Interim Results

RNS Number : 8169L
Microgen PLC
24 July 2017
 

   24 July 2017

 

MICROGEN plc ('Microgen' or 'Group')

 

INTERIM RESULTS

 

FOR THE SIX MONTHS ENDED 30 JUNE 2017

 

 

Microgen plc (LSE: MCGN), a leading provider of business critical software and services, reports its unaudited results for the six months ended 30 June 2017.

 

Group Highlights:

·     Excellent performance by the Group in the first half of 2017 with strong organic growth reported by Aptitude Software complemented by further progress in the Trust & Fund Administration business of Microgen Financial Systems

·     Overall revenue growth of 45% to £28.4 million (H1, 2016: £19.5 million), growth of 39% on a constant currency basis*

·     Group adjusted operating profit increased by 42% to £6.5 million (H1, 2016: £4.6 million), growth of 33% on a constant currency basis**. Group operating profit on a statutory basis of £5.6 million (H1, 2016: £4.0 million)

·     Adjusted basic earnings per share increased to 8.0 pence (H1, 2016: 5.9 pence). Basic earnings per share increased to 6.9 pence (H1, 2016: 5.1 pence)

·     Interim dividend increased to 2.0 pence per share (2016: 1.5 pence per share), an increase of 33%

·     Strong balance sheet with cash of £15.6 million (H1, 2016: £12.7 million) and net funds of £6.9 million (H1, 2016: £1.0 million) in line with expectations following net corporate cash outflows of £6.4 million in the past 12 months (principally dividends and net acquisition consideration)

 

Aptitude Software:

·     A number of new customers contracted across multiple sectors and geographies, including sales of the Aptitude Accounting Hub into the newly opened US healthcare market vertical

·     Partner network continues to develop with sales in new geographical and vertical markets a direct result of partner activity

·     The on-going recurring revenue base at 30 June 2017 has grown to £15.0 million (30 June 2016: £10.6 million and 31 December 2016: £12.6 million), an increase of 42% since 30 June 2016

·     Revenue growth of 70% to £19.5 million (H1, 2016: £11.4 million), growth of 60% on a constant currency basis

·     Software revenue growth of 41% to £7.9 million (H1, 2016: £5.6 million)

·     Implementation services revenue doubling to £11.6 million (H1, 2016: £5.8 million) benefitting from exceptional demand for services in advance of the imminent implementation dates for the Aptitude Revenue Recognition Engine client base. The exceptional growth in demand for services experienced in 2017 is expected to moderate in 2018.

·     Operating profit increase of 108% to £3.6 million (H1, 2016: £1.7 million), growth of 88% on a constant currency basis

·     Growth in operating margin to 19% (H1, 2016: 15%) achieved whilst investment continues in both the organisation and a series of new growth opportunities

·     Excellent visibility for the remainder of 2017 with a number of well progressed new business opportunities and continued demand for services from the existing client base

 

Microgen Financial Systems:

·     Further strengthening of position within the Trust & Fund Administration ('T&FA') market following the acquisition of Primacy Corporation in February 2017

·     T&FA revenues increased by 32% to £5.4 million (H1, 2016: £4.1 million) representing 61% (H1, 2016: 51%) of Microgen Financial Systems' revenue

·     Overall revenue increased by 10% to £8.9 million (H1, 2016: £8.1 million) of which 77% is recurring in nature (H1, 2016: 81%)

·     Adjusted operating profit of £3.8 million (H1, 2016: £3.6 million) as the transition to a business focussed on T&FA continues. Operating profit on a statutory basis of £3.0 million (H1, 2016: £3.2 million)

 

Commenting on the results, Ivan Martin, Chairman, said:

The Group has made excellent progress in the first half of 2017. Aptitude Software continues to secure growing volumes of new business in both new and existing markets in addition to delivering exceptionally strong levels of services. Microgen Financial Systems continues its successful transition to a business clearly focussed on the Trust & Fund Administration sector having completed the acquisition of Primacy Corporation in February 2017. The Group enters the second half of the year well positioned with good revenue visibility, and an encouraging pipeline of opportunities.

 

 

Contacts

Ivan Martin, Chairman                                                     020-7496-8100

Philip Wood, Group Finance Director

 

James Melville-Ross / Darius Alexander              020-3727-1000

FTI Consulting

 

 

*  Constant currency growth is calculated by comparing H1 2016 results with H1 2017 results retranslated at the rates of exchange prevailing during H1 2016

** Throughout this statement adjusted operating profit and margin excludes non-underlying operating items, unless stated to the contrary.

 



                                                                                                                                                                             

Overview:

The Group reports excellent progress in the first half of 2017 resulting in a financial performance ahead of the Board's original expectations for the period. The Group's two businesses are successfully executing their declared strategies with strong organic growth from Aptitude Software whilst Microgen Financial Systems continues its transition to a business focused on the Trust & Fund Administration ('T&FA') market.

With a number of new contracts in the period Aptitude Software has further strengthened the leading position of its Aptitude Revenue Recognition Engine within the telecoms market whilst opening the US healthcare market for the Aptitude Accounting Hub with two material contracts secured since the start of the year. These successes, building on the record number of clients secured in 2016, have led to revenue growth for Aptitude Software of 70% to £19.5 million (H1, 2016: £11.4 million), growth of 60% on a constant currency basis.

Microgen Financial Systems has maintained its focus on the T&FA market within the wealth management sector. The acquisition of Primacy Corporation in February 2017, a competitor in the T&FA market, represented the fifth acquisition since December 2014 and further strengthens the Group's leading position within this market. As a result of this focus T&FA revenues now represent 61% of Microgen Financial Systems' H1 2017 revenue (H1, 2016: 51%), compared to 33% at the beginning of this transition in 2014.

