News

ILX Group plc
21 June 2006

2006 Preliminary Results

Net profits up 117% to £1.7m; Maiden dividend

ILX Group plc ('ILX'), the AIM quoted vocational education and training company, announces Preliminary Results for the year ended 31 March 2006, another year of significant growth. These results have been restated under IFRS.

Financial Highlights:

• Turnover up 76% to £6.91m (2005: £3.92m)
• Operating profit up 30% to £1.00m (2005: £0.77m)
• Profit before tax up 20% £0.94m (2005: £0.78m)
• Net profit up 117% to £1.70m (2005: £0.78m)
• Strong organic growth of 29% from continuing operations
• Strong cash generation during the year of £0.95m
• Acquisitions contributed £0.53m turnover and £0.15m operating profit
• Earnings per share up 64% to 16.39p (2005: 10.02p)
• Maiden dividend of 0.75p – payable to shareholders on the register at 30 June 2006

Corporate Highlights:

• £4.0m acquisition of Mount Lane Training and Implementation Solutions Ltd on 23 November 2005
• £1.0m acquisition of Customer Projects on 1 February 2006
• Group reorganised into one Best Practice operating unit
• Rapid growth in both PRINCE2 (95% growth ) and ITIL (157% growth)
• ILX is now the only Best Practice training company to offer e-learning, classroom based training and project management implementation consultancy services

In summary, Ken Scott, Chief Executive of ILX Group plc, said:
“Our strategy continues to be to build a market leading presence as a training and software business in the vocational training sector. We will look to create high value business models in each of the markets we serve. This will continue to be achieved through organic growth and by making earnings enhancing acquisitions. This year again has allowed us to demonstrate our ability to deliver profits, strong organic growth, and well judged acquisitions successfully integrated within the framework of ILX Group plc.”

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Chairman’s Statement
For the year ended 31 March 2006

I am pleased to present the results for the year ended 31 March 2006.

ILX Group plc has experienced another year of significant change as the Company continues to expand by way of organic growth and through acquisitions. The wide offering of high quality classroom training, e-learning, and consultancy has allowed the Group to make available a flexible delivery option to customers. This has helped provide competitive advantage and has led to market share gains for the Company in the past 12 months. Two further businesses have also been acquired during the last six months of the year which have helped deliver the overall surge in growth.

International financial reporting standards (IFRS)
These are the first results that we have reported under IFRS and all numbers presented for comparative periods have been restated under IFRS. The changes resulting from the adoption of IFRS do not affect revenue recognition or the cash flows of the business. The primary areas of change are the change in treatment of goodwill, which is now subject to annual impairment reviews rather than amortisation; the requirement to capitalise product development expenditure where certain criteria are met; and the requirement to show a charge to profit for the share options granted to employees. Full explanation of the transition to IFRS is presented in the notes to the financial statements.

Financial results
Turnover for the year was £6,913,255 (2005: £3,924,465) delivering an Operating Profit of £1,000,725 (2005: £774,360. Net profit for the year was £1,699,430 (2005: £782,180) representing basic earnings per share of 16.39p (2005: 10.02p). The results this year have benefited from the recognition of a deferred tax asset; stripping out this benefit the revised earnings per share figure is 9.08p (2005 after stripping out the exceptional gain of £100,000: 8.74p).

I am delighted to announce that your Board has approved the issue of the Company’s first dividend which will be at 0.75p per share, and will be paid subject to shareholder approval at the Company’s forthcoming AGM.

Acquisitions
The Company is building a market leading presence in the vocational education and training sectors within which it trades through a combination of organic growth and earnings enhancing acquisitions. To date, ILX Group has concentrated principally on the Best Practice market as its training needs are well defined and high end. This market provides the Company with growth opportunities for the foreseeable future. The acquisitions of Mount Lane and of Customer Projects have added considerable strength to the company’s Best Practice offering and are expected also to provide new sources of revenue and profit in coming years.

Mount Lane was purchased on 23 November 2005 for £4.0 million, in cash and shares, of which £1.8 million is contingent subject to meeting certain performance criteria for the period ending March 2007. Assuming full earn-out the payment represents a post-tax multiple of 6.0. Mount Lane provides customised training and software based orientation principally for new and existing desktop applications. Its clients tend to be large organisations with 3,000 or more staff where there is typically either a wholesale migration requirement from one Microsoft Windows software system to another or where the organisation is seeking to reduce significantly the cost of helpdesk support. The Mount Lane proposition is to simplify the user orientation headache and thereby to smooth the challenges faced by organisations when their desktop software is upgraded. The Mount Lane software takes an organisation’s users from point A to point B without the business experiencing a dip in productivity and without a short term increase in support calls. In addition, the Mount Lane software is also used by some organisations to reduce the cost of helpdesk support by empowering the user to resolve the more basic problems normally requiring hands-on support. These activities fall within the ITIL sphere as they deal primarily with improving the user experience. The business is based just outside Reading.

