Tikit releases its interims
The AIM-listed Tikit Group plc has just published its latest interim results. Here is chairman Mike McGoun's statement in full…
“The Group is pleased to report performance in the first half broadly in line with the Directors’ expectations. The acquisition of TfB at the start of the second quarter has enabled the Group to report continued growth in revenues, profit and earnings per share*. Our continued focus on winning and retaining recurring, managed service and support revenues combined with the increase in revenues from Tikit-owned software has resulted in improved margins and a stronger business in the face of tougher economic conditions.
Total Group revenues of £13.64 million in the first half of 2008 represent growth of 3.4% compared with the first half of 2007. As indicated previously, the introduction of subscription-based pricing for certain software products will hold back top-line revenue growth in the short-term, in return for contracted longer-term revenues and profits. The Group has again increased its operating margins, achieving 13.7% in the first half (2007: 12.1%), resulting in an increase in operating profits before amortisation and share-based charges of 17.7% to £1.88 million.
I draw your attention to the cash management of the Group during the period. Your Board decided to utilise the Group’s cash resources combined with a new loan facility from its bank to finance £5.3 million of the TfB transaction rather than the issue of dilutive new shares. The cash-generating nature of the business should, in the absence of other transactions, result in a net cash position for the Group in 2009. Cash generated from operations in the first half was £2.95 million, representing 147% of operating profit**. At 30 June 2008, the Group had net debt of £753,000.
Good progress has been made in many areas of the business, with continued growth in recurring, contracted support revenues. In addition, customer response to the release of new Tikit-developed software, particularly the enhanced version of Tikit e-marketing suite and the Tikit Template Management System (TMS) for Microsoft Word indicates potentially higher sales of these products in the second half.
*before amortisation and share-based charges
**before depreciation, amortisation and share-based charges
Turnover for the period was £13.64 million (2007:£13.19 million), representing a 3.4% increase on the same period last year. The introduction of subscription-based pricing where revenues are recognised over a number of years rather than up-front, has had a small impact on headline revenue and profit growth.
Revenues in our services businesses, in total, increased by 9.6% to £9.72 million (2007: £8.87 million), with contracted recurring revenues showing strong growth of 17.7% to £5.85 million (2007: £4.97 million) contributing 42.9% of total Group revenues.
Operating margins before amortisation and share-based charges continue to improve and were 13.7% in the first half (2007: 12.1%). Operating profit before amortisation, taxation, interest and share-based charges was £1.88 million, an increase of 17.7% over the first half of 2007 (£1.59 million). Share-based charges were £159,000 (2007: £118,000) and amortisation, which relates predominantly to intangible fixed assets acquired with TfB, was £115,000 (2007: £nil). There was a net interest charge of £37,000 (2007: interest received £31,000) during the period resulting from the use of the bank loan facility for the acquisition of TfB. The profit before taxation was £1.56 million, (2007: £1.51 million), an increase of 3.9% over the prior year period.
Earnings per share before amortisation and share-based charges were 9.7p (2007: 9.0p), an increase of 7.8% over the prior year. Basic earnings per share were 8.0p (2007: 8.3p).
Cash generated from operations was £2.95 million. In the first half, £680,000 of the Group’s cash resources were used to satisfy final earn-out payments due to Shamrock, its specialist data auditing and cleansing subsidiary, under the terms of an earn-out agreement; £4.3 million was used for the acquisition of TfB; £1.1 million was used to repay TfB net debt and £416,000 was used to pay dividends. Cash inflows came from the exercise of share options totalling £311,000 and £721,000 from the sale of shares held in treasury.
A £5 million credit facility was successfully negotiated with our bank and at the end of the period £1.3 million of this facility was utilised, resulting in net debt of £753,000 at 30 June 2008 (2007: net cash £2.81 million).
An interim dividend of 1.9 pence per share (2007: 1.75 pence per share), an increase of 8.6%, is to be paid on 17 October 2008 to shareholders on the register at 19 September 2008.
