Last checked at 18 Jul 2016 07:00
18 July 2016
MICROGEN plc ('Microgen' or 'Group')
INTERIM RESULTS
FOR THE SIX MONTHS ENDED 30 JUNE 2016
Microgen plc (LSE: MCGN), a leading provider of business critical software and services, reports its unaudited results for the six months ended 30 June 2016.
Group Highlights:
· The Group continues to make good progress towards its strategic objectives
· Revenue growth of 23% to £19.5 million (H1, 2015: £15.8 million)
· Group adjusted operating profit increased by 16% to £4.6 million (H1, 2015: £3.9 million)*. Group operating profit on a statutory basis of £4.0 million (H1, 2015: £3.9 million)
· Adjusted basic earnings per share increased to 5.9 pence (H1, 2015: 4.3 pence). Basic earnings per share increased to 5.1 pence (H1, 2015: 4.2 pence)
· Interim dividend increased to 1.5 pence per share (2015: 1.4 pence per share)
· Strong balance sheet with cash of £12.7 million (H1, 2015: £15.6 million) and net funds of £1.0 million (H1, 2015: £0.9 million) following net corporate cash outflows of £4.4 million in the past 12 months (dividends, net acquisition consideration and property disposal)
Aptitude Software:
· Two material new US-based telecom customers contracted for the Aptitude Revenue Recognition Engine in H1 2016 demonstrating Aptitude's ability to succeed in new markets
· Revenue growth of 34% to £11.4 million (H1, 2015: £8.5 million)
· On-going recurring revenue base at 30 June 2016 increased to £10.6 million (H1, 2015: £7.9 million)
· Operating profit increase of 67% to £1.7 million (H1, 2015: £1.0 million)
· Continued strong organic growth with good visibility for the future
Microgen Financial Systems:
· Strengthening position in the Trust & Fund Administration (T&FA) market with the acquisition of Infoscreen (Cyprus) Limited in May 2016 representing the fourth acquisition in the sector since December 2014
· Revenue increased by 11% to £8.1 million (H1, 2015: £7.3 million)
· T&FA revenue growth of 52% to £4.1 million (H1, 2015: £2.7 million) representing 51% of Microgen Financial Systems' revenue
· Adjusted operating profit of £3.6 million (H1, 2015: £3.6 million)*. Operating profit on a statutory basis of £3.2 million (H1, 2015: £3.4 million)
Commenting on the results, Ivan Martin, Chairman, said:
The Group has made good, clear progress in 2016 both in respect of the continuing organic growth in Aptitude Software and the transition of Microgen Financial Systems to a business clearly focused on driving revenues from one specific sector, Trust & Fund Administration. With the Group's high level of recurring revenue and clarity of strategic focus, Microgen is well placed as it enters the second half of the year.
Contacts
Ivan Martin, Chairman 020-7496-8100
Philip Wood, Group Finance Director
James Melville-Ross / Darius Alexander 020-3727-1000
FTI Consulting
* Throughout this statement adjusted operating profit, margin and EPS excludes non-underlying items, unless stated to the contrary. Non-underlying items include intangible amortisation, certain share-based payments and acquisition-related costs.
Overview:
Microgen plc has made good strategic progress in both of its operating businesses. Our Aptitude Software business has maintained momentum securing further material contracts for the Aptitude Revenue Recognition Engine. Winning new customers within the telecom sector is further deepening our penetration in this key market as well as opening up new addressable market sectors on which the Group is well positioned to capitalise.
We have also demonstrated strong performance in the Microgen Financial Systems business focusing on the Trust & Fund Administration ('T&FA') market within the wealth management sector. The acquisition of Infoscreen (Cyprus) Limited in May 2016, a competitor in the T&FA market, represented the fourth acquisition in 18 months further strengthening our position in the marketplace.
The above progress has led to overall revenue for the six months ending 30 June 2016 increasing by 23% to £19.5 million (H1, 2015: £15.8 million) with adjusted operating profit increasing by 16% to £4.6 million (H1, 2015: £3.9 million).
The interim dividend will be increased by 0.1 pence to 1.5 pence per share (2014: 1.4 pence) which will be payable on 26 August 2016 to shareholders on the register at the close of business on 5 August 2016.
Aptitude Software Report:
The Aptitude Software business provides an enterprise level Application Platform to deliver solutions, typically where customers require very rapid processing of transactions, calculations or complex detailed accounting. The breadth of capabilities of our Aptitude technology platform has stimulated the development of a number of specialised finance applications including the Aptitude Accounting Hub, Aptitude Allocation Engine and Aptitude Revenue Recognition Engine.
During the first half of 2016 the Aptitude Software business secured two material contracts with new US-based customers which, together with strong 2015 sales, have resulted in revenue increasing by 34% to £11.4 million (H1, 2015: £8.5 million). Particularly pleasing is the increase in software revenue by 22% to £5.6 million (H1, 2015: £4.6 million) of which £0.4 million is in respect of initial licence fees (H1, 2015: £0.5 million). Implementation revenue has increased to £5.8 million (H1, 2015: £3.9 million) pursuant to the recent sales successes.
