Chief Executive's Statement 2016

A few words from Jay Patel | Chief Executive Officer

Market overview

As I stated last year, we are living in a period of great change driven by technology, the ubiquity of mobile networks, increasing processing power of mobile devices and the falling costs of cloud computing. These themes are disrupting many industries and providing tremendous opportunities for value creation. This disruption is continuing and arguably accelerating with the launch of new technologies and initiatives around artificial intelligence, voice recognition and interactive messaging channels by the large global technology businesses such as Facebook and Apple.

These changes are revolutionising consumer behaviour across the world as the proliferation of connected devices transforms the relationships between consumers and service providers. There is an overwhelming need for companies like banks, mobile operators, retailers, brands and utilities to focus on improving customer experience, particularly through digital channels. We are focused on helping clients to fully utilise mobile and digital technologies to improve customer engagement.

Our strategy has been to ensure that our software products and solutions are network, channel and device agnostic so that our clients have a partner that is able to deliver the right experience for their customers across a customer base that maybe highly fragmented in its use and adoption of technologies. We also believe that as consumers adopt the new technologies they won’t necessarily discard old technologies and channels of communication and our clients will need software and solutions that adapt to this fragmentation.

Our addressable market is fragmented, highly competitive and fast changing with IT and Communication vendors of all sizes looking to offer services for mobile and digital transformation. According to Forrester’s Market estimates, organisations will spend £90 billion on systems and processes for mobile engagement in 2017 and, according to Gartner, global IT spend will reach $3.5 trillion, 42% of this is being spent on communications. Spend on software is a small fraction of these totals but all reports suggest that the amounts spent on our specific area of expertise, cloud software for customer engagement, will increase substantially over the next few years.

We also expect to benefit from the increasing penetration of smartphones and data coverage in the emerging markets, particularly across India and Africa. An additional 1.3 billion smartphones subscribers are expected in India and the MEA region over the period from 2015 to 2021 and we believe that as a trusted vendor to the mobile operators in these regions we will be at the forefront of their customer engagement and new business activities.

As an organisation we started in the pre-smartphone age of 2G networks and we have established a strong track record of delivering innovation to blue-chip enterprises around the world and we believe that our continued growth is supported by market trends in all regions.

Software and solutions offering

A key initiative over the last year has been to simplify and reposition our technology and product offering to enhance the go-to-market strategy and to make it easier to sell and roll-out our platform and applications. The product portfolio is delivered from our global cloud infrastructure and offers a suite of end user business applications and a core platform-as-a-service offering.

IMIconnect

IMIconnect is a cloud-based platform that helps time and resource constrained IT teams to quickly and easily automate customer interactions across communication channels such as SMS, Voice, Social Media and Facebook. Using visual drag-and-drop tools to automate messages and responses, for example, reduces the time and complexities inherent in a programming-intensive approach.

We have invested considerable resources into this platform over the year adding additional communication channels and developer tools and we believe this platform can be a key enabler of future growth as an increasing number of businesses across all sectors adopt digital transformation agendas.

IMIcampaign

IMIcampaign is a cloud campaign management application designed for multichannel communication. It allows marketing departments to create, manage, deploy, monitor and adapt marketing campaigns targeted at a customer’s mobile device. Channels supported include SMS, MMS, email, social media, mobile internet and USSD. The product supports different types of campaigns such as promotional, event-triggered, targeted, interactive, progressive and multi-wave campaigns.

IMIcampaign is fully integrated within the internal processes and systems of a client and provides a real-time snapshot of customer behaviour using the campaign dashboard which allows businesses to track campaign activity at all times. The product is used by mobile operators, retailers and gaming companies.

IMIdigital

IMIdigital helps organisations to offer mobile content services such as video and audio to different devices across multiple channels. The products reduce the time to market and ensure cross border consistency through the end-to-end service delivery platform including content licensing web-portal, as well as app development.

IMIdigital powers more than 350 international content services and 14 billion billing transactions across the globe for trusted and recognised brands such as Universal Music Group, MTN, Aircel, Airtel and Orange across multiple international territories. We have continued to develop this set of products and during the last year we have added and deployed video and audio streaming capabilities.

IMIchat

IMIchat is a cloud application that enables contact centres to improve their customer interactions whilst optimising their operational costs and efficiency. This product allows for real-time agent interactions for either customer support or sales across multiple message channels including SMS, Facebook Messenger and In-app chat channels.

Contact centre specific functionality includes message templates where contact centre agents can choose pre-configured messages to improve the speed of interactions and ensure consistency. Additional capabilities include a queue management system, management of permitted discourse and the ability to tag conversations with keywords to enable efficient tracking of conversations. Over the last year we have added new channel capabilities, an enhanced user interface and adapters for integrating into other contact centre applications. The application is now used by leading retail banks, insurers and utilities.

IMIsocial

IMIsocial is a cloud application that centrally collates high volumes of inbound customer audience messages from multiple social channels such as Facebook, Twitter, SMS, YouTube and Instagram, allowing broadcasters to use audience generated content in their programming. This allows for real-time audience interaction as well as premium rate services such as competitions and voting, therefore transforming audience engagement into improved ratings and revenue.