The acquisition of TfB was successfully completed at the start of the second quarter with minimal impact upon the Group’s operations and has greatly contributed to the Group’s management strength, client coverage and recurring revenue streams. Since the acquisition, TfB has won a number of new clients, which, in part, can be attributed to the success of the acquisition. TfB has over 500 clients in the smaller law firm market and we are currently introducing some of Tikit’s more traditional services into this market. This was our largest acquisition to date and significant effort was expended by Tikit’s management team to ensure that the profile of TfB was complementary to Tikit’s strategy of increasing ownership of market leading software with good visible earnings. The TfB team has settled in well and their business made an important contribution to profits in the second quarter and is expected to continue to do so in the second half.
The tougher economic environment in which we and our clients currently operate has led us to undertake some initiatives to help our clients and secure profitable business in such an environment. Our consultants are working with clients to help them analyse their business operations to identify operational efficiencies that can be obtained with minimal expense. We have introduced subscription-based pricing to reduce up-front capital expenditure for key applications and we have developed and introduced internet-based training on the leading software applications. This initiative allows law and accounting firms to reduce their expenditure when introducing new systems to staff by using Tikit’s training content in a hosted environment and we have already won our first client in this market segment.
Our Managed Services team continue to deliver the high levels of service that our clients expect. This, in turn, has meant that we have maintained our high retention rate of clients and revenues from this area continue to grow. We have increased efficiency by continuing the rollout of our web-based self-service support. Our network and infrastructure support team has been particularly successful in winning business in the legal market in the first half, especially in the area of network performance work and we expect this to continue.
Following a solid first quarter, sales of third party software slowed towards the end of the second quarter as uncertainty over the economic outlook caused some firms to defer their decisions to commit to capital projects. However, demand for our market-leading software, InterAction CRM and Interwoven Worksite DM, held up well.
As part of our initiative to secure business that has a fast payback for our clients, we have written a number of small software applications to add to our existing portfolio. Since the successful launch of the Tikit-developed Template Management System (TMS) in late 2007, the software has been sold to 20 organisations and we have a good pipeline of further opportunities in the second half. We have also developed a number of key applications for legal clients that work with standard workflow software in areas such as anti-money laundering, matter inception and compliance. These small, low cost, application modules offer significant efficiencies for clients quickly and have been well received.
We continue to provide business and technical consulting to the world’s largest law firms in the areas of practice management, document management and client relationship management systems, with a particular emphasis at present on operational efficiencies in these areas. The award of large scale consulting and implementation projects has enabled our professional consulting operation to improve utilisation levels during the period.
Our overseas subsidiaries in France and Spain are also experiencing tougher conditions. However, they both continue to win new clients in their respective markets and also provide local expertise for the overseas offices of our UK and US clients.
Costs were controlled well in the first half which resulted in higher margins and profits growth. The Board continually reviews costs to ensure they are commensurate with the activity the Group plans in the second half. A cautious approach on costs has be taken and wherever possible we have sought to concentrate on growing revenues where operational efficiencies are possible without additional costs, such as support and Tikit-owned software.
The second half of the financial year for the Group has traditionally been stronger than the first half. With a healthy pipeline of consultancy and services, combined with a number of opportunities to secure major projects with some of our larger clients, we believe we are in a good position to continue this profile in 2008.
The second quarter ended with a couple of clients deferring projects, reflecting the uncertainty associated with the current economic climate which has led to some clients taking a more cautious approach to capital projects. Our experience is, however, that any tightening of project spend by our clients will lead to greater managed services opportunities for Tikit.
The Board continues to search for suitable acquisition opportunities to complement its organic growth. The Group has undertaken a number of successful acquisitions since its introduction to AIM in 2001 and we believe that tougher markets may produce good acquisition opportunities for the Group.
In summary, the first half of 2008 has seen good progress for Tikit and has created a strong platform for the Group to produce another good set of results for the year as a whole. I look forward to updating shareholders on progress at the end of the year.