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Instem plc (INS)

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Monday 26 March, 2018

Instem plc

Final Results

RNS Number : 8414I
Instem plc
26 March 2018
 

This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014.

 

Instem plc

("Instem", the "Company" or the "Group")

 

Unaudited Results for the Year Ended 31 December 2017

 

12 months of significant operational and financial progress resulting in record full year revenue and operating profits with a strong and scalable platform for future growth

 

Instem (AIM: INS.L), a leading provider of IT solutions to the global early development healthcare market, announces its unaudited full year results for the year ended 31 December 2017.

 

Financial Highlights:

 

·     Revenues increased 19% to £21.7m (2016: £18.3m)

Recurring revenues increased 9% to £12.8m (2016: £11.7m)

Software as a Service (SaaS) revenues increased 10% to £4.4m (2016: £4.0m)

·     EBITDA* of £3.0m (2016: £1.3m)

·     Adjusted** profit before tax of £1.9m (2016: £0.7m)

·     Reported profit before tax of £0.8m (2016: £0.02m)

·     Basic earnings per share of 6.9p (2016: 6.9p)

·     Adjusted** fully diluted earnings per share of 13.8p (2016: 11.2p)

·     Net cash balance as at 31 December 2017 of £3.1m (2016: £4.2m)

 

*Earnings before interest, tax, depreciation, amortisation and non-recurring costs.

**After adjusting for the effect of foreign currency exchange on the revaluation of inter-company balances included in finance income/(costs), non-recurring items and amortisation of intangibles on acquisitions. Profit is adjusted in this way to provide a clearer measure of underlying operating performance.

 

Operational Highlights:

·     Appointment of Chief Operating Officer, Ms. MaryBeth Thompson

·     Significant amendment to a contract with the US National Institute of Environmental Health Sciences (NIEHS)

·     Successfully completed Group-wide re-organisation in June 2017 to reduce annualised operational overheads by approximately £1.5m or 10%, which:

helped to significantly improve the Group's profitability in the second half of 2017

will deliver a full year benefit in the current financial year

·     Instem's largest customer brought into operation over 700 additional Provantis user licenses during 2017, delivering enhanced recurring revenue

·     Successfully completed the integration of Samarind & Notocord, acquired in May and September 2016, respectively, with a solid contribution to overall revenue for the period

·     Secured two new Alphadas clients in the second half of 2017 with a major pharmaceutical company and an India-based CRO 

 

Post period highlights:

·     Secured the largest SEND outsourced services contract win to date with a top five global nonclinical CRO that plans to outsource all SEND data set generation to Instem



 

Phil Reason, CEO of Instem, said: "Instem products and services now address aspects of the entire drug development value chain, from discovery through to market launch, and are currently deployed by over 500 companies, including all of the largest 25 pharmaceutical companies in the world. Management estimate that over 50% of all drugs on the market have been through some part of the Group's platform at some stage of their development."

 

"While new software license revenue was particularly strong in 2017, we also focused on opportunities to increase SaaS revenues and were very pleased to deliver an increase of over 10% during 2017, with both new SaaS customers and existing clients switching from on-premise to SaaS deployment."

 

"The current financial year has started strongly with the largest SEND outsourced services contract win to date and one of the world's largest chemical products companies converting to the Company's market leading SaaS delivery model. These will deliver increased revenue and improved visibility for 2018 respectively. Furthermore, the recent restructuring will deliver the full twelve-month benefit in the current year."

 

"The Board therefore looks forward to the coming year and beyond with increasing optimism on the back of an enhanced delivery platform, which promises to deliver significant revenue growth, enhanced profitability and improved quality of earnings."

 

For further information, please contact:

Instem plc

+44 (0) 1785 825 600

Phil Reason, CEO


Nigel Goldsmith, CFO




N+1 Singer (Nominated Adviser & Broker)

+44 (0) 20 7496 3000

Richard Lindley

James White

Rachel Hayes




Walbrook Financial PR

+44 (0) 20 7933 8780

Paul Cornelius

[email protected]

Sam Allen

Helen Cresswell




 

About Instem

Instem is a leading provider of IT solutions & services to the life sciences market delivering compelling solutions for Study Management and Data Collection; Regulatory Solutions for Submissions and Compliance; and Informatics-based Insight Generation.

 

Instem solutions are in use by over 500 customers worldwide, including all 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 now 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 at some stage of their development. To learn more about Instem solutions and its mission, please visit instem.com.



 

Chairman's Statement

 

Our priority in 2017 was to establish the platform for the next stage in the development of the Company, both operationally and financially. In this regard I am pleased to report that we believe that both objectives have been achieved.

 

Firstly, we have delivered strong financial results with an EBITDA of £3.0m (FY 2016; £1.3m) and revenues of £21.7m (FY 2016; £18.3m). This has been achieved in a manner that has ensured that we have either maintained or improved our position in all our targeted sectors, with many of our products already established global market leaders in their field.