The Company’s project management capability was significantly enhanced with the acquisition of Customer Projects in February this year. Customer Projects is an implementation consultancy business specialising in the Best Practice project and programme management sector. Organisations such as Vodafone, United Nations and Pension Protection Fund are using the Customer Projects consultancy service to ensure the transformational changes required to embed PRINCE2 and related project management processes are truly taking place. This significantly complements the Company’s project management proposition and makes ILX Group unique amongst its competitive peer group in being able to deliver training and change management in a flexible and effective way. Customer Projects was purchased for a total of £1.0 million, of which £0.5 million is subject to an earn-out period ending March 2007. Again, assuming full earn-out the payment represents a post-tax multiple of 5.5.

Prospects
In the opinion of the Directors, the Company has maintained the considerable momentum it has gained in expanding its presence in the PRINCE2 and ITIL markets and through the successful integration of previous acquisitions. At the end of the last financial year and after two further acquisitions completed, the Best Practice activities had grown into six separate operating divisions. On April 1 these were reorganised into one single entity. The reorganisation is expected to provide a sharper focus on the Best Practice market, to optimise the opportunities in project management and IT service management and to ensure further market share gains and future quality earnings.

As the Company continues to build a leading presence in this Best Practice market, it is also constantly seeking opportunities to replicate this approach in other vocational training sectors with the aim of eventually having a basket of high value business models. The Directors expect that this will be achieved as suitable acquisitions are identified which provide appropriate entry points.

This year more than any other, I believe the prospects for the Company are very exciting.

Finally, I formally welcome the staff and management of Mount Lane and Customer Projects, and again to thank all ILX Group employees for their dedicated efforts over a year in which their hard work has borne fruit.

We look forward to another successful year in 2006/7.

Paul Lever
Chairman

Chief Executive’s Review
For the year ended 31 March 2006

Introduction

Since I joined ILX Group in 2002, our strategy has been to build a significant vocational training business both through organic growth and by making earnings enhancing acquisitions. Within a few years, we aim to have a number of high value operating businesses, each of which will aim to dominate specific areas of the training markets which they serve. The year to 31 March 2006 has again delivered strong organic growth with two further successfully integrated acquisitions. For the second successive year we have increased profit and generated a considerable amount of cash which together continue to underpin our overall strategic goals.

Financial Results

Profit for the year
The Company delivered turnover of £6,913,255 for the year (2005: £3,924,465) and an Operating Profit of £1,000,725 (2005: £774,360 as restated under IFRS). This growth resulted primarily from a full year’s trading of the Mindscope division (four months in 2005) and from the continued growth of both Mindscope and Key Skills revenues in the Best Practice market. The acquisitions of Mount Lane and Customer Projects also contributed four and two months trading respectively to the overall result. Particular trends in the Company’s trading are identified later in this review.

Net Profit for the Year was £1,699,430 (2005: £782,180), giving basic earnings per share of 16.39p (2005: 10.02p). The Company expects to pay a dividend of 0.75p per share. This dividend will be paid to shareholders on the register at 30 June 2006, subject to shareholder approval at the Company’s AGM.

The 2006 earnings figure benefits from the one-off recognition of a tax asset relating to tax losses that are available to offset against future profits. Additionally the 2005 earnings per share figure benefited from the £100,000 one-off gain on the early repayment of part of its debt in that year. Stripping out both items from the earnings per share gives figures of 9.08p for 2006 and 8.74p for 2005, and on that basis the 2006 performance represents a 4% increase on an enlarged base of 10.36 million weighted average shares (2005: 7.80 million).

The company has utilised £1.04 million of tax losses to eliminate any tax charge for the year. Unrelieved tax losses of £2.62 million remain available to be offset against future profits.

Acquisitions
Two further acquisitions were completed, both in the second half of the year.

Mount Lane Training and Implementation Solutions Ltd (“Mount Lane”) was purchased on 23 November 2005 for £4.0 million, in cash and shares, of which £1.8 million is deferred and contingent. The contingent consideration, of which 15% is payable in cash and the remainder in cash or shares at the option of the Company, is calculated as 4 times the amount by which Mount Lane’s contribution to operating profit, for the year ended 31 March 2007, exceeds £500,000. The full earn-out will therefore be payable in the event that this contribution reaches £950,000 for that year which, assuming a tax rate of 30%, results in a post-tax multiple of 6.0 assuming the full earn-out is achieved. The initial consideration represents a post-tax multiple of 5.9 on Mount Lane’s last full financial year prior to acquisition.

