Final Results
microgen 18 February 2004
Information Management Solutions
www.microgen.co.uk
Microgen plc
Preliminary Audited Results
for the Year ended 31 December 2003
Microgen plc, the IT services and solutions group which provides consultancy,
managed services and software, announces preliminary audited results for the
year ended 31 December 2003 in line with expectations.
Highlights
* Preliminary results in line with expectations
* Operating profit* from Continuing Operations increased by 16% to £2.4m
(2002 : £2.0m)
* Operating margin* on Continuing Operations increased to 11.3% (2002 : 8.0%)
* Total revenue of £26.4 million (2002 : £25.3 million)
* Profit before tax* increased by 12.5% to £2.5m (2002 : £2.2m)
* Adjusted earnings per share* up 11.5% to 2.9p (2002 : adjusted eps of 2.6p)
* Loss before tax of £2.4 million (2002 : £2.0 million) after goodwill
amortisation of £2.2 million and net exceptional charges of £2.7 million.
Net loss per share of 3.2p (2002 : loss per share of 4.2p)
* Net cash inflow from operations of £4.8 million in the period.
* Gross cash at 31 December 2003 of £10.5 million and net free cash of £8.2
million.
* before tax, goodwill amortisation and exceptional items
* Acquisition of MMT Computing plc completed in November. Operational
improvements in MMT are already delivering tangible results, including
increase in consultant fee rates and £2.2 million cash inflow from working
capital management. Operational integration on track, including the exit
and consolidation of 4 office facilities.
* Acquisition of Imago QA Limited in December. Integration complete.
Martyn Ratcliffe, Executive Chairman commented: 'Despite the difficult market
conditions, Microgen's disciplined management approach has again produced
strong results, showing operating margin improvement and underlying eps growth
for the third successive year. The acquisitions of MMT Computing plc and Imago
QA Limited have significantly increased the scale of the Group and the benefits
anticipated at the time of the acquisitions are being achieved.'
Contact :
Martyn Ratcliffe, Executive Chairman 01753-847122
Mike Phillips, Group Finance Director
Giles Sanderson, Financial Dynamics 020-7831-3113
Ben Way, Financial Dynamics
A results presentation will be available from www.microgen.co.uk.
Chairman's Statement
In terms of both operating results and the strategic development of the Group,
2003 has been one of considerable success. Despite the continuing difficult
market environment, the Board of Microgen reports a strong performance for the
year ended 31 December 2003 for the continuing businesses, due to the
disciplined management approach maintained during the period.
The two acquisitions completed towards the end of the year have substantially
increased the size of the Group, providing an expanded customer base and
broader product and service offerings. In both acquisitions, the integration
has been rapid and effective to reduce the cost base and realise the benefits
from the increased scale.
The challenging market conditions in the IT sector in recent years have been
well documented. The ability to report a further improvement in operating
margin and adjusted earnings per share, while continuing to invest in new
product development, reaffirms the Board's strategy and the execution of that
strategy.
FINANCIAL SUMMARY
For the year ended 31 December 2003, Microgen increased operating profit before
exceptional items and goodwill amortisation from Continuing Operations to £2.4
million on revenue of £21.0 million (2002: £2.0 million on revenue of £25.3
million). Including the two acquisitions made towards the end of the year,
(which contributed £3.2 million of revenue and an operating loss of £0.1
million), profit before tax, goodwill amortisation and exceptional items
increased by 12.5% to £2.5 million (2002 : £2.2 million). Adjusted earnings per
share (to reflect the underlying operating performance) was 2.9p, an 11.5%
increase on prior year (2002: 2.6p).
After including goodwill amortisation and net exceptional items the Group
produced an operating loss for the year of £2.6 million (2002: operating loss
of £2.2 million), and after interest and tax the net loss for the year was £2.0
million (2002 : net loss of £2.6 million) producing a fully diluted loss per
share of 3.2p (2002 : loss per share of 4.2p). The net exceptional items
include a one-time exceptional charge arising from the integration of the
acquisitions of £3.3 million partially offset by a one-off project undertaken
by a major customer that contributed an exceptional operating profit of £1.2
million.
As a result of the acquisitions, headcount, including external associates and
contractors at 31 December 2003 was 581 (31 December 2002 : 289). Significant
further reductions have been made in consolidating and integrating the
acquisitions and by 31 January 2004 headcount had been reduced to 529.
