Final Results & Investor Presentation
Instem plc
("Instem", the "Group" or the "Company")
Audited Results for the Year Ended 31 December 2022 & Investor Presentation
Instem plc (AIM: INS), a leading provider of IT solutions to the global life sciences market, announces its audited results for the year ended 31 December 2022 (the "Period").
Financial Highlights:
· Total Group revenues increased 28% to £58.9m (2021: £46.0m)
o Software as a Service (SaaS) revenues increased by 41% to £13.7m (2021: £9.7m)
o Recurring revenues (annual support and SaaS) increased 43% to £34.5m (2021: £24.1m), 59% of total revenue (2021: 52%)
o Constant currency revenue growth was 20%
· Adjusted EBITDA* increased 32% to £10.9m (2021: £8.3m), representing an adjusted EBITDA margin of 18.4% (2021: 17.9%)
· Reported profit before tax of £5.5m (2021: £3.0m)
· Adjusted profit before tax** of £8.2m (2021: £5.9m, as restated)
· Fully diluted earnings per share of 19.8p (2021: 7.4p)
· Adjusted fully diluted earnings per share** of 31.3p (2021: 20.4p, as restated)
· Net cash generated from operations of £9.9m (2021: £10.3m)
· Cash balance as at 31 December 2022 of £14.0m (2021: £15.0m) - after making deferred and contingent payments of £5.4m in 2022 in relation to the acquisitions made during 2021
*Earnings before interest, tax, depreciation, amortisation, impairment of goodwill plus non-recurring items.
**After adjusting for the effect of foreign currency exchange and the unwinding of the finance liability included in finance income/(costs), non-recurring items, impairment of goodwill plus amortisation of intangibles on acquisitions.
Operational Highlights
· First full-year contributions from the three acquisitions completed during 2021, all successfully integrated and earn-out targets met in full: The Edge Software Consultancy Ltd ("The Edge"), d-Wise Technologies Inc ("d-Wise"), and PDS Pathology Data Systems Ltd ("PDS") (the "Acquisitions")
· Won largest ever contract with long-term client
o $12m five-year agreement with global CRO, lead client for new Aspire software solution
o Significant future SaaS revenues
· Contract extension with leading contract research organisation ("CRO") worth c.$1.4m
o For over 900 additional users of the Group's Provantis non-clinical study management platform - reflects strong underlying industry R&D activity
· Sales price increases successfully fed through to customers to mitigate inflationary cost pressures
· New banking facility finalised with HSBC of up to £20m, £10m of which is committed
Post Period-End Highlights
· ToxHub assets acquired and licensed from the eTRANSAFE consortium and launched as part of new solution suite Centrus®, enhancing In Silico revenue streams and reach. Significant planned investment and future growth potential - announced 15 May 2023.
· Large contract renewal/expansion for the US National Toxicology Program, including incremental long-term SaaS income and In silico technology - announced 11 May 2023
· Diversified the Board with the appointment of Mary Dolson as an independent non-executive director and strengthened the Executive team, with the appointment of Eve Leconte, Chief People & Culture Officer and Mark Poggi, Executive Vice President Global Sales.
Phil Reason, CEO of Instem, commented: "This was another strong period for the Company with continued growth in routes to market and higher future visibility SaaS revenues. The enlarged Group added a number of contracts from existing and new clients, benefiting from the Acquisitions made during 2021, while the core product suite and strong market backdrop continued to underpin organic growth.
"New contracts won during the Period provide further validation of our market position while our software suite also provides a firm foundation from which the Group can continue to evolve. The long-term nature of our contracts, combined with our growing range of solutions, underpin the Board's continued confidence in our ability to deliver future success.
"Notwithstanding wider concerns around the funding environment for drug discovery and development, we have seen no evidence of slowdown to date and our focus remains on further broadening our portfolio of products and solutions that are attractive across the spectrum. This will continue to drive value while demonstrating the strength of our proposition.
"Looking forward, we have a strong order book, and the Company is well placed to benefit from industry consolidation as well as continued loyalty from existing clients. We have rationalised the non-core elements of our portfolio and positioned ourselves to benefit from increased cross selling, to win and service customer contracts of all sizes and we look forward to building on the strong start to trading during the current year. The post period-end launch of the Centrus product suite further enhances our In Silico portfolio. This is an integral part of our long-term growth strategy and a significant area of planned investment for us over the next 12 months or so, reflecting broader market trends and growing demand for data insight leveraging computational and artificial intelligence based solutions. We will continue to focus on organic and, where appropriate, acquisitive growth opportunities as we build out high-margin revenue lines while delivering on our commitment to help our clients bring their life enhancing products to market faster."
Analyst Presentation: 09:30 Today
Management will be hosting a presentation via web conference today at 09:30. Analysts wishing to join should register their interest by emailing instem@walbrookpr.com or by telephoning 020 7933 8780.
Investor Presentation: 16:00 Today
Management will be providing a presentation and hosting an Investor Q&A session on the results and future prospects today at 16:00, through the digital platform Investor Meet Company. Investors can sign up for free and add to attend the presentation via the following link https://www.investormeetcompany.com/instem-plc/register-investor
Questions can be submitted pre-event and at any time during the live presentation via the Investor Meet Company Platform.
For further information, please contact:
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Instem plc |
Via Walbrook |
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Phil Reason, CEO |
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Nigel Goldsmith, CFO |
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Singer Capital Markets (Nominated Adviser & Broker) |
+44 (0) 20 7496 3000 |
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Peter Steel |
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Stifel Nicolaus Europe Limited (Joint Broker) |
+44 (0) 20 7710 7600 |
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Ben Maddison |
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Alex Price Richard Short |
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Walbrook Financial PR |
+44 (0) 20 7933 8780 |
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Tom Cooper |
instem@walbrookpr.com |
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Nick Rome |
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Joe Walker |
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About Instem
Instem is a leading provider of IT solutions & services to the life sciences market delivering compelling solutions for Study Management, Regulatory Submissions, Clinical Trial Acceleration, and Informatics-based Insight Generation.
Instem solutions are in use by over 700 customers worldwide, including all of the largest 25 pharmaceutical companies, enabling clients to bring life enhancing products to market faster. Instem's portfolio of software solutions increases client productivity by automating study-related processes while offering the unique ability to generate new knowledge through the extraction and harmonisation of actionable scientific information.
Instem products and services address aspects of the entire drug development value chain, from discovery through to market launch. Management estimate that over 50% of all drugs on the market have been through some part of Instem's platform during their development.
To learn more about Instem solutions and its mission, please visit www.instem.com
Chairman's Statement
This was a highly successful and strategically very important year for the business, with concentration on two main activities: to fully complete the integration of the three companies acquired in 2021; then to ensure that the resultant consolidated business was ideally positioned to commence the next phase of its development in 2023 and beyond.
Being the first full year to benefit from the Acquisitions, as expected, the results were positively impacted by the greater solution suite and routes to market now in place. This transformation of the business has not only increased the scalability and reach of our operations but has improved the Group's ability to win larger contracts and attract opportunities that were not previously available.
Strategically, we aim to ensure that our solutions enable a shortening of the time taken for drugs to come to market and that we have an increasing number of touchpoints across the drug discovery and development lifecycle.
Financial Performance
All parts of the business benefited from the extension of our product range, which is becoming increasingly relevant to a wider cross section of customers. Furthermore, our ability to provide a growing number of solutions has enabled us to increase cross-selling as well as to add new customers that were previously outside of our reach.
During the Period we were able to pass on essential price increases to customers, which helped to mitigate the global inflationary pressures now being experienced by all businesses. Importantly, we also benefited from a further change in our revenue mix, with additional, higher margin and visibility SaaS revenue streams from existing and new clients.
The performance during the Period was aligned with management expectations post the completion of the Acquisitions with notable progress on a number of key metrics. In particular, increasing levels of SaaS-driven business and strong client retention rates continue to be cornerstone objectives.
· SaaS-based revenues grew 41% to £13.7m
· Total recurring revenues grew 43% to £34.5m
· Recurring revenue retention rate >98%
· Total Group revenues increased 28% to £58.9m
· Adjusted EBITDA grew 32% to £10.9m
· Net cash generated from operations of £9.9m
Looking Forward
Following a strategic review of our operations and opportunities the next phase of the development of the business will be based on the achievement and maintenance of a growing portfolio of 'world leading life science workflow and data solutions.' These are grouped into three market focussed sectors.
Study Management
This sector has historically been the bedrock of the overall business. The products and services of the PDS acquisition have now been merged with the equivalent pre-existing Instem products and services. Consequently, we are now the clear market leader in the pre-clinical study management market. In addition, we have now broadened our study management scope into the discovery phase of pharma R&D through the acquisition of The Edge.
Clinical Trial Acceleration
Solutions for clinical trial acceleration now provide an important opportunity for the Company. This was the principle market focus of the d-Wise business. We believe that this, combined with the resources and market reach of Instem, will significantly leverage the potential in this area.
We have already seen these benefits, with the Company, in September 2022, winning its largest contract to date - worth $12m over five years.
In Silico/Data Science
Artificial Intelligence ("AI") is now one of the most exciting supporting technology areas in Pharma R&D, with its potential to generate significant improvements both in cost and timescale for new product development.
We separately announced today, 15 May 2023, that Instem is taking on responsibility for the management and further enhancement of the 'ToxHub' database and software platform. ToxHub was created by eTRANSAFE (a consortium of global pharma companies, universities and technology companies, supported by EU grant funding) and has benefited from c.€41m investment to date.
ToxHub has become a component of recently launched solution suite Centrus. Maximising the potential for this new solution suite is strategically important and now a major focus of investment for the Company. Initially Centrus will provide an exciting axis for further growth of our existing In Silico solutions. However, it also sets the stall for the next stage of the Company's development, which will include an increased focus on In Silico solutions.
Board Changes
Post-period end, we were delighted to welcome Mary Dolson as an Independent Non-Executive Director to the Board and Chair of the Audit Committee. Mary also joined as a member of the Remuneration and Nomination Committees. Mary is an expert advisor on regulatory, financial and accounting compliance issues, with extensive experience advising businesses in the pharmaceutical, biotech and life science sectors. She is an experienced specialist in taking companies through periods of change, from start-up to venture capital investments to public offerings. Upon Mary's appointment, membership of the Company's audit, remuneration and nominations committees was revised accordingly and the Company will continue to review membership of the various committees periodically in line with good governance practice.
Following Mary's appointment David Sherwin, Non-Executive Director, stepped down from the Board effective 31 January 2023. We would like to thank David for his support and guidance during nearly 50 years at Instem.
In Summary
Increasing levels of SaaS-driven business and strong client retention rates continue to the be cornerstone of our model. We will continue to build on the fact that our solutions remain critical in shortening the time taken for drugs to come to market, resulting in significant revenue growth for our blue-chip client base as they provide life changing new products for consumers world-wide.
We remain focused on organic revenue growth, margin improvement and accretive M&A and believe that the Company is extremely well placed to deliver further success. The performance during the Period is a strong reflection of the hard work across all parts of the business and the foundations we now have in place are expected to underpin material upside opportunities.
David Gare
Non-Executive Chairman
13 May 2023
Chief Executive's Report
Strategic Development
In 2022 we stated our clear intention to make material progress in integrating the data from our broad portfolio of market leading applications to deliver compelling new capabilities to the market and are delighted that post-period end we completed the transfer of eTRANSAFE's ToxHub application to Instem, announced 15 May 2023.
We are very excited about the potential of our expanded In Silico and Translation Science ("ISTS") business unit, with our new Centrus solution suite incorporating:
· the acquired ToxHub technology
· our previous In Silico solutions
· the Clinical Trial Transparency solutions (previously within our Clinical Trial Acceleration business unit
· the emerging opportunities to leverage the SEND information assets that are rapidly growing within pharmaceutical companies and contract research organisations around the world.
