Tikit publishes its annual results for 2010
Tikit, a leading independent provider of IT consultancy, services and technology to legal and accounting firms in the UK, US and mainland Europe, today reports its preliminary results for the year ended 31 December 2010.
• Total revenue increased by 7% to £26.9 million (2009: £25.2 million)
• Recurring support and outsourcing services revenue increased by 6% to £14.6 million (2009: £13.7 million); this revenue now contributes 54% to the total Group revenue
• Operating profit before amortisation of acquired intangibles, share-based charges and acquisition expenses increased by 27% to £3.82 million (2009: £3.02 million)
• Profit before tax up 19% to £2.9 million (2009: £2.5 million)
• Operating margins increased to 14.2% (2009: 12.0%)
• Earnings per share before amortisation of acquired intangibles, share-based charges and acquisition expenses increased by 28% to 19.6p (2009: 15.3p)
• Final dividend increased by 5% to 4.3p per share (2009: 4.1p) giving a total for the year up 5% to 6.3p (2009: 6.0p)
• Cash generated from operations increased 50% to £5.3 million (2009: £3.5 million)
• Net cash at period end increased 77% to £2.9 million (2009: £1.6 million)
I am pleased to report that the Group’s performance during 2010 was at the upper end of expectations, with revenues, profits and earnings per share all well ahead of the prior year, combined with strong cash generation. During the tough economic environment of the past two years, we have taken the opportunity to analyse our business strengths and to reduce or eliminate non-strategic business operations. We have invested 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. Tikit has emerged from this period in a stronger position.
In October, we acquired the software and customer base of Carpe Diem, a time and expense management software business. Simultaneously we also acquired PensEra Inc, a Canadian business whose software will form the basis for the new generation of time recording software, Carpe Diem Enterprise and Carpe Diem Mobile. Both businesses have been successfully integrated, have exceeded our expectations and, indeed, made a small contribution to profits in the year.
Overall Group revenues increased by 7%, and, as anticipated, the saving and efficiency measures we implemented during 2009 helped to increase overall profitability. Additionally, the sales mix has continued to improve with stronger contributions from both Tikit-owned software and managed services, resulting in an improved margin over the prior year.
During the period, we have added significantly to our client base and continued to focus on winning and retaining recurring, managed service and support revenues. Combined with higher-margin business derived from Tikit-owned software sales, this will continue to drive the Group’s future growth.
Despite very tough trading conditions, our overseas subsidiaries in France and Spain were both profitable in 2010. Our activity in North America showed strong and profitable growth during the year and this remains an important market for Tikit, particularly as we grow our portfolio of Tikit-owned software.
Total Group revenues for the year increased to £26.9 million (2009: £25.2 million) and were 7% higher than in the prior year. The increase in our recurring revenue, plus the revival of third-party software sales and continuing growth in Tikit-owned software throughout the year, were the main drivers in overall Group revenue.
Recurring revenues from our managed services (support and outsourcing) businesses increased by 6% to £14.6 million (2009: £13.7 million) and represented 54% of total Group revenues. Within this figure, it is pleasing to note that support revenues from Tikit-owned software increased by 8% to £4.61 million (2009: £4.26 million).
Software sales, both third-party and Tikit-owned, grew by 26% to £6.3 million (2009: £5.0 million). Strong sales of Tikit eMarketing products, especially in North America, contributed to an increase in Tikit-owned software of 14% to £1.57 million (2009: £1.38 million).
Consultancy and implementation revenues declined to £4.8 million (2009: £5.4 million), due to the lower level of implementation of large projects by our clients and also in part to the cutbacks made by the Group in non-core consulting activities.
Operating profit, before amortisation of acquired intangibles, share-based charges and acquisition expenses, increased 27% year-on-year to £3.82 million (2009: £3.02 million) with an improvement in operating margin to 14.2% (2009: 12.0%). Share-based charges during the period were £0.28 million. (2009: £0.12 million). The increase in the charge largely relates to the performance-based Long Term Incentive Plan (LTIP), introduced during the year, which covers the 3-year period up to 31 December 2012. Amortisation of acquired intangibles was £0.45 million (2009: £0.37 million), the increase arising from the acquisitions made during the year.