The Group produced a positive operating cash flow of £4.8 million and has
maintained a strong balance sheet. Following the two acquisitions the Group had
a gross cash balance of £10.5 million with net free cash of £8.2 million at 31
December 2003. (The difference in gross cash and net free cash takes account of
loan notes/deferred consideration and restructuring charges associated with
acquisitions, and net corporation tax recoverable. At 31 December 2003 all
deferred considerations had been finalised.) After careful consideration, the
Board has concluded not to recommend a dividend (2002 : nil) and continues to
consider that further investment in the strategic development of the Group
offers greater opportunity for shareholders in the current market.
OPERATIONAL REVIEW
The acquisitions completed during 2003 have significantly changed the structure
of the Group. The Microgen approach to the integration of acquisitions is to
retain the customer focus (sales, marketing and delivery) in each business
unit, but realise the benefits of scale by the consolidation of support staff
and infrastructure. Segmentation increases the customer and operational focus,
while the Group's active pursuit of cross-selling opportunities increases the
inter-relationships and benefits from the acquisitions. As a result, it is now
more appropriate to discuss the Group in terms of the services provided, rather
than the historic divisional structure. However, for comparison purposes,
figures are also provided on the previous divisional basis.
Overall, the market for IT consultancy and solutions has continued to be
unpredictable throughout the past year. The Board anticipated this difficult
environment and has consistently taken early action, enabling the business to
reduce overhead costs and deliver a strong performance despite the market
conditions. The Group's operational discipline and strategy continues to
deliver results.
CONSULTANCY
The Group's consultancy services now contribute the greatest proportion of
revenue to Microgen. These activities include IT consultancy services such as
information management, integration and software testing & acceptance, but also
include more business-specific consultancy services associated with IT,
particularly in the financial services sector where the deployment of
Microgen's software applications typically require both technical and domain
expertise. The acquisition of MMT Computing plc ('MMT') also brought business
expertise in the insurance sector into the Group.
During 2003, the difficult market environment had an impact on most consultancy
businesses and for the period ended 31 December, revenue was £8.9 million (2002
: £10.0 million). However, there have been some significant new developments
during the year, including the establishment of the Emergency Services business
unit which delivered strong revenue growth in the year.
MANAGED SERVICES
Microgen provides added-value transactional services in billing, payment and
hosted database and document management, where Microgen adds value by
processing, distributing, storing and analysing data for a wide variety of
applications, including the Group's e-billing services. Combined with the
Group's legacy print & mail operations, Microgen now offers a multi-channel
billing solution which has continued to show good progress during the past
year. This ability to provide the full spectrum of output requirements (print,
e-bill, e-analysis and document storage) from a single billing data feed has
proven to be a key differentiator in this market.
Within Managed Services the Group also provides an applications management
service, primarily supporting consultancy projects post-implementation. MMT
also had an established applications management business and these two
operations have been integrated.
For the year ended 31 December 2003, revenue from these business areas was £5.4
million (2002: £4.4 million). In addition, the revenue and profit were enhanced
by a material one-off project undertaken by a major customer which delivered
exceptional operating revenue of £2.2 million and an exceptional operating
profit of £1.2 million.
SOFTWARE
Microgen is a leading provider of BACS payment software and solutions in the
UK. With the launch of BACS-IP, all UK customers using BACS payment transfers
will need to upgrade their software over the next two years and Microgen has
developed a completely new range of products at the Group's development
facility in Poland to maximise the potential from this opportunity.
The Group's other major software offerings (prior to recent acquisitions) are
derived from the Business Rules application, which is forming the core of the
Group's future product strategy. At present, these products are primarily
deployed within the financial services sector, but with a number of potential
applications in other market segments.
The acquisition of MMT brought software applications into the Group targeted at
the Derivatives (London Metal Exchange) and Energy Deregulation market sectors.
The Derivatives product requires updating and a new development using the
Business Rules core application is under consideration. The Energy product
range has been the subject of very substantial investment in recent years and a
new product was launched in 2003.
Prior to the acquisition of MMT, the Group's software development activities
were consolidated into the Group's development centre in Poland. This approach
enabled development headcount to be increased while reducing the cost of the
development operations by £0.5 million (excluding costs associated with
acquisitions).
For the year ended 31 December 2003, revenue from software and maintenance was
£4.2 million (2002: £4.4 million).
