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Last week, ILX Group (LSE:ILX), the AIM-listed provider of e-learning software and business training, announced the shock departure of long time CEO Ken Scott. And this week we have weakfish interims and news of a restructuring. It is all coming rather thick and fast but suggests that 29.9% shareholder and new executive chairman/interim CEO Wayne Bos is acting ruthlessly to turn this ship around. His interests are aligned with those of other shareholders and he has a good track record. Should you back the Bos despite the admission that half year numbers were “disappointing.” On balance there is a case to be made, at a share price of 10.125p, although, as I discuss below, it is not 100% clear cut.
You can read my thoughts on the departure of Scott here
In the half year to 30th September, the underlying pre-tax profit fell from £0.187 million in the comparative 2011 period to an underlying loss of £0.262 million. This was despite revenue actually being nudged 1.8% higher to just over £6 million – this driven by a 17% increase in Australian and New Zealand business (to £1.6 million), with UK revenues 10% lower and other originating revenues up by 3%.
A £550,000 further cash outflow of particularly tax, investment spending and restructuring costs was mitigated by tighter working capital and a net £1.19 million investment by Praxis (the vehicle of Wayne Bos). This resulted in a £1.62 million improvement in the net debt position – with this ending the period at £0.633 million. However, net current liabilities at period end totalled £2.95 million, with there also £0.341 million of non-current liabilities. As a result, and despite expecting a stronger second half as software sales in particular have shown a long-term consistent bias towards year end customer purchasing, the new management noted “the operating performance and the restructuring costs will put pressure on the group’s working capital. We are therefore planning a further cash injection to fund additional working capital and ensure the appropriate reorganisation changes are carried out”. The company added “the board is confident of its ability to secure additional funding from identified sources”.
Bos stresses he has “acted swiftly to achieve cost reductions, both in business processes and in staffing levels” and notes he joined the business as he saw encouraging potential in the company’s highly efficient and cost effective solutions as well as opportunity to build scale in the group through acquisitions (a small number of opportunities are noted to have already been identified and the first of these currently under consideration).
I have little doubt in Bos’ ability to inject further capital here but with the shares down to 10.125p on this news – capitalising the company at just over £4 million – have some concerns on the terms and potential scale of the dilution this could entail. My guess is that Bos will get a Rule 30 waiver and if needs be he will inject the cash and I would assume he would have to do so at around the current level.
On the upside, the second half bias saw the company produce an underlying pre-tax profit for its last full year of £0.968 million and thus, on successful restructuring, there is possibly significant recovery potential from current share price levels. I again apologise for what has turned out to be a very disappointing past recommendation from my t1ps.com days but at current levels I would hold on and give the experienced Bos – who I regard as a sharp cookie – a chance. If he gets this right this could well be a recovery play to more than double.
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