The Group's focus remains on helping clients to radically reduce the cost and time of life sciences research and development, with In Silico alternatives to traditional client experimental processes representing a significant opportunity. Instem offers a range of solutions including predictive data analytics, simulation and modelling that provide clients with services from early drug discovery to late-stage clinical trials and, while already leveraging machine learning and AI technologies, there is much more we can do in these areas.
With our increased focus on ISTS and a clear objective to optimize our clients R&D activities, we decided to dispose of our Regulatory Information Management "RIM" software business and this transaction completed post period end. Most of our RIM revenue since the acquisition of Samarind in 2016 has been in support of our clients' post-marketing activities, as they launched their regulated products around the world. The opportunity that we envisaged to build on our strength in the medical devices niche was constrained by slower introduction of helpful regulatory changes and a medical devices market that was one of few that Instem targets that was negatively impacted by the Covid pandemic. We believe that Ennov, a competitor in the RIM market and acquirer of our RIM business, will be a good home for a small team of dedicated former Instem staff and our RIM clients. RIM represented less than 2% of total revenue in 2022.
RIM was part of our Regulatory Solutions business unit, alongside our much larger SEND related business. Having moved the responsibility for solutions that leverage large volumes of SEND studies for insight generation to ISTS, we have moved our SEND creation software and services into our Study Management business unit. The clients in these areas and the workflow technology applications overlap significantly; together they provide greater opportunity to optimize efficiency and effectiveness for Instem and our clients.
As 2022 was the first year that incorporated full contributions from the Acquisitions made during 2021, the results reflect the benefits of scale. With an enhanced solution suite servicing a growing number of touchpoints across the drug discovery and development lifecycle the Company won multiple new contracts and clients, which further enhanced SaaS revenue streams in particular.
Organic growth remained strong, with retention of recurring SaaS and Annual Support revenue once again ahead of the Company's 98% key performance indicator and new business win rates confirming market leadership across its broad portfolio.
The Company has created a strong market position and substantial recurring revenues through helping our clients orchestrate and automate their study workflows. We are building on this firm foundation with an increasing focus on the higher growth areas in our portfolio, particularly the ISTS solutions that contribute across the entire R&D value chain from drug discovery to late-stage clinical trials and beyond. The industry recognises and is investing in advanced information technologies, such as AI and other data-centric solutions, to both lower the cost and accelerate its drug development activities. Our ISTS technology, plus our deep understanding of the high volumes of complex data, collected through our workflow solutions over several decades in this industry, leave us well-positioned to drive forward both current and innovative new solutions.
Market Review
The market backdrop continues to be favourable for the Group, with global population growth and life expectancy underpinning increased demand for successful innovation in life sciences. Increasing amounts of money are being invested in the biotech industry with the pharmaceuticals sector investing heavily in drug development, underpinning a strong pipeline for Instem.
In the pharmaceutical industry, which represents the largest proportion of Instem's revenue, we refer again to the Pharma R&D Annual Review, the 2023 version of which was released by Pharma Intelligence in April 2023. This report shows that the industry grew strongly in the last 12 months with a 5.9% increase (2021: 8.2%) in the total number of drugs in the regulatory stages of global R&D, continuing a multi-year growth trend that shows no sign of abating.
Business Performance
Study Management
Performance here remained strong with revenue growth of 27%, compared with prior period growth of 35%, with both of these years benefiting from the Acquisitions in 2021 and reflecting the continuing growth in non-clinical research and development, with the number of drugs in this stage of development up 4.9% (2021: 11%). In December 2022 the Company announced that it had entered into a contract extension worth c.$1.4m for over 900 additional users of the Provantis non-clinical study management platform with an existing leading publicly traded global CRO, highlighting the continued strength of its offering, client relationships and underlying market.
The continual functional and technological evolution of the study management portfolio, which has been a mainstay of the business for many years, resulted in a number of new business wins. New product versions helped to maintain high levels of client retention and to support the ongoing transition of client deployments from on-premise to Instem's SaaS solution. With CRO consolidation a significant feature over the last few years, it is very encouraging that clients have invariably chosen to consolidate on Instem's Provantis software when companies combining, through merger or acquisition, look to harmonize on a single solution, rather than retain competing study management products. In total, over 3,000 additional Provantis users were licensed in 2022.
In Silico and Translational Science
Instem's In Silico and Translational Science solutions enable organizations around the world to unlock critical biomedical intelligence contained in both public and proprietary data resources. Insights, generated from information produced across the R&D continuum, are used to support operational efficiencies and scientific advances throughout discovery, development and clinical practice.
In November 2022 the Company announced the release of the latest edition of its Leadscope Model Applier Computational Toxicology software solution, and significant improvements were also made during 2022 to the KnowledgeScan Target Safety Assessment (TSA) platform. Enhancements to these AI-enabled solutions, used for the assessment of chemical and biological mechanisms, support client demand for the combined benefits of both tools. Clients license the technology on a project or enterprise basis, or access it through Instem's innovative, technology enabled services. Our 'translational science' capability has also been recently enhanced by the addition of products and services in clinical trial transparency, where clients are provided access to anonymised clinical trial data for regulatory submission and secondary use.
A growing demand for reliable alternatives to traditional testing methods and particularly animal-based studies in pharmaceutical development was a key factor in the Company adding the ToxHub suite of products post period end, which has been combined with our existing In Silico solutions as part of a new Centrus solution suite. Instem's highly successful, long-term collaborations with the US Food & Drug Administration and our role orchestrating large scale industry initiatives, such as the In Silico Protocols project, create an excellent framework for ongoing collaboration with the eTRANSAFE Consortium members, who jointly specified and invested in the creation of ToxHub. Centrus is expected to provide a spring board for accelerated ISTS revenue growth.
Regulatory Solutions
The Regulatory Solutions business unit comprised our SEND related software and technology enabled outsourced services, together with the Samarind RMS RIM software suite. In the highly competitive and challenging RIM market revenue declined 7% to c.£1.2m. Conversely, our SEND business grew by 24% to £10.8m. Every drug company is required to submit non-clinical data in SEND format to the FDA (Food and Drug Administration), as part of the process for testing and getting approval for each new drug. The combination of increased numbers of drugs in development and SEND being extended to cover a broader range of study types, provided a solid platform for continued growth.
Having acquired PDS in September 2021, a competitor in the SEND software and services market, we were able to reallocate some of our industry experts to further investigate the opportunity to generate insight from our clients' rapidly growing SEND information repositories. Post period end this work has now transitioned to our ISTS business unit and our technology and services for SEND creation have become part of Study Management. As a consequence of these changes, Regulatory Solutions will no longer be reported independently.
Clinical Trial Acceleration Solutions
Instem plays a key role in the acceleration of analysis and tabulation activities for late-stage clinical trials through its Statistical Computing Environment (SCE) consultancy and solutions. Instem is acknowledged as an authority in the design, implementation and optimisation of SCEs for the biggest clinical trials organisations to the new entrants and innovative biotechs advancing novel drugs. The Company's solutions for late-stage clinical trials are designed to expand as customer needs grow and mature, providing essential scalability to these organisations. At the same time, Instem's SCE operating platforms provide sponsors and CROs an essential transformational bridge to cloud computing and the benefits of automation through AI and a wide array of open source and cloud-native technologies. SCE solutions from Instem open a gateway for organisations to access a new value space in computing technology that can be leveraged to advance data science and accelerate drug development programs.
Significant new business wins included the largest ever contract win for the Company - worth in excess of $12m over five years. This contract provides over 2,000 users worldwide at an existing CRO client, access to Instem's new Aspire™ SCE software solution. Aspire is a cloud-based SaaS solution targeting the largest pharma and CROs in the world and is another example of the company's SaaS growth strategy. For this client, Aspire will be deployed on the Amazon Web Services cloud platform. With the focus on Aspire product sales and this key customer launch in Q4 2023, the volume of custom SCE development consulting projects has predictably dropped. Aspire is anticipated to drive value for clients by accelerating SCE deployment timelines, reducing client modernization costs, while increasing recurring revenue and profitability of this business area.
Instem continued to provide productised statistical computing environments for small to mid-sized pharma companies and CROs with a steady growth in new clients and annual recurring revenue.
Strengthened Executive Management Team
In addition to the various Board changes, we welcomed Mark Poggi to the Executive Team, joining as Executive Vice President Global Sales. Mark previously worked at CAS, a 1,200 employee subsidiary of the American Chemical Society, where he had an international team of around 85 people, over 3x the number he will initially lead at Instem, and responsibility for approximately $190m in annual sales. Additionally, Eve Leconte has been promoted to join the Executive Team as Chief People & Culture Officer.
Finally, John Alarcon was appointed Vice President of Strategic Partnerships and Vice President of US Finance. John joined Instem on a contract basis in 2019 and led the buy-side due diligence, modelling, and integration efforts on the d-Wise acquisition, and supported on those of The Edge and PDS. John was also Interim Controller for Instem's Clinical Trial Acceleration business unit.
Financial Review
Key Performance Indicators (KPIs)
The directors review monthly revenue and operating costs to ensure that sufficient cash resources are available for the working capital requirements of the Group. Primary KPIs at the year-end were:
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Year ended 31 December 2022 £000 |
Year ended 31 December 2021 £000 |
Change |
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Total revenue |
58,880 |
46,017 |
28% |
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Recurring revenue1 * |
34,473 |
24,082 |
43% |
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Annual Recurring revenue1 |
34,967 |
28,741 |
22% |
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Recurring revenue as a percentage of total revenue |
59% |
52% |
700bps |
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Adjusted EBITDA1 ** |
10,863 |
8,250 |
32% |
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Adjusted EBITDA Margin % |
18.4% |
17.9% |
50bps |
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Cash and cash equivalents |
13,964 |
15,021 |
(7%) |
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Revenue retention rate for recurring SaaS and Annual Support contracts |
>98% |
98% |
- |
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Operating profit after non-recurring items |
5,593 |
4,098 |
36% |
1. For an explanation of the alternative performance measure in the report, please refer below
* Recurring revenue includes Annual Support fees and SaaS subscription fees.
** Earnings before interest, tax, depreciation, amortization, impairment of goodwill and non-recurring items.
In addition, non-financial KPIs are periodically reviewed and assessed, including customer and staff satisfaction.
Instem's revenue model consists of perpetual licence income with annual support and maintenance contracts, professional services, technology enabled outsourced services fees, SaaS subscriptions and consultancy services.
Total revenues increased by 28% to £58.9m (2021: £46.0m) with constant currency revenue growth at 20%. This includes full year revenue contributions from The Edge, d-Wise and PDS, which were acquired in March, April and September 2021 respectively. Recurring revenue, comprising Support & Maintenance contracts and SaaS subscriptions, increased during the year by 43% to £34.5m (2021: £24.1m). Recurring revenue as a percentage of total revenue was 59% (2021: 52%). The recurring revenue as a percentage of total revenue has increased over the year primarily due to the change of d-Wise revenue mix moving towards recurring revenue instead of consulting services. Revenue from technology enabled outsourced services increased to £8.5m (2021: £6.4m).
Operating expenses excluding the non-recurring items increased by 27% in line with revenue reflecting the full year cost of the 2021 acquisitions, ongoing investment in operational teams and the increase in the rate of inflation, primarily in salaries.
Adjusted earnings before interest, tax, depreciation, amortisation, impairment of goodwill and non-recurring items (Adjusted EBITDA) increased by 32% to £10.9m (2021: £8.3m). For this measure of earnings, the margin as a percentage of revenue increased in the period to 18.4% from 17.9% in 2021, as the Group managed to increase the revenue in line with the salary inflation.
Non-recurring costs in the period were £1.2m (2021: £1.3m), consisting of £0.1m for legal expenses associated with an historical contract dispute and an additional provision of €1.2m (£1.0m) which relates to the full and final settlement of the dispute that originally arose in 2017. The historical contract dispute was settled in 2022 for €1.5m (£1.3m). The non-recurring costs also include acquisition costs of £0.08m (2021: £1.0m) in respect of the earn out consideration of the Edge and d-Wise.
Non-recurring income of €0.5m (£0.4m) relates to an insurance payment in relation to the historical contract dispute.