ACQUISITIONS
The Microgen Board has been consistent in advocating consolidation within the
IT sector. With the slowdown in the IT market in recent years, the benefits
from merger and acquisition activity, reducing overhead costs and broadening
product and service offerings to a wider customer base are readily apparent.
Microgen has proven its ability to efficiently and effectively acquire and
integrate IT companies, eliminating duplicate cost structures and producing
consistent improvements in operating profitability. The Board anticipates
continuing this strategy.
MMT COMPUTING PLC
On 10 October 2003, Microgen made an Offer for MMT, which was declared wholly
unconditional on 7 November. Compulsory purchase provisions were later
implemented and Microgen has now acquired 100% of the share capital. Excluding
transaction fees, the acquisition cost was £17.6 million, comprising £5.2
million of cash and £12.4 million in new Microgen shares. At completion, MMT
had net assets of £10.8 million, including net free cash of £5.5 million and £
3.0 million of freehold and/or long leasehold property assets. (Based on an
independent, post-acquisition valuation of the property assets.)
Prior to the acquisition by Microgen, MMT was structured as a number of
independent businesses and the Board of Microgen immediately initiated a
strategic review of each area, integrating the consultancy and application
management businesses, exiting the low value-add contractor placement sector,
restructuring the MMT Energy operations and consolidating support/staff
functions. As a result of these restructuring actions an exceptional charge of
£2.1 million has been taken in the period to 31 December 2003, including
provisions for the properties vacated through the consolidation of facilities.
In the period from 7 November to 31 December 2003, the MMT acquisition
contributed £3.2 million in revenue and an operating loss before goodwill
amortisation and exceptional items of £112,000. The improvements in management
discipline have already started to produce tangible results. Consultancy fee
rates are being increased and, in the period from acquisition to 31 December,
improved working capital management produced an enhanced cash flow of £2.2
million, primarily through a reduction of 15 debtor days as Microgen's policies
and practices were introduced.
The integration of MMT is now almost complete and the business units from this
acquisition are anticipated to be fully integrated into the Microgen Group by
the end of the first quarter of 2004. Since MMT was slightly larger in revenue
than the Microgen Group, the Board is pleased with the rapid progress of the
integration. MMT has now been renamed Microgen Solutions plc and the
subsidiaries have been rebranded under the Microgen brand.
IMAGO QA LIMITED
On 30 December 2003, Microgen acquired Imago QA Limited, now renamed
Microgen-IQA Limited, ('IQA') for £1.11 million (excluding transaction fees),
together with debt of £0.64 million, which has now been repaid. IQA is a
leading UK provider of IT consultancy services for software acceptance and
managed risk-based testing.
The integration of IQA into the Microgen Group is operationally complete.
Through this process, headcount was reduced, mainly in support functions, and
the IQA business has been relocated into the Group's existing London offices,
producing a significant saving in overhead costs. As a result, an exceptional
charge of £1.2 million has been incurred in the period to 31 December 2003,
including provisions associated with vacating the former IQA London offices.
FUTURE PROSPECTS
Market conditions for IT companies continue to be unpredictable and the Board
of Microgen continues to manage the business accordingly. In planning for 2004,
the Board has done so on the assumption that market conditions will not improve
in the near term. Despite the difficult conditions, Microgen has again
delivered operating results in line with expectations and further improvement
in key operating metrics.
The strategic development of the Group has also made significant progress
during the past year. The two acquisitions completed have significantly changed
the scale of Microgen and with both acquisitions being almost fully integrated,
the Group is well positioned entering 2004. The Board believes that the IT
sector is likely to consolidate further and will continue to explore strategic
opportunities for the development of Microgen.
In summary, despite the challenging market environment, Microgen has delivered
a very respectable operating performance, producing growth in operating income
and adjusted earnings per share, together with strong positive cash flow. The
Board is satisfied with this performance and with the organic and strategic
development of the Group.