The key highlight for the business has been the continued progress within the telecoms sector with the Aptitude Revenue Recognition Engine leading to three of the four largest telecoms companies in North America now being contracted. Benefitting from the new contracts the on-going recurring revenue base has increased to £10.6 million (30 June 2015: £7.9 million). In addition to the new telecoms customers already secured this year, good progress has been made on a number of other new business opportunities, strengthening the quality of our pipeline of key targets.
Margins have increased to 15% (H1, 2015: 12%), with operating profits up by 67% to £1.7 million (H1, 2015: £1.0 million). This growth in margin is despite investment being made in the first half of 2016, both in personnel to deliver successfully our newly secured projects, and in other areas of the business. The full cost of these investments will be incurred in the second half of 2016. The investment we have made in new personnel means we are equipped with the resource and operational support to execute on delivering the projects we have worked hard to win, further demonstrating our capabilities to operate at scale and deliver high level projects for top tier customers.
We are continuing to invest in product development of the platform as improvements to the technology will benefit the Aptitude-based specialised finance applications by allowing both rapid development of the applications and very high processing performance and integrity in the applications themselves. This, in turn, will further broaden Aptitude's addressable market, for which we are continuing to assess a number of possible markets/opportunities for growth.
In summary, the business is progressing well. By focussing and leveraging its expertise in high volume transaction sectors Aptitude-based specialised finance applications will continue to address the business critical needs of organisations required to meet new accounting standards and regulations, as well as serving those business areas poorly served by ERP systems. The strong sales performance in 2015 has continued into 2016 providing the Aptitude Software business with good visibility and confidence for the future.
Microgen Financial Systems Report:
The Microgen Financial Systems business is continuing to make strong progress in achieving its strategic objective to increase the proportion of its revenues from the Trust & Fund Administration ("T&FA") sector through organic growth and add-on acquisitions. Microgen Financial Systems' key product in this sector is Microgen 5Series which addresses the core operational requirements of a number of organisations including Trust Administrators, Fiduciary Companies and Corporate Services Providers.
The key highlights for the business are the acquisition in May 2016 of Infoscreen (Cyprus) Limited ("Infoscreen"), the fourth add-on acquisition within the T&FA sector since December 2014, and the continued sales progress being made by Microgen 5Series. The recent acquisitions, together with the underlying organic growth due to success with Microgen 5Series, has resulted in T&FA revenue growing by 52% to £4.1 million (H1, 2015: £2.7 million) representing 51% of Microgen Financial Systems' revenue (H1, 2015: 37%).
Within the T&FA revenue of £4.1 million (H1, 2015: £2.7 million), Microgen 5Series (and 4Series) revenues have increased to £3.1 million (H1, 2015: £2.4 million), benefitting from both new name customer wins and conversions to Microgen 5Series from the T&FA acquisitions completed since December 2014. A key element of the acquisition strategy is the ability to secure both services and licence uplift fees if customers choose to migrate to Microgen 5Series from the acquired T&FA products in order to benefit from its enhanced functionality and modern technology. In H1 2016 such incremental services and licence uplift fees contributed 63% of the £0.4 million revenue (H1, 2015: £nil) generated from customers converting from the acquired products. The remaining £1.0 million of T&FA revenue (H1, 2015: £0.3m) was generated from customers that to date remain on acquired products. The combination of organic growth and strategic, bolt-on acquisitions is further enhancing our already strong market positioning in T&FA.
Infoscreen's software is used by approximately 200 customers in the T&FA Administration sector providing the business with a strong recurring revenue base. The consideration for the Infoscreen acquisition was £1.4 million, in addition to a commitment to settle vendor debt following acquisition of £0.3 million. Infoscreen and its subsidiary's revenue in the year ending 31 December 2015 was €1.0 million with operating profit for the year of €0.1 million. The net liabilities at 31 December 2015 were €0.2 million including net bank and vendor debt of €0.4 million. Integration is progressing in line with expectations.
Further acquisitions and add-on opportunities continue to be evaluated within T&FA where there is the potential to leverage Microgen 5Series within the acquired base.
A number of contracts have been entered into since the start of the year with both new customers and existing clients upgrading to Microgen 5Series from our acquired products. A key highlight for the first half of 2016 is the new business contract signed with a multi-office T&FA organisation to roll out Microgen 5Series throughout its global network.
Revenue from the payment software product line remains stable at £0.8 million (H1, 2015: £0.7 million) while the Application Management business reports revenue in line with Board expectations at £3.2 million (H1, 2015: £3.9 million). The Application Management business comprises a number of software solutions focussed principally on financial services. Consistent with the maturity of the solutions provided by this business it is the Board's expectations that revenues will continue to reduce in line with recent periods, but continue to contribute for an extended future period due to the high levels of recurring revenue and strong margins.
The Microgen Financial Systems business reported an 11% increase in total revenues to £8.1 million (H1, 2015: £7.3 million) with adjusted operating profits of £3.6 million (H1, 2015: £3.6 million) representing an adjusted operating margin of 45% (H1, 2015: 49%). The benefits from the add-on acquisitions are being progressively received as integration continues and mitigate the full impact of lost margin from those elements of Application Management that have discontinued in the period.
In summary, the Microgen Financial Systems business is successfully progressing its strategy to increase the proportion of its higher value T&FA revenues through both organic growth and add-on acquisitions. With recurring revenue accounting for 81% (H1, 2015: 84%) of total revenue the business has excellent future visibility.