The reported profit before tax for the year was £5.5m (2021: profit of £3.0m). The calculation of the adjusted profit before tax was changed in 2022 to include two additional components; the effect of foreign currency exchange and the unwinding of the financial liability included in finance income/(costs). Those two components have been included to better reflect the normalised, ongoing operations of the Group. Adjusted profit before tax (i.e. adjusting for the effect of foreign currency exchange and the unwinding of the finance liability included in finance income/(costs), non-recurring items, impairment of goodwill and amortisation of intangibles arising on acquisitions) was £8.2m (2021: £5.9m, as restated).
The total income tax charge in the year of £0.78m (2021: £1.3m) is an effective tax rate of 14.2% (2021: 43.8%). The decrease in the tax charge is mainly due to the benefit from deferred tax of the UK corporation tax losses together with a US tax benefit available on the d-Wise acquisition. In the UK, the Group continues to receive additional tax relief on its research and development expenditure.
The Group continues to maintain its investment in its product portfolio. Research and development costs incurred during the year were £7.5m (2021: £4.9m), of which £3.0m (2021: £2.2m) was capitalised. The Group has a development process in place and is committed to ensure its own technology continues to evolve to meet client needs.
The Group operates internationally and is exposed to foreign currency risk on transactions denominated in a currency other than the functional currency, and on the translation of the statement of financial position and statement of comprehensive income of foreign operations into Sterling. The primary currency that exposed the Group to foreign currency risk in 2022 was the US dollar In 2022, the revenue and Adjusted EBITDA growth on a constant currency basis, excluding the foreign exchange exposure, was 20% and 19% respectively. The foreign exchange gain recorded during 2022 was £0.93m (2021: loss £0.04m), which is composed of realised and unrealised gains/losses.
Basic and diluted earnings per share calculated on an adjusted basis were 32.8p and 31.3p respectively (2021: 21.5p basic and 20.4p diluted, as restated). The reported basic and diluted earnings per share were 20.8p and 19.8p respectively (2021: 7.8p basic and 7.4p diluted).
The Group cash generated from operations for the year was £9.9m (2021: £10.3m), a small reduction from prior year primarily due to working capital movement and the settlement of the historical contract dispute. The deferred and contingent consideration payments of £5.4m which related to the 2021 acquisitions were part of the net cash used in financing activities. The net cash used in investing activities includes £3.0m (2021: £2.2m) from the capitalisation of software development. As a result of the above, the gross cash balance decreased from £15.0m at 31 December 2021 to £14.0m at 31 December 2022. In addition to its organic cash reserves the Group has access to an HSBC debt facility of up to £20m, which was unutilised at the year end.
The remaining financial obligations associated with The Edge and d-Wise acquisitions for 2023 are deferred and contingent consideration payments of £3.6m and £2.2m respectively in cash. The contingent consideration provision reflected management's estimate that the entities would achieve their profitability targets and that the full amount of contingent consideration would be paid. This profitability target was confirmed in the period.
Goodwill included in intangible assets reduced from 31 December 2021 to 31 December 2022 due to an impairment loss of £0.11m on Samarind's goodwill realised on disposal. Offsetting this there was an increase in d-Wise goodwill of £0.05m (US$0.06m) due to a change in the contingent consideration paid.
The latest triennial actuarial valuation of the Group's legacy defined benefit pension scheme as of 5 April 2020, was completed in July 2021. As part of the process, the Group has agreed a revised Schedule of Contributions with the Trustees of the Scheme, which are intended to clear the Scheme deficit by 30 September 2026.
On 31 December 2022, the IAS19 accounting pension deficit was unchanged at £2.0m (2021: £2.0m). The agreed Group cash contributions currently approximate to £0.6m per annum, payable through to September 2026. The deficit at the 2022 year-end of £2.0m (2021: £2.0m) is represented by the fair value of assets of £8.4m (2021: £14.0m) and the present value of funded obligations of £10.4m (2021: £16.0m), after applying a discount rate of 4.8% (2021: 1.9%).
Movements in share capital and the share premium, merger and share based payment reserves reflect the exercise of share options during the period, the fair value of share options granted being charged to the Statement of Comprehensive Income and the issue of shares paid in lieu of cash as deferred consideration for d-Wise. The share capital of Instem on 31 December 2022 was 22,704,308 ordinary shares of 10p each.
In line with previous periods and given our policy of retaining cash within the business to capitalise on available growth opportunities, the Board has not recommended the payment of a dividend.
Alternative performance measure
The Annual Report and Accounts contains certain financial alternative performance measures ("APMs") that are not defined or recognised under IFRS but are presented to provide readers with additional financial information that is evaluated by management and investors in assessing the performance of the Group. This additional information presented is not uniformly defined by all companies and may not be comparable with similarly titled measures and disclosures by other companies.
The table below provides the data for certain performance measures mentioned above:
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2022 £000 |
2021 £000 |
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Annual support fees |
|
20,815 |
14,378 |
|
SaaS subscription and support fees |
|
13,658 |
9,704 |
|
|
|
|
|
|
Recurring revenue |
|
34,473 |
24,082 |
|
|
|
|
|
|
Licence fees |
|
6,049 |
4,597 |
|
Professional services |
|
3,229 |
3,651 |
|
Technology enabled outsourced services |
|
8,496 |
6,378 |
|
Consultancy services |
|
6,633 |
7,309 |
|
|
|
|
|
|
Total revenue |
|
58,880 |
46,017 |
|
|
|
|
|
|
Recurring revenue is the revenue that repeats annually under contractual arrangements. It highlights how much of the Group's total revenue is secured and anticipated to repeat in future periods, providing a measure of the financial strength of the business. |
|||
|
|
|
|
|
|
|
|
2022 £000 |
2021 £000 |
|
|
|
|
|
|
Annual Recurring Revenue |
|
34,967 |
28,741 |
|
|
|
|
|
|
Annual Recurring Revenue is the revenue that the Group is currently contracted to provide, for the next 12 months, for software Annual Support fees and SaaS Subscription fees. The revenue is also adjusted with new or terminated contracts that took place in the year.
|
|||
|
|
|
2022 £000 |
2021 £000 |
|
|
|
|
|
|
EBITDA |
|
10,056 |
7,769 |
|
Non-recurring cost |
|
1,208 |
1,286 |
|
Non-recurring income |
|
(401) |
(805) |
|
|
|
|
|
|
Adjusted EBITDA |
|
10,863 |
8,250 |
|
|
|
|
|
|
Adjusted EBITDA is EBITDA plus non-recurring items (as set out in note 4). The same adjustments are also made in determining the adjusted EBITDA margin. Items are only classified as exceptional due to their nature or size and the Board considers that this metric provides the best measure of assessing underlying trading performance. |
|||
|
|
2022 £000 |
2021 as re-stated £000 |
2021 as originally reported £000 |
|
|
|
|
|
|
Profit before tax |
5,473 |
2,984 |
2,984 |
|
Amortisation of intangibles arising on acquisition |
1,953 |
1,563 |
1,563 |
|
Nonrecurring cost |
1,208 |
1,286 |
1,286 |
|
Nonrecurring income |
(401) |
(805) |
(805) |
|
Impairment of goodwill |
107 |
- |
- |
|
Intercompany foreign exchange (gain)/loss |
- |
- |
(18) |
|
Foreign currency exchange (gain)/ loss |
(932) |
44 |
- |
|
Unwinding discount on deferred consideration |
771 |
867 |
- |
|
|
|
|
|
|
Adjusted profit before tax |
8,179 |
5,939 |
5,010 |
|
|
|
|
|
|
|
|
|
|
|
The calculation for the adjusted profit before tax was changed in 2022 compared with prior periods by including two additional components, the effect of foreign currency exchange and the unwinding of the finance liability included in finance income/(costs). Those two components have been included as adjustments as they do not affect the ongoing operations of the Group.
Adjusted profit before tax is after adjusting for the effect of foreign currency exchange and the unwinding of the finance liability included in finance income/(costs), non-recurring items, impairment of goodwill and amortisation of intangibles arising on acquisitions. The same adjustments are also made in determining adjusted earnings per share ("EPS"). The Board considers this adjusted measure of operating profit provides the best metric of assessing underlying performance.
|
|||
|
|
|
|
|
|
|
|
2022 £000 |
2021 £000 |
|
|
|
|
|
|
Weighted average dilutive number of shares (000's)
|
|
23,686 |
22,719 |
|
Adjusted diluted earnings per share
|
|
31.3p |
20.4p |
|
|
|
|
|
|
Cash at bank |
|
13,964 |
24,019 |
|
Bank overdraft |
|
- |
(8,998) |
|
|
|
|
|
|
Cash balance |
|
13,964 |
15,021 |
|
|
|
|
|
Post Period-End
For the material subsequent events refer to note 12, as these have a bearing on the understanding of the financial information set out in this announcement.
Summary and Outlook
This was another strong period for the Company with continued growth in routes to market and higher future visibility SaaS revenues. The enlarged Group added a number of contracts from existing and new clients, benefiting from the Acquisitions made during 2021, while the core product suite and strong market backdrop continued to underpin organic growth.
New contracts won during the Period provide further validation of our market position while our software suite also provides a firm foundation from which the Group can continue to evolve. The long-term nature of our relationships, combined with our growing range of solutions, underpin the Board's continued confidence in our ability to deliver future success.
Notwithstanding wider concerns around the funding environment for drug discovery and development, we have seen no evidence of slowdown to date and our focus remains on further broadening our portfolio of products and solutions that are attractive across the spectrum. This will continue to drive value while demonstrating the strength of our proposition.
Looking forward, we have a strong order book, and the Company is well placed to benefit from industry consolidation as well as continued loyalty from existing clients. We have rationalised the non-core elements of our portfolio and positioned ourselves to benefit from increased cross selling, to win and service customer contracts of all sizes and we look forward to building on the strong start to trading during the current year. The post period-end launch of the Centrus product suite further enhances our In Silico portfolio. This is an integral part of our long-term growth strategy and a significant area of planned investment for us over the next 12 months or so, reflecting broader market trends and growing demand for data insight leveraging computational and artificial intelligence based solutions. We will continue to focus on organic and, where appropriate, acquisitive growth opportunities as we build out high-margin revenue lines while delivering on our commitment to help our clients bring their life enhancing products to market faster.