 

Secondly, and importantly, at the half year we restructured and rationalised the operations of the various businesses which had been acquired over recent years. The efficiencies gained, whilst apparent in the second half of the year, will be ongoing for 2018 and beyond. In addition, and whilst not directly impacting our cost structure in 2017, we also, under the direction of Jerry Hacker, our SVP of Global sales, changed the emphasis of our global sales towards 'portfolio sales' of our product suite. This was a move from our previous structure of product sales specialists, which was an initial and inevitable consequence of the acquisitions we had made.

 

These two structural changes not only enhance our organic development plans, but pave the way for the integration of potential future acquisitions.

 

As stated in my half year report in September last year, we are now operating in all territories appertaining to the global healthcare research sector. We also now have leading products, not only in our traditional study management areas but also in regulatory solutions and informatics.

 

Whilst we are continuing to address some remaining legacy issues in our Clinical business, confidence is returning with the achievement of two major new contract wins towards the year end.

 

During the year, some notable achievements in our traditional markets were:

·     Significant further commitment from the US National Institute of Environment Health Sciences ("NIEHS") under an existing multi-million-dollar 10-year contract

·     Further growth in our market leadership in Asia-Pacific, with new clients in China, Japan and South Korea and successful cross-selling of additional products to existing clients

·     Increased adoption in major pharma and CROs of our new enterprise genetic toxicology solution Cyto Study Manager (CSM)

·     Widespread client implementation of Provantis version 10, including the world's largest deployment of this type of software at 14 global Charles River Laboratories sites

 

The 2016 acquisitions, Samarind and Notocord, both made very positive first full year contributions to the Company and both are expected to benefit further in 2018 from their access to Instem's global resources.

 

Of particular importance during the year was our substantive move into 'technology enabled outsourced services'. This included further consolidating our dominant market position in the provision of SEND technology and services. More recently, post year end, it has been particularly pleasing to see demand for SEND significantly increase across the industry, further justifying our strategy for early leadership in this market segment.

 

Our facility in Pune, India, will be a key 'skill centre' for this work. Pune has a rich supply of talented staff and a highly regarded reputation for technically demanding outsourced services. This makes it an ideal location for the expansion of our capacity for this type of work.

 

Finally, and encouragingly, our 'seed' informatics business, based in Cambridge, had a successful year, more than doubling the number of target safety assessment (TSA) assignments completed compared to the prior year.

 

To provide some measure of success the business has had over recent years, and the scale it now has, management estimate that over 50% of the drugs on the world market have now been through some part of the Instem platform at some stage in their development. This market position, together with the scalable platform resulting from the structural changes implemented last year, means that we believe that the Company is now well positioned to continue its success in 2018 and beyond.



 

Chief Executive's Report

 

Strategic Development

The period under review was one of significant operational change and strategic progress, resulting in record full year revenue and profitability and a strong and scalable platform for future growth.

 

The arrival of our new Chief Operating Officer, MaryBeth Thompson at the start of the period, provided the opportunity to trigger the next stage of business reorganisation and integration. This saw the creation of centralised areas of excellence for all key operational functions under a new Operations leadership team, comprising new hires and existing experienced managers. The increased senior management team bandwidth has allowed us to analyse the opportunities, challenges and threats facing the business and also provided valuable insights into the Company's industry position and future opportunities. The process identified areas of the business where there was capacity that could be redeployed or reduced, and enabled a number of out-sourced activities to be more cost-effectively delivered in-house using UK and India based resources. This has all been achieved whilst ensuring the business remained agile and responsive to the dynamic markets in which it operates.

 

The Company successfully completed a Group-wide re-organisation in June 2017 to reduce annualised operational overheads by approximately £1.5m or 10%, which helped to significantly improve the Group's profitability in the second half of 2017 and will deliver a full year of benefit in 2018 and beyond.

 

We believe that Instem is now 'purpose built' to deliver software and services which address three distinct, but complementary, value propositions:

1.    Study Management and Data Collection - efficiently capture, analyse and report scientific study data

2.    Informatics - generate new insights from existing large data sets through the application of sophisticated big data aggregation and analytics

3.    Regulatory Solutions - help clients ensure compliance with global regulators such as the FDA and EMA from the early stage of product development, through an approved product's entire commercial life

 

Revenue growth and profit contribution occurred in all of these areas of the business and each enhanced its market position during the year.

 

Instem products and services now address aspects of the entire drug development value chain, from discovery through to market launch and ongoing regulated product lifetime management. They are currently deployed by over 500 companies, including all of the largest 25 pharmaceutical companies in the world.

 

During the period Instem continued to win the majority of new business placed in nonclinical, our largest market, for both data collection and regulatory solutions, with strong year over year revenue growth in both early phase clinical and informatics.

