IRIS 2009 annual review

My attention was recently drawn to IRIS's 2009 Annual Review, dated 17 August and published on its website (also available as a PDF download). I admire the company's transparency. As a privately held group, it doesn't have to put its accounts into the public domain, but as the chairman Stephen Duckett explains in the review itself, IRIS is keen to compy with the corporate governance best practices set out in the 2007 Walker Report on disclosure and transparancy in private equity deals.

The headline figures for the financial year to 30 April 2009 show steady progress from the previous (shortened) financial period despite the difficult market conditions:

• Turnover up £24m to £119m
• Operating profits of £40m before exceptional costs and amortisation of goodwill, up from £33m in April 2008
• Operating cash flow of £39m over the year (roughly the same amount as the period ended 30 April 2008)

It also shows good results against key performance indicators:

5 Key KPIs                                       2009             2008

Return on sales                               33.3%             34.3%
(adjusted operating profit
divided by turnover)

Ratio of recurring                             69.9%             64.6%
revenue to total revenue     

Customer retention rate                 90.5%             90.7%

Ratio of operating cash                 106.8%             128.6%
inflows to operating profit
before amortisation of goodwill

Organic revenue growth                   0.8%                n/a
(current year compared to
annualised prior period)   

But some of the other figures aren't quite as reassuring:

• £27.2m amortisation costs on acquired goodwill, up from £21.9m in the previous period
• £23m+ increase in "other administrative expenses"
• £3.2m exceptional costs, primarily relating to redundancy and property costs arising from restructuring.
• Gross bank debt up £9m to £338.5m, as funds were drawn down to finance acquisitions.

The review explains that IRIS Group has an available facility of £415m, with the undrawn £76.5m representing an 18% cushion. It points out that its favourable banking arrangements protect from any adverse effects the recession may have on banks’ approach to lending. But it also says that it will have to start repayments on these facilities in 2014-16.

As I've stated many times before - and questioned CEO Martin Leuw about several times - IRIS has taken a risk in pursuing a Sage-like growth through acquisition strategy. The transformation has seen the company grow very rapidly, but questions keep cropping up about how it may affect the customer experience and IRIS brand.

I'd be interested to know what other members of the discussion group make of the Annual Review and how the financial figures relate to their experiences. Since the information has been around for a while now, it's less of a shock horror news item for AccountingWEB than a semi-private review of the company's internal dynamic. I'm more interested to see if this discussion group can come up with meaningful insights into the IRIS phenomenon.
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John Stokdyk, Technology editor