Phil Reason
Chief Executive
13 May 2023
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2022
|
|
Note |
Year ended 31 December 2022 £000 |
Year ended 31 December 2021 £000 |
|
|
|
|
|
|
REVENUE |
2 |
58,880 |
46,017 |
|
Employee benefits expense |
|
(34,437) |
(26,918) |
|
Other expenses |
|
(13,776) |
(10,491) |
|
Net impairment gain/ (loss) on financial assets |
|
196 |
(358) |
|
|
|
|
|
|
EARNINGS BEFORE INTEREST, TAXATION, DEPRECIATION, AMORTISATION AND NON-RECURRING ITEMS (ADJUSTED EBITDA) |
|
10,863 |
8,250 |
|
Depreciation |
|
(340) |
(312) |
|
Amortisation of intangibles arising on acquisitions |
|
(1,953) |
(1,563) |
|
Amortisation of internally generated intangibles |
|
(1,096) |
(851) |
|
Depreciation of right of use assets |
8 |
(967) |
(945) |
|
Impairment of goodwill |
|
(107) |
- |
|
|
|
|
|
|
OPERATING PROFIT BEFORE NON-RECURRING ITEMS |
|
6,400 |
4,579 |
|
Non-recurring costs |
4 |
(1,208) |
(1,286) |
|
Non-recurring income |
4 |
401 |
805 |
|
|
|
|
|
|
OPERATING PROFIT AFTER NON-RECURRING ITEMS |
|
5,593 |
4,098 |
|
|
|
|
|
|
Finance income |
5 |
1,023 |
30 |
|
Finance costs |
6 |
(1,143) |
(1,144) |
|
|
|
|
|
|
PROFIT BEFORE TAXATION |
|
5,473 |
2,984 |
|
Taxation |
7 |
(776) |
(1,306) |
|
|
|
|
|
|
PROFIT FOR THE YEAR |
|
4,697 |
1,678 |
|
|
|
|
|
|
OTHER COMPREHENSIVE (EXPENSE)/ INCOME |
|
|
|
|
Items that will not be reclassified to profit and loss account: |
|
|
|
|
Actuarial (loss)/ gain on net defined benefit liability |
|
(561) |
1,375 |
|
Deferred tax on actuarial gain/ (loss) |
|
140 |
(140) |
|
|
|
|
|
|
|
|
(421) |
1,235 |
|
Items that may be reclassified to profit and loss account: |
|
|
|
|
Exchange differences on translating foreign operations |
|
(1,596) |
(294) |
|
|
|
_______ |
_______ |
|
OTHER COMPREHENSIVE (EXPENSE)/ INCOME FOR THE YEAR |
|
(2,017) |
941 |
|
|
|
_______ |
_______ |
|
TOTAL COMPREHENSIVE INCOME FOR THE YEAR |
|
2,680 |
2,619 |
|
|
|
|
|
|
PROFIT ATTRIBUTABLE TO OWNERS OF THE PARENT COMPANY |
|
4,697 |
1,678 |
|
|
|
|
|
|
TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO OWNERS OF THE PARENT COMPANY |
|
2,680 |
2,619 |
|
|
|
|
|
|
Earnings per share |
|
|
|
|
Basic |
10 |
20.8 |
7.8 |
|
Diluted |
10 |
19.8 |
7.4 |
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
At 31 December 2022
|
|
Note |
2022 |
2021 |
|
|||||||
|
|
|
£000 |
£000 |
£000 |
£000 |
|
|||||
|
ASSETS |
|
|
|
|
|
|
|||||
|
NON-CURRENT ASSETS |
|
|
|
|
|
|
|||||
|
Intangible assets |
|
58,341 |
|
58,311 |
|
|
|||||
|
Property, plant and equipment |
|
768 |
|
592 |
|
|
|||||
|
Right of use assets |
8 |
1,120 |
|
2,077 |
|
|
|||||
|
Finance lease receivables |
8 |
42 |
|
85 |
|
|
|||||
|
|
|
|
|
|
|
|
|||||
|
TOTAL NON-CURRENT ASSETS |
|
|
60,271 |
|
61,065 |
|
|||||
|
|
|
|
|
|
|
|
|||||
|
CURRENT ASSETS |
|
|
|
|
|
|
|||||
|
Inventories |
|
76 |
|
64 |
|
|
|||||
|
Trade and other receivables |
|
18,345 |
|
14,852 |
|
|
|||||
|
Finance lease receivables |
8 |
53 |
|
44 |
|
|
|||||
|
Tax receivable |
|
- |
|
130 |
|
|
|||||
|
Cash and cash equivalents |
|
13,964 |
|
15,021 |
|
|
|||||
|
|
|
|
|
|
|
|
|||||
|
TOTAL CURRENT ASSETS |
|
|
32,438 |
|
30,111 |
|
|||||
|
|
|
|
|
|
|
|
|||||
|
TOTAL ASSETS |
|
|
92,709 |
|
91,176 |
|
|||||
|
|
|
|
|
|
|
|
|||||
|
LIABILITIES |
|
|
|
|
|
|
|||||
|
CURRENT LIABILITIES |
|
|
|
|
|
|
|||||
|
Trade and other payables |
|
5,327 |
|
5,723 |
|
|
|||||
|
Deferred income |
|
22,745 |
|
18,935 |
|
|
|||||
|
Tax payable |
|
251 |
|
- |
|
|
|||||
|
Financial liabilities |
|
5,765 |
|
6,612 |
|
|
|||||
|
Lease liabilities |
|
814 |
|
1,077 |
|
|
|||||
|
|
|
|
|
|
|
|
|||||
|
TOTAL CURRENT LIABILITIES |
|
|
34,902 |
|
32,347 |
|
|||||
|
|
|
|
|
|
|
|
|||||
|
NON-CURRENT LIABILITIES |
|
|
|
|
|
|
|||||
|
Financial liabilities |
|
- |
|
4,728 |
|
|
|||||
|
Pension obligations |
|
2,013 |
|
2,014 |
|
|
|||||
|
Provision for liabilities |
11 |
45 |
|
291 |
|
|
|||||
|
Lease liabilities |
|
491 |
|
1,248 |
|
|
|||||
|
Deferred tax liabilities |
|
1,901 |
|
3,247 |
|
|
|||||
|
|
|
|
|
|
|
|
|||||
|
TOTAL NON-CURRENT LIABILITIES |
|
|
4,450 |
|
11,528 |
|
|||||
|
|
|
|
|
|
|
|
|||||
|
TOTAL LIABILITIES |
|
|
39,352 |
|
43,875 |
|
|||||
|
|
|
|
|
|
|
|
|||||
|
EQUITY |
|
|
|
|
|
|
|||||
|
Share capital |
|
2,270 |
|
2,219 |
|
|
|||||
|
Share premium |
|
28,224 |
|
28,191 |
|
|
|||||
|
Merger reserve |
|
14,013 |
|
12,104 |
|
|
|||||
|
Share based payment reserve |
|
3,570 |
|
2,294 |
|
|
|||||
|
Translation reserve |
|
(1,798) |
|
(202) |
|
|
|||||
|
Retained earnings |
|
7,078 |
|
2,695 |
|
|
|||||
|
|
|
|
|
|
|
|
|||||
|
TOTAL EQUITY ATTRIBUTABLE TO OWNERS OF THE PARENT |
|
|
53,357 |
|
47,301 |
|
|||||
|
|
|
|
|
|
|
|
|||||
|
TOTAL EQUITY AND LIABILITIES |
|
|
92,709 |
|
91,176 |
|
|||||
|
|
|
|
|
|
|
|
|||||
|
CONSOLIDATED STATEMENT OF CASH FLOWS For the year ended 31 December 2022 |
|||||||||||
|
Note |
2022 |
2021 |
||||||
|
|
|
£000 |
£000 |
£000 |
£000 |
|||
|
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|||
|
Profit before taxation |
|
|
5,473 |
|
2,984 |
|||
|
Adjustments for: |
|
|
|
|
|
|||
|
Depreciation |
|
|
340 |
|
312 |
|||
|
Amortisation of intangibles |
|
|
3,049 |
|
2,414 |
|||
|
Depreciation of right of use assets |
8 |
|
967 |
|
945 |
|||
|
Share based payment charge |
9 |
|
1,377 |
|
1,061 |
|||
|
Contributions to defined benefit pension scheme |
|
|
(598) |
|
(530) |
|||
|
Government support loan forgiveness |
|
|
- |
|
(805) |
|||
|
Finance income |
5 |
|
(1,023) |
|
(30) |
|||
|
Finance costs |
6 |
|
1,143 |
|
1,144 |
|||
|
Impairment on goodwill |
|
|
107 |
|
- |
|||
|
Loss on disposal of fixed assets |
|
|
(4) |
|
3 |
|||
|
|
|
|
|
|
|
|||
|
CASH FLOWS FROM OPERATIONS BEFORE MOVEMENTS IN WORKING CAPITAL |
|
10,831 |
|
7,498 |
||||
|
Movements in working capital: |
|
|
|
|
|
|||
|
Increase in inventories |
|
|
(12) |
|
(14) |
|||
|
Increase in trade and other receivables |
|
(2,866) |
|
(1,573) |
||||
|
Increase in trade, other payables and deferred income |
|
2,185 |
|
4,432 |
||||
|
Decrease in provision |
|
|
(281) |
|
- |
|||
|
|
|
|
|
|
|
|||
|
NET CASH GENERATED FROM OPERATIONS |
|
9,857 |
|
10,343 |
||||
|
Finance income |
|
|
91 |
|
6 |
|||
|
Finance costs |
|
|
(266) |
|
(276) |
|||
|
Income taxes |
|
|
(1,810) |
|
(873) |
|||
|
|
|
|
|
|
|
|||
|
NET CASH GENERATED FROM OPERATING ACTIVITIES
|
|
|
7,872 |
|
9,200 |
|||
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
||||
|
Capitalisation of development costs and software |
|
(3,036) |
|
(2,238) |
|
|||
|
Purchase of property, plant and equipment |
|
(478) |
|
(144) |
|
|||
|
Payment of deferred consideration |
|
- |
|
(277) |
|
|||
|
Purchase of subsidiary undertakings (net of cash acquired) |
|
- |
|
(14,840) |
|
|||
|
|
|
|
|
|
|
|||
|
NET CASH USED IN INVESTING ACTIVITIES |
|
(3,514) |
|
(17,499) |
||||
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
||||
|
Proceeds from issue of share capital |
|
36 |
|
22 |
|
|||
|
Repayment of lease liabilities |
8 |
(1,096) |
|
(963) |
|
|||
|
Receipts from sublease of asset |
|
53 |
|
40 |
|
|||
|
Repayment of former PDS's shareholder loan |
|
- |
|
(2,387) |
|
|||
|
Payment of deferred consideration |
|
(3,891) |
|
- |
|
|||
|
Payment of contingent consideration |
|
(1,463) |
|
- |
|
|||
|
|
|
|
|
|
|
|||
|
NET CASH GENERATED (USED IN) FROM FINANCING ACTIVITIES |
|
(6,361) |
|
(3,288) |
||||
|
|
|
|
|
|
|
|||
|
NET (DECREASE) IN CASH AND CASH EQUIVALENTS |
|
(2,003) |
|
(11,587) |
||||
|
|
|
|
|
|
||||
|
Cash and cash equivalents at start of year |
|
|
15,021 |
|
26,724 |
|||
|
Effects of exchange rate changes on the balance of cash held in foreign currencies |
|
|
946 |
|
(116) |
|||
|
|
|
|
|
|
|
|||
|
CASH AND CASH EQUIVALENTS AT END OF YEAR |
|
|
13,964 |
|
15,021 |
|||
|
|
|
|
|
|
|
|||
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
|
|
Note |
Share capital |
Share premium |
Merger reserve |
Share based payment reserve |
Translation reserve |
Retained earnings |
Total equity |
|
|||||
|
|
|
£000 |
£000 |
£000 |
£000 |
£000 |
£000 |
£000 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Balance as at 1 January 2021 |
|
2,048 |
28,172 |
2,432 |
930 |
92 |
(438) |
33,236 |
|
|||||
|
Profit for the year |
|
- |
- |
- |
- |
- |
1,678 |
1,678 |
|
|||||
|
Other comprehensive (expense)/income for the year |
|
- |
- |
- |
- |
(294) |
1,235 |
941 |
|
|||||
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
|
|||||
|
Total comprehensive income
|
|
- |
- |
- |
- |
(294) |
2,913 |
2,619 |
|
|||||
|
Shares issued |
|
171 |
19 |
9,672 |
- |
- |
- |
9,862 |
|
|||||
|
Share based payment Deferred tax on share options Nil cost option charge Reserve transfer on lapse of share options Reserve transfer on exercise of share options |
|
- - -
- |
- - -
- |
- - -
- |
1,061 528 (5) (25)
(195) |
-
-
- |
-
25
195 |
1,061 528 (5) -
- |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Balance as at 31 December 2021 |
|
2,219 |
28,191 |
12,104 |
2,294 |
(202) |
2,695 |
47,301 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Profit for the year |
|
- |
- |
- |
- |
- |
4,697 |
4,697 |
|
|||||
|
Other comprehensive income/(expense) for the year |
|
- |
- |
- |
- |
(1,596) |
(421) |
(2,017) |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Total comprehensive (expense)/income |
|
- |
- |
- |
- |
(1,596) |
4,276 |
2,680 |
|
|||||
|
Shares issued |
|
51 |
33 |
1,909 |
- |
- |
- |
1,993 |
|
|||||
|
Share based payment |
9 |
- |
- |
- |
1,377 |
- |
- |
1,377 |
|
|||||
|
Deferred tax on share options |
|
- |
- |
- |
20 |
- |
- |
20 |
|
|||||
|
Nil cost option charge |
|
- |
- |
- |
|
- |
- |
(14) |
||||||
|
Reserve transfer on lapse of share options |
|
- |
- |
- |
- |
- |
- |
- |
|
|||||
|
Reserve transfer on exercise of share options |
|
- |
- |
- |
(107) |
- |
107 |
- |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Balance as at 31 December 2022 |
|
2,270 |
28,224 |
14,013 |
3,570 |
(1,798) |
7,078 |
53,357 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|||||
NOTES TO THE FINANCIAL STATEMENTS
1. GENERAL INFORMATION
The principal activity and nature of operations of the Group is the provision of IT solutions to the life sciences market. Instem's solutions for data collection, management and analysis are used by customers worldwide to meet the needs of life science and healthcare organisations for data-driven decision making leading to safer, more effective products. Instem plc is a public limited company, listed on AIM, and incorporated in England and Wales under the Companies Act 2006 and domiciled in England and Wales. The registered office is Diamond Way, Stone Business Park, Stone, Staffordshire, ST15 0SD.