Group Financial Performance:
Overall revenue for the six months ending 30 June 2016 has increased by 23% to £19.5 million (H1, 2015: £15.8 million) with adjusted operating profit increasing by 16% to £4.6 million (H1, 2015: £3.9 million).
Operating profit on a statutory basis was £4.0 million (H1, 2015: £3.9 million) after non-underlying items of £0.6 million (H1, 2015: £0.1 million) comprised principally of intangible amortisation. The Group reported a profit for the period attributable to equity shareholders of £3.0 million (H1, 2015: £2.9 million). The Board has continued to determine that all internal research and development costs are expensed as incurred and therefore the Group has no capitalisation of development expenditure.
The total tax charge of £0.8 million (H1, 2015: £0.7 million) represents 20.0% of the Group's profit before tax (H1, 2015: 20.0%).
The Group continues to have a strong balance sheet with net assets at 30 June 2016 of £40.7 million (H1, 2015: £37.7 million), including cash at 30 June 2016 of £12.7 million (H1, 2015: £15.6 million), and net funds at 30 June 2016 of £1.0 million (H1, 2015: £0.9 million) following net corporate cash outflows of £4.4 million in the past 12 months (comprising dividends of £2.5 million and £4.2 million net acquisition consideration less £2.3 million property disposal proceeds). Trade and other receivables have increased to £7.7 million (H1 2015: £4.6 million) pursuant to both the growth in the Group's revenue and the requirement, on occasion, to accept payment terms with certain international customers in excess of past experience. Trade and other payables have increased to £17.3 million (H1, 2015: £14.7 million) due principally to the Group's increased recurring revenue base. Pursuant to the above movements cash used in operations in the first half of the year was £2.4 million (H1, 2015: £1.5 million) which is consistent with the seasonal cash flow of the Group in which a significant proportion of its recurring revenue base is invoiced, and cash collected, in the second half of the financial year.
The volatility in exchange rates pursuant to the EU referendum has had minimal financial impact on the Group's H1 2016 revenues and profits. The Group benefits from a geographically diverse customer base with 23% of revenue generated from customers located in the United Kingdom, 13% from other European Union countries and 64% from the rest of the world (H1, 2015: 29%, 21% and 50%). Of the Group's H1 2016 revenue, 32% (H1, 2015: 22%) was invoiced in a currency other than sterling. The Board continues to monitor developments arising from the EU referendum and the impact upon the Group.
Employees
Microgen's employees are the principal contributors to the growth reported in the first half of 2016 and the ability to continue to attract, motivate and retain talented individuals is key to ensuring the continued development of the Group. In addition to a number of other investments being made within the business, Microgen intends to introduce a share save scheme which will be open to the majority of the Group's employees.
Board Succession
Pursuant to earlier announcements Ms Vanda Murray OBE, Non-Executive Director, has today retired from the Board with the chairmanship of the Remuneration Committee having earlier passed to Peter Whiting who has also assumed the role of Senior Independent Director in the period.
Statement on Principal Risks and Uncertainties
Pursuant to the requirements of the Disclosure and Transparency Rules the Group provides the following information on its principal risks and uncertainties. The Group considers strategic, operational and financial risks and identifies actions to mitigate those risks. These risk profiles are updated at least annually. The principal risks and uncertainties detailed within the Group's 2015 Annual Report remain applicable for the first six months of the financial year. The Group's 2015 Annual Report is available from the Microgen website: www.microgen.com.
Related party transactions during the period are disclosed in Note 15.
CONDENSED CONSOLIDATED INTERIM INCOME STATEMENT
For the six months ended 30 June 2016
| Unaudited six months ended 30 Jun 2016 | Unaudited six months ended 30 Jun 2015
| Audited year ended 31 Dec 2015 | |||||||||||||||
Note | Before Non-underlying items | Non-underlying items | Total | Before Non-underlying items | Non-underlying items | Total | Before Non-underlying items | Non-underlying items | Total | |||||||||
£000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 | ||||||||||
Revenue | 5 | 19,493 | - | 19,493 | 15,802 | - | 15,802 | 31,958 | - | 31,958 | ||||||||
Operating costs | (14,934) | (604) | (15,538) | (11,866) | (65) | (11,931) | (24,369) | (2,316) | (26,685) | |||||||||
Operating profit | 5 | 4,559 | (604) | 3,955 | 3,936 | (65) | 3,871 | 7,589 | (2,316) | 5,273 | ||||||||
Finance income | 5 | 41 | - | 41 | 71 | - | 71 | 104 | - | 104 | ||||||||
Finance costs | 5 | (208) | - | (208) | (255) | - | (255) | (492) | - | (492) | ||||||||