The above progress has led to overall revenue for the six months ended 30 June 2017 increasing by 45% to £28.4 million (H1, 2016: £19.5 million) with adjusted operating profit increasing by 42% to £6.5 million (H1, 2016: £4.6 million). Growth on a constant currency basis was 39% and 33% respectively.

Pursuant to the Group's continuing progress the interim dividend will be increased by 0.5 pence to 2.0 pence per share (2016: 1.5 pence per share), an increase of 33%, which will be payable on 25 August 2017 to shareholders on the register at the close of business on 4 August 2017.

Once again, this strong set of results would not have been possible without the outstanding contributions from the Group's employees. Further investment continues to be made by the Group in its human capital and Microgen looks forward to inviting its employees to participate in the forthcoming share option scheme grants this summer.

The Group is pleased with the strong results for the first half of 2017 and enters the second half of the year well positioned with good revenue visibility provided by its recent new business successes, and an encouraging pipeline of opportunities.

Aptitude Software Report:

The Aptitude Software business provides a series of specialised financial management software applications with the common capability of very rapid processing of very high volume complex, business event-driven transactions and calculations. Aptitude Software's products continue to be developed at the Aptitude Technology Centre in Wroclaw, Poland. The business generates revenue from this software through a combination of licence fees (primarily annual recurring licences), software maintenance/support and professional services.

During the first half of 2017 the Aptitude Software business has seen continued strong demand for its specialised financial management software applications and associated implementation services. This demand, together with the continuing benefit from contracts won in prior years, has resulted in revenue increasing by 70% to £19.5 million (H1, 2016: £11.4 million), growth of 60% on a constant currency basis. Margins have increased to 19% (H1, 2016: 15%), with operating profits up by 108% to £3.6 million (H1, 2016: £1.7 million), growth of 88% on a constant currency basis. The growth in margin is despite continued investment in both the organisation and the new products being developed at the Aptitude Technology Centre in Wroclaw, Poland.

A number of new business contracts have been entered for the Aptitude Revenue Recognition Engine ('ARRE') within the telecoms market in Asia and North America. In addition, new business contracts have been secured for the Aptitude Accounting Hub ('AAH') across both financial services and the US healthcare market, a new market for the Aptitude Software business. The opening of the US healthcare market demonstrates once again Aptitude Software's ability to leverage its technology across new sectors.

Aptitude Software continues to work closely with a number of partners who have contributed to the majority of the new business successes in the first half of 2017. The partners' increasing contributions to Aptitude Software's go-to-market strategy, together with their implementation capability, is enabling the business to reach new geographical and vertical markets.

The new business successes have resulted in the on-going recurring revenue base, the key metric for the Aptitude Software business, increasing to £15.0 million (30 June 2016: £10.6 million and 31 December 2016: £12.6 million), growth of 42% since 30 June 2016 (the on-going recurring revenue base includes recurring revenues contracted but yet to commence and excludes recurring revenues which are currently being received but are known to be terminating in the future). Software revenue recognised in the first half has increased by 41% to £7.9 million (H1, 2016: £5.6 million).

Implementation revenue has doubled to £11.6 million (H1, 2016: £5.8 million) benefitting from the new contracts secured in both 2016 and the first half of 2017. There has been particular benefit from the exceptionally strong demand for ARRE implementation services by the regulatory deadline driven IFRS 15 / ASC 606 projects. The exceptional growth in demand for services experienced in 2017 is expected to moderate in 2018 as a number of the larger ARRE projects are completed and the partners, an increasingly important channel for new business, provide a growing proportion of resources for new implementations.  

Investment continues in the Aptitude Technology Centre with a number of new products developing in line with expectations. In June 2017 Aptitude Software launched its new Aptitude Lease Accounting Engine, an application which enables organisations to address the requirements of IFRS 16, the new leasing standard effective for accounting periods commencing on or after 1 January 2019. There are a number of opportunities progressing for this latest specialised financial management software application which shares the capabilities of Aptitude Software's other products in being able to very rapidly process very high volume complex, business event-driven transactions and calculations.

In May 2017 IFRS 17, a new accounting standard focussed on insurance contracts, was released effective for accounting periods commencing on or after 1 January 2021. This standard is anticipated to require unprecedented change by the insurance industry, an industry within which Aptitude Software already has a presence with several clients using Aptitude Software's products. Aptitude Software, working alongside a number of opportunities, is developing its product to address the requirements of this important new standard.

In summary, the business continues to execute successfully its strategy of focussing and leveraging its existing expertise in high volume transaction sectors by providing specialised financial management software applications to meet new accounting standards, regulations or business areas poorly served by ERP systems. With H1 2017 performance above management expectations set at the start of the year, the continuing opportunities for ARRE and AAH combined with the potential of the new products provide the business with confidence for the remainder of 2017 and future years.

Microgen Financial Systems Report:

The Microgen Financial Systems business is continuing to make strong progress in achieving its strategic objective to increase the proportion of its revenues from the Trust & Fund Administration ("T&FA") sector, both through organic growth and add-on acquisitions. Microgen Financial Systems' key product in this sector is Microgen 5Series which addresses the core operational requirements of a number of organisations including Trust Administrators, Fiduciary Companies, Corporate Services Providers and Fund Administrators. In addition to Microgen Financial Systems' T&FA operations, revenue is generated from both a Payments software business and an Application Management business covering a range of Microgen-owned and third party systems principally focussed on the financial services industry. Revenues are generated through a combination of software licence fees (primarily annual recurring licences), software maintenance/support fees and professional services.