BASIS OF PREPARATION
The financial information set out in this announcement does not constitute the Group's statutory financial statements for the years ended 31 December 2022 or 2021 as defined in section 435 of the Companies Act 2006 (CA 2006). The financial information for the year ended 31 December 2022 has been extracted from the Group's audited financial statements. Statutory financial statements for 2021 have been delivered to the Registrar of Companies and those for 2022 will be delivered in due course. The auditors reported on those accounts; their report was unqualified and did not contain a statement under either Section 498(2) or Section 498(3) of the Companies Act 2006.
The Group's accounting reference date is 31 December, amounts are rounded to the nearest thousand unless otherwise stated.
This financial information has been prepared on a going concern basis and prepared on the historical cost basis. Refer to the Going Concern note for further details.
FORWARD-LOOKING STATEMENTS
These results were approved by the Board of Directors and authorised for issue on 13 May 2023. This document contains certain forward-looking statements which reflect the knowledge and information available to the Company during the preparation and up to the publication of this document. By their very nature, these statements depend upon circumstances and relate to events that may occur in the future thereby involving a degree of uncertainty. Therefore, nothing in this document should be construed as a profit forecast by the Company.
STATEMENT OF COMPLIANCE
While the financial information included in this announcement has prepared in accordance with UK-adopted international accounting standards in conformity with the requirements of the Companies Act 2006 and the AIM listed rules. This announcement does not in itself contain sufficient information to comply with UK-adopted international accounting standards.
ADOPTION OF IFRS
The Group and Company financial statements have been prepared in accordance with UK-adopted international accounting standards and International Financial Reporting Interpretations Committee (IFRICs) effective as at 31 December 2022. The Group and Company have chosen not to adopt any amendments or revised standards early.
IFRSs ADOPTED IN THE YEAR
There are a number of standards, amendments to standards, and interpretations which have been issued by the IASB which are all effective from 1 January 2022. The most significant of these are as follows:
· Reference to the Conceptual Framework (Amendments to IFRS 3)
· COVID-19 - Related Rent Concessions beyond 30 June 2021 (Amendments to IFRS 16)
· Property, Plant and Equipment: Proceeds Before Intended Use (Amendments to IAS 16)
· Onerous Contracts - Cost of Fulfilling a Contract (Amendments to IAS 37)
· Annual Improvements (2018-2020 Cycle):
- Subsidiary as a First-time Adopter (Amendments to IFRS 1)
- Fees in the '10 per cent' Test for Derecognition of Liabilities (Amendments to IFRS 9)
- Lease Incentives (Amendments to IFRS 16)
- Taxation in Fair Value Measurements (Amendments to IAS 41).
Those standards, amendments to standards, and interpretations have been adopted and did not have a material impact on the accounting policies of the Group.
IFRSs ISSUED BUT NOT YET EFFECTIVE
There are a number of standards, amendments to standards, and interpretations which have been issued by the IASB that are effective in future accounting periods that the Group has decided not to adopt early. The most significant of these are as follows, which are all effective for the period beginning 1 January 2023:
· IFRS 17 'Insurance Contracts'
· Amendments to IFRS 17 'Insurance Contracts' (Amendments to IFRS 17 and IFRS 4)
· Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2)
· Deferred Tax Related to Assets and Liabilities Arising from a Single Transaction (Amendments
· to IAS 12)
· Disclosure of Accounting Policies (Amendments to IAS 1)
· Definition of Accounting Estimates (Amendments to IAS 8)
These standards are not expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions.
BUSINESS COMBINATIONS
The Group applies the acquisition method in accounting for business combinations. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition date fair values of the assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity interests issued by the Group in exchange for control of the acquiree. Acquisition related costs are recognised in profit or loss as incurred.
At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value, except that deferred tax assets or liabilities are recognised and measured in accordance with IAS 12 'Income taxes'.
Consideration may consist of deferred consideration and contingent consideration. Deferred consideration is not based on any performance related conditions and is payable on an agreed future date. Contingent consideration is based on certain performance related conditions and payable on an agreed future date, if those conditions are met.
Deferred consideration and contingent consideration is measured at their acquisition-date fair value and are taken into account in the determination of goodwill. Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. The subsequent accounting for changes in the fair value of the contingent consideration that do not qualify as measurement period adjustments depends on how the contingent consideration is classified.
Contingent consideration that is classified as a liability is re-measured at subsequent reporting dates with the corresponding gain or loss being recognised in the statement of comprehensive income.
GOING CONCERN
The financial position of the Group, its cash flows and liquidity position are set out in the primary statements within these financial statements.
Background
The Directors have adopted the going concern basis in preparing these financial statements after careful assessment of identified principal risks and the possible adverse impact on financial performance. The Directors have assessed the financial position and liquidity at the end of the reporting period and for the forecast period up to 31 December 2024, including sensitivity analysis. The going concern period covers the 12 months from the date of signing the financial statements. The process and key judgments in coming to this conclusion are set out below.
The Group's activities, including the factors likely to affect its future development, performance and position are set out in the Chairman's Statement and Strategic report. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in the Financial Review.
Current trading and liquidity
The Group's trading performance for the year ended 31 December 2022 has been strong with Revenues of £58.9m and Adjusted EBITDA of £10.9m. For this measure of earnings, the margin as a percentage of revenue increased in the period to 18.4% compared with 17.9% in 2021. The Group managed to increase its revenue in line with the salary inflation through sales price increases.
The Group signed a new financing arrangement on 8 April 2022, which consists of a committed facility of £10.0m with HSBC UK Bank plc to support the Group's working capital needs and its acquisition strategy, which can be extended up to £20.0m if needed, subject to further bank approval. The financial covenants have been considered in the forecast to ensure compliance.
Instem undertook an oversubscribed equity fund raise in July 2020, raising £15.0m net of expenses. The fund raise placed the Group in a strong cash position which helped to accelerate the Group's acquisition strategy with the acquisitions of the Edge, d-Wise and PDS. Even though the Group spent £17.2m initially funding the acquisition of The Edge, d-Wise and PDS in 2021 followed by £5.4m in 2022 on deferred and contingent consideration, the Group has a strong cash position with £14.0m in the bank as of 31 December 2022.
The Group cash generated from operations for the year was £9.9m (2021: £10.3m), a small reduction from prior year primarily due to working capital movement and the settlement of an historical contract dispute. The dispute, which did not affect the ongoing operations of the Group, was settled in October 2022. As previously announced the Group had already created provision of £0.25m in 2017, which was maintained in the 2021 financial statements. In 2022, the Group increased the provision equal to the amount that the legal dispute was settled at €1.48m (£1.3m), towards which its insurer contributed €0.45m (£0.4m) resulting in a net payment due of approx. €1.0m (£0.9m).
The remaining financial obligations associated with The Edge and d-Wise acquisitions for 2023 are deferred and contingent consideration payments of £3.6m and £2.2m respectively in cash. The contingent consideration provision reflected management's estimate that the entities would achieve their profitability targets and that the full amount of contingent consideration would be paid. This profitability target was confirmed as achieved in the period.
Sensitivity Analysis
The Company has considered two scenarios which are also linked to the company's risks when modelling the forecast results and cash flow. The sensitivity assessment includes the trading performance and cash flows of Centrus, our new solution suite incorporating the acquired ToxHub technology (note 12).
(a) Base Case Scenario
The Group's detailed forecasts and projections, taking account of potential risks and uncertainties in the business, market and liquidity through sensitivity analysis, show that the Group has adequate resources to enable it to continue in operation through the forecast period ending 31 December 2024 from the approval date of these Consolidated Financial Statements. Accordingly, the Group continues to adopt the going concern basis in preparing its Consolidated Financial Statements.
The uncertainty as to the future impact on the Group of the current inflation outlook has been considered as part of the sensitivity analysis and as part of Group's adoption of the going concern basis. Thus far we have not observed any material impact on our overall existing business or in the level of new business opportunities that are being presented to us in the markets in which we operate.
The Group has a significant proportion of recurring revenue (circa 59% of total) from annual support & maintenance and SaaS contracts from a well-established global customer base. Revenue is supported by a largely fixed cost base comprising staff and offices.
(b) Sensitised Scenario
Further stress testing has been carried out to ensure that the Group has sufficient cash resources to continue its operations until at least 31 December 2024. In preparing this analysis the following key risks were included - a 35% loss of new business for the next twelve months and the risk effect of foreign exchange movements, particularly between the USD and GBP. Despite the negative impact of these sensitivities the model demonstrated that the Group remained profitable and cash generative over the going concern period to December 2024.
In a worst-case scenario where many of the identified risks occurred, the Group would take remedial action to counter the reduction in profit and cash through a cost cutting and fund-raising exercise that would include staff redundancies and general cost control measures. These further downside scenarios are considered unlikely.
Conclusion and Going Concern Statement
After considering the uncertainties described above, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future and as a minimum until 31 December 2024. For these reasons, they continue to adopt the going concern basis in preparing this annual report and accounts.
SIGNIFICANT JUDGEMENTS AND ESTIMATES
In the process of applying the Group's accounting policies, which are described above, management have made judgements and estimations about the future that have the most significant effect on the amounts recognised in the financial statements. The estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of revision and future periods if the revision affects both current and future periods.
Significant judgements
The following judgments have the most significant effect on the financial statements.
Revenue Recognition
The Group generates revenue from the provision of software licences, annual support, SaaS subscriptions, subscription and support, professional services, technology enabled outsourced services and consultancy services. Software licences, professional services and annual support are often bundled together in a contract which do not meet the criteria to be distinct performance obligations.
The promises to provide services to the customer may be separately identifiable. However, the services are highly interdependent, interrelated. The Group would not be able to fulfil its promise by transferring each service independently.
Judgement is applied in determining how many performance obligations there are within each contract and the period in which these obligations will be fulfilled and recognised as revenue. For SaaS subscription, subscription and support and annual support the Group determines for each contract whether the promise is considered to be a single performance obligation. The subscription and support are highly interdependent; customers are required to take both the software and support services Instem would not be able to provide the support services without the provision of the software nor provide the software without the support services.
Impairment of goodwill
In 2022, the CGUs are identified by the fact they are separate legal entities and so have their own intangible and tangible assets, other current assets and generate cash from their products and services that are separately identifiable from one another. In 2023, we expect that the CGU composition will move in line with the operating segments as the operations of the Group will become even more integrated due to the current year's reorganizational changes. The judgements were made in respect of the WACC, the revenue growth rate applied and the allocation of costs across the CGUs.
The carrying value of goodwill must be assessed for impairment annually. This requires a value in use estimate which is dependent on estimation of future cash flows and the use of an appropriate discount rate to discount those cash flows to their present value. The carrying value of goodwill as of 31 December 2022 was £34.6m (2021: £34.6m).