Profit before income tax | 4,392 | (604) | 3,788 | 3,752 | (65) | 3,687 | 7,201 | (2,316) | 4,885 | |||||||||
Income tax expense | 5/6 | (758) | (738) | (1,151) | ||||||||||||||
Profit for the period attributable to owners of the parent | 3,030 | 2,949 | 3,734 | |||||||||||||||
Earnings per share | ||||||||||||||||||
Basic | 7 | 5.1p | 4.2p | 6.0p | ||||||||||||||
Diluted | 7 | 4.9p | 4.0p | 5.6p | ||||||||||||||
CONDENSED CONSOLIDATED INTERIM STATEMENT OF COMPREHENSIVE INCOME
For the six months ended 30 June 2016
|
| Unaudited six months ended |
| Unaudited six months ended |
| Audited year ended |
|
| 30 Jun 2016 |
| 30 Jun 2015 |
| 31 Dec 2015 |
|
| £000 |
| £000 |
| £000 |
|
|
|
|
|
|
|
Profit for the period |
| 3,030 |
| 2,949 |
| 3,734 |
Other comprehensive income |
|
|
|
|
|
|
Items that may subsequently be reclassified to profit or loss: |
|
|
|
|
|
|
Fair value gain/(loss) on hedged financial instruments |
| 231 |
| (2) |
| 230 |
Currency translation gain/ (loss) |
| 236 |
| (13) |
| (6) |
Other comprehensive income/ (expense) for the period, net of tax |
| 467 |
| (15) |
| 224 |
Total comprehensive income for the period attributable to owners of the parent |
| 3,497 |
| 2,934 |
| 3,958 |
CONDENSED CONSOLIDATED INTERIM BALANCE SHEET
As at 30 June 2016
Note | Unaudited as at 30 Jun 2016 | Unaudited as at 30 Jun 2015 | Audited as at 31 Dec 2015 | |||
ASSETS | £000 | £000 | £000 | |||
Non-current assets | ||||||
Property, plant and equipment | 10 | 1,272 | 4,637 | 928 | ||
Goodwill | 41,774 | 41,774 | 41,774 | |||
Intangible assets | 7,754 | 1,471 | 5,934 | |||
Deferred income tax assets | 565 | 767 | 561 | |||
51,365 | 48,649 | 49,197 | ||||
Current assets | ||||||
Trade and other receivables | 7,684 | 4,580 | 4,653 | |||
Financial assets | ||||||
- derivative financial instruments | 262 | - | 11 | |||
Cash and cash equivalents | 12,722 | 15,618 | 18,600 | |||
20,668 | 20,198 | 23,264 | ||||
Assets classified as held for sale | - | - | 2,350 | |||
Total current assets | 20,668 | 20,198 | 25,614 | |||
Total assets | 72,033 | 68,847 | 74,811 | |||
LIABILITIES | ||||||
Current liabilities | ||||||
Financial liabilities | ||||||
- borrowings | 11 | (3,000) | (3,000) | (3,000) | ||
- derivative financial instruments | (228) | (429) | (208) | |||
Trade and other payables | (17,286) | (14,680) | (20,977) | |||
Current income tax liabilities | (361) | (848) | (448) | |||
Provisions | 12 | (25) | (12) | (35) | ||
(20,900) | (18,969) | (24,668) | ||||
Net current (liabilities)/ assets | (232) | 1,229 | 946 | |||
Non-current liabilities | ||||||
Financial liabilities - borrowings | 11 | (8,750) | (11,750) | (10,250) | ||
Provisions | 12 | (257) | (437) | (240) | ||
Deferred income tax liabilities | (1,446) | - | (1,082) | |||
(10,453) | (12,187) | (11,572) | ||||
NET ASSETS | 40,680 | 37,691 | 38,571 | |||
SHAREHOLDERS' EQUITY | ||||||
Share capital | 13 | 3,797 | 3,730 | 3,796 | ||
Share premium account | 13 | 4,493 | 4,014 | 4,484 | ||
Capital redemption reserve | 12,372 | 12,372 | 12,372 | |||
Other reserves | 34,229 | 33,766 | 33,998 | |||
Accumulated losses | (14,489) | (16,226) | (16,121) | |||
Foreign currency translation reserve | 278 | 35 | 42 | |||
TOTAL EQUITY ATTRIBUTABLE TO OWNERS OF THE PARENT | 40,680 | 37,691 | 38,571 |
CONDENSED CONSOLIDATED INTERIM STATEMENT OF CHANGES IN EQUITY
For the six months ended 30 June 2016
Share capital | Sharepremium account | Accumulated losses | Foreign currency translation reserve | Capital redemption reserve | Otherreserves | Total | ||
£000 | £000 | £000 | £000 | £'000 | £000 | £000 | ||
Balance at 1 January 2016 | 3,796 | 4,484 | (16,121) | 42 | 12,372 | 33,998 | 38,571 | |
Comprehensive income | ||||||||
Profit for the period | - | - | 3,030 | - | - | - | 3,030 | |
Cash flow hedges | ||||||||
- net fair value gains | - | - | - | - | - | 231 | 231 | |
Exchange rate adjustments | - | - | - | 236 | - | - | 236 | |
Total comprehensive income for the period | - | - | 3,030 | 236 | - | 231 | 3.497 | |
Shares issued under share option scheme | 1 | 9 | - | - | - | - | 10 | |
Share-based payment charge | - | - | 256 | - | - | - | 256 | |
Dividends to equity holders of the company | - | - | (1,654) | - | - | - | (1,654) | |
Total contributions by and distributions to owners of the company recognised directly into equity | 1 | 9 | (1,398) | - | - | - | (1,388) | |
Balance at 30 June 2016 (unaudited) | 3,797 | 4,493 | (14,489) | 278 | 12,372 | 34,229 | 40,680 |
CONDENSED CONSOLIDATED INTERIM STATEMENT OF CHANGES IN EQUITY
For the six months ended 30 June 2016
Share capital | Sharepremium account | Accumulated losses | Foreign currency translation reserve | Capital redemption reserve | Otherreserves | Total | ||
£000 | £000 | £000 | £000 | £'000 | £000 | £000 | ||
Balance at 1 January 2015 | 3,730 | 12,049 | 2,553 | 48 | 1,558 | 36,547 | 56,485 | |
Comprehensive income | ||||||||
Profit for the period | - | - | 2,949 | - | - | - | 2,949 | |
Cash flow hedges | ||||||||