The product gives editors, producers, and presenters real-time feedback on audience reactions, comments and sentiment in one accessible, easy-to use dashboard with an auto filter on content preferences. Over the last year the latest version of IMIsocial has been rolled out to leading broadcasters such as the BBC and other major media houses powering their audience engagement programmes.

Textlocal

Textlocal is a cloud-based, self-serve platform that allows SMEs to gain instant, affordable access to SMS messaging capabilities. The platform simplifies the creation, deployment and management of mobile messaging campaigns and services.

Textlocal is a Software-as-a-Service business messaging tool that enables businesses of any size to harness SMS messaging capabilities to increase customer engagement and marketing ROI. The product was acquired in October 2014 and since then we have invested in adding sophisticated data import capabilities, target group definition, audit logs and role-based access control which make the product ideally suited for enterprise usage whilst also providing an extremely intuitive yet simple to operate interface. The Textlocal product is being used across a range of industries by companies like Makro, Pizza Hut, Costcutter, Tastecard and Lottoland.

All the key products support multi-tenancy and are hosted and managed within the IMIcloud which provides highly available and scalable data centre and network infrastructure including industry leading levels of availability and disaster recovery. The IMIcloud supports our integrations and connectivity with mobile network operators, device environments (such as Apple and Google), payment gateways and other third party service providers.

We operate a private cloud co-located in five data centres across the UK, US and India and our platform modules have been deployed with geo-redundancy to offer 99.99% service availability. We have also supported certain clients and applications on a public cloud infrastructure.

The infrastructure, platform and software applications are all supported by our Virtual Network Operations Centre (“VNOC”) operating 24/7 across support centres in the UK and India. The VNOC teams in India are ITIL certified and aligned to ITIL best practice guidelines. We are ISO 9000 and 27001 accredited and operate several services within a PCI DSS compliant environment.

Our cloud infrastructure and applications today process over 13 billion SMS messages per year, 15 billion voice flows, and 14 billion commerce transactions.

Regional performance

The Group is managed commercially and strategically on a regional basis with centralised resources for software development, finance and general management. A key operating metric for each region is gross profit as there are considerable differences in gross margins across regions, product lines and revenue models. Gross profit additionally measures most directly the value of the software and associated services delivered by the Group which excludes the impact of network infrastructure, third party hardware and content costs.

Europe and Americas

Gross profit £19.9m (2015: £16.4m)

Gross profits in this region have risen strongly by 21% year on year. Organic growth accounted for 9% of this. Like for like gross profit growth from Textlocal was above 10%.

Growth in the region came from a number of new significant contract wins with a mobile operator, an electronics retailer and a gaming business as well as additional business from existing financial services clients. We also renewed all significant contracts falling due in the year including a two year extension with the region’s largest customer, a tier-one high street bank, and a three year renewal with a leading utility provider.

Mobile operators remain our largest customer sector, and we are currently positioned as a trusted, integrated and reliable partner to all the major UK operators. We have also retained our position as one of the leading providers of carrier billing products in the UK market. Furthermore, we have made progress in the financial services sector, which is undergoing rapid change due to mobile and digital technologies.

There are live deployments of all of our products and platforms in the Europe and Americas region with new versions of IMIcampaign, IMIconnect, IMIchat, IMIsocial and Textlocal launched and deployed in the year. We have successfully upsold new deployments of our products to existing clients, and on the back of these successes we have also started to invest in a reseller and partnership strategy through which we hope to build greater distribution.

A number of our deployments have also been recognised by industry during the year; including the ‘Best Use of Social Media in Telecom Industry’ at the Youth Marketing Awards 2016 as well as being shortlisted as a finalist for the ‘Best Loyalty Programme within the Telecoms sector’ category, along with O2, for the Priority £1 lunch campaign.

We continue to invest in establishing our operations in the Americas and have significantly grown gross profit in the region. We now have contracts with Cricket and GoPhone as well as early pilots with other major operator groups. We will continue to invest in the region, as it is the largest single addressable market for our product set.

Middle East and Africa

Gross profit £11.4m (2015: £8.6m)

Our business performed well this year driven by an increase of 58% in our recurring revenue from our existing and new contracts with mobile operators in the region. Overall organic year on year gross profit growth was 15% and this lower figure reflects the expected fall in license revenues from the exceptionally high level of non-repeating license revenues recognised in the previous year. The acquisition of Archer Digital in September 2015 contributed to 32% gross profit growth in the Middle East and Africa.

IMImobile has long-term contracts with the leading mobile operator groups for deployments of IMIdigital and IMIcampaign in multiple countries. We work with mobile operators that serve nearly 500 million customers representing 40% of all mobile subscribers in the region.