Management estimates discount rates using pre-tax rates that reflect current market assessments of the time value of money and any risks specific to the CGUs. The rates used to discount the future cashflows are based on the Business Unit pre-tax weighted average cost of capital. Where a CGU operates in multiple operating segments weighted average based on 2022 revenue of the relevant WACCs has been used.
The revenue growth rates and margins are based on current Board-approved budgets and forecasts covering a period of five years. Management estimates are considering business growth rates, payroll and other cost base increases.
The data used for impairment testing procedures are directly linked to the Group's latest budget, adjusted as necessary to exclude the effects of future reorganisations and asset enhancements. The budgeted unallocated departmental costs are assigned to each CGU applying a standard methodology approved by the Board.
Development Costs
The Group invests on a continual basis in the development of software for sale to third parties. There is a continual process of enhancements to and expansion of the software with judgement required in assessing whether the development costs meet the criteria for capitalisation. These judgements have been applied consistently year on year. In making this judgement, the Group evaluates, amongst other factors, whether there are future economic benefits beyond the current period, the stage at which technical feasibility has been achieved, management's intention to complete and use or sell the product, the likelihood of success, availability of technical and financial resources to complete the development phase and management's ability to measure reliably the expenditure attributable to the project. Judgement is therefore required in determining the practice for capitalising development costs.
Asset held for sale (AHFS) and discontinued operation
On 1 April 2023, Instem completed the disposal of Samarind Limited with consideration receivable up to £1.0m, of which £0.8m was satisfied by cash receipt on completion, plus or minus estimated net cash, and the remaining balance of £0.2m payable contingent on Samarind's future performance that would be payable in cash.
The Group did not classify Samarind Limited as AHFS as Management concluded that the disposal was not highly probable to be completed under the IFRS 5 requirement and based on the available information as of 31 December 2022.
Samarind Limited was acquired 27 May 2016 without the view of resale but the decision to sell this unit was concluded when the Group reviewed and assessed their future strategic plans.
As the IFRS 5 criteria were not met as of 31 December 2022, Samarind Limited's disposal is disclosed as a non-adjusting subsequent event. Additionally, the Consolidated Financial Statements and related notes represent results from continuing operations, there being no discontinued operations in the years presented. However, the offer price from the buyer was used on the impairment testing.
Estimation uncertainty
Information about estimations and assumptions that may have the most significant effect on recognition and measurement of assets, liabilities, income and expenses is provided below. Actual results may be substantially different.
Contingent consideration
Where acquisition consideration includes consideration contingent on performance outcomes being met, the consideration is valued at the acquisition date based on performance forecasts available at the time. Those forecasts are reviewed at the reporting date and the consideration revised where materially different.
Pension scheme
As stated above the Group operates a defined benefit pension scheme. At the end of each six-monthly reporting period the Group seeks external expert actuarial advice on the assumptions to apply to the calculation of the scheme's liabilities. The Group then engages a separate, independent firm of pension advisors to calculate the scheme surplus or deficit at the reporting date for accounting purposes. The scheme deficit on 31 December 2022 was £2.0m (2021: £2.0m).
Revenue Recognition
For professional services and technology enabled outsourced services revenue recognition there is a significant estimation of the planned project hours, which determines the percentage of completion of service revenue contracts. Before the project is started, the project manager estimates the budgeted hours needed for the agreed services. If the project is expected to overrun, then the project manager will amend the expected budgeted hours in accordance with the new available information which also mitigates the risk of early revenue recognition.
2. SEGMENTAL REPORTING
Segmental reporting
The Group has disaggregated revenue into various categories in the following tables which are intended to depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.
The Group's Chief Operating Decision Maker (CODM) has been identified as the Board of Directors. The Board is responsible for monitoring the performance of these operating segments as well as deciding on the allocation of resources to them.
Over recent years the Group has expanded both organically and through acquisition, increasing the number of products and services offered and in 2020 the Group reported through three operating segments, Study Management, Regulatory Solutions and In Silico Solutions. During 2021 the fourth segment, Clinical Trial Acceleration (CTA), was established following the acquisition of d-Wise.
There has been an internal project to enhance the quality of management information following the implementation of a new finance system in 2019. During 2020 this system enabled more centrally recorded costs to be allocated to the individual segments and that process was further developed during recent years. The operations of the Group are managed centrally with group-wide functions including sales, marketing, software development, information technology, customer support, human resources and finance & administration. The CTA segment already bears the majority of its costs directly and as such reports a lower direct contribution margin. However, during 2022 CTA has benefited from synergies which result in an overall improvement on the direct contribution margin.
The analysis provided below reflects costs directly attributable to the respective segments in 2022 and 2021, which are primarily third-party costs of sale and costs of allocated employees. The remaining indirect operational costs are accounted for centrally and are not allocated to specific segments.
Additionally, the Group CODM is managing and monitoring the assets and liabilities as a whole since the finance system records the assets and liabilities by legal entity. The CODM consider that any such allocation of assets and liabilities to the operating segments would be arbitrary and sensitive.
|
SEGMENTAL REPORTING 2022 |
Study Management |
Regulatory Solutions |
In Silico Solutions |
Clinical Trial Acceleration |
Total |
|
|
£000 |
£000 |
£000 |
£000 |
£000 |
|
|
|
|
|
|
|
|
Licence fees |
4,756 |
492 |
666 |
135 |
6,049 |
|
Annual support fees |
8,977 |
1,222 |
1,898 |
8,718 |
20,815 |
|
SaaS subscription and support fees |
9,219 |
3,545 |
- |
894 |
13,658 |
|
Professional services |
2,694 |
407 |
121 |
7 |
3,229 |
|
Technology enabled outsourced services |
- |
6,368 |
1,100 |
1,028 |
8,496 |
|
Consultancy services |
- |
- |
- |
6,633 |
6,633 |
|
|
______ |
______ |
______ |
______ |
______ |
|
Total revenue |
25,646 |
12,034 |
3,785 |
17,415 |
58,880 |
|
Direct attributable costs |
(12,563) |
(8,516) |
(1,783) |
(13,017) |
(35,879) |
|
|
______ |
______ |
______ |
______ |
______ |
|
Contribution to indirect overheads |
13,083 |
3,518 |
2,002 |
4,398 |
23,001 |
|
Contribution to indirect overheads % |
51% |
29% |
53% |
25% |
|
|
|
|
|
|
|
|
|
Central unallocated indirect costs |
|
|
|
|
(12,138) |
|
|
|
|
|
|
______ |
|
Adjusted EBITDA |
|
|
|
|
10,863 |
|
|
|
|
|
|
|
|
Depreciation |
|
|
|
|
(340) |
|
Amortisation of intangibles arising on acquisitions |
|
|
|
|
(1,953) |
|
Amortisation of internally generated intangibles |
|
|
|
|
(1,096) |
|
Depreciation of right of use assets |
|
|
|
|
(967) |
|
Impairment of goodwill |
|
|
|
|
(107) |
|
|
|
|
|
|
______ |
|
OPERATING PROFIT BEFORE NON-RECURRING ITEMS |
|
|
|
|
6,400 |
|
Non-recurring costs |
|
|
|
|
(1,208) |
|
Non-recurring income |
|
|
|
|
401 |
|
|
|
|
|
|
______ |
|
OPERATING PROFIT AFTER NON-RECURRING ITEMS |
|
|
|
|
5,593 |
|
|
|
|
|
|
|
|
Finance income |
|
|
|
|
1,023 |
|
Finance costs |
|
|
|
|
(1,143) |
|
|
|
|
|
|
______ |
|
PROFIT BEFORE TAXATION |
|
|
|
|
5,473 |
|
|
|
|
|
|
|
|
SEGMENTAL REPORTING 2021 |
Study Management |
Regulatory Solutions |
In Silico Solutions |
Clinical Trial Acceleration |
Total |
|
|
£000 |
£000 |
£000 |
£000 |
£000 |
|
|
|
|
|
|
|
|
Licence fees |
3,560 |
273 |
639 |
125 |
4,597 |
|
Annual support fees |
7,630 |
1,170 |
1,573 |
4,004 |
14,378 |
|
SaaS subscription and support fees |
6,069 |
3,124 |
- |
511 |
9,704 |
|
Professional services |
3,000 |
579 |
18 |
54 |
3,651 |
|
Technology enabled outsourced services |
- |
4,864 |
812 |
702 |
6,378 |
|
Consultancy services |
- |
- |
- |
7,309 |
7,309 |
|
|
______ |
______ |
______ |
______ |
______ |
|
Total revenue |
20,259 |
10,010 |
3,042 |
12,706 |
46,017 |
|
Direct attributable costs |
(10,388) |
(6,016) |
(1,681) |
(11,308) |
(29,393) |
|
|
______ |
______ |
______ |
______ |
______ |
|
Contribution to indirect overheads |
9,871 |
3,994 |
1,361 |
1,398 |
16,624 |
|
Contribution to indirect overheads % |
49% |
40% |
45% |
11% |
|
|
Central unallocated indirect costs |
|
|
|
|
(8,374) |
|
Adjusted EBITDA |
|
|
|
|
______ 8,250 |
|
|
|
|
|
|
|
|
Depreciation |
|
|
|
|
(312) |
|
Amortisation of intangibles arising on acquisitions |
|
|
|
|
(1,563) |
|
Amortisation of internally generated intangibles Depreciation of right of use assets |
|
|
|
|
(851) (945) |
|
|
|
|
|
|
______ |
|
OPERATING PROFIT BEFORE NON-RECURRING ITEMS |
|
|
|
|
4,579 |
|
Non-recurring costs |
|
|
|
|
(1,286) |
|
Non-recurring income |
|
|
|
|
805 |
|
|
|
|
|
|
______ |
|
OPERATING PROFIT AFTER NON-RECURRING ITEMS |
|
|
|
|
4,098 |
|
|
|
|
|
|
|
|
Finance income |
|
|
|
|
30 |
|
Finance costs |
|
|
|
|
(1,144) |
|
|
|
|
|
|
______ |
|
PROFIT BEFORE TAXATION |
|
|
|
|
2,984 |
|
|
|
|
|
|
______ |
3. REVENUE FROM CONTRACTS WITH CUSTOMERS
|
REVENUE BY PRODUCT TYPE |
2022 £000
|
2021 £000 |
|
Licence fees |
6,049 |
4,597 |
|
Annual support fees |
20,815 |
14,378 |
|
SaaS subscription and support fees |
13,658 |
9,704 |
|
Professional services |
3,229 |
3,651 |
|
Technology enabled outsourced services |
8,496 |
6,378 |
|
Consultancy services |
6,633 |
7,309 |
|
|
______ |
______ |
|
|
58,880 |
46,017 |
|
|
|
|
|
REVENUE BY GEOGRAPHICAL LOCATION |
2022 £000
|
2021 £000 |
|
UK |
3,295 |
3,540 |
|
Europe |
8,848 |
7,477 |
|
USA |
35,186 |
26,831 |
|
Rest of World |
11,551 |
8,169 |
|
|
______ |
______ |
|
|
58,880 |
46,017 |
|
|
|
|
United Kingdom and USA have been identified as the major markets where the revenue from the customers in the Group is domiciled.
|
NON-CURRENT ASSETS EXCLUDING DEFERRED TAXATION BY GEOGRAPHICAL LOCATION
|
2022 £000
|
2021 £000 |
|
UK |
55,076 |
56,925 |
|
Europe |
2,218 |
1,895 |
|
USA |
2,767 |
1,812 |
|
Rest of World |
210 |
433 |
|
|
______ |
______ |
|
|
60,271 |
61,065 |
|
|
|
|
There were no customers that represented more than 10% of the Group's revenue in 2022 (2021: none).