The Microgen Financial Systems business reported a 10% increase in total revenues to £8.9 million (H1, 2016: £8.1 million) with adjusted operating profits of £3.8 million (H1, 2016: £3.6 million) representing an adjusted operating margin of 43% (H1, 2016: 45%). As highlighted in previous reports, the reduction in the adjusted operating margin is due to the change in mix between the growing T&FA business and the declining Application Management business with its higher margins reflecting the maturity of that business.

The key highlights for the business are the acquisition in February 2017 of Primacy Corporation ('Primacy'), the fifth add-on acquisition within the T&FA sector since December 2014, and the continued sales progress being made by Microgen 5Series. 

Primacy was acquired in February 2017 for total cash consideration of £3.4 million. Primacy is a Toronto-based provider of software to the Trust & Fund Administration market whose integration into the Microgen Financial Systems business is progressing in line with expectations. Primacy's revenue in the year ended 31 October 2016 was £1.2 million with profit before tax of £0.6 million. Primacy generated £0.3 million revenue in 2017 whilst under Microgen's ownership.

A number of new contracts have also been entered into within T&FA since the start of the year with both new customers and existing clients upgrading to Microgen 5Series from our acquired products. A key highlight for the first half of 2017 is a new multi-office customer headquartered in Singapore building on Microgen Financial Systems' growing presence in this important region.

Primacy and the other recent acquisitions, together with the underlying organic growth due to the successes with Microgen 5Series, has resulted in T&FA revenue growing by 32% to £5.4 million (H1, 2016: £4.1 million) representing 61% of Microgen Financial Systems' revenue (H1, 2016: 51%). T&FA recurring revenue in H1 2017 has increased by 26% to £3.9 million (H1, 2016: £3.1 million) with the business benefitting from both a number of new customer contracts and the acquisition of Primacy. The T&FA on-going recurring revenue base at 30 June 2017 has increased to £8.0 million, growth of 19% since 30 June 2016 (30 June 2016: £6.7 million, 31 December 2016: £6.9 million) with £0.8 million of the increase attributable to the Primacy acquisition (the on-going recurring revenue base includes recurring revenues contracted but yet to commence and excludes recurring revenues which are currently being received but are known to be terminating in the future).

Included within the T&FA revenue of £5.4 million (H1, 2016: £4.1 million) is £3.8 million (H1, 2016: £3.1 million) generated from Microgen 5Series (and 4Series) and £1.6 million (H1, 2016: £1.0 million) from the T&FA products acquired since December 2014. The software and services fees arising from conversions from the acquired products represents £0.7 million (H1, 2016: £0.4 million) of the £3.8 million revenue from Microgen 5Series (and 4Series).

Further acquisitions and add-on opportunities continue to be actively evaluated within T&FA, however, the number of available acquisition opportunities has been reduced pursuant to the acquisitions performed to date. The business also is appraising opportunities which offer the potential to leverage Microgen Financial Systems' existing technology into adjacent sectors.

 

After the one-off benefit in 2016 from some exceptional services, revenue from the payment software product line was £0.7 million (H1, 2016: £0.8 million) while the Application Management business reports revenue in line with Board expectations at £2.8 million (H1, 2016: £3.2 million). Consistent with the maturity of the solutions provided by the Applications Management business it is the Board's expectations that revenues will continue to reduce in line with recent periods, however, within the business there is a core of supported software solutions which are expected to continue in the medium to long term.

The growth in T&FA revenues, which in 2014 only represented 33% of Microgen Financial Systems' business, has created a more focussed and resilient business with an increasing ambition to leverage the capabilities of the Microgen 5Series technology into sectors adjacent to T&FA. To prepare the business for this next step in its evolution Microgen Financial Systems is making a number of investments in its organisation the benefit of which will be received in future years. With recurring revenue accounting for 77% (H1, 2016: 81%) of total revenue the business has excellent future visibility.

 

Group Financial Performance:

Overall revenue for the six months ended 30 June 2017 has increased by 45% to £28.4 million (H1, 2016: £19.5 million) producing an adjusted operating profit increasing by 42% to £6.5 million (H1, 2016: £4.6 million).  On a constant currency basis revenue for the period was £27.1 million and adjusted operating profit was £6.1 million, growth rates of 39% and 33% respectively. Operating profit on a statutory basis was £5.6 million (H1, 2016: £4.0 million) after non-underlying items of £0.9 million (H1, 2016: £0.6 million) comprised principally of intangible amortisation. The Group reported a profit for the period attributable to equity shareholders of £4.1 million (H1, 2016: £3.0 million). The Board has continued to determine that all internal research and development costs are expensed as incurred and therefore the Group has no capitalisation of development expenditure.

The total tax charge of £1.3 million (H1, 2016: £0.8 million) represents 24.0% of the Group's profit before tax (H1, 2016: 20.0%). The increase in tax rate for 2017 is due to the increasing proportion of profits in overseas territories with higher prevailing tax rates, especially in the US.

