. In addition, the release of Tikit ClientConnect, which allows firms to have access to a fully functional CRM and eMarketing solution from within Outlook, has received plaudits from all that have seen it. We look forward to announcing sales of these products in the near future.
Consultancy revenues for the first half of this year were £2.4 million (H1 2010: £2.5 million), maintaining the run rate achieved in the second half of 2010. There were a number of large scale projects delivered around both Tikit’s own software and Autonomy iManage to some of the largest law firms in the world, resulting in good utilisation within our consulting teams. Significant implementations included Tikit’s Template Management System at Linklaters and Carpe Diem Mobile at Kennedys along with Autonomy iManage at DWF.
Our operation in North America has enjoyed success in the first half, selling the Carpe Diem Enterprise time recording solution to a number of law firms , the biggest being Akin Gump. Business in North America continues to be strong with 14 new client wins for our eMarketing solution. Our key focus is selling Tikit’s eMarketing and Carpe Diem software into the US market where we already support over 300 US law firms as clients, including 59 of the top 100. We are optimistic about future prospects in North America where there continues to be a significant growth opportunity from further penetration of our eMarketing and time recording solutions. Additionally, the introduction of other Tikit software, including ClientConnect, FileNote and Template Management System provides an excellent opportunity to increase sales in North America.
Tikit France has been working in tough trading conditions in the first half and has delivered three new worksite projects for the law firms Racine, Bersay and Hoche and is also managing upgrade projects to many existing customers. Despite equally challenging conditions, Tikit Spain has become the legal technology provider of choice for Spanish law firms, with over 50 clients in the region. The content management solutions that Tikit Spain has implemented are some of the largest in Europe.
Since the half year end, trading has continued in line with management’s expectations, and the Group has continued to win new software sales contracts with new and existing clients, in both Europe and North America.
Overall, the Board is pleased with the progress that has been made in the first half and, whilst the UK professional services markets remain cautious, business activity levels are improving and clients continue to engage with us on both current and future requirements. The interest in our recently launched software products is good and we expect to close business with these products before the end of 2011.
The Group continues to explore potential acquisition opportunities of businesses that provide complementary services or software to our target market. Our acquisition criteria are tough to ensure that any acquisitions undertaken are in line with our strategy, add to the range of services that we are able to provide to our increasing client base and represent better value for our shareholders than increased investment in our existing business.
The high level of contracted support revenues, combined with our focus on sales of Tikit software creates strong business fundamentals for the Group and we look towards the future with optimism.
Comment: The interesting aspect here is the company is growing its own inhouse developed software business.