- net fair value losses | - | - | - | - | - | (2) | (2) | |
Exchange rate adjustments | - | - | - | (13) | - | - | (13) | |
Total comprehensive income for the period | - | - | 2,949 | (13) | - | (2) | 2,934 | |
2015 Return of Value | - | (8,035) | (20,319) | - | 10,814 | (2,779) | (20,319) | |
Share options - value of employee service | - | - | (132) | - | - | - | (132) | |
Dividends to equity holders of the company | - | - | (1,277) | - | - | - | (1,277) | |
Total contributions by and distributions to owners of the company recognised directly in equity | - | (8,035) | (21,728) | - | 10,814 | (2,779) | (21,728) | |
Balance at 30 June 2015 (unaudited) | 3,730 | 4,014 | (16,226) | 35 | 12,372 | 33,766 | 37,691 | |
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CONDENSED CONSOLIDATED INTERIM STATEMENT OF CASH FLOW
For the six months ended 30 June 2016
Unaudited |
| Unaudited |
| Audited | |||
| six months ended |
| six months ended |
| year ended | ||
| Note | 30 Jun 2016 |
| 30 Jun 2015 |
| 31 Dec 2015 | |
| £000 |
| £000 |
| £000 | ||
Cash flows from operating activities |
| ||||||
Cash generated (used in)/ from operations | 8 |
| (2,403) |
| (1,522) |
| 7,495 |
Interest paid |
| (208) |
| (255) |
| (492) | |
Income tax paid |
| (928) |
| (367) |
| (1,189) | |
| |||||||
Net cash flows (used in)/generated from operating activities |
| (3,539) |
| (2,144) |
| 5,814 | |
| |||||||
Cash flows from investing activities |
| ||||||
Purchase of property, plant and equipment | 10 |
| (556) |
| (103) |
| (524) |
Sale of property, plant and equipment |
| 2,350 |
| 12 |
| 13 | |
Acquisition of subsidiaries, net of cash acquired |
| (1,396) |
| (16) |
| (2,863) | |
Interest received |
| 41 |
| 75 |
| 108 | |
Net cash generated from/ (used in) investing activities |
| 439 |
| (32) |
| (3,266) | |
| |||||||
Cash flows from financing activities |
| ||||||
Net proceeds from issuance of ordinary shares | 13 |
| 10 |
| - |
| 536 |
Dividends paid to company's shareholders | 9 |
| (1,654) |
| (1,277) |
| (2,089) |
Repayments of loan |
| (1,500) |
| (1,500) |
| (3,000) | |
2015 Return of Value |
| - |
| (20,319) |
| (20,319) | |
Net cash used in financing activities |
| (3,144) |
| (23,096) |
| (24,872) | |
| |||||||
Net decrease in cash and cash equivalents |
| (6,244) |
| (25,272) |
| (22,324) | |
Cash and cash equivalents at beginning of period |
| 18,600 |
| 40,896 |
| 40,896 | |
Exchange rate gains/ (losses) on cash and cash equivalents |
| 366 |
| (6) |
| 28 | |
| |||||||
Cash and cash equivalents at end of period |
| 12,722 |
| 15,618 |
| 18,600 | |
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
1. General information
Microgen plc (the 'Company') and its subsidiaries (together, the 'Group') is a provider of business critical software and services.
The Company is a public limited company incorporated and domiciled in England and Wales with a primary listing on the London Stock Exchange. The address of its registered office is Old Change House, 128 Queen Victoria Street, London, England, EC4V 4BJ.
These condensed consolidated interim financial statements were approved for issue on 15 July 2016.
These condensed consolidated interim financial statements do not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2015 were approved by the Board of directors on 3 March 2016 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 of the Companies Act 2006.
These condensed consolidated interim financial statements have been reviewed, not audited.
2. Basis of preparation
These condensed consolidated interim financial statements for the six months ended 30 June 2016 have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34, 'Interim financial reporting' as adopted by the European Union. These condensed consolidated interim financial statements should be read in conjunction with the annual financial statements for the year ended 31 December 2015, which have been prepared in accordance with IFRSs as adopted by the European Union.
After making enquiries, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. The Group therefore continues to adopt the going concern basis in preparing its condensed consolidated interim financial statements.
3. Accounting policies
The accounting policies adopted are consistent with those of the previous financial statements, except as described below.
Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual profits.
New and amended standards and interpretations need to be adopted in the first interim financial statements issued after their effective date. There are no new IFRSs or IFRS ICs that are effective for the first time for this interim period that would be expected
4. Estimates
The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expense. Actual results may differ from these estimates. In preparing these condensed consolidated interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the year ended 31 December 2015, with the exception of changes in estimates that are required in determining the provision for income taxes.