Martyn Ratcliffe
Executive Chairman
MICROGEN PLC
Group Profit and Loss Account
for the year ended 31 December 2003
Audited Audited Audited Audited Audited Audited
2003 2003 2003 2002 2002 2002
Before Goodwill Total Before Goodwill Total
goodwill amortisation goodwill amortisation
amortisation and amortisation and
and exceptional and exceptional
exceptional items exceptional items
items items
Notes £'000 £'000 £'000 £'000 £'000 £'000
Turnover
Continuing 1 20,991 2,200 23,191 25,332 - 25,332
operations
Acquisitions 1 3,225 - 3,225 - - -
24,216 2,200 26,416 25,332 - 25,332
Operating costs
Continuing (18,625) (3,750) (22,375) (23,300) (4,206) (27,506)
operations
Acquisitions (3,337) (3,328) (6,665) - - -
(21,962) (7,078) (29,040) (23,300) (4,206) (27,506)
Operating profit/
(loss)
Continuing 1 (b) 2,366 (1,550) 816 2,032 (4,206) (2,174)
operations
Acquisitions 1 (b) (112) (3,328) (3,440) - - -
Operating profit/ 2,254 (4,878) (2,624) 2,032 (4,206) (2,174)
(loss)
Net finance income 268 - 268 210 - 210
Profit/(Loss) on 2,522 (4,878) (2,356) 2,242 (4,206) (1,964)
ordinary activities
before tax
Tax on profit/(loss) 2 384 (616)
on ordinary activities
Profit/(Loss) on (1,972) (2,580)
ordinary activities
after taxation and
transferred to
reserves
Earnings per share 3
Basic and diluted (3.2)p (4.2) p
Adjusted earnings per 3
share (before goodwill
amortisation and
exceptional items and
with normalised tax
charge)
Basic and diluted 2.9 p 2.6 p
MICROGEN PLC
Group Balance Sheet
Audited Audited
31 Dec 2003 31 Dec 2002
Notes £'000 £'000
Fixed assets
Intangible assets 44,435 37,149
Tangible assets 4,088 1,349
Investment in own shares 293 282
48,816 38,780
Current assets
Stocks - raw materials 111 86
Debtors 4 10,878 6,439
Cash at bank and in hand 10,457 9,848
21,446 16,373
Creditors: due within one year 5(a) (13,295) (8,115)
Net current assets 8,151 8,258
Total assets less current liabilities 56,967 47,038
Creditors: due after more than one 5(b) - (650)
year
Provisions for liabilities and charges 6 (2,604) (2,628)
Net assets 54,363 43,760
Capital and reserves
Called up share capital 7 4,330 2,920
Share premium account 8 39,849 29,011
Shares to be issued 185 -
Other reserves 8 616 616
Profit and loss account 8 9,226 11,213
Equity shareholders' funds 54,206 43,760
Minority Interest 157 -
Capital employed 54,363 43,760
MICROGEN PLC
Group Cash Flow Statement
for the Year Ended 31 December 2003
Audited Audited
Year ended Year ended
31 Dec 2003 31 Dec 2002
Notes £'000 £'000
Net cash flow from operating activities 9(i) 4,800 2,640
Returns on investments and servicing of
finance
Interest received 356 404
Interest paid (38) (248)
318 156
Taxation (436) (475)
Capital expenditure and financial
investment
Purchase of tangible fixed assets (598) (367)
Sale of tangible fixed assets 9 1
(589) (366)
Acquisitions and disposals
Purchase of subsidiary undertakings 10 (7,488) (4,108)
Net cash acquired with subsidiary 5,505 122
undertakings
Repayment of subsidiary debt acquired (644) -
Adjustment to consideration on purchase of 41 100
subsidiary undertaking
(2,586) (3,886)
Equity dividends paid to shareholders - -
Cash inflow/(outflow) before financing 1,507 (1,931)
Financing
Issue of share capital 2 4,165
Buyback of share capital - (1,960)
Purchase of shares for Trust - (200)
Redemption of loan notes (650) (3,394)
Payment of deferred consideration (250) -
(898) (1,389)
Decrease in cash in the period 9(ii) 609 (3,320)
1. Turnover and segmental analysis
1(a) Turnover by service type
Continuing Continuing Acquisitions Audited Audited
operations operations -
exceptional £'000 Year Year
£'000 operating Ended Ended
turnover
31 Dec 31 Dec
£'000 2003 2002
£000 £000
- Managed Services 5,333 2,200 71 7,604 4,437
- Consultancy 7,184 - 1,688 8,872 10,007
- Software and 3,606 - 551 4,157 4,417
Maintenance
- Legacy 4,868 - 915 5,783 6,471
20,991 2,200 3,225 26,416 25,332
1 (b) Segmental Analysis
During the year the Group completed two acquisitions, MMT Computing plc and
Imago QA Limited, which are included within Microgen Solutions Division. The
profit and loss performance of the acquisitions during the period from
acquisition to 31 December 2003 is shown below:
Acquisitions
Microgen
Solutions
2003 2003
£'000 £'000
Turnover 3,225
Operating costs before goodwill and (3,337)
exceptional charges
Operating loss before goodwill and (112)
exceptional charges
Goodwill amortisation (70)
Exceptional charges
- Vacant property provision (1,006)
- Restructuring charges (2,252)
(3,258)
Goodwill and Exceptional charges (3,328)
Operating loss after goodwill amortisation (3,440)
and exceptional charges
As previously announced, Microgen Telesmart benefited from a one off project
undertaken by a customer that due to the size of the project gave rise to
exceptional operating revenue. The operating profit impact of this exceptional
revenue is shown below:
Exceptional item
Microgen
Telesmart
2003 2003
£'000 £'000
Turnover 2,200
Operating costs before goodwill and
exceptional charges
- Divisional costs (740)
- Group costs (295)
(1,035)
Exceptional operating profit arising from 1,165
exceptional revenue
The segmental analysis for the Continuing operations of the two divisions is
shown below, together with the comparative figures for 2002.
