Company spotlight: A business in training for some profitable returns

Most chief executives would give their eye teeth to be operating in a genuine growth market.

Most chief executives would give their eye teeth to be operating in a genuine growth market. Ken Scott, who runs the AIM-listed training company, ILX, now finds himself not with one, not with two, but with three fast-growing areas of the business skills market to pitch at. It makes ILX shares look distinctly attractive.

It was all very different when Mr Scott, a former HSBC banker whose past credits include turning around Hamptons, the estate agent, took over at ILX (then called Intellexis) two years ago. The company was losing £150,000 a month. Costs were out of control. And the financial training market on which it depended was shrinking, not growing.

Mr Scott slashed costs and cast around for businesses that would reduce ILX's dependence on financial services and build critical mass in what is a highly fragmented training market. The company-making deal was the acquisition of the Cheshire-based company, Key Skills, in January this year. This took ILX into the PRINCE2 market. PRINCE2 is a training standard created by the Government for people in the project management sector. It is spreading across Europe, too. Demand for PRINCE2 training is growing by between 20 per cent and 30 per cent a year.

Key Skills has traditionally sold computer-based distance learning courses in the PRINCE2 market. Now, with the acquisition of Mindscope 10 days ago, ILX can also offer classroom-based training - or combinations of the two. Mindscope also offers project management consultancy, which is a growing and high-margin element of the £100m PRINCE2 market. Mr Scott says ILX is now the only training company that can package all three services in this area.

Another acquisition added to the alphabet soup at ILX by taking it into the ITIL (Information Technology Infrastructure Library) training market. ITIL is another government-accredited scheme aimed at everyone in the service end of the IT industry - such as service centre or helpdesk personnel. It is, says Mr Scott, "rapidly becoming a passport for everyone in IT". The ITIL market is growing even faster than PRINCE2. Mr Scott is now making sure ILX is represented at every ITIL exhibition in Britain, Europe and America in the next 12 months.

Finally, ILX is also exploiting the blizzard of new regulation coming out of Brussels and Whitehall alike. Its offshoot, Computa-Friendly, has developed a suite of e-learning tools to help companies deal with all the new initiatives in health and safety, data protection, freedom of information, e-mail and internet best practice and the like. Business is booming. None of this has yet shown through in profits at ILX, but it is about to. The company just broke even at the half-way stage this year (after ignoring one-off items and the write-off of goodwill) but its broker, Teather & Greenwood, expects it to turn in a £700,000 profit in the full year to end-March 2005.

That will be a maiden profit for the company. The heavy weighting towards the second half of the year reflects the fact that it is then that companies with December year-ends - and the public sector with an end-March year-end - spend whatever they have left in the training kitty rather than see it lost. By the end of March, ILX should also have eliminated its current borrowings of around £800,000. The traditional Intellexis business especially takes a lot of up-front payments from clients for hosting e-learning programmes for them. Rolls-Royce, IBM, Ciba Specialty Chemicals and the American company, Johnson Controls, are among the customers for its financial training programmes. There was a further round of cost-cutting at the Intellexis business in the first half that is reckoned to have cut about 30 per cent off fixed costs.

ILX shares have come up by a half in the last four months and stand at around a pound. This values the company at just under £9m. But that still looks modest for a business slated to make £1.1m in 2005/6 when all the recent acquisitions will be chipping in a full year's contribution. Most of ILX's quoted competitors trade on much more demanding ratings.

As Mr Scott acknowledges, the company has not made a profit since it came to the stock market in 2001. ILX's doubters want Mr Scott to show them the money first. The formula looks a good one. Mr Scott is able to pick up private companies on low multiples of earnings and use the more highly rated ILX shares as currency. His customers fund much of the business with up-front payments and the business is cash-generative. ILX has been refocused on a small number of high-growth markets. More acquisitions will doubtless come - Mr Scott would like more in the consultancy end of the market - as ILX aims at becoming one of the leading consolidators in the training industry. It is a formula worth backing.