5. Segmental information
The Board of Microgen plc (the "Board") has been identified as the chief operating decision maker of Microgen. Management has determined the operating segments of the group based on the reports provided to the Board of Microgen plc.
Unaudited six months ended30 Jun 2016 |
| ||||||||||
Aptitude Software |
| Microgen Financial Systems |
| Group |
| Total | |||||
| £000 |
| £000 |
| £000 |
| £000 | ||||
Revenue |
| 11,435 |
| 8,058 |
| - |
| 19,493 | |||
Operating costs |
| (9,689) |
| (4,458) |
| - |
| (14,147) | |||
|
|
|
| ||||||||
Operating profit before Group overheads |
| 1,746 |
| 3,600 |
| - |
| 5,346 | |||
| |||||||||||
Unallocated Group overheads |
| (787) |
| (787) | |||||||
| |||||||||||
Operating profit before non-underlying items |
| 4,559 | |||||||||
| |||||||||||
Non-underlying items |
| - |
| (383) |
| (221) |
| (604) | |||
| |||||||||||
Operating profit / (loss) |
| 1,746 |
| 3,217 |
| (1,008) |
| 3,955 | |||
| |||||||||||
Finance income |
| 41 | |||||||||
Finance costs |
| (208) | |||||||||
Profit before tax |
| 3,788 | |||||||||
Income tax expense |
| (758) | |||||||||
| |||||||||||
Profit for the period |
| 3,030 | |||||||||
5. Segmental information (continued)
Unaudited six months ended 30 Jun 2015 |
| ||||||||||
Aptitude Software |
| Microgen Financial Systems |
| Group |
| Total | |||||
| £000 |
| £000 |
| £000 |
| £000 | ||||
Revenue |
| 8,546 |
| 7,256 |
| - |
| 15,802 | |||
Operating costs |
| (7,498) |
| (3,696) |
| - |
| (11,194) | |||
|
|
|
| ||||||||
Operating profit before Group overheads |
| 1,048 |
| 3,560 |
| - |
| 4,608 | |||
Unallocated Group overheads |
| (672) |
| (672) | |||||||
| |||||||||||
Operating profit before non-underlying items |
| 3,936 | |||||||||
| |||||||||||
Non-underlying items |
| - |
| (159) |
| 94 |
| (65) | |||
| |||||||||||
Operating profit/ (loss) |
| 1,048 |
| 3,401 |
| (578) |
| 3,871 | |||
| |||||||||||
Finance income |
| 71 | |||||||||
Finance costs |
| (255) | |||||||||
| |||||||||||
Profit before tax |
| 3,687 | |||||||||
Income tax expense |
| (738) | |||||||||
| |||||||||||
Profit for the period |
| 2,949 | |||||||||
5. Segmental information (continued)
Audited year ended31 Dec 2015 |
| ||||||||||
Aptitude Software |
| Microgen Financial Systems |
| Group |
| Total | |||||
| £000 |
| £000 |
| £000 |
| £000 | ||||
Revenue |
| 16,730 |
| 15,228 |
| - |
| 31,958 | |||
Operating costs |
| (15,066) |
| (7,981) |
| - |
| (23,047) | |||
| |||||||||||
Operating profit before Group overheads |
| 1,664 |
| 7,247 |
| - |
| 8,911 | |||
| |||||||||||
Unallocated Group overheads |
| (1,322) |
| (1,322) | |||||||
| |||||||||||
Operating profit before non-underlying items |
| 7,589 | |||||||||
| |||||||||||
Non-underlying items |
| - |
| (2,208) |
| (108) |
| (2,316) | |||
| |||||||||||
Operating profit/ (loss) |
| 1,664 |
| 5,039 |
| (1,430) |
| 5,273 | |||
| |||||||||||
Finance Income |
| 104 | |||||||||
Finance Cost |
| (492) | |||||||||
| |||||||||||
Profit before tax |
| 4,885 | |||||||||
Income tax expense |
| (1,151) | |||||||||
| |||||||||||
Profit for the period |
| 3,734 | |||||||||
6. Income tax expense
Income tax expense is recognised based on management's estimate of the weighted average income tax rate expected for the full financial year of 20% (the estimated tax rate for the six months ended 30 June 2015 was 20%).
7. Earnings per share |
| Unaudited six months ended 30 Jun 2016 |
| Unaudited six months ended 30 Jun 2015 |
| Audited year ended 31 Dec 2015 |
| pence |
| pence |
| pence | |
| ||||||
Earnings per share |
| |||||
Basic |
| 5.1 |
| 4.2 |
| 6.0 |
|
|
|
| |||
Diluted |
| 4.9 |
| 4.0 |
| 5.6 |
| ||||||
Adjusted earnings per share |
| |||||
Basic |
| 5.9 |
| 4.3 |
| 9.2 |
| ||||||
Diluted |
| 5.6 |
| 4.1 |
| 8.5 |
To provide an indication of the underlying operating performance the adjusted earnings per share calculation above excludes intangible amortisation and other non-underlying items and has a tax charge based on the effective rate.