2003 2003 2002 2002
£'000 £'000 £'000 £'000
Turnover
Microgen Solutions 10,181 14,430
Microgen Telesmart 10,810 10,902
20,991 25,332
Operating costs before goodwill and
exceptional charges
Microgen Solutions (8,315) (11,732)
Microgen Telesmart (8,608) (9,475)
(16,923) (21,207)
Operating profit before group costs
Microgen Solutions 1,866 2,698
Microgen Telesmart 2,202 1,427
4,068 4,125
Group costs (1,702) (2,093)
Operating profit before goodwill amortisation 2,366 2,032
and exceptional items
Goodwill amortisation
Microgen Solutions (1,983) (1,863)
Microgen Telesmart (158) (848)
Goodwill amortisation (2,141) (2,711)
Exceptional charges
Microgen Solutions
- Vacant property provision (127) (1,471)
- Restructuring charges (447) (24)
(574) (1,495)
Goodwill and Exceptional charges (2,715) (4,206)
Operating loss after goodwill amortisation (349) (2,174)
and exceptional charges
Exceptional operating profit from continuing
operations
Microgen Telesmart 1,165
Operating profit/(loss) from continuing 816 (2,174)
operations
In summary, the net exceptional items for the
year comprise:
2003 2003 2002 2002
£'000 £'000 £'000 £'000
Exceptional operating profit 1,165 -
Vacant property provision:
- Continuing operations (127) (1,471)
- Acquisitions (1,006) -
(1,133) (1,471)
Restructuring charges
- Continuing operations (447) (24)
- Acquisitions (2,252) -
(2,699) (24)
Net exceptional items (2,667) (1,495)
2. Taxation
The taxation charge for the year comprises:
Audited Audited
Year ended Year ended
31 Dec 2003 31 Dec 2002
Current Tax £'000 £'000
UK corporation tax charge at 30% (252) (692)
Foreign corporation Tax (19) (36)
Current year taxation charge (271) (728)
Tax credit on exceptional items 29 449
UK corporation tax prior year charge (41) (196)
Total current taxation charge (283) (475)
Deferred taxation
Deferred tax credit/(charge) for the year 667 (141)
Total taxation credit/(charge) on loss on ordinary 384 (616)
activities
The UK group of Microgen plc has a deferred tax asset of £1,488,000 (2002: £
796,000) due to timing differences relating to accounting provisions and
capital allowances. In addition the UK group had a cumulative unprovided
deferred tax asset of £1,754,000 (2002: £430,000) relating to taxable trading
losses carried forward which has not been recognised in the accounts.
The differences between the total current tax charge and the amount calculated
by applying the United Kingdom corporation tax rate of 30% to the loss on
ordinary activities before tax is as follows:
Audited Audited
Year ended Year ended
31 Dec 2003 31 Dec 2002
£'000 £'000
Loss on ordinary activities before tax (2,357) (1,964)
Corporation tax credit at standard rate of tax of 30% 707 589
Adjustment for the effects of:
Brought forward trading losses not recognised for 189 -
deferred tax
Unrelieved overseas trading losses - (178)
Goodwill amortisation not tax deductible (663) (813)
Other amounts not taxable/(deductible) 84 (73)
Capital allowances in excess of depreciation 147 196
Other timing differences (706) -
UK corporation tax prior year charge (41) (196)
Group current tax charge for the period (283) (475)
3. Earnings per share
To provide an indication of the underlying operating performance per share the
adjusted profit after tax figure shown below excludes goodwill amortisation,
exceptional items, prior year tax charges and credits and the impact of
adopting FRS 19 Deferred Tax.