 

While new software license business was particularly strong in 2017, we also focused on opportunities to increase SaaS revenue and were very pleased to see this increase over 10% during 2017 with both new SaaS customers and existing clients switching from on-premise to SaaS deployment.

 

Study Management and Data Collection

The global market demand for software that ensures the efficient capture, management and reporting of scientific study data remains robust as the number of compounds in Research and Development continues to increase. According to a recent report from Informa's Pharma Intelligence, a leading industry and market analysis firm, the number of compounds in the Global R&D Pipeline increased by 2.7% to 15,267 in 2018, its highest ever number. We believe that this is due to a number of factors, but the overall trend is largely underpinned by global population growth and from increasing life expectancy, which is unlikely to change over the near-term.

 

Importantly, the number of compounds in the R&D Pipeline within preclinical and Phase I trials, where Instem specialises, has increased year on year by 7.3% and 3.0% respectively, indicating a growing potential for the Company's products and services within these market segments.

 

The Company is particularly pleased to report that its contract with the NIEHS has progressed well since it was first announced in 2013. As anticipated, this 10-year contract for the capture, recording and analysis of preclinical safety evaluation study data has expanded in scope since commencement, with the number of locations and the number of authorised users both increasing over the period, further demonstrating the increasing value of the Company's software and services to the NIEHS.

 

Our largest customer also brought into operation over 700 additional Provantis user licenses during 2017, triggering enhanced recurring revenue.

 

Assisted by our mid-2017 restructuring, significant software development investment continues to be made in Alphadas to ensure that we fully satisfy existing client needs and continue to secure a sizeable market share in a competitive market.  We were particularly pleased to secure two new Alphadas clients in the second half of 2017, a major pharmaceutical company and an India based CRO, which we anticipate being an important reference client in a region with several potential additional clients.

 

Our genetic toxicology solutions continue to dominate their market and following the release of our new Cyto Study Manager solution, we made new sales into existing Instem key pharma and CRO accounts.

 

The Notocord business acquired in September 2016 has integrated well and has made a solid contribution during the period. Of particular note was a large order for the U.S. Army Medical Research Institute of Infectious Diseases, however the majority of new business generated in this area was from a large number of contracts; generally additional modules for existing clients, averaging less than £15,000 each.

 

Informatics

The KnowledgeScan™ informatics-based service was formally launched by the Company in 2016 and has developed well in 2017.  It offers the pharmaceutical industry insightful new ways to create value from huge volumes of public and proprietary scientific health-related data to reduce the risk and cost of bringing new drugs to market.

 

The initial application of KnowledgeScan™ is for Target Safety Assessment ("TSA"), a process routinely undertaken at the earlier stages of drug discovery, but with continuing value throughout the drug development process. Business volume has more than doubled in 2017, reaching production capacity in most months.  We have added some resource and TSA capacity has been further increased through process automation.  Repeat business remains encouraging with over 80% of customers having already placed additional orders. 

 

Regulatory Solutions

Regulatory Solutions represent a growing market opportunity for Instem with a broad target market in Regulatory Information Management ("RIM") and growing demand for our regulatory submission related products and services that implement the FDA mandated Standard for the Exchange of Nonclinical Data.

 

 

 

 

Regulatory Information Management

Our SamarindRMS RIM product made an excellent first full year contribution, with solid recurring revenue and the addition of some new client wins. These new business orders were received in four niche sectors of the RIM market, where we see further opportunity for Instem, and were for:

 

·     One of the world's top 10 medical device businesses, for the entire Samarind RMS suite

·     A leading generic medicines supplier

·     A veterinary health products provider

·     A European specialist pharma company

 

The new business sales function was fully integrated into our global sales department in 2017, bringing additional resources and a consistent sales process and management.

 

The industry and regulatory initiative to implement an internationally harmonised standard for the Identification of Medicinal Products ("IDMP") has been delayed by several years, while the working groups finalise the details of the standard and how to successfully roll it out. However, it remains of keen interest to our current customers and prospects. We remain confident, given our leadership in implementing the current European standard, that we are well placed to execute on this initiative as and when it comes into force. We are also well-placed to support medical device businesses as they implement FDA Unique Device Identification ("UDI") requirements in the USA and start the process of responding to the new Medical Device Regulations ("MDR") and In-vitro Diagnostics Regulations ("IVDR") that are being rolled out in Europe.

 

Standard for the Exchange of Nonclinical Data ("SEND")

Based on historic regulatory submission volumes, Instem anticipates that, to meet mandated FDA submission requirements, SEND related market expenditure will increase from approximately $10m in 2016 to around $130m in 2020.  As Instem is currently the leading provider of SEND software products and technology enabled outsourced services this represents a significant growth opportunity.