The Group continues to have a strong balance sheet with net assets at 30 June 2017 of £46.0 million (H1, 2016: £40.7 million), including cash at 30 June 2017 of £15.6 million (H1, 2016: £12.7 million), and net funds at 30 June 2017 of £6.9 million (H1, 2016: £1.0 million) following net corporate cash outflows of £6.4 million in the past 12 months (comprising dividends of £3.0 million and £3.4 million net acquisition consideration). Consistent with the increase in revenue for the six months ended 30 June 2017, trade and other receivables have increased by 34% to £10.3 million (H1, 2016: £7.7 million). Deferred income has increased to £17.9 million (H1, 2016: £13.6 million) due principally to the Group's increased recurring revenue base. Pursuant to the above movements cash generated from operations in the first half of the year was £0.4 million (H1, 2016: cash used in operations £2.4 million) which is consistent with the seasonal cash flow of the Group in which a significant proportion of its recurring revenue base is invoiced, and cash collected, in the second half of the financial year.

The Group benefits from a geographically diverse customer base with 16% of revenue generated from customers located in the United Kingdom, 17% from other European Union countries and 67% from the rest of the world (H1, 2016: 23%, 13% and 64%). Of the Group's H1 2017 revenue, 37% (H1, 2016: 32%) was invoiced in a currency other than sterling.

 

Refinancing of Bank Loan

Following negotiations with a number of banks, the Group has agreed replacement credit facilities consisting of a £10 million term loan, repayable over five years, in addition to a revolving credit facility of £10 million. The loan is secured on the assets of the Group. A very competitive interest margin has been agreed, with the interest rate fixed on the term loan by an appropriate financial instrument at 2.46% over the five year period, a reduction from the interest rate fixed on the previous loan (3.24%). Operating covenants are limited to the Group's net debt leverage and interest cover. The proceeds from the new term loan will be used to refinance the existing term loan (£8.8 million outstanding as at 30 June 2017), whilst the revolving credit facility of £10 million provides the Group with financing for add-on acquisition opportunities.

Statement on Principal Risks and Uncertainties

Pursuant to the requirements of the Disclosure and Transparency Rules the Group provides the following information on its principal risks and uncertainties.  The Group considers strategic, operational and financial risks and identifies actions to mitigate those risks.  These risk profiles are updated at least annually.  The principal risks and uncertainties detailed within the Group's 2016 Annual Report remain applicable for the first six months of the financial year.  The Group's 2016 Annual Report is available from the Microgen website: www.microgen.com.

 

Related party transactions during the period are disclosed in Note 17.

 


 

CONDENSED CONSOLIDATED INTERIM INCOME STATEMENT

For the six months ended 30 June 2017

 

 

 


Unaudited six months ended 30 Jun 2017


Unaudited six months ended 30 Jun 2016

 


Audited year ended 31 Dec 2016


Note

Before

Non-underlying items


Non-underlying items


Total


Before

Non-underlying items


Non-underlying items


Total


Before

Non-underlying items


Non-underlying items


Total



£000


£000


£000


£000


£000


£000


£000


£000


£000

Revenue

5

28,350


-


28,350


19,493


-


19,493


42,988


-


42,988

Operating costs


(21,891)


(877)


(22,768)


(14,934)


(604)


(15,538)


(33,463)


(1,313)


(34,776)

Operating profit

5/6

6,459


(877)


5,582


4,559


(604)


3,955


9,525


(1,313)


8,212

Finance income

5

7


-


7


41


-


41


66


-


66

Finance costs

5

(164)


-


(164)


(208)


-


(208)


(397)


-


(397)

Profit before income tax


6,302


(877)


5,425


4,392


(604)


3,788


9,194


(1,313)


7,881

Income tax expense

5/7





(1,298)






(758)






(1,638)

Profit for the period






4,127






3,030






6,243




















Earnings per share



















Basic

8





6.9p






5.1p






10.6p

Diluted

8





6.7p






4.9p






10.0p




















 

 

          


CONDENSED CONSOLIDATED INTERIM STATEMENT OF COMPREHENSIVE INCOME

For the six months ended 30 June 2017

 

 

 

Unaudited

six months

ended

 

Unaudited

six months

ended

 

Audited

year

ended

 

 

30 Jun

 2017

 

30 Jun

 2016

 

31 Dec 2016

 

 

£000

 

£000

 

£000

 

 

 

 

 

 

 

Profit for the period

 

4,127

 

3,030

 

6,243

Other comprehensive income

 

 

 

 

 

 

Items that may subsequently be reclassified to profit or loss:

 

 

 

 

 

 

Fair value gain on hedged financial instruments

 

150

 

231

 

133

Currency translation difference

 

85

 

236

 

95

Other comprehensive income for the period, net of tax

 

235

 

467

 

228

 

Total comprehensive income for the period

 

4,362

 

3,497

 

6,471

 

 

 

 



CONDENSED CONSOLIDATED INTERIM BALANCE SHEET

As at 30 June 2017


Note

Unaudited

as at

30 Jun 2017


Unaudited

as at

30 Jun 2016


Audited

as at

31 Dec 2016

ASSETS


£000


£000


£000

Non-current assets







Property, plant and equipment

11

1,649


1,272


1,330

Goodwill


41,774


41,774


41,774

Intangible assets


11,151


7,754


7,257

Deferred income tax assets


741


565


738



55,315


51,365


51,099

Current assets







Trade and other receivables


10,288


7,684


8,337

Financial assets







- derivative financial instruments


184


262


134

Cash and cash equivalents


15,648


12,722


23,849

Total current assets


26,120


20,668


32,320

Total assets


81,435


72,033


83,419








LIABILITIES







Current liabilities







Financial liabilities







 - borrowings

13

(3,000)


(3,000)


(3,000)

 - derivative financial instruments


(98)


(228)


(198)

Trade and other payables

12

(23,497)


(17,286)


(27,847)

Current income tax liabilities


(272)


(361)


(100)

Provisions

14

(24)


(25)