Profit before taxation increased by 19% to £2.9 million (2009: £2.5 million) and the effective tax rate on profits was 25.3% in 2010 (2009: 25.8%). Basic earnings per share were up 22% to 15.5 pence (2009: 12.7 pence) and earnings per share, before share-based charges, amortisation of acquired intangibles and acquisition expenses, increased by 28% to 19.6p (2009: 15.3p).
Our balance sheet remains strong. Net assets at 31 December 2010 were £16.2 million (2009: £15.2 million), with net cash balances up by £1.3 million to £2.9 million (2009: £1.6 million). The business continues to be cash generative. The net inflow of cash from operating activities in the period was £5.3 million (2009: £3.5 million), representing a conversion into cash of 128% (2009: 103%) of operating profit before depreciation, amortisation of acquired intangibles, share-based charges and acquisition expenses.
During the year, £1.3 million of cash was used on acquisitions, £0.04 million of net interest was paid in the year (2009: £0.05 million) which related to the annual fee on unused loan facilities, and £0.87million was paid in respect of dividends (2009: £0.87 million). Share options exercised during the year contributed £0.02 million. In the first half of 2010, the Group purchased a number of its own shares at a cost of £0.75 million and these are held in the Tikit Employee Benefit Trust to hedge against future share-based payments. The average price paid was 173p per share.
Summary and Outlook
Tikit entered 2011 with a good order book of implementation work, following the closure of a number of project sales in the final quarter of 2010. Trading in the early months of 2011 has been encouraging. Our partnership with Autonomy is strong and this should lead to an increase in Autonomy-based projects in 2011. Our focus for 2011 will be to improve margins through an emphasis on greater sales of Tikit-owned software and Tikit Legal Office, our recently launched Cloud-based legal solution, and to increase recurring revenues from larger outsourcing contracts. The additional support revenues from Carpe Diem will not only add to overall Group revenue but should also improve margins.
Our balance sheet remains strong and the Group has a good record of cash generation, providing a sound basis for us to continue to seek out opportunities to expand the range of services to our clients. Combined with Tikit’s leading market position in the UK, the Board continues to be optimistic about the future trading prospects of the Group.
Tikit Group plc
It has been evident for some time that the weakening economic conditions in the last couple of years caused many law firms to revise their capital expenditure budgets and to reduce spending on large-scale software projects. However, 2010 was a good year for Tikit, with our sales and delivery teams producing some excellent results, building upon the cost and efficiency measures implemented during 2009.
We are pleased that the second half of 2010 saw a number of law firms again placing orders for large projects, and Tikit has won a number of significant new contracts in the UK and Europe, as well as in North America.
Tikit continues to make good progress with the Group’s strategy of building revenues from our proprietary software and support operations. Our leading position in the UK legal market sector enables us to design software that meets our clients’ requirements and provides a depth and breadth of support that is unmatched by our competitors. Our managed services business performed particularly well and now represents 54% of total revenue.
The Group currently operates and is managed through a number of specialist business units. However, revenues are consolidated for the purposes of year-on-year comparison across three core business streams: Consultancy, Managed Services and Software Sales. Clients are delivered an integrated solution based upon a managed blend of these areas of expertise.
Consultancy revenues for the year were £4.8 million (2009: £5.4 million), a reduction of 12% on the corresponding period but broadly in line with the run rate achieved in the second half of 2009. The reduction was due to the cutbacks made in non-core consulting activities and also in part to the lower level of implementation of large projects.
Revenues from support and outsourcing continue to grow and increased by 6% to £14.6 million. Tikit now has over 1,100 clients taking contracted support services, including many in mainland Europe and North America. Contract retention rates remain at over 95%.