 

Instem continues to dominate the SEND technology market, with software sales during the period predominantly focused on our modules for viewing and exploring SEND datasets.  With the first regulatory mandate coming into force in December 2016, those companies who hadn't already equipped themselves with the technology to create SEND datasets are now predominantly looking for out-sourced service providers for SEND creation. Whilst we have won the majority of out-sourced services contracts, many clients were initially slow to provide data for conversion, however this picked up during the second half of 2017 and has accelerated further in the first quarter of 2018.

 

During 2017, enquiries for the Company's SEND software solutions and its outsourcing services in particular, continued to increase, as the next major milestone of the SEND mandate came into effect in December 2017. This mandate covers shorter duration studies that are undertaken in much greater volume, to tighter deadlines. As expected, it has generated a significant increase in SEND conversion demand.

 

Instem now has a total of 92 customers that have procured the Company's SEND technology and/or out-sourced services, which includes nine of the top 10 preclinical CROs and 20 of the world's top 25 global pharmaceutical companies. Established SEND-related client relationships are expected to be a significant source of future business as the volume of out-sourced services increases.

 

During 2017, the Group introduced a new software module, SENDTrial™, that will deliver significant efficiencies for clients (and our internal Services team) by reducing processing time in one specific area by up to 80%. This product is the first of its type on the market and offers a solution which can be deployed alongside Instem's existing submit™ products, or used independently. SENDTrial™ will create additional opportunities for Instem as those companies that are currently running competing systems cannot efficiently meet these specific requirements.

 

In addition, Instem has released an updated version of our submit™ software that enables clients to satisfy an FDA request for test data, supporting the development of the next version of the standard.

 

Financial Review

Instem's revenue model consists of perpetual licence income with annual support contracts, professional and technology managed outsourced services fees, SaaS subscriptions with annual support contracts and funded development initiatives. Total revenue for the year to 31 December 2017 increased by 19% to £21.7m (2016: £18.3m).  This increase includes the impact of full year revenues from the prior year acquisitions of £2.5m combined with organic growth in respect of the majority of our products, and the benefit of average exchange rates, which increase the underlying revenues. These are offset by costs of our overseas subsidiaries.

A key performance indicator of the Group is recurring revenue.  During the year the total recurring revenue, from support & maintenance contracts, SaaS based subscriptions and annual support fees relating to these subscriptions increased by 9% to £12.8m (2016: £11.7m), representing 59% of total revenue (2016: 64%).  This includes recurring revenue generated from our 2016 acquisitions of £1.7m (2016: £0.8m).

Earnings before interest, tax, depreciation and amortisation and non-recurring items for the year were £3.0m (2016: £1.3m). 

Adjusted profit before tax (i.e. adjusting for the effect of foreign currency exchange on the revaluation of inter-company balances included in finance costs, non-recurring items and amortisation of intangibles on acquisitions) was £1.9m (2016: £0.7m).  The unadjusted profit before tax for the year was £0.8m (2016: £0.02m).

The non-recurring items in the year of £0.6m included the restructuring costs relating to the redundancy and legal costs connected with the Group's business reorganisation implemented in the first half of 2017, together with a cost provision relating to historical contract disputes.   The non-recurring items also included income of £0.2m in respect of an amendment to the deferred contingent consideration payable in respect of the Notocord acquisition.

Development costs incurred during the year were £3.3m (2016: £2.6m), of which £1.4m (2016: £0.8m) was capitalised.  The Group claimed research and development tax credits in respect of 2017 of £0.6m (2016: £0.4m)

Basic and fully diluted earnings per share calculated on an adjusted basis were 14.1p and 13.8p respectively (2016: 11.5p basic and 11.2p adjusted).

The Group generated net cash from operating activities of £1.4m (2016: £0.1m).  The Group had net cash reserves of £3.1m at 31 December 2017, compared with £4.2m as at 31 December 2016.  The Group paid £0.7m in respect of deferred consideration during the year and continued to invest in the software products developed by the Group. There is one final deferred consideration amount of £0.2m within Current Financial Liabilities in respect of prior year acquisitions, which is payable in the first half of 2018.

The Group's legacy defined benefit pension scheme has remained closed to new members since 2000 and to future accrual since 2008. It experienced a decrease in the funding deficit during the year, calculated in accordance with the provisions of IAS19, that amounted to £0.8m (net of deferred tax) (2016: increase in funding deficit £0.7m) due to gains on the pension scheme assets in excess of interest.  This is mainly a non-cash credit and was recognised in Other Comprehensive Income/(Expense). The overall deficit at the year-end stood at £3.8m (2016: £4.7m), represented by the fair value of assets of £10.8m (2016: £9.7m) and the present value of funded obligations of £14.6m (2016: £14.4m). As part of the scheme's triennial actuarial valuation as at 5 April 2014, the Group agreed in June 2015 a schedule of payments to the scheme designed to eliminate the funding deficit by November 2023.  The next triennial valuation will be calculated as at 5 April 2017, the results of which will be reported in the Company's 2018 Interim financial statements.