(24)



(26,891)


(20,900)


(31,169)

Net current (liabilities)/ assets


(771)


(232)


1,151

 

Non-current liabilities







Financial liabilities - borrowings

13

(5,750)


(8,750)


(7,250)

Provisions

14

(293)


(257)


(287)

Deferred income tax liabilities


(2,489)


(1,446)


(1,316)



(8,532)


(10,453)


(8,853)

NET ASSETS


46,012


40,680


43,397








SHAREHOLDERS' EQUITY







Share capital

15

3,908


3,797


3,811

Share premium account

15

4,500


4,493


4,498

Capital redemption reserve


12,372


12,372


12,372

Other reserves


34,281


34,229


34,131

Accumulated losses


(9,271)


(14,489)


(11,552)

Foreign currency translation reserve


222


278


137

TOTAL EQUITY


46,012


40,680


43,397

 

 

 

CONDENSED CONSOLIDATED INTERIM STATEMENT OF CHANGES IN EQUITY

For the six months ended 30 June 2017

 

 



   Share capital

Share
premium account

Accumulated losses

Foreign currency translation reserve

Capital redemption reserve

Other
reserves

Total



£000

£000

£000

£000

£'000

£000

£000










Balance at 1 January 2017


3,811

4,498

(11,552)

137

12,372

34,131

43,397

Comprehensive income









Profit for the period


-

-

4,127

-

-

-

4,127

Cash flow hedges









 - net fair value gains


-

-

-

-

-

150

150

Exchange rate adjustments


-

-

-

85

-

-

85










Total comprehensive income for the period


-

-

4,127

85

-

150

4,362

Shares issued under share option schemes


97

2

-

-

-

-

99

Share options - value of employee service


-

-

282

-

-

-

282

Dividends to equity holders of the company


-

-

(2,128)

-

-

-

(2,128)










Total contributions by and distributions to owners of the company recognised directly into equity


97

2

(1,846)

-

-

-

(1,747)

Balance at 30 June 2017 (unaudited)


3,908

4,500

(9,271)

222

12,372

34,281

46,012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

CONDENSED CONSOLIDATED INTERIM STATEMENT OF CHANGES IN EQUITY

For the six months ended 30 June 2017

 

 



   Share capital

Share
premium account

Accumulated losses

Foreign currency translation reserve

Capital redemption reserve

Other
reserves

Total



£000

£000

£000

£000

£'000

£000

£000










Balance at 1 January 2016


3,796

4,484

(16,121)

42

12,372

33,998

38,571

Comprehensive income









Profit for the period


-

-

3,030

-

-

-

3,030

Cash flow hedges









 - net fair value gains


-

-

-

-

-

231

231

Exchange rate adjustments


-

-

-

236

-

-

236










Total comprehensive income for the period


-

-

3,030

236

-

231

3,497

Shares issued under share option schemes


1

9

-

-

-

-

10

Share options - value of employee service


-

-

256

-

-

-

256

Dividends to equity holders of the company


-

-

(1,654)

-

-

-

(1,654)










Total contributions by and distributions to owners of the company recognised directly in equity


1

9

(1,398)

-

-

-

(1,388)

Balance at 30 June 2016

(unaudited)


3,797

4,493

(14,489)

278

12,372

34,229

40,680

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

CONDENSED CONSOLIDATED INTERIM STATEMENT OF CASH FLOW

For the six months ended 30 June 2017

 

 




Unaudited

 

Unaudited

 

Audited

 



six months ended

 

six months ended

 

year

ended

 

Note


30 Jun 2017

 

30 Jun 2016

 

31 Dec 2016

 



£000

 

£000

 

£000

Cash flows from operating activities

 







Cash generated from / (used in) operations

9

 

419

 

(2,403)

 

13,032

Interest paid

 


(164)

 

(208)

 

(397)

Income tax paid

 


(1,035)

 

(928)

 

(2,060)

 








Net cash flows (used in) / generated from operating activities

 


(780)

 

(3,539)

 

10,575

 








Cash flows from investing activities

 







Purchase of property, plant and equipment

11

 

(610)

 

(556)

 

(894)

Sale of property, plant and equipment

 


-

 

2,350

 

2,352

Acquisition of subsidiaries, net of cash acquired

 


(3,342)

 

(1,396)

 

(1,430)

Interest received

 


7

 

41

 

66

Net cash (used in) / generated from investing activities

 


(3,945)

 

439

 

94

 








Cash flows from financing activities

 







Net proceeds from issuance of ordinary shares

15

 

99

 

10

 

29

Dividends paid to company's shareholders

10

 

(2,128)

 

(1,654)

 

(2,540)

Repayments of loan

 


(1,500)

 

(1,500)

 

(3,000)

Net cash used in financing activities

 


(3,529)

 

(3,144)

 

(5,511)

 








Net (decrease) / increase in cash and cash equivalents

 


(8,254)

 

(6,244)

 

5,158

Cash and cash equivalents at beginning of period

 


23,849

 

18,600

 

18,600

Exchange rate gains on cash and cash equivalents

 

53

 

366

 

91

 






Cash and cash equivalents at end of period

 

15,648

 

12,722

 

23,849

 



 

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

 

1.         General information

 

Microgen plc (the 'Company') and its subsidiaries (together, the 'Group') is a provider of business critical software and services.

The Company is a public limited company incorporated and domiciled in England and Wales with a primary listing on the London Stock Exchange. The address of its registered office is Old Change House, 128 Queen Victoria Street, London, England, EC4V 4BJ.

These condensed consolidated interim financial statements were approved for issue on 21 July 2017.