Year ended Year ended
31 Dec 2003 31 Dec 2002
£'000 £'000
Profit before tax, goodwill amortisation and 2,522 2,242
exceptional items
Normalised tax charge at 30% (757) (673)
Adjusted Profit on ordinary activities after tax 1,765 1,569
Adjustment to actual current year tax charge 486 (55)
Goodwill amortisation (2,211) (2,711)
Exceptional items net of tax (2,638) (1,046)
Prior Year tax charge (41) (196)
Deferred tax credit/(charge) 667 (141)
Loss on ordinary activities after tax (1,972) (2,580)
2003 2003 2003
Earnings Basic Diluted
EPS EPS
£'000 Pence Pence
Loss on ordinary activities after tax (1,972) (3.2)p (3.2)p
Adjustment to actual current tax charge (486) (0.8)p (0.8)p
Goodwill amortisation 2,211 3.6p 3.6p
Exceptional Items net of tax 2,638 4.3p 4.3p
Prior Years tax charge 41 0.1p 0.1p
Deferred tax credit (667) (1.1)p (1.1)p
Adjusted profit on ordinary activities after 1,765 2.9p 2.9p
tax
Adjusted earnings per share are calculated using the adjusted profit after tax
and the weighted average number of shares in issue during the year of
60,712,928 (2002: 61,308,631). Diluted earnings per share calculations are
based on 61,007,318 (2002: 61,536,117) ordinary shares calculated as the basic
weighted average number of ordinary shares plus 294,390 (2002: nil) dilutive
share options.
4. Debtors
Audited Audited
31 Dec 2003 31 Dec 2002
£'000 £'000
Trade debtors 6,852 4,467
Corporation tax recoverable 400 105
Other debtors 390 132
Prepayments and accrued income 1,748 939
Deferred tax asset 1,488 796
10,878 6,439
5. Creditors
Audited Audited
31 Dec 2003 31 Dec 2002
(a) due within one year £'000 £'000
Trade creditors 996 710
Other taxes and social security costs 839 834
Other creditors 377 392
Deferred consideration - 250
Loan notes payable 652 652
Accruals and deferred income 10,431 5,277
13,295 8,115
(b) due after more than one year
Loan notes - 650
6. Provisions for liabilities and charges
Provisions for liabilities in respect of surplus properties.
Audited Audited
31 Dec 2003 31 Dec 2002
£'000 £'000
Balance brought forward 2,628 1,273
Credited to the profit and loss account (41) (131)
Charged to profit and loss account - 29
Exceptional charge to the Profit and 1,133 1,471
Loss account
Utilised in the year (1,166) (54)
Amortisation of discount 50 40
Balance carried forward 2,604 2,628
7. Share Capital
The movement in authorised and issued Ordinary Share Capital of 5 pence each
during the period is detailed below.
Authorised Issued and fully paid
Number Amount Number Amount
At 1 January 2003 90,000,000 £4,500,000 58,409,085 £2,920,455
Increase in authorised share 44,000,000 £2,200,000
capital on 5 November 2003
Movement in issued share capital
in the year:
Issued on exercise of share 5,147 £257
options
Issued to the shareholders of 28,178,622 £1,408,931
M.M.T. Computing plc
At 31 December 2003 134,000,000 £6,700,000 86,592,854 £4,329,643
8. Movement on reserves
Share Other Profit and
Reserves Account
Premium
Account
£'000 £'000 £'000
At 1 January 2003 29,011 616 11,213
Retained loss for the - - (1,972)
year
Exchange rate adjustments - - (15)
Shares issued on exercise 1 - -
of share options
Shares issued to the 10,837 - -
shareholders of MMT
Computing plc
At 31 December 2003 39,849 616 9,226
9. Notes to the Group Cash Flow Statement
(i) Reconciliation of operating loss to net cash inflow from operating
activities
Audited Audited
year ended year ended
31 Dec 2003 31 Dec 2002
£'000 £'000
Operating loss (2,624) (2,174)
Depreciation 692 775
Goodwill amortisation 2,211 2,711
Loss on disposal of fixed assets 234 25
(Increase)/decrease in stock (25) 5
Decrease in debtors 4,616 1,300
Decrease in creditors (304) (2)
Net cash inflow from operating 4,800 2,640
activities
9. (ii) Reconciliation of net cash flow to movement in funds/(debt)
Audited Audited
Year ended Year ended
31 Dec 2003 31 Dec 2002
£'000 £'000
Increase/(decrease) in cash in the 609 (3,320)
period
Change in net funds resulting from cash 609 (3,320)
flows
Issue of loan notes - (4,471)
Redemption of loan notes 650 3,394
Movement in net funds in the period 1,259 (4,397)
Net funds at beginning of the period 8,546 12,943
Net funds at end of period 9,805 8,546
9. (iii) Analysis of net funds
At Other non At
1 Jan 2003 Cash flow Cash 31 Dec 2003
changes
£'000 £'000 £'000 £'000
Cash at bank and in 9,848 609 - 10,457
hand
Debt due within 1 (652) 650 (650) (652)
year
Debt due after 1 year (650) - 650 -
Total 8,546 1,259 - 9,805
The net free cash figure of £8.2 million referred to in the Chairman's
Statement is arrived at after deducting accrued restructuring costs of £2.0
million and adding back £0.4 million of corporation tax recoverable from the
net funds figure shown above.