Principal risks and uncertainties

The directors consider that the global pharmaceutical market is likely to continue to provide growth opportunities for the business. The combination of the high level of annual support renewals and low levels of customer attrition provides revenue visibility to underpin the Group strategy on product and market development.

The Group seeks to mitigate exposure to all forms of risk through a combination of regular performance review and a comprehensive insurance programme.

The global nature of the market means that the Group is exposed to currency risk as a consequence of a significant proportion of its revenue being earned in US Dollars, some of which is mitigated by operating costs incurred by its US operation.  The Group continually assesses the most appropriate approach to managing its currency exposure in line with the overall goal of achieving predictable earnings growth.

The Group's credit risk is primarily attributable to its trade receivables and the Group has policies in place to ensure that sales of products and services are made to customers with appropriate creditworthiness.

The Group has identified the risk of cyber security and breach of information as a principal risk. The Group mitigates against this risk with compliance to ISO 27001 certified processes, strong IT controls and specific cyber insurance.

The Group manages liquidity risk through regular cash flow forecasting and monitoring of cash flows, management review and regular review of working capital and costs.  The Group regularly monitors its available headroom under its borrowing facilities.  At 31 December 2017, its £2.0m bank facility was undrawn (2016: £2.0m undrawn).

Outlook

 

The current financial year has started strongly with the largest SEND outsource contract win to date and one of the world's largest chemical products companies adopting the Company's market leading SaaS delivery model. These two announcements combine to illustrate increasing revenue potential and improved visibility for 2018 respectively. Furthermore, the restructuring in 2017 will deliver the full twelve-month benefit in the current year and beyond.

 

The Board therefore looks forward to the coming year and beyond with increasing optimism on the back of an enhanced delivery platform, which promises to deliver significant revenue growth, enhanced profitability and improved quality of earnings.

 

 

Phil Reason

Chief Executive

25 March 2018

 

 

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2017

 

 

Continuing Operations

 Note

Unaudited

Year ended

 31 December 2017

£000

Audited

Year ended

31 December 2016

£000

REVENUE

2

21,668

18,319

Operating expenses


(18,549)

(16,843)

Share based payment


(157)

(223)



              

              

EARNINGS BEFORE INTEREST, TAXATION, DEPRECIATION, AMORTISATION AND NON-RECURRING (COSTS)/INCOME ('EBITDA')


 

                           2,962

 

                            1,253





Depreciation


(186)

(156)

Amortisation of intangibles arising on acquisition


(931)

(667)

Amortisation of internally generated intangibles


(473)

(380)



              

              

PROFIT BEFORE NON-RECURRING (COSTS)/INCOME


1,372

50

Non-recurring (costs)/income

4

(443)

619



              

              

PROFIT FROM OPERATIONS


929

669





Finance income

5

186

-

Finance costs

6

(318)

(646)



              

              

PROFIT BEFORE TAXATION


797

23

Taxation

3

297

1,035



              

              

PROFIT FOR THE YEAR


1,094

1,058



              

              

OTHER COMPREHENSIVE INCOME/(EXPENSE)




Items that will not be reclassified to profit and loss account




Actuarial gain/(loss) on retirement benefit obligations


664

(1,192)

Deferred tax on actuarial (gain)/loss


(113)

215



              

              



551

(977)

Items that may be reclassified to profit and loss account




Exchange differences on translating foreign operations


(565)

844



              

              

OTHER COMPREHENSIVE EXPENSE FOR THE YEAR


(14)

(133)



              

              





TOTAL COMPREHENSIVE INCOME FOR THE YEAR


1,080

925



              

              

PROFIT ATTRIBUTABLE TO OWNERS OF THE PARENT COMPANY


 

1,094

 

1,058



              

              

TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO OWNERS OF THE PARENT COMPANY


 

1,080

 

925



              

              

Earnings per share from continuing operations




Basic

7

6.9p

6.9p

Diluted

7

6.8p

6.8p



 

 

Consolidated Statement of Financial Position

As at 31 December 2017

 


Unaudited

31 December 2017

Audited

31 December 2016

ASSETS

£000

£000

£000

£000

NON-CURRENT ASSETS





Intangible assets

17,440


17,607


Property, plant and equipment

299


374


Deferred tax assets

300


947



              


              


TOTAL NON-CURRENT ASSETS


18,039


18,928






CURRENT ASSETS





Inventories

29


916


Trade and other receivables

9,470


6,899


Current tax receivable

1,267


-


Financial asset

-


10


Cash and cash equivalents

3,064


4,189



              


              


TOTAL CURRENT ASSETS


13,830


12,014



            


            

TOTAL ASSETS


31,869


30,942



            


            

LIABILITIES





CURRENT LIABILITIES





Trade and other payables

Deferred income

2,777

10,370


2,670

9,092


Current tax payable

226


429


Financial liabilities

220


979



              


              