These condensed consolidated interim financial statements do not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2016 were approved by the Board of directors on 8 March 2017 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 of the Companies Act 2006.

These condensed consolidated interim financial statements have been reviewed, not audited.

 

2.         Basis of preparation

 

These condensed consolidated interim financial statements for the six months ended 30 June 2017 have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34, 'Interim financial reporting' as adopted by the European Union. These condensed consolidated interim financial statements should be read in conjunction with the annual financial statements for the year ended 31 December 2016, which have been prepared in accordance with IFRSs as adopted by the European Union.

After making enquiries, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. The Group therefore continues to adopt the going concern basis in preparing its condensed consolidated interim financial statements.

 

3.         Accounting policies

 

The accounting policies adopted are consistent with those of the previous financial statements, except as described below.

Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual profits.

New and amended standards and interpretations need to be adopted in the first interim financial statements issued after their effective date. There are no new IFRSs or IFRS ICs that are effective for the first time for this interim period that would be expected

4.         Estimates

 

The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expense. Actual results may differ from these estimates. In preparing these condensed consolidated interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the year ended 31 December 2016, with the exception of changes in estimates that are required in determining the provision for income taxes.

Fair value estimation

Financial instruments not measured at fair value

Financial instruments not measured at fair value includes cash and cash equivalents, trade and other receivables, trade and other payables, and loans and borrowings, however, due to their short term nature and ability to be liquidated at short notice their carrying value approximates their fair value.

 

Financial instruments measured at fair value

The fair value hierarchy of the financial instruments measured at fair value is provided below.

 


Level 2 inputs


Unaudited

six months

ended
30 Jun 2017

£'000

Unaudited

six months

ended

30 Jun 2016

£'000

Financial assets



Derivative financial assets (designated hedge instruments)

184

262


184

262

 

Financial liabilities



Derivative financial liabilities (designated hedge instruments)

(98)

(228)


(98)

(228)

 

The derivative financial assets and liabilities have been valued using the market approach and are considered to be Level 2 inputs. There were no changes to the valuation techniques used in the year. There were no transfers between levels during the year.

 

5.         Segmental information

 

The Board of Microgen plc (the "Board") has determined the operating segments based on the reports it receives from management to make strategic decisions.

The segmental analysis is split into the Aptitude Software and Microgen Financial Systems operating businesses, the chief operational decision makers for the two businesses are Tom Crawford (Aptitude Software) and Simon Baines (Microgen Financial Systems).

The operating businesses are allocated central function costs in arriving at operating profit/(loss). Group overhead costs are not allocated into the operating businesses as the Board believes that these relate to Group activities as opposed to the operating businesses.





Unaudited six months ended
30 Jun 2017

 













Aptitude Software

 

 Microgen Financial Systems

 

Group

 

Total

 





£000

 

£000

 

£000

 

£000

Revenue

 




             19,485

 

8,865

 

-

 

28,350

Operating costs

 




(15,856)

 

(5,089)

 

-

 

(20,945)

 

 




 

 

 

 

 

 

 

Operating profit before Group overheads

 

3,629

 

3,776

 

-

 

7,405

Unallocated Group overheads

 








(946)

 

(946)

Operating profit before non-underlying items

 







6,459

Non-underlying items

 




-

 

(811)

 

(66)

 

(877)

Operating profit / (loss)

 




3,629

 

2,965

 

(1,012)

 

5,582

Finance income

 










7

Finance costs

 










(164)

Profit before tax

 










5,425

Income tax expense

 










(1,298)

Profit for the period

 










4,127

 

 

 



 

5.         Segmental information (continued)





Unaudited six months ended

30 Jun 2016

 













Aptitude Software

 

Microgen Financial Systems

 

Group

 

Total

 





£000

 

£000

 

£000

 

£000

Revenue

 




 11,435

 

8,058

 

-

 

19,493

Operating costs

 




(9,689)

 

(4,458)

 

-

 

(14,147)

 

 




 

 

 

 

 

 

 

Operating profit before Group overheads

 

1,746

 

3,600

 

-

 

5,346

Unallocated Group overheads

 








(787)

 

(787)

Operating profit before non-underlying items

 







4,559

Non-underlying items

 




-

 

(383)

 

(221)

 

(604)

Operating profit / (loss)

 




1,746

 

3,217

 

(1,008)

 

3,955

Finance income

 










41

Finance costs

 










(208)

Profit before tax

 










3,788

Income tax expense

 










(758)

Profit for the period

 










3,030

 





Audited year ended
31 Dec 2016

 







Aptitude Software

 

Microgen Financial Systems

 

Group

 

Total

 





£000

 

£000

 

£000

 

£000

Revenue

 




26,364

 

16,624

 

-

 

42,988

Operating costs

 




(22,522)

 

(9,405)

 

-

 

(31,927)

 

 




 

 

 

 

 

 

 

Operating profit before Group overheads

 

3,842

 

7,219

 

-

 

11,061

Unallocated Group overheads

 








(1,536)

 

(1,536)

Operating profit before non-underlying items

 







9,525

Non-underlying items

 




-

 

(914)

 

(399)

 

(1,313)

Operating profit / (loss)

 




3,842

 

6,305

 

(1,935)

 

8,212

Finance Income

 










66

Finance Cost

 










(397)

Profit before tax

 










7,881

Income tax expense

 










(1,638)

Profit for the period

 










6,243

 

 

 

 

6.         Non-underlying items

 



Unaudited
six months

ended 30 Jun 2017

 

Unaudited

six months

ended 30 Jun 2016

 

Audited

year

ended 31 Dec 2016

 


£000

 

£000

 

£000

 

 





 

Amortisation of intangibles

 

616

 

347

 

812

Share based payments on share options

issued in 2013 only

 

66

 

221

 

399

Acquisition and associated restructuring costs

 

195

 

36

 

102

 

 

877

 

604

 

1,313

 

7.         Income tax expense

 

Income tax expense is recognised based on management's estimate of the weighted average income tax rate expected for the full financial year of 24% (the estimated tax rate for the six months ended 30 June 2016 was 20%).