Unaudited six months ended 30 Jun 2016 |
| Unaudited six months ended 30 Jun 2015 |
| Audited year ended 31 Dec 2015 | ||
| pence |
| pence |
| pence | |
| ||||||
Basic earnings per share |
| 5.1 |
| 4.2 |
| 6.0 |
Non-underlying items |
| 0.8 |
| 0.1 |
| 3.3 |
Foreign exchange losses on intercompany balances |
| - |
| - |
| 0.1 |
Tax losses recognised |
| - |
| - |
| (0.2) |
Adjusted earnings per share |
| 5.9 |
| 4.3 |
| 9.2 |
8. Cash generated from operations
Unauditedsix months ended30 Jun 2016 |
| Unaudited six months ended 30 Jun 2015 |
| Audited year ended 31 Dec 2015 | ||
| £000 |
| £000 |
| £000 | |
|
|
| ||||
Profit before tax for the period |
| 3,788 |
| 3,687 |
| 4,885 |
Adjusted for: |
| |||||
Depreciation |
| 283 |
| 300 |
| 597 |
Amortisation |
| 347 |
| 68 |
| 429 |
Impairment of fixed assets |
| - |
| - |
| 1,532 |
Research and development credit |
| - |
| - |
| (101) |
Share-based payment (credit)/ expense | 256 |
| (132) |
| 110 | |
Finance income |
| (41) |
| (71) |
| (104) |
Finance costs |
| 208 |
| 255 |
| 492 |
| ||||||
Changes in working capital: |
| |||||
Increase in receivables |
| (2,994) |
| (1,315) |
| (1,162) |
(Decrease)/increase in payables |
| (4,257) |
| (4,305) |
| 828 |
Increase/ (decrease) in provisions |
| 7 |
| (9) |
| (11) |
| ||||||
Cash generated from operations |
| (2,403) |
| (1,522) |
| 7,495 |
9. Dividends
The interim dividend of 1.5 pence per share (2015: 1.4 pence per share) was approved by the Board on 15 July 2016. It is payable on 26 August 2016 to shareholders on the register at 5 August 2016. This interim dividend, amounting to £886,000 (2015: £812,000), has not been included as a liability in this interim financial information. It will be recognised in shareholders' equity in the year to 31 December 2016.
The dividend that relates to the period to 31 December 2015 and that amounted to £1,654,000 (2014: final dividend £1,277,000) was paid in June 2016.
10. Property, plant and equipment
|
|
|
| Unauditedsix months ended30 Jun 2016 |
| Unauditedsix months ended30 Jun 2015 |
Six months ended 30 June 2016 |
|
|
|
|
|
|
|
|
|
| £000 |
| £000 |
Opening net book amount 1 January |
|
|
| 928 |
| 4,863 |
Addition |
|
|
| 556 |
| 103 |
Acquired through acquisitions |
|
|
| 46 |
| 12 |
Disposals |
|
|
| - |
| (12) |
Exchange movements |
|
|
| 27 |
| (29) |
Depreciation |
|
|
| (285) |
| (300) |
Closing net book amount 30 June (unaudited) |
| 1,272 |
| 4,637 | ||
The group has not placed any contracts for future capital expenditure which has not been provided for in the financial statements.
11. Financial liabilities
|
| Unauditedsix months ended30 Jun 2016 |
| Unauditedsix months ended30 Jun 2015 | ||
| £000 |
| £000 | |||
At 1 January |
| 13,250 |
| 16,250 | ||
Loan repayment |
| (1,500) |
| (1,500) | ||
At 30 June |
| 11,750 |
| 14,750 | ||
| ||||||
The borrowings are repayable as follows: |
| |||||
Within one year |
| 3,000 |
| 3,000 | ||
In the second year |
| 3,000 |
| 3,000 | ||
In the third to fifth yeas inclusive |
| 5,750 |
| 8,750 | ||
| 11,750 |
| 14,750 | |||
Less: Amount due for settlement within 12 months (shown under current liabilities) |
| (3,000) |
| (3,000) | ||
| ||||||
Amount due for settlement after 12 months |
| 8,750 |
| 11,750 | ||
12. Provisions for other liabilities and charges
|
| Unauditedsix months ended30 Jun 2016 |
| Unauditedsix months ended30 Jun 2015 | ||
|
|
| £000 |
| £000 | |
At 1 January |
| 275 |
| 276 | ||
Utilised |
|
|
| - |
| (2) |
Deferred consideration for acquisition of Finalysys Ltd |
|
| - |
| 182 | |
Exchange movements |
|
|
| 7 |
| (7) |
At 30 June |
|
|
| 282 |
| 449 |
Provisions have been analysed between current and non-current as follows:
Unauditedsix months ended30 Jun 2016 |
| Unauditedsix months ended30 Jun 2015 | ||||
| £000 |
| £000 | |||
Current |
| 25 |
| 12 | ||
Non-current |
| 257 |
| 437 | ||
At 30 June |
|
|
| 282 |
| 449 |
13. Share capital
|
| Unauditedsix months ended30 Jun 2016 |
| Unauditedsix months ended30 Jun 2015 | ||||||
Ordinary share capital at 6 3/7 pence each (1 Jan 2015: 5 pence each) |
| Number of shares |
| Ordinary Shares |
| Number of shares |
| Ordinary Shares |
| |
| 000 |
| £000 |
| 000 |
| £000 |
| ||
Opening balance as at 1 January |
| 59,060 |
| 3,796 |
| 74,611 |
| 3,730 |
| |
Shares issued to satisfy option awards |
| 20 |
| 1 | - | - |
| |||
Share reorganisation |
| - | - |
| (16,581) |
| - |
| ||
Closing balance as at 30 June (unaudited) |
| 59,080 |
| 3,797 |
| 58,030 |
| 3,730 |
| |
Employee share option scheme: options were exercised during the period to 30 June 2016 resulted in 19,667 shares being issued (30 June 2015: nil), with exercise proceeds of £28,000. The related weight average share price at the time of exercise was £1.40 per share.