10. Acquisition of Subsidiaries
The group made two acquisitions during the year for a total consideration
including transaction fees of £20,181,000. The total adjustments required to
the net book values of the assets and liabilities acquired in order to present
the net assets of those companies acquired at fair value were £847,000 details
of which are set out below together with the resulting amount of goodwill
arising. Both of these purchases have been accounted for as acquisitions.
(a) Acquisition of MMT Computing plc
On 10 October 2003 the Boards of Microgen and MMT Computing plc announced the
recommended offer for the entire issued share capital of MMT Computing plc,
subject to shareholder approval. Shareholders' approval was obtained at the EGM
on 5 November 2003 and the Offer was declared wholly unconditional on 7
November 2003.
The key financial details in respect of the acquisition are scheduled below.
£000
Consideration and cost in respect of the acquisition:
Cash 5,168
Ordinary Shares 12,432
Initial consideration 17,600
Fees and costs in respect of the 1,364
acquisition
18,964
Net assets Fair Value Provisional
Acquired Adjustments Fair Values
£000 £000 £000
Fixed Assets 2,531 486 3,017
Debtors 7,093 (291) 6,802
Cash 5,503 - 5,503
Creditors (3,516) (1,006) (4,522)
Taxation 167 - 167
Minority Interest (157) - (157)
Net Assets 11,621 (811) 10,810
Goodwill on acquisition 8,154
Total consideration and 18,964
costs
The provisional fair value adjustments consist of
Fixed Debtors Creditors Total
Assets
£'000 £'000 £'000 £'000
(1) Accounting Policy alignments - - (815) (815)
(2) Revaluations 486 - - 486
(3) Other adjustments - (291) (191) (482)
486 (291) (1,006) (811)
(b) Acquisition of Imago QA Limited
On 31 December 2003 the company announced the acquisition of Imago QA Limited
which had been formally completed on 30 December 2003.
The key financial details in respect of the acquisition are scheduled below.
£000
Consideration and cost in respect of the acquisition:
Initial cash 1,106
consideration
Fees and costs in respect of the 111
acquisition
1,217
Net Fair Value Provisional
liabilities
acquired Adjustments Fair Values
£000 £000 £000
Fixed Assets 86 - 86
Debtors 1,255 (36) 1,219
Cash 2 - 2
Creditors (1,650) - (1,650)
Net Liabilities (307) (36) (343)
Goodwill on acquisition 1,560
Total Consideration and 1,217
costs
From the dates of acquisition to 31st December 2003 the acquisitions have
contributed £3,225,000 to turnover and an operating loss before interest,
goodwill amortisation and exceptional items of £112,000.
11. Statement by the directors
The figures in the Group Profit and Loss Account and Balance Sheet do not
amount to full accounts within the meaning of Section 254 of the Companies Act
1985.
The Annual Report for the period ended 31 December 2003 will be posted to
shareholders in due course and will also be available on the investor relations
page of our web site (www.microgen.co.uk). Further copies will be available on
request and free of charge from the Company Secretary at 11 Park Street,
Windsor, Berkshire SL4 1LU.
The comparative figures for 2002 have been extracted from the annual report for
the year ended 31 December 2002.
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