Customer Projects was purchased on 1 February 2006 for a total of £1.0 million in cash and shares, of which £0.5 million is deferred and contingent. The contingent consideration, which is payable in cash or shares at the option of the Company, is calculated as 3.5 times the amount by which Customer Projects’ contribution to operating profit, for the year ended 31 March 2007, exceeds £120,000. The full earn-out will therefore be payable in the event that this contribution reaches £262,857 for that year which, assuming a tax rate of 30%, results in a post-tax multiple of 5.5 assuming the full earn-out is achieved. The initial consideration represents a post-tax multiple of 4.5 on Customer Projects’ last full financial year prior to acquisition.

Both earn-out payments, which we expect to be fully met, are payable on 31 July 2007.

Cash generation and net debt
Cash generated from operating activities during the year was £953,192 (2005: £645,967), a conversion rate of 95% (2005: 89%) of profit from operations.

Net cash from operating activities, which under IFRS is stated after interest paid and corporation tax, was £694,855 (2005: £477,833). The tax payments totalling £187,307 (2005: £125,396) relate entirely to pre-acquisition tax balances on acquired companies. Corporation tax balances payable in the coming year, relating to the pre-acquisition profits of Mount Lane and Customer Projects, are £20,177.

Net cash used in investing activities was £1,186,117 (2005: £170,481). The Company spent £839,914 (2005: an inflow of £46,495) on the cash elements of acquisitions (net of cash balances received) in relation to Customer Projects, Mount Lane, and to deferred cash payable for the acquisition of Mindscope. The Company also spent £474,305 on product development (2005: £198,024) on new products launched during the year or expected to be launched in the first half of the new financial year, and £90,402 (2005: £27,626) on capital expenditure, particularly in relation to investment in new computer hardware and systems. The Company also sold and leased back its freehold premises in Cheshire, principally to provide greater flexibility as the team at that location expands. This transaction, along with the sale of a company car, raised £206,431 for the Company.

Net cash from financing activities was an inflow of £465,549 (2005: outflow of £179,269), and comprised an inflow of £720,796 representing net proceeds from an issue of new ordinary shares, at a price of 100p, to help finance the Mount Lane acquisition, less repayment of £255,247 of borrowings.

At the end of the period the Company had cash balances of £646,126 (2005: £671,839) and total bank and hire purchase debt of £820,721 (2005: £1,076,009). The Company’s net debt position at the end of the year was therefore £174,595 (2005: £404,170).

Markets, Operations, and Strategy

Best Practice market
The Project Management, IT Service Management and other related areas which are collectively known as Best Practice continue to expand and increase their reach. The Company’s Revenues from Best Practice activities represented 80% of total Company revenues in the period, up from 67% in 2005. In order to capitalise on the opportunities in this market, the Company has reorganised its divisional structure, effective from 1 April 2006, into a more coherent operating unit, consisting of one Best Practice division which services the market of the same name. The Company’s revenues, analysed by subject, were as follows:

Projects in Controlled Environments (PRINCE2) is a process driven project management methodology that has become the standard in many parts of the world. PRINCE2 and related Best Practice activities expanded and consolidated further during the period. Demand for PRINCE2 training products continues to expand at a rate estimated at 20-30% per annum. Against this, the Company’s sales of PRINCE2 and other Project Management e-learning, classroom training, and consultancy grew by 95% in the past year. Full year contributions from Mindscope’s classroom training and the acquisition in February of Customer Projects helped drive these gains.

Customer Projects is one of just six Accredited Consulting Organisations for Best Practice project management. It specialises in providing management consultancy to organisations that wish to embed the internal changes necessary to enable Best Practice project management to flourish. Customers include Vodafone, Ericsson, Cable and Wireless, Pension Protection Fund and a major global non-profit making organisation. It is led by Eddie Borup, ex-Head of Projects at Cable & Wireless who has many years of experience in consulting. I am very pleased that Eddie has remained with the Company as Managing Director of the Customer Projects business. This acquisition, combined with our multimedia training software and our classroom training offering has put ILX in a pre-eminent position. ILX Group is the only company in the Best Practice space to provide a full service offering of e-learning, classroom based training, and project management implementation consultancy services. This is increasingly helping to drive market share gains as we consolidate and refine our overall proposition.

During the year, the Company also continued building its position in the Service Management market with the launch of classroom training products for the Information Technology Infrastructure Library (ITIL) qualification, following on from the successful launch of CBT products in this area in 2005. ITIL covers an integrated, process based, best practice framework for managing IT services and is recognised worldwide. The Company’s sales of ITIL, IT, and other Service Management e-learning, classroom training, and consultancy grew by 157% in the past year, helped by strong sales of ITIL training products and by the acquisition of Mount Lane.