Our clients’ significant investment in increasing mobile coverage across Africa is providing opportunities for people to consume more content and we work closely with our clients to create, deliver and operate these content services across different mobile channels. We believe there are strong foundations for growth. The number of smartphone connections is expected to increase from 245 million today to over 585 million by 2020. There is also a strong pipeline of operator contracts in deployment which will contribute to profit in the coming years in the region.

The acquisition of Archer Digital (“Archer”) for a cash consideration of $5.6m was a major highlight during the year. Archer was founded in 2005 and provides a feature-rich suite of mobile engagement products to clients across banking, satellite television services, mobile operators, retailers and municipalities in South Africa. The company has experienced year on year growth since its inception in 2005, has 50 employees and is based in Johannesburg. This acquisition supports the Group’s international growth plans, as well as providing access to customers in key target sectors.

The Group continues to see numerous opportunities in Africa for enterprises to use mobile as an engagement channel driven by the explosion of mobile devices and better networks as well as the limitations of physical infrastructure. We intend to utilise Archer’s existing infrastructure and market presence to cross-sell IMI’s product suite and to offer Archer’s technology and products to new international markets outside of South Africa. Trading since September has been in line with our expectations.

Currency volatility in South Africa and Nigeria, as well political and regulatory uncertainty, could create short term obstacles. However we remain very positive about opportunities in the region and our proven ability to deliver solutions for the leading blue chip companies operating in this region.

India and SE Asia

Gross profit £5.3m (2015: £5.0m)

We are pleased to report that after a strong second half we have returned to growth in India with an overall gross profit increase of 4%.

This growth reflects a significant increase in new sales with a new voice services contract signed with a major operator in Myanmar and a major deployment of IMIcampaign in a license deal in Nepal as well as various smaller wins with leading ecommerce businesses, FMCG brands and financial services clients. There continued to be a decline in the monthly recurring revenue from certain operator customers. However we now believe this has stabilised.

During the year, we have also successfully renewed a number of multi-year contracts with four of the major operators in India that serve over 350 million customers. We also won a three year contract to provide services on a pan-India basis, previously having only provided coverage in part of the country.

We have also successfully launched the Textlocal platform in India with over 1,500 paying customers in the first six months and we believe that the market for cloud communications software will grow rapidly in the region. We are well placed to leverage this trend with our suite of cloud applications.

IMImobile is proud to have been selected as a partner of BBC Media Action and The Gates Foundation to provide free mobile health education services to nearly 10 million families and one million community health workers across India, facilitated through the Government of India’s Ministry of Health and Family Welfare Department. This programme was developed by BBC Action Media and powered by our IMIconnect platform nationwide, ensuring that pre-recorded audio health messages became available to millions of women and expectant mothers throughout India.

Growth strategy and outlook

Our growth strategy has remained consistent over a number of years.

There are structural growth trends from which we benefit, particularly the movement towards the use of cloud software and infrastructure for enhancing customer experience. We also operate in highly competitive markets with technology vendors of all sizes competing for the attention of enterprises as they pursue the benefits of digital and mobile transformation.

We are confident that we can grow organically in these markets on the basis of strong existing customer relationships and an innovative culture that will help us to secure new relationships. We currently have over 70 clients with revenues over £0.1m p.a. of which 20 have revenues over £0.5m p.a. and 11 clients with over £1m p.a. We believe that we can steadily grow the number of clients and the average size of the contracts as mobile and digital engagement strategies become a business imperative.

In order to develop our relationships we need to continually innovate and we believe that our track record of delivering innovation over the last fifteen years has underpinned our growth to date. We have committed technical resources in India and the UK and believe that we can cost-effectively continue to commit R&D resources to innovate. We are encouraged by the progress we have made with the latest versions of our cloud product suite and we hope to create additional growth opportunities through a partnership and channel strategy for greater distribution.

We also believe that selective geographic expansion can enhance organic growth and we have invested in establishing operations in the USA and Myanmar, in the USA because we see large opportunities for our core product set and in Myanmar there is substantial greenfield opportunity for our core products and solutions.

We continue to look for acquisitions that can accelerate growth and have clear criteria for selection in what is a very fragmented market. Our primary objective is to look for organisations that have close, recurring and substantial relationships with large blue chip corporates delivering mobile and digital strategies or technologies. We believe that over time we should be able to increase the scale of the client relationships. We also consider companies with complementary products that can be delivered to our major customer groups.

We aim to maintain a strong balance sheet as there are many acquisition and consolidation opportunities. However we are confident in our organic growth and strategic position and believe it is important to wait for the right opportunity, particularly when valuations look stretched for many small privately owned companies. We are pleased with all the material acquisitions we have made in the Group since foundation (WIN plc, Textlocal and Archer) and will continue to consider selective opportunities.

The 2017 financial year has started well with many opportunities for growth across all regions and business units. As a result of our stable client relationships, pipeline of new deployments and high mix of recurring, repeating and transactional revenues we have good visibility of future performance. We will continue to invest in more sales and marketing activities and product development to establish a leading position in growth markets, and we are confident of our prospects for the year ahead.

Jay Patel

CEO