TOTAL CURRENT LIABILITIES


13,593


13,170






NON-CURRENT LIABILITIES





Financial liabilities

51


242


Retirement benefit obligations

Provision for liabilities and charges

3,750

250


4,746

-



              


              


TOTAL NON-CURRENT LIABILITIES


4,051


4,988



            


            

TOTAL LIABILITIES


17,644


18,158






EQUITY





Share capital

1,589


1,577


Share premium

12,488


12,462


Merger reserve

1,598


1,432


Shares to be issued

794


864


Translation reserve

483


1,048


Retained earnings

(2,727)


(4,599)



              


              


 

TOTAL EQUITY ATTRIBUTABLE TO OWNERS OF THE PARENT


 

14,225

 


 

        12,784

 



            


            

TOTAL EQUITY AND LIABILITIES


31,869


30,942



            


            



 

 

Consolidated Statement of Cashflows

For the year ended 31 December 2017

 



           Unaudited

Year ended

31 December 2017

        Audited

Year ended

31 December 2016



£000

£000

£000

£000

CASH FLOWS FROM OPERATING ACTIVITIES






Profit before taxation


797


23


Adjustments for:






Depreciation


186


156


Amortisation of intangibles


1,404


1,047


Loss on disposal of property, plant and equipment


-


2


Share based payments


157


223


Retirement benefit obligations


(461)


(517)


Finance income


(186)


-


Finance costs


318


646


Decrease in deferred contingent consideration


(148)


(1,017)




              


               


CASH FLOWS FROM OPERATIONS BEFORE MOVEMENTS IN WORKING CAPITAL


2,067


563

Movements in working capital:






Decrease in inventories


700


12


Increase in trade and other receivables

(3,043)


(1,737)


Increase in trade and other payables and deferred income

1,808

(535)

1,809

84



              

              

              

              

CASH GENERATED FROM OPERATIONS


1,532


647

Finance income


186


-


Finance costs


(112)


(379)


Income taxes


(214)

(140)

(141)

(520)



              

              

              

              

NET CASH GENERATED FROM OPERATING ACTIVITIES



1,392


127







CASH FLOWS FROM INVESTING ACTIVITIES






Purchase of intangible assets


(1,517)


(890)


Purchase of property, plant and equipment


(117)


(113)


Payment of deferred contingent consideration


(687)


-


Repayment of capital from finance leases


(30)


(33)


Purchase of subsidiary undertakings


-


(2,347)




              


              


NET CASH USED IN INVESTING ACTIVITIES



(2,351)


(3,383)







CASH FLOWS FROM FINANCING ACTIVITIES






Proceeds from issue of share capital (net of fees)


29


4,823


Finance lease interest


(6)


(8)




              


              


NET CASH GENERATED FROM FINANCING ACTIVITIES


23


4,815




              


              

NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS


(936)


1,559

 

Cash and cash equivalents at start of year



4,189


2,183

Effects of exchange rate changes on the balance of cash held in foreign currencies


 

 

 

(189)


 

447




              


              

CASH AND CASH EQUIVALENTS AT END OF YEAR

   


3,064


4,189




              


              

 



 

Consolidated Statement of Changes in Equity

Attributable to Owners of the Company

 

 


Called up share capital

Share premium

Merger

reserve

Shares to be issued

Translation

reserve

Retained earnings

Total

 equity


£000

£000

£000

£000

£000

£000

£000

Balance as at

1 January 2016

 

1,304

 

7,903

 

1,241

 

641

 

204

 

(4,680)

 

6,613

Profit for the year

-

-

-

-

-

1,058

1,058

Other comprehensive income/(expense) for the year

 

-

 

-

 

-

 

844

 

(977)


              

              

              

              

              

              

              

Total comprehensive income

-

-

-

-

844

81

925

Shares issued

273

4,559

191

-

-

-

5,023

 Share based payment

-

-

-

223

-

-

223


             

              

              

              

              

              

              

Balance as at

31 December 2016

1,577

12,462

1,432

864

1,048

(4,599)

12,784

 

Profit for the year

 

-

 

-

 

-

 

-

 

-

 

1,094

 

1,094

Other comprehensive income/(expense) for the year

 

-

 

-

 

-

 

-

 

(565)

 

551

 

(14)


              

              

              

              

              

              

              

Total comprehensive income

 

-

 

-

 

-

 

-

 

(565)

 

1,645

 

1,080

Shares issued

12

26

166

-

-

-

204

Share based payment

-

-

-

157

-

-

157

Transfer

-

-

-

(227)

-

227

-


 __         

              

              

              

              

              

              

Balance as at

31 December 2017

1,589

12,488

1,598

794

483

(2,727)

14,225


              

              

              

              

              

              

              

 



 

Notes to the Financial Statements

 

1. Basis of Preparation

FINANCIAL INFORMATION

The preliminary financial information does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006 but is derived from accounts for the years ended 31 December 2017 and 31 December 2016. The figures for the year ended 31 December 2016 were audited.  The preliminary financial information is prepared on the same basis as will be set out in the statutory accounts for the year ended 31 December 2017.  The figures for the year ended 31 December 2017 are unaudited.