4. NON-RECURRING ITEMS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonrecurring cost |
|
2022 £000 |
2021 £000 |
|
|
|
|
|
|
|
|
Legal costs and increase in provision for the final settlement relating to historical contract dispute |
|
1,129 |
95 |
|
|
Acquisition costs |
|
79 |
1,019 |
|
|
Share based payments |
|
- |
172 |
|
|
|
|
|
|
|
|
|
|
1,208 |
1,286 |
|
|
|
|
|
|
|
|
Nonrecurring income |
|
2022 £000 |
2021 £000 |
|
|
|
|
|
|
|
|
US government loans forgiven |
|
- |
805 |
|
|
Insurance proceeds relating to historical contract dispute |
|
401 |
- |
|
|
|
|
|
|
|
|
|
|
401 |
805 |
|
|
|
|
|
|
Non-recurring costs in the year include acquisition costs of £0.08m (2021: £1.0m) relating to the additional costs in regard to the earn out consideration of the Edge and d-Wise.
The non-recurring items includes the additional provision of €1.2m (£1.02m) for full and final settlement regarding a historical contractual licence dispute that arose in 2017. As previously announced Instem had already created provision of £0.25m in respect of this dispute in the previous years. In October 2022, Instem paid €1.48m (£1.3m), of which its insurer agreed to contribute €0.45m (£0.4m) resulting in a net payment due of approx. €1.0m (£0.9m). The insurance contribution of €0.45m (£0.4m) was included in the non-recurring income.
5. FINANCE INCOME
|
|
|
||||
|
|
|
|
2022 £000 |
2021 £000 |
|
|
|
Right of use asset interest income |
|
5 |
6 |
|
|
|
Other interest |
|
86 |
24 |
|
|
|
Foreign exchange gains |
|
932 |
- |
|
|
|
|
|
|
|
|
|
|
|
|
1,023 |
30 |
|
|
|
|
|
|
|
|
|
6. FINANCE COSTS |
|
||||
|
|
|
|
2022 £000 |
2021 £000 |
|
|
|
|
|
|
|
|
|
|
Loans and overdrafts |
|
266 |
85 |
|
|
|
Unwinding discount on deferred and contingent consideration |
|
771 |
867 |
|
|
|
Net interest charge on pension scheme |
|
36 |
51 |
|
|
|
Right of use asset interest cost |
|
70 |
97 |
|
|
|
Foreign exchange losses |
|
- |
44 |
|
|
|
|
|
|
|
|
|
|
|
|
1,143 |
1,144 |
|
|
|
|
|
|
|
|
7. TAXATION
|
|
|
|
|
|
Income taxes recognised in profit or loss: |
2022 £000 |
2021 £000 |
|
|
|
Current tax: |
|
|
|
|
UK corporation tax in respect of previous years |
(614) |
(268) |
|
|
Adjustments in respect of R&D tax credit Foreign tax |
42 (1,793) |
351 (1,111) |
|
|
Foreign tax in respect of previous years |
428 |
(54) |
|
|
|
_______ |
_______ |
|
|
Total current tax charge |
(1,937) |
(1,082) |
|
|
|
_______ |
_______ |
|
|
Deferred tax: |
|
|
|
|
Current year charge |
419 |
(147) |
|
|
Adjustment in respect of previous years |
883 |
575 |
|
|
Defined benefit liability |
(141) |
(91) |
|
|
Impact of rate change |
- |
(560) |
|
|
|
_______ |
_______ |
|
|
Total deferred tax credit/(charge) |
1,161 |
(223) |
|
|
|
_______ |
_______ |
|
|
Total income tax charge recognised in the current year |
(776) |
(1,306) |
|
|
|
|
|
The UK corporation tax is calculated at the prevailing rate of 19%. Foreign tax liabilities are calculated at the prevailing tax rates applying in the overseas tax jurisdictions.
In the Spring Budget 2021, the UK Government announced that from 1 April 2023 the corporation tax rate will increase to 25%. As the proposal to increase the rate to 25% had been substantively enacted at the balance sheet date, its effects are included in the financial statements as a change from 19% to 25% on deferred tax.
8. LEASES
Nature of leasing activities in the capacity of lessee
The Group leases several offices in the jurisdictions from which it operates. In these jurisdictions the periodic rent is fixed over the lease term, with inflationary increases incorporated into the fixed payments stipulated in the lease agreements. Where rental agreements include market rate escalations, the lease liability is re-measured when the change in cash payments takes effect. The Group also leases one vehicle. The vehicle lease comprises only fixed payments over the lease term. Except for short-term leases and leases of low value underlying assets, each lease is reflected on the balance sheet as a right of use asset and a lease liability.
In 2022, the lease equipment expired, and the Group has opted to continue leasing the equipment under the current terms, but the contract can be terminated by either party with a 2 month notice period. Therefore, the lease equipment qualifies as a short-term lease after the expiration of the lease agreement and all the cost has been recorded in the consolidated statement of comprehensive income.
|
Right of use assets |
Land & buildings |
Motor vehicles |
Equipment |
Total |
|
|
£000 |
£000 |
£000 |
£000 |
|
|
|
|
|
|
|
As at 1 January 2021 |
1,711 |
30 |
- |
1,741 |
|
Additions |
261 |
- |
- |
261 |
|
Acquisitions |
539 |
- |
410 |
949 |
|
Restoration costs |
70 |
- |
- |
70 |
|
Depreciation |
(686) |
(10) |
(249) |
(945) |
|
Exchange adjustment |
(5) |
- |
6 |
1 |
|
|
|
|
|
|
|
As at 31 December 2021 |
1,890 |
20 |
167 |
2,077 |
|
Additions |
- |
- |
- |
- |
|
Lease modification and remeasurement |
(20) |
- |
(61) |
(81) |
|
Depreciation |
(843) |
(10) |
(113) |
(967) |
|
Exchange adjustment |
84 |
- |
7 |
91 |
|
|
|
|
|
|
|
As at 31 December 2022 |
1,111 |
10 |
- |
1,120 |
|
|
|
|
|
|
|
Lease liabilities |
Land & buildings |
Motor vehicles |
Equipment |
Total |
|
|
£000 |
£000 |
£000 |
£000 |
|
|
|
|
|
|
|
As at 1 January 2021 |
2,053 |
31 |
- |
2,084 |
|
Additions |
261 |
- |
- |
261 |
|
Acquisitions |
539 |
- |
410 |
949 |
|
Interest expense Lease payments |
84 (795) |
1 (11) |
11 (253) |
96 (1,059) |
|
Exchange adjustment |
(9) |
- |
3 |
(6) |
|
|
|
|
|
|
|
As at 31 December 2021 |
2,133 |
21 |
171 |
2,325 |
|
Lease modifications |
(20) |
- |
(63) |
(83) |
|
Interest expense |
67 |
1 |
2 |
70 |
|
Lease payments |
(998) |
(11) |
(87) |
(1,096) |
|
Exchange adjustment |
112 |
- |
(23) |
89 |
|
|
___ |
_ |
_ |
___ |
|
As at 31 December 2022 |
1,294 |
11 |
- |
1,305 |
|
|
|
|
|
|
Reconciliation of movements of lease liabilities to cash flow:
|
Cash flow changes |
Land & buildings |
Motor vehicles |
Equipment |
Total |
|
|
|
£000 |
£000 |
£000 |
£000 |
|
|
|
|
|
|
|
|
|
Interest expenses |
83 |
1 |
12 |
96 |
|
|
Payment of lease liabilities |
712 |
10 |
241 |
963 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2021 |
795 |
11 |
253 |
1,059 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expenses |
67 |
1 |
2 |
70 |
|
|
Payment of lease liabilities |
931 |
10 |
85 |
1,026 |
|
|
|
|
|
|
|
|
|
At 31 December 2022 |
998 |
11 |
87 |
1,096 |
|
|
|
|
|
|
|
|
The following amounts in respect of leases, where the Group is a lessee, have been recognised in the consolidated statement of comprehensive income:
|
|
|
|
2022 £000 |
2021 £000 |
|
|
|
|
|
|
|
|
Expenses relating to short-term leases |
|
126 |
159 |
|
|
Low value lease expense |
|
35 |
81 |
|
|
Interest expense |
|
70 |
96 |
|
|
Amortisation of right of use assets |
|
967 |
945 |
|
|
|
|
|
|
On 31 December 2022, the Group was committed to short term leases and the total commitment at that date was £0.07m.
The total cash outflow for leases in 2022 was £1.0m (2021: £1.0m).
Movement in net investment in leases in relation to sub leases during the year ended 31 December 2022 and 31 December 2021 are as follows:
|
|
|
|
£000 |
|
|
|
|
|
|
As at 1 January 2021 |
|
|
169 |
|
Interest earned |
|
|
6 |
|
Less: Rental income received |
|
|
(46) |
|
Exchange adjustment |
|
|
- |
|
|
|
|
|
|
As at 31 December 2021 |
|
|
129 |
|
|
|
|
|
|
Interest earned |
|
|
5 |
|
Less: Rental income received |
|
|
(53) |
|
Exchange adjustment |
|
|
14 |
|
|
|
|
______ |
|
At 31 December 2022 |
|
|
95 |
|
|
|
|
|
Minimum undiscounted lease payments receivable are as follows:
|
|
|
|
2022 £000 |
2021 £000 |
|
|
|
|
|
|
|
|
Within 1 year |
|
56 |
49 |
|
|
Between 1 and 2 years |
|
43 |
50 |
|
|
Between 2 and 3 years |
|
- |
34 |
|
|
Between 3 and 4 years |
|
- |
- |
|
|
Later than 5 years |
|
- |
- |
|
|
|
|
|
|
|
|
|
|
99 |
133 |
|
|
|
|
|
|
Reconciliation of minimum undiscounted lease payments to net investment in the lease:
|
|
|
|
2022 £000 |
2021 £000 |
|
|
|
|
|
|
|
|
Total minimum undiscounted lease payments receivable |
|
99 |
133 |
|
|
Unearned finance income |
|
(4) |
(4) |
|
|
|
|
|
|
|
|
Net investment in the lease |
|
95 |
129 |
|
|
|
|
|
|
Finance lease receivable maturity analysis:
As at 31 December 2021
|
|
1 year or less |
2 to 5 years |
After 5 years |
Total |
|
|
£000 |
£000 |
£000 |
£000 |
|
|
|
|
|
|
|
Finance lease receivable |
44 |
85 |
- |
129 |
|
|
|
|
|
|
As at 31 December 2022
|
|
1 year or less |
2 to 5 years |
After 5 years |
Total |
|
|
£000 |
£000 |
£000 |
£000 |
|
|
|
|
|
|
|
Finance lease receivable |
53 |
42 |
- |
95 |
|
|
|
|
|
|
9. SHARE BASED PAYMENTS
Equity-Settled Share Option Plan
The Remuneration Committee can grant options to employees of the Group. Options are granted with a fixed exercise price at the date of grant and the contractual life is generally ten years from the grant date. Options generally vest and become exercisable after three years if certain performance criteria have been met.
There are two types of share option awards:
· Share options awarded to all employees as part of their annual bonus, providing they have met certain annual bonus targets, subject to continued employment (normally three years) and with no further performance conditions.
· Share options awarded to directors and senior employees generally carry profitability (EBITDA) or market-based performance conditions.
Share options awarded to all employees
In 2020, the Group introduced the share options to all employees as part of the annual bonus award. If the employees meet certain annual bonus targets, they are then subject to continued employment and passage of time (normally three years) with no further performance conditions. This share option has been awarded to all employees in 2020, 2021 and 2022.
In 2022, the Group granted 64,511 of nil-cost share options to all employees subject to continued employment, passage of time and no other performance conditions.
Share options awarded to directors and senior employees
Share options issued to directors and senior employees generally carry profitability (EBITDA) or market-based performance conditions. During 2022, the Group did not issue performance related share option awards to directors and senior employees.
The following share awards issued to directors and senior employees that have not lapsed as of 31 December 2022 relate to:
· LTIP awards prior to 2018
The share options awarded prior to 2018 have vested but not lapsed as of 31 December 2022.
· 2018 LTIP awards
An award under the Instem Long Term Incentive Plan ("LTIP") was made in 2018 which entitles participants to shares at the end of a three year performance period based on achievement against an absolute share price performance condition. Awards are in the form of nil-cost share options.