8.          Earnings per share

 

Unaudited six months ended

30 Jun 2017

 

Unaudited six months ended 30 Jun 2016

 

Audited

year ended

31 Dec 2016

 


pence

 

pence

 

pence

 







Earnings per share

 






Basic

 

6.9

 

5.1

 

10.6

 




 

 

 

Diluted

 

6.7

 

4.9

 

10.0

 







Adjusted earnings per share

 






Basic

 

8.0

 

5.9

 

12.3

 







Diluted

 

7.7

 

5.6

 

11.6

 

 



 

8.          Earnings per share (continued)

 

To provide an indication of the underlying operating performance the adjusted earnings per share calculation above excludes intangible amortisation and other non-underlying items and has a tax charge based on the effective rate.

 



Unaudited six months ended

30 Jun 2017

 

Unaudited six months ended 30 Jun 2016

 

Audited

year ended

31 Dec 2016

 


pence

 

pence

 

pence

 







Basic earnings per share

 

6.9

 

5.1

 

10.6

Non-underlying items

 

1.1

 

0.8

 

1.9

Tax losses recognised

 

-

 

-

 

(0.2)

Adjusted earnings per share

 

8.0

 

5.9

 

12.3

 

9.         Cash generated from operations

 



Unaudited six months ended 30 Jun 2017

 

Unaudited six months ended 30 Jun 2016

 

Audited

year ended 31 Dec 2016

 


£000

 

£000

 

£000

 

 





 

Profit before tax for the period

 

5,425

 

3,788

 

7,881

Adjusted for:

 






Depreciation

 

324

 

283

 

601

Amortisation

 

616

 

347

 

812

Share-based payment expense

282

 

256

 

610

Finance income

 

(7)

 

(41)

 

(66)

Finance costs

 

164

 

208

 

397

 







Changes in working capital:

 






Increase in receivables

 

(1,726)

 

(2,994)

 

(3,412)

(Decrease) / increase in payables

 

(4,666)

 

(4,257)

 

6,173

Increase / (decrease) in provisions

 

7

 

7

 

(36)

 







Cash generated from / (used in) operations

 

419

 

(2,403)

 

13,032

 



 

 

10.       Dividends

 

The interim dividend of 2.0 pence per share (2016: 1.5 pence per share) was approved by the Board on 21 July 2017. It is payable on 25 August 2017 to shareholders on the register at 4 August 2017.  This interim dividend, amounting to £1,216,000 (2016: £886,000), has not been included as a liability in this interim financial information.  It will be recognised in shareholders' equity in the year to 31 December 2017.


The dividend that relates to the period to 31 December 2016 and that amounted to £2,128,000 (2015: final dividend £1,654,000) was paid in May 2017.

 

11.       Property, plant and equipment

 

 

 

 

 

Unaudited

six months ended
30 Jun 2017

 

Unaudited six months ended
30 Jun 2016

 

 

 

 

£000

 

£000

 

Opening net book amount 1 January

 

 

 

          1,330

 

           928

 

Additions

 

 

 

               610

 

         556

 

Acquired through acquisitions

 

 

 

                   25

 

               46

 

Disposals

 

 

 

(8)

 

-

 

Exchange movements

 

 

 

16

 

27

 

Depreciation

 

 

 

(324)

 

(285)

 

Closing net book amount 30 June (unaudited)

 

1,649

 

1,272

 


The group has not placed any contracts for future capital expenditure which have not been provided for in the financial statements.

 

12.       Trade and other payables

 

 

 

 

Unaudited
six months ended
30 Jun 2017

 

Unaudited
six months ended
30 Jun 2016

 

 

 

 

£000

 

£000

Trade payables

 

 

 

          741

 

           506

Other tax and social security payable

 

 

 

               839

 

         662

Other payables

 

 

 

               137

 

         48

Accruals

 

 

 

3,902

 

2,503

Deferred income

 

 

 

17,878

 

13,567

Closing net book amount 30 June (unaudited)

 

23,497

 

17,286

 

 

 

 



 

 

13.       Financial liabilities

 

 



Unaudited
six months ended
30 Jun 2017

 

Unaudited
six months ended
30 Jun 2016

 




£000

 

£000

At 1 January

 



           10,250

 

         13,250

Loan repayment

 



(1,500)

 

(1,500)

At 30 June

 



           8,750

 

       11,750

 







The borrowings are repayable as follows:

 



 

 

 

Within one year

 



3,000

 

3,000

In the second year

 



            5,750

 

          3,000

In the third to fifth years inclusive

 



-           

 

           5,750

 




           8,750

 

         11,750

Less: Amount due for settlement within 12 months (shown under current liabilities)

 

(3,000)

 

(3,000)

 




Amount due for settlement after 12 months

 



5,750

 

8,750

 

14.       Provisions for other liabilities and charges

 



 

 

Unaudited
six months ended
30 Jun 2017

 

Unaudited
six months ended
30 Jun 2016

 


 

 

£000

 

£000

At 1 January

 



                  310

 