The preliminary financial information was approved for issue by the Board of Directors on 25March 2018.

 

The audit of the statutory accounts for the year ended 31 December 2017 is not yet complete.  These accounts will be finalised on the basis of the financial information presented by the directors in the preliminary announcement.  The statutory accounts for the year ended 31 December 2017 will be delivered to the Registrar of Companies following the Company's Annual General Meeting.  Statutory accounts for the year ended 31 December 2016 have been filed with the Registrar of Companies.  The auditor's report on those 2016 accounts was unqualified and did not contain any statement under Section 498 (2) or (3) of the Companies Act 2006.

 

The definition of recurring revenues has been amended in this preliminary statement in comparison to the 2016 financial statements.  The recurring revenue as disclosed in the prior year included annual support and maintenance fees together with the SaaS subscription and annual support fees together with other recurring professional services.  In this preliminary statement the other recurring professional services have been excluded from the recurring revenue calculation.  The 2017 and 2016 comparative disclosures in this preliminary statement are calculated on a consistent basis. This change has been made to provide clarity in the calculation of recurring revenue.

The definition of the revenue type of SaaS has been expanded in this preliminary statement in comparison to the 2016 financial statements.  The SaaS revenue as disclosed in the prior year reflected the SaaS subscription revenues.  In this preliminary statement the annual support and maintenance revenues in relation to SaaS customers has also been included in addition to the subscription fees.  The 2017 and 2016 comparative disclosures in this preliminary statement are calculated on a consistent basis. 

It is the opinion of the directors that these above changes are considered more appropriate to the readers and users to better understand the performance of the Group.

GENERAL INFORMATION

The principal activity of the Group is the provision of world class information solutions for Life Sciences research and development in the early phase drug development market. Instem plc is a company incorporated in England and Wales under the Companies Act 2006 and domiciled in the UK. The registered office is Diamond Way, Stone Business Park, Stone, Staffordshire, ST15 0SD, UK.

 

BASIS OF ACCOUNTING 

While the financial information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRS), as adopted by the European Union (EU), this announcement does not in itself contain sufficient information to comply with IFRSs.

 

The Group's accounting reference date is 31 December. 

CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

Certain year end asset and liability amounts reported in the financial information are based on management estimates and assumptions.  There is therefore a risk of significant changes to the carrying amounts of these assets and liabilities within the next financial year.  The estimates and assumptions are made on the basis of information and conditions that existed at the time of the valuation.

 

Recognition of deferred tax assets

The recognition of deferred tax assets is based upon whether it is more likely than not that sufficient and suitable taxable profits will be available in the future against which the reversal of temporary differences can be deducted.  Where the temporary differences are related to losses, relevant tax law is considered to determine the availability of the losses to offset against the future taxable profits.  The amount recognised in the consolidated financial statements is derived from management's best estimation and judgement incorporating forecasts and all available information.  Recognition therefore involves judgement regarding the future financial performance of the particular legal entity or tax group in which the deferred tax asset has been recognised.

 

Provision for liabilities and charges

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle the probable outflow of resources, and a reliable estimate can be made of the amount of the obligation.  As at 31 December 2017, the Group has made a provision of £0.25m in respect of historical contract disputes as the directors have considered that the above provision conditions have been met.  The provision represents the best estimate of the risks and considers all information and legal advice received by the Group.

 

Impairment

At each reporting date, the Group reviews the carrying amounts of goodwill and investments.  The recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any).  Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. A key factor which could result in an impairment of goodwill or investments is lower than predicted profitability.

 

GOING CONCERN

Having made appropriate enquiries, the directors consider that the Group has adequate resources to enable it to continue in operation for the foreseeable future.  The Group has a significant proportion of recurring revenue from a well-established global customer base, supported by a largely fixed cost base.

 

The financial position of the Group, its cash flows and liquidity position are set out in the primary statements of this financial information.  Detailed projections have been made for the 12 months following the approval of the financial statements and sensitivity analysis undertaken.  This work gives the directors confidence as to the future trading performance.

 

Accordingly, the directors continue to adopt the going concern basis for the preparation of the financial statements.

 



 

2. Segmental Reporting

 

For management purposes, the Group is currently organised into one operating segment - Global Life Sciences.

 

Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.