The award is in the form of 3 tranches, with performance testing at the end of each financial year over the 3 year performance period. A maximum of 25% of the total award vests for each of the first two tranches and a maximum of 50% vests under the third tranche. Performance is measured at the end of each financial year and if the relevant target is not met the portion under that tranche lapses with no retesting.
The share options awarded in 2018 have vested but not lapsed as of 31 December 2022.
· 2020 LTIP awards
In addition to the share options awarded to all employees as part of the annual bonus in 2020, the Group awarded directors and senior employees with LTIP awards linked to performance targets.
The performance awards vest when certain share price conditions are met. The award is in the form of 3 tranches, with performance tested at the end of each financial year over a 3 year performance period. A maximum of 30% of the total award vests for each of the first two tranches and a maximum of 40% vests under the third tranche. The performance criteria for this share options award were met.
· 2021 LTIP award with performance target
On 1 September 2021 and 27 September 2021, the Group granted awards of nil-cost options to participating employees which vest after three years subject to the performance conditions of either end share value or EBITDA.
The award is in the form of 3 tranches, with performance testing at the end of each financial year over the 3 year performance period. A maximum of 30% of the total award vests for each of the first two tranches and a maximum of 40% vests under the third tranche.
|
|
2022 |
2021 |
||
|
|
Number
|
Weighted average exercise price £ |
Number |
Weighted average exercise price £ |
|
Outstanding at the beginning of the year |
1,548,501 |
0.07 |
1,259,102 |
0.11 |
|
Granted |
64,511 |
0.00 |
431,479 |
0.01 |
|
Lapsed |
(54,132) |
0.00 |
(53,413) |
0.03 |
|
Exercised |
(217,500) |
0.17 |
(88,667) |
0.25 |
|
|
|
|
|
|
|
Outstanding at end of the year |
1,341,380 |
0.06 |
1,548,501 |
0.07 |
|
|
|
|
|
|
|
Exercisable at end of year |
434,351 |
0.18 |
651,851 |
0.17 |
|
|
|
|
|
|
The options outstanding at 31 December 2022 had exercise prices of £nil, £0.10 and £0.90 (2021: £nil, £0.10, £0.90, £1.76 and £2.22) and a weighted average remaining contractual life of 5 years 11 months (2021: 7 years 1 month).
A charge of £1.377m (2021: £1.061m) arose in respect of share based payments.
The fair value of options granted in the year was £0.4m (2021: £2.6m).
During the year, the average share price in respect of share options exercised was £6.51 (2021: £7.90)
In 2022, the Group granted 64,511 of nil-cost share options to all employees subject to continued employment, passage of time and no other performance conditions. The fair market values of the share options have been estimated using the market price of Instem's shares at the grant date.
In 2021, the Group granted new options for 431,479 shares. The Monte-Carlo option-pricing model has been used where option conditions are market related and Black-Scholes where option conditions are EBITDA related The fair market value has been estimated using the following key assumptions:
|
Grant date (2021) |
22 March |
16 April |
1 September |
27 September |
|
|
|
|
|
|
|
Expected life (years) |
1.8 |
2.7 |
3.0 |
3.0 |
|
Share price at grant date |
£5.78 |
£6.63 |
£8.38 |
£9.00 |
|
Exercise price |
Nil |
Nil |
Nil |
Nil |
|
Dividend yield |
0.00% |
0.00% |
0.00% |
0.00% |
|
Risk free rate |
NA |
NA |
0.2% |
0.4% |
|
Volatility |
NA |
NA |
29% |
29% |
|
Fair value of options (average) |
5.70 |
6.63 |
5.86 |
6.92 |
|
|
|
|
|
|
SIC AND DILUTED EARNINGS PER SHARE
Basic earnings per share are calculated by dividing the profit attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the year. Diluted earnings per share is calculated by adjusting the weighted number of ordinary shares outstanding to assume conversion of all dilutive potential shares arising from the share option scheme.
The deferred and contingently issuable shares in relation to d-Wise acquisition which could potentially dilute the basic EPS in the future were not included in the calculation of diluted EPS because they are antidilutive for the period of 2021. The deferred and contingently issuable shares in relation to the d-Wise acquisition were settled in April 2022.
The dilutive impact of the share options is calculated by determining the number of shares that could have been acquired at fair value (determined as the average market share price of the Company's shares) minus the issue price. The number of the ordinary shares that could have been acquired at their average market price during the period are ignored. However, the shares that would generate no proceeds and would not have effect on profit or loss attributable to ordinary shares outstanding are included.
|
|
2022 |
2021 |
||||
|
|
Profit after tax
£000 |
Weighted average number of shares
'000 |
Profit per share
Pence |
Profit after tax
£000 |
Weighted average number of shares
'000 |
Profit per share
Pence |
|
Earnings per share - Basic |
4,697 |
22,577 |
20.8 |
1,678 |
21,591 |
7.8 |
|
Potentially dilutive shares (share options) |
|
1,109 |
|
- |
1,128 |
- |
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
|
Earnings per share - Diluted |
4,697 |
23,686 |
19.8 |
1,678 |
22,719 |
7.4 |
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
|
|
|
|
|
|
|
|
Adjusted earnings per share
Adjusted earnings per share is calculated after adjusting for the effect of foreign currency exchange and the unwinding of the finance liability included in finance income/(costs), non-recurring items, amortisation of intangibles on acquisitions and impairment of goodwill. The adjusted profit after tax has been amended in 2022 to ensure that the foreign exchange movements and the unwinding of the finance liability do not impact and distort the earnings per share calculation.
Diluted adjusted earnings per share is calculated by adjusting the weighted number of ordinary shares outstanding to assume conversion of all dilutive potential shares arising from the share option scheme. The dilutive impact of the share options is calculated by determining the number of shares that could have been acquired at fair value (determined as the average market share price of the Company's shares) based on the monetary value of the subscription rights attached to the outstanding share options.
|
|
2022 |
|
|
|||||||
|
|
Adjusted Profit after tax
£000 |
Weighted average number of shares
'000 |
Adjusted Earnings per share
Pence |
|
|
|
|
|||
|
Earnings per share - Basic |
7,403 |
22,577 |
32.8 |
|
|
|
|
|||
|
Potentially dilutive shares (share options) |
- |
1,109 |
- |
|
|
|
|
|||
|
|
_______ |
_______ |
_______ |
|
|
|
|
|||
|
Earnings per share - Diluted |
7,403 |
23,686 |
31.3 |
|
|
|
|
|||
|
|
_______ |
_______ |
_______ |
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|||||||
|
-
|
|
|
|
|||||||
|
|
2021 (as restated) |
2021 (as initially reported) |
|
|||||||
|
|
Adjusted Profit after tax
£000 |
Weighted average number of shares
'000 |
Adjusted Earnings per share
Pence |
Adjusted Profit after tax
£000 |
Weighted average number of shares
'000 |
Adjusted Earnings per share
Pence |
|
|||
|
Earnings per share - Basic |
4,633 |
21,591 |
21.5 |
3,704 |
21,591 |
17.2 |
|
|||
|
Potentially dilutive shares (share options) |
- |
1,128 |
- |
- |
1,128 |
- |
|
|||
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
|
|||
|
Earnings per share - Diluted |
4,633 |
22,719 |
20.4 |
3,704 |
22,719 |
16.3 |
|
|||
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
|
|||
|
|
|
|
|
|
|
|
|
|||
|
|
2022 £000 |
2021 £000 (as restated) |
2021 £000 (initially reported) |
|||||||
|
Reconciliation of adjusted profit before tax:
|
|
|
|
|||||||
|
Reported profit before tax |
5,473 |
2,984 |
2,984 |
|||||||
|
Non-recurring costs |
1,208 |
1,286 |
1,286 |
|||||||
|
Non-recurring income |
(401) |
(805) |
(805) |
|||||||
|
Amortisation of acquired intangibles |
1,953 |
1,563 |
1,563 |
|||||||
|
Impairment of goodwill |
107 |
- |
- |
|||||||
|
Foreign currency exchange (gain)/loss |
(932) |
44 |
- |
|||||||
|
Finance cost on deferred and contingent consideration |
771 |
867 |
- |
|||||||
|
Foreign exchange differences on revaluation of inter-group balances |
- |
- |
(18) |
|||||||
|
|
_______ |
_______ |
_______ |
|||||||
|
Adjusted profit before tax |
8,179 |
5,939 |
5,010 |
|||||||
|
Tax |
(776) |
(1,306) |
(1,306) |
|||||||
|
|
_______ |
_______ |
_______ |
|||||||
|
Adjusted profit after tax |
7,403 |
4,633 |
3,704 |
|||||||
|
|
_______ |
_______ |
_______ |
|||||||
|
Profit after tax |
4,697 |
1,678 |
1,678 |
|||||||
|
|
___ ___ |
___ ___ |
___ ___ |
|||||||
|
|
2022 Weighted average number of shares
'000 |
2021 Weighted average number of shares
'000 |
|
Weighted average number of shares used as the denominator |
|
|
|
Weighted average number of ordinary shares used as the denominator in calculating basic earnings per share |
22,577 |
21,591 |
|
Adjustments for calculation of diluted earnings per share: |
|
|
|
Share options |
1,109 |
1,128 |
|
|
_______ |
_______ |
|
Weighted average number of ordinary shares and potential ordinary shares used as the denominator in calculating diluted earnings per share |
23,686 |
22,719 |
|
|
_______ |
_______ |
11. PROVISION FOR LIABILITIES
|
|
|
|
||||
|
|
|
|
2022 £000 |
2021 £000 |
|
|
|
|
|
|
|
|
|
|
|
|
At 1 January |
|
291 |
250 |
|
|
|
|
Acquisition |
|
- |
41 |
||
|
|
Increase in provision during the year |
|
1,019 |
- |
|
|
|
|
Amount used during the year |
|
(1,300) |
- |
|
|
|
|
Exchange adjustment |
|
35 |
- |
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December |
|
45 |
291 |
|
|
|
|
|
|
|
|
|
|
As previously announced the Group created a provision of £0.25m in respect of historical contract disputes that arose in 2017 with a a maximum exposure of approximately €4.5m. The maximum exposure includes additional claims for consequential losses. During the year an additional provision of €1.2m (£1m) was provided for full and final settlement of this contract dispute.
In October 2022, the Group paid €1.48m (£1.3m), of which its insurer agreed to contribute €0.45m (£0.4m) resulting in a net payment due of approx. €1.0m (£0.9m).
The balance of £0.04m relates to the general provision that PDS provided for warranty and remained unchanged as of 31 December 2022 based on management estimates.
12. SUBSEQUENT EVENTS
No adjusting events have occurred between the 31 December reporting date and the date of approval of these financial statements.
The organisational changes, described at the beginning of the Chief Executive's Report reduce the number of business units from four to three and will impact future segmental disclosures.
On 24 February 2023, the Group established an employee benefit trust (EBT) to subscribe for new issue shares or acquire shares in Instem plc in the market as required, in the future, in order to satisfy awards made upon the vesting of employee share schemes.
On 1 April 2023, Instem completed the disposal of Samarind Limited, which was part of the Regulatory Solutions business operating segment. The consideration receivable is up to £1.0m, of which £0.8m was satisfied by cash received on completion plus or minus estimated net cash. The remaining balance of £0.2m is payable contingent on Samarind Limited's future performance and would be payable in cash. The Consolidated financial statements and related notes represent results from continuing operations, there being no discontinued operations in the years presented.
On 15 May 2023, the Group launched Centrus, incorporating all of our existing in silico solutions and the ToxHub assets acquired or licensed from the eTRANSAFE consortium, as previously described.
13. APPROVAL
The Announcement was approved by the Board of Directors on 13 May 2023.
14. ANNOUNCEMENT
A copy of this Announcement is available on request to all Shareholders by post from the Company Secretary, (2 Diamond Way, Stone Business Park, Stone, Staffordshire, ST15 0SD). The announcement can also be accessed on the Internet at https://investors.instem.com. The 2022 Annual Report will be made available on the Group's website (www.instem.com) in due course.
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