                275

Exchange movements

 

 

 

7

 

7

At 30 June

 

 

 

317

 

282

 

Provisions have been analysed between current and non-current as follows:

 





Unaudited
six months ended
30 Jun 2017

 

Unaudited
six months ended
30 Jun 2016

 




£000

 

£000

Current

 



24

 

25

Non-current

 



293

 

257

At 30 June

 

 

 

317

 

282

 



 

15.       Share capital

 

Unaudited
six months ended
30 Jun 2017

Unaudited
six months ended
30 Jun 2016

Ordinary share capital at 6 3/7 pence each

 

Number of shares

 

Ordinary Shares

 

Number

of shares

 

Ordinary Shares

 

 

000

 

£000

 

000

 

£000

 

Opening balance as at 1 January

 

59,297

 

3,811

 

59,060

 

3,796

 

Shares issued to satisfy option awards

 

1,529

 

97


 20

 

 1

 

Closing balance as at 30 June (unaudited)

 

60,826

 

3,908

 

59,080

 

3,797

 

 

Employee share option scheme: options exercised during the period to 30 June 2017 resulted in 1,529,339 shares being issued (30 June 2016: 19,667), with exercise proceeds of £99,000 (30 June 2016: £28,000). The related weighted average share price at the time of exercise was £2.34 per share (30 June 2016: £1.40).

                                                                                                           

 

 

Unaudited
six months ended
30 Jun 2017

 

Unaudited
six months ended
30 Jun 2016

 

 

£000

 

£000

Opening balance as at 1 January

 

4,498

 

4,484

Movement in relation to share options exercised

 

 2

 

 9

Closing balance as at 30 June (unaudited)

 

4,500

 

4,493

 

16.       Acquisitions

 

On 27 February 2017 the Group acquired the entire share capital and voting rights of Primacy Corporation (Primacy) for consideration in cash of £3.4 million. Primacy is a wealth management software provider for the trust and corporate services industry, which will strengthen our market position.

 

Provisional values of the net assets acquired in the transactions and the intangibles arising, are as follows:



Carrying

 






 values pre

 

Fair value

 

Provisional

 


 acquisition

 

 adjustments

 

fair value

 


£000

 

£000

 

£000

Net assets acquired

 






Intangible fixed assets

 

-

 

4,515

 

4,515

Deferred tax liability

 

-

 

(1,174)

 

(1,174)

Property, plant and equipment

 

25

 

-

 

25

Trade and other receivables

 

223

 

-

 

223

Cash and cash equivalents

 

122

 

-

 

122

Trade and other payables

 

(68)

 

-

 

(68)

Deferred income

 

(194)

 

-

 

(194)

 


108

 

3,341

 

3,449

Goodwill

 





-

Total consideration

 





3,449

 







17.       Related party transactions

 

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation. During 2017, the Group entered into transactions with a subsidiary of FDM Group (Holdings) plc, a company for which Ivan Martin (Chairman) and Peter Whiting (non-executive director) are current non-executive directors. FDM Group provided consultancy services to Microgen Financial Systems during the six month period ended 30 June 2017 at a cost of £21,730. No equivalent transaction occurred during 2016. There were no other related party transactions during the six month period ended 30 June 2017 (30 June 2016: £nil), as defined by International Accounting Standard No 24 'Related Party Disclosures', except for key management compensation.

 

The related party transactions for the year ended 31 December 2016 as defined by International Accounting Standard No 24 'Related Party Disclosures' are disclosed in note 29 of the Microgen plc Annual Report for the year ended 31 December 2016.

 

18.       Statement of directors' responsibilities

 

The directors confirm that these condensed interim financial statements have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and that the interim management report includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:

-                 an indication of important events that have occurred during the first six months and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and 

-                 material related-party transactions in the first six months and any material changes in the related-party transactions described in the last annual report.

The directors of Microgen plc are listed in the Microgen plc Annual Report for 31 December 2016. A list of current directors is maintained on the Microgen plc website: www.microgen.com

Copies of this statement are being posted to shareholders and will also be available on the investor relations page of our website (www.microgen.com).  Further copies are available from the Company Secretary at Old Change House, 128 Queen Victoria Street, London, England, EC4V 4BJ.

 

By order of the Board

 

P Wood

21 July 2017

Group Finance Director



 

Independent review report to Microgen plc

Report on the condensed consolidated interim financial statements

Our conclusion

We have reviewed Microgen PLC's condensed consolidated interim financial statements (the "interim financial statements") in the Interim Results of Microgen PLC for the 6 month period ended 30 June 2017. Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

What we have reviewed

The interim financial statements comprise:

·    the condensed consolidated interim balance sheet as at 30 June 2017;

·    the condensed consolidated interim income statement and condensed consolidated interim statement of comprehensive income for the period then ended;

·    the condensed consolidated interim statement of cash flow for the period then ended;

·    the condensed consolidated interim statement of changes in equity for the period then ended; and

·    the explanatory notes to the interim financial statements.

The interim financial statements included in the Interim Results have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

As disclosed in note 2 to the interim financial statements, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the Group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

Responsibilities for the interim financial statements and the review

Our responsibilities and those of the directors

The Interim Results, including the interim financial statements, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the Interim Results in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

Our responsibility is to express a conclusion on the interim financial statements in the Interim Results based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and for no other purpose.  We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

What a review of interim financial statements involves

We conducted our review in accordance with International Standard on Review Engagements (UK) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

We have read the other information contained in the Interim Results and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

PricewaterhouseCoopers LLP

Chartered Accountants

Reading

21 July 2017

 


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