One of the highlights during the period was a new 3-year contract with major law firm Fox Williams LLP to outsource all their IT support and service functions. Under this agreement, Tikit is providing Fox Williams with a fully managed service support desk, technical third-line infrastructure support, ‘Out-of-Hours’ user support, IT training and IT strategy consultancy. In the second half of the year, two further law firms took out multi-year outsourcing contracts and Tikit will benefit from a full year’s contribution from all of these contracts in 2011 and beyond.
Also in 2010, we launched the ‘Tikit Total Care Programme for CRM’. This service provides clients with a managed service that not only removes the responsibility from the clients’ staff to manage their CRM system but also drives its development and use, unlike competitors who merely seek to outsource the day-to-day running of the system. A number of clients, including Davenport Lyons, have already taken up this service and are enthusiastic about the benefits.
The acquisition of Carpe Diem from Sage, undertaken in October 2010, has gone well and the new version of Carpe Diem Classic has been warmly received by clients. Indeed, a number of clients that were reviewing their time and expense systems have renewed their commitment to Carpe Diem following the acquisition by Tikit. The functional improvements to Carpe Diem Classic and the launch of Carpe Diem Mobile and Carpe Diem Enterprise have given clients the confidence that there is a secure future for Carpe Diem.
Total software sales increased by 26% to £6.3 million (2009: £5.0 million) and, importantly within this, sales of our own software increased by 14% over the corresponding period in 2009. Total software sales account for 23% of our total revenues (2009: 20%).
Our sales of new Lexis Nexis InterAction licences, the CRM software, were approximately £0.6 million in 2010. Lexis Nexis UK has given us notice that they will provide a direct sales channel to the legal market in the UK from mid-May 2011, and as a consequence, Tikit will no longer be entitled to resell the InterAction product. We are working with Microsoft to launch an alternative CRM product based upon the Microsoft Dynamics platform. Whilst revenue and margin from the sale and support of Interaction will be reduced in the current year, we expect this will be offset by stronger than anticipated renewals from Carpe Diem.
Our CRM delivery teams will continue to provide support to our client base with the high level of knowledge and service that they have come to expect from us. We are able to provide independent product advice in the CRM market space and are uniquely placed to provide support for the interconnection of CRM products to other key applications within law firms.
Tikit continues to be a leading partner to Autonomy and has provided document management and client relationship solutions to leading firms such as Arthur Cox, Begbies Traynor, and Watson Farley & Williams in the UK, as well as leading European firms such as Castren & Snellman and Roschier.
A number of important and large Autonomy Worksite upgrades were undertaken during the year, at firms such as Bird & Bird, Maitland and Kennedys.
Our first sale and installation of Autonomy Workflow at Kammeradvokaten was also an important milestone in the strengthening of our partnership with Autonomy. Tikit has a significant opportunity for Autonomy Workflow amongst top tier law firms. This product is an intelligent automation engine with rich capabilities for modelling and simulating business processes. It can be used to drive consistent execution of business processes across an organisation, ensuring compliance with standard operating procedure, regulations and best practice. Compliance and Risk management is expected to be a high growth sector for us and Autonomy. At the end of the year we won an important project with one of the fastest growing large UK law firms, DWF, and the implementation commenced in January 2011.
TFB now has over 600 clients in the small and medium size law firm market. Since the acquisition of TFB in April 2008, we have won 114 new clients where the TFB practice management system, Partner for Windows, has been installed, adding significantly to future support revenues. In a tough market place, this is an excellent record of achievement and highlights the benefits that can be obtained when putting two organisations together with such a strong legal focus.
Revenues in 2010 from TFB increased by almost 10% to just under £5.0 million (2009: £4.6 million). This is an excellent performance given the tough trading conditions experienced by most small and mid-sized law firms and demonstrates the potential for TFB in this market.