Mount Lane is a specialist provider of customised training and implementation solutions/services. It provides an economic solution to organisations undertaking major desktop migrations where the need to minimise productivity slippage is critical. Mount Lane has also been increasingly successful in helping organisations to substantially reduce the cost of help desk support through the use of its orientation software. The overall proposition is closely allied to ITIL as the focus is primarily on the user experience and ensuring either smooth transition in the case of migration and/or effective user support. Its target market is listed companies and large organisations, typically with an IT infrastructure in excess of 3,000 desktops. It has a blue chip customer base that includes Norwich Union, most of the major UK banks, Network Rail and BskyB. Andrew White is Managing Director and has many years experience of the Mount Lane business and has remained with the enterprise he founded.

Sales of Financial Training products and services were down slightly during the period as the offer was refined and the products refreshed. This is an increasingly marginal portion of the overall business of ILX Group and we therefore do not view this as significant.

Delivery methods
ILX Group is the only company in the Best Practice space to provide a full service offering of e-learning, classroom based training, and project management implementation consultancy services. This is increasingly helping to drive market share gains as we consolidate and refine our overall proposition.

In the full year, revenue was well spread between e-learning and classroom-based training, contributing 47% and 34% respectively. Classroom-based training in particular experienced significant growth, due partly to the full year’s contribution from Mindscope but also to significant organic growth in this area. The acquisition of Customer Projects helped drive the Consultancy revenues and the bespoke software development revenues were boosted by the acquisition of Mount Lane.

The Company has unique expertise in software development and the use of software for training purposes married with its classroom training capabilities and development experience. During the period the Company undertook a number of bespoke or build-to-order contracts, which came from the following areas:

• Development of bespoke e-learning solutions
• Implementation products and services allowing companies to distribute training over a wide and dispersed audience whilst maintaining a full audit trail
• Customisation of products to meet customer-specific requirements

We envisage this area growing significantly as we leverage our competitive advantages of strong e-learning development capability as well as classroom delivery and consultancy.

Geographic split and sector analysis
All the Company’s operations are based within the UK but products and services are exported to a number of overseas locations. The majority of the business continues to come from UK customers (88%) with small amounts from Europe (8%) and North America (2%).

The Company continues to serve a wide range of customers across public and private sector as well as a significant proportion of business direct with individuals, as illustrated by the table below. All areas showed strong growth in the year.

Management changes
As we grow as a Company, the importance of developing and maintaining a strong management team grows ever more relevant. As mentioned earlier, I undertook a wide ranging reorganisation at the end of the period. Its purpose was to improve our focus and thereby our capabilities to win business in the Best Practice market. Martyn Kinch, Commercial Director (non-statutory) of the Company since April, 2005 has been appointed Managing Director (non-statutory) of the Company’s new Best Practice Group. Martyn ran Key Skills since its inception and joined the Company in February 2004. His remit is to drive the Best Practice Group into a market dominant position over the next few years.

Working with Martyn are Denise Maxfield - Sales Director (non-statutory), Eddie Kilkelly - Operations Director (non-statutory) and David Willis - Technical Director (non-statutory). Denise Maxfield has run the sales team at Key Skills for a number of years. David Willis has managed the ILX Group division since April 2004. Eddie Kilkelly joined the Company in March this year from Parity where he was responsible for all operational delivery over a number of years. I am very pleased to welcome Denise, Eddie and David to the Best Practice management team.

I am also delighted to welcome Andrew White (Managing Director (non-statutory), Mount Lane) and Eddie Borup (Managing Director (non-statutory), Customer Projects) to the team. Andrew White and Eddie Borup will continue to manage Mount Lane and Customer Projects respectively as distinct units within the Best Practice Group.

Future opportunities
There are a great deal of opportunities open to us as a Company and many challenges ahead. The focus for the first half of the next year continues to be to exploit the opportunities for organic growth.

We have stated before the importance we place on establishing and maintaining a firm dialogue with all shareholders and ensuring that regular news of the Company’s progress is available. To this end we redesigned the Annual Report last year and launched the Shareholder Discount programme. In the summer of 2005 we also launched the shareholder newsletter. Now called ILXtra, its purpose is to improve news flow and the communications between the Company and you its shareholders. I would again encourage as many shareholders as possible to attend the AGM.

It is hoped that continued strong trading, organic growth, further choice acquisitions and improved investor relations, will bring about higher profile for the Company amongst the investment community.

Our strategy continues to be to build a sizeable training and software business in the vocational training market. We will look to create high value business models in each of the markets we serve. This will continue to be achieved through organic growth and by earnings enhancing acquisitions. This year again has allowed us to demonstrate our ability to deliver profits, strong growth, and well judged acquisitions successfully integrated within the framework of ILX Group plc.

Lots still to achieve but we look forward to a bright future.

Ken Scott
Chief Executive

Preliminary Financial Statements For the Year ended 31 March 2006

Click on the link below to download the preliminary financial statements for the year ended 31 March 2006

Preliminary Financial Statements For the Year ended 31 March 2006

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