13. Share capital (continued)
Return of Value to Shareholders
During the year ended 31 December 2015, the Group announced a Return of Value to shareholders of 27 pence per ordinary share amounting to £20 million in cash, by way of a 'B'/'C' share scheme, which gave shareholders a choice between receiving cash in the form of income or capital. The Return of Value was approved by shareholders on 18 March 2015. The Return of Value was accompanied by a 7 for 9 share consolidation to maintain broad comparability of the share price and return per share of the ordinary shares before and after the creation of the 'B' and 'C' shares.
Share premium |
| 2016 |
| 2015 |
|
| £000 |
| £000 |
Opening balance as at 1 January |
| 4,484 |
| 12,049 |
Redemption of 'B' shares |
| - |
| (8,035) |
Movement in relation to share options exercised |
| 9 |
| - |
Closing balance as at 30 June (unaudited) |
| 4,493 |
| 4,014 |
14. Acquisitions
On 13 May 2016 the Group acquired the entire share capital and voting rights of Infoscreen (Cyprus) Limited (Infoscreen) for consideration in cash of £1.4 million, in addition to a commitment to settle vendor debt following acquisition of £0.3 million.
Provisional values of the net liabilities acquired in the transactions and the intangibles arising, are as follows:
Carrying |
| |||||
values pre |
| Fair value |
| Provisional | ||
| acquisition |
| adjustments |
| fair value | |
| £000 |
| £000 |
| £000 | |
Net assets acquired |
| |||||
Intangible fixed assets |
| - |
| 2,166 |
| 2,166 |
Deferred tax liability |
| - |
| (433) |
| (433) |
Property, plant and equipment |
| 42 |
| - |
| 42 |
Trade and other receivables |
| 133 |
| - |
| 133 |
Cash and cash equivalents |
| 21 |
| - |
| 21 |
Trade and other payables |
| (153) |
| - |
| (153) |
Deferred income |
| (114) |
| - |
| (114) |
| (71) |
| 1,733 |
| 1,662 | |
Goodwill |
| - | ||||
Total consideration |
| 1,662 | ||||
|
15. Related party transactions
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation. There were no other related party transactions during the six month period ended 30 June 2016 (30 June 2015: £nil), as defined by International Accounting Standard No 24 'Related Party Disclosures', except for key management compensation.
The related party transactions for the year ended 31 December 2015 as defined by International Accounting Standard No 24 'Related Party Disclosures' are disclosed in note 29 of the Microgen plc Annual Report for the year ended 31 December 2015.
16. Statement of directors' responsibilities
The directors confirm that these condensed interim financial statements have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and that the interim management report includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:
- an indication of important events that have occurred during the first six months and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and
- material related-party transactions in the first six months and any material changes in the related-party transactions described in the last annual report.
The directors of Microgen plc are listed in the Microgen plc Annual Report for 31 December 2015. A list of current directors is maintained on the Microgen plc website: www.microgen.com
Copies of this statement are being posted to shareholders and will also be available on the investor relations page of our website (www.microgen.com). Further copies are available from the Company Secretary at Old Change House, 128 Queen Victoria Street, London, England, EC4V 4BJ.
By order of the Board
P Wood
15 July 2016
Group Finance Director
Independent review report to Microgen plc
Report on the condensed consolidated interim financial statements
Our conclusion
We have reviewed Microgen plc's condensed consolidated interim financial statements (the "interim financial statements") in the interim results of Microgen plc for the 6 month period ended 30 June 2016. Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Rules and Transparency Rules of the United Kingdom's Financial Conduct Authority.
What we have reviewed
The interim financial statements comprise:
· the condensed consolidated interim balance sheet as at 30 June 2016;
· the condensed consolidated interim income statement and condensed consolidated interim statement of comprehensive income for the period then ended;
· the condensed consolidated interim statement of cash flow for the period then ended;
· the condensed consolidated interim statement of changes in equity for the period then ended; and
· the explanatory notes to the interim financial statements.
The interim financial statements included in the interim results have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Rules and Transparency Rules of the United Kingdom's Financial Conduct Authority.
As disclosed in note 2 to the interim financial statements, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the Group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.
Responsibilities for the interim financial statements and the review
Our responsibilities and those of the directors
The interim results, including the interim financial statements, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the interim results in accordance with the Disclosure Rules and Transparency Rules of the United Kingdom's Financial Conduct Authority.
Our responsibility is to express a conclusion on the interim financial statements in the interim results based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure Rules and Transparency Rules of the United Kingdom's Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
What a review of interim financial statements involves
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.
A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the interim results and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
Uxbridge
15 July 2016