During the period, Tikit deployed Riverbed, a remote networking performance product, to the international law firm Norton Rose. This was done in less than three months and will help Norton Rose to improve fee-earner productivity and gain cost savings of over £0.5 million annually by making its IT infrastructure faster, more responsive and less expensive to operate. Riverbed has been implemented across Norton Rose’s 25 offices throughout Europe, Middle East and Asia Pacific.
Tikit has now supplied more Riverbed technology to law firms than any other Riverbed partner, having deployed the product into 18 large UK clients including Ashurst, SJ Berwin, Clyde & Co and Thomas Eggar. The success of these deployments demonstrates Tikit’s ability to not only meet the software application requirements of law firms, but also to support the core infrastructure of some of the leading global law firms.
Focusing on law firms and corporate legal departments, Tikit France provides content management, client relationship management and finance and business process solutions. We performed well during 2010 in challenging conditions, achieving a profit for the year and now have over 60 clients. Tikit France undertook six new projects, including two new client wins at Latournerie Wolfrom and Ligner Rochelet.
Trading continues to be tougher in Spain given the economic difficulties that still exist. Nevertheless, Tikit Spain has become the legal technology provider of choice for Spanish law firms, with over 50 clients. The content and client relationship management solutions that Tikit Spain has implemented are some of the largest in Europe. Spain also contributed to the Group profits in 2010, albeit on lower revenues.
Overall, combined revenues for France and Spain were £2.4 million (2009: £2.7 million).
Business in North America continues to be strong with 48 new client wins for our eMarketing solution. Our key focus is selling Tikit’s eMarketing software into the US market where it has over 150 US law firms as clients, including 61 of the top 100. We are optimistic about the future prospects in North America as there remains a significant growth opportunity there from further penetration of our eMarketing solution and introduction of our new suite of products, including FileNote and TMS, our template management system.
Tikit Legal Office
An important new element of our growth strategy is the development of the Tikit Legal Office (“TLO”) which was launched at the Legal IT Forum in March 2011. The original plan was to launch TLO in Q4 2010, however, the acquisition timing of both Carpe Diem and PensEra Inc. meant that we rescheduled the launch date to accommodate the Carpe Diem product into the TLO offering. TLO is an innovative Cloud-based outsourced solution, aimed at providing small and medium sized law firms with a comprehensive package for their practice, including accounting, document management, CRM and time recording. By using TLO, law firms will benefit not only from a reduced capital cost, but also enhanced mobile access and reliability.
Tikit Legal Office is an important development for Tikit as we predict many law firms, under pressure to increase efficiencies and profit margins, will look to outsource much of their IT function. Tikit is uniquely placed to benefit from this development given its place at the heart of the professional services IT industry.
Current Trading and Outlook
Since the year end, the Group has continued to win new software sales contracts with both new and existing clients, in both Europe and North America.
The three recent wins for our outsourcing team are very encouraging and further position us as the IT partner that can not only provide the best software solutions but also provide the consultancy and services required by successful law firms. The convergence of Tikit Legal Office with our outsourced service-desk offering enables us to provide law firms with a very cost effective, scalable, all encompassing IT solution.
Interest expressed from our customers in the improvements to Carpe Diem Classic and the launch of Carpe Diem Mobile and Carpe Diem Enterprise supports our view that this product suite will be an important contributor to the Group’s success in 2011 and beyond.
The Group continues to explore potential acquisition opportunities and has funds available. Our acquisition criteria are rigorous and are in place to ensure that any acquisitions undertaken are in line with our strategy and add to the range of services that we are able to provide to our expanding client base.
Overall, the Board is very pleased with the progress that has been made in the past year and, whilst the UK professional services markets remain cautious, business activity levels are improving and clients are engaging with us on the assumption that economic conditions are now stable.
The high level of contracted support revenues, combined with anticipated sales of Tikit-developed software, lead us to expect that 2011 will deliver further growth. We believe that the fundamentals of our business are strong and, with the launch of Tikit Legal Office, we look towards the future with optimism.
Tikit Group plc