 



2017

£000

2016

£000

REVENUE BY PRODUCT TYPE




Licence fees


5,813

4,162

Annual support fees


8,442

7,716

SaaS subscription and support fees


4,406

4,027

Professional services


3,007

2,414



21,668

18,319

 





2017

£000

2016

£000

REVENUE BY GEOGRAPHICAL LOCATION




UK

 

2,670

3,329

Rest of Europe


4,567

3,232

USA and Canada


12,246

9,829

Rest of World


2,185

1,929



21,668

18,319

 

 


NON-CURRENT ASSETS EXCLUDING DEFERRED TAXATION





2017

£000

2016

£000

INFORMATION BY GEOGRAPHICAL LOCATION




UK


17,167

17,750

Rest of Europe


320

16

USA and Canada


214

165

Rest of World


38

50



17,739

17,981

 

 

MAJOR CUSTOMERS

 

There were no customers which represented more than 10% of the group revenue in 2017 (2016: Nil).



 

 

3. Income Taxes

 

 

Income taxes recognised in income statement


2017

£000

2016

£000

 

Current tax:




 

UK corporation tax on result for the year


-

(244)

 

Amounts in respect of previously unrecognised losses


-

141

 

Foreign tax


(385)

(400)

 

Foreign tax in respect of previous years


337

45

 

Adjustments in respect of previous years


306

312

 

Adjustments in respect of R&D tax credit


567

350

 

Total current tax


825

204

 

Deferred tax:




 

Current year (charge)/credit


(255)

421

 

Amounts in respect of previously unrecognised losses


-

459

 

Adjustment in respect of previous years


(223)

73

 

Effects of domestic rate changes on opening balances


6

(46)

 

Retirement benefit obligation


(56)

(76)

 

Total deferred tax


(528)

831

 

 

Total income tax credit recognised in the current year


 

 

297

 

 

1,035

 

 

4. Non-recurring (costs)/ income

 

 


2017

£000

2016

£000





Professional fees in respect of acquisitions


-

(249)

Amendment to consideration payable in respect of Instem Clinical


-

690

Restructuring costs


(341)


Restructuring costs in respect of Instem Clinical


-

(149)

Cost provision relating to historical contract disputes


(250)

-

Amendment to contingent consideration post acquisition in respect of acquisitions


 

148

 

327



(443)

          619

 

The professional fees in the prior year relate to the acquisition of Samarind Limited on 27th May 2016 and Notocord on 2nd September 2016.

 

During the previous year, the Group reached agreement with the previous owners of Instem Clinical resulting in the release of Instem from its obligation to pay the final consideration payments.

 

The restructuring costs relate to the redundancy and legal costs relating the Group's business reorganisation and integration strategy which was implemented in the first half of 2017.

 

As at 31 December 2017, the Group has made a provision of £0.25m in respect of historical contract disputes.  See Critical Accounting Estimates and Judgements in Note 1.

 

The contingent consideration in respect of Samarind Limited and the Notocord group was estimated at its fair value at the date of acquisition.  This was re-measured at each reporting date and the estimation of the contingent consideration payable has reduced.

 



 

 

5. Finance income

 

 

 


2017

£000

2016

£000

 





 

Foreign exchange gains


184

-

 

Other interest


2

-

 



186

                   -

 

 

6. Finance costs

 

 

 


2017

£000

2016

£000

 





 

Bank overdrafts


112

32

 

Unwinding discount on deferred consideration


71

120

 

Net interest on pension scheme


129

139

 

Foreign exchange losses


-

347

 

Finance lease interest


6

8

 



318

               646

 

7. Earnings per share

Basic and fully diluted

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 schemes.  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.

 


2017

2016

 


Profit after tax

 

 

 

£000

Weighted average number of shares

 

'000

Earnings per share

 

 

 

Pence

Profit

after tax

 

 

 

£000

Weighted average number of shares

 

'000

Earnings per share

 

 

 

Pence








Earnings per share - Basic

1,094

15,831

6.9

1,058

15,302

6.9

Potentially dilutive shares

-

328

-

-

324

-

Earnings per share - Diluted

1,094

16,159

6.8

1,058

15,626

6.8

 



 

Adjusted

Adjusted earnings per share is calculated after adjusting for the effect of foreign currency exchange on the revaluation of inter-company balances included in finance income/(costs), non-recurring items and amortisation of intangibles on acquisitions. 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 schemes. 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. 

 


2017

2016


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

2,234

15,831

14.1

1,752

15,302

11.5

Potentially dilutive shares

-

328

-

-

324

-

Earnings per share - Diluted

2,234

16,159

13.8

1,752

15,626

11.2

 

 

Reconciliation of reported profit after tax to adjusted profit after tax:

 

2017

£'000

2016

£'000

Reported profit after tax   

1,094

1,058

Non-recurring costs/(income)

443

(619)

Amortisation of acquired intangibles

931

667

Foreign exchange differences on revaluation of inter-co balances

(234)

646




 

Adjusted profit after tax

2,234

1,752

 

 

8. Annual report and accounts

 

Copies of the Annual Report and Accounts will be posted to the Company's shareholders in due course and will be available, along with this announcement, on Instem's website at http://investors.instem.com.

 

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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