Performance

Performance

Returning to high growth

Incremental’s FY21 financial performance was strong, particularly given the backdrop of Covid-19. Returning a 15% EBITDA margin on revenues of £16.2m represented a significant step up from FY20 and was a clear indication that the significant restructuring undertaken during the previous year had been impactful.

We also saw a return to acquisitive growth in the final quarter of the year, with the acquisition of Redspire in January 2021. Reflecting the Redspire acquisition on a pro forma basis shows revenue for FY21 of £19.3m and EBITDA of £3.4m.

FY21 REVENUES OF

£19.3m

on a pro forma basis


FY21 EBITDA
OF

£3.4m

on a pro forma basis


Returning to double-digit organic revenue growth was a strategic objective going into FY21 and to deliver on this was a particularly pleasing outcome given the significant economic turbulence experienced throughout the period as a result of Covid-19. The return to acquisitive growth in the final quarter of the year boosted the double-digit organic growth up to almost 25% for the year overall; a £3m step up in revenue to £16.2m for the year. As noted above, reflecting the Redspire acquisition on a pro forma basis shows revenue for FY21 of £19.3m, almost 50% up on FY20.

The high margin services revenues delivered by our Incrementalists stepped up by 25% year-on-year and represented 80% of our overall revenues. Included within our services revenues are the recurring managed services contracts, which delivered growth of almost 15% in FY21; a growth trajectory that is continuing to build strongly in the first quarter of FY22.

In addition to our recurring managed services revenues, the continued shift to subscription licences during FY21 has increased our contractually recurring revenues from just over 20% in FY20 to 26% in FY21. This level of future revenue underpinning is further bolstered by a typical 40% of annual revenues being derived from repeat projects with existing, long-standing customers.

Adding 58 new customers during FY21 significantly expands the opportunity to drive continued revenue growth from repeat projects and also ensures the business does not suffer from any customer concentration risk; no single customer in FY21 represented more than 10% of group revenues.

In parallel with delivering revenue growth, the business has seen a six-point improvement in gross margin during FY21 to just over 40%. While the restructuring changes during FY20 contributed to this step-up, our investment in project delivery governance and more efficient and repeatable delivery models have been key factors underlying the improved profitability, together with our continued shift towards adding more enterprise customers.

FY21 GROSS MARGIN

+ 6 points


A large element of the restructuring undertaken in FY20 impacted our overhead base, with the tangible benefit being the realisation of close to £1m of reduced overheads in FY21 compared to the previous year.

Lower overheads combined with continued revenue growth at improved gross margins improved the quality of earnings to result in the delivery of £2.5m of EBITDA in FY21. Such a significant turnaround in profitability compared to FY20 is testament to the tough decisions that were taken to restructure the business in that period, with the return to double-digit EBITDA margins, demonstrating the robustness and resilience of the business during an exceptionally turbulent year in the wider economic environment.

FY21 EBITDA MARGINS OF

15%


With the acquisition of Redspire in late FY21, the enlarged business will benefit from an improving EBITDA margin through FY22 as we will not need to scale our overhead base at the same rate as the continuing revenue growth of the acquired business.

In addition to our strong trading performance in FY21, we delivered an operating cash flow conversion of just over 100%. A fantastic achievement and one that was critically important in allowing us to scale and maintain our available cash reserves in light of Covid-19 uncertainty, particularly in the first half of the financial year. While this cash conversion benefitted from the ability to defer our March 2021 VAT liability and spread it through FY22, our underlying operating cash flow conversion was still at 85% for the year.

Converting a substantial proportion of our £2.5m EBITDA into cash during the year allowed us to pay down £1.2m of debt balances and fund certain acquisition fees from cash while still increasing our cash position by a net £1.1m over the year.

FY21 OPERATING CASH FLOW CONVERSION OF

85%


The business has continued its growth trajectory in the early months of FY22, with the trailing 12 months to June 2021 showing revenues of £20.5m and EBITDA of £3.7m. We are on track to organically deliver in excess of £4m EBITDA on revenues of £25m in the current financial year to March 2022.

Our embedded cellular business unit structure is demonstrating that it is a great facilitator of successful acquisition integration that fuels, rather than hinders, continued organic growth and profitability. As such, in parallel with delivering the FY22 organic growth, we plan to successfully acquire and integrate more complementary organisations during the financial year to increase our capability and capacity.

Continuing our acquisitive growth strategy through FY22 would further enhance our FY22 financial performance and would see us exit FY22 with a pro forma run rate of more than £40m revenues and £8m EBITDA. Our overall ambition remains unchanged – building a business with more than 600 highly skilled Incrementalists capable of delivering annual revenues in excess of £75m.