Last checked at 26 Feb 2014 07:00
26 February 2014
MICROGENplc ("Microgen")
Audited Preliminary Results for the Year Ended
31 December 2013
Microgen reports its audited preliminary results for the year ended 31 December 2013.
SUMMARY
· Completion in October 2013 of Strategic Review with Microgen becoming the corporate parent of a series of technology businesses and strategic investments. The Group returned cash to shareholders over the prior 5 year period equivalent to 130% of the October 2008 market capitalisation.
· The Aptitude Software business reports annual software licence and recurring revenue growth of 9% to £7.9 million (2012: £7.2 million) representing 54% of its revenue (2012: 44%). As anticipated and consistent with the strategy, consultancy revenues declined to £6.8 million (2012: £8.8 million). New sales partnership launched.
· The Financial Systems business reports wealth management revenue growth of 7% to £8.0 million (2012: £7.5 million) representing 53% of its revenue (2012: 47%). In line with expectations, Financial Systems' other product revenues reduced to £7.1 million (2012: £8.5 million).
· Group adjusted operating profit in line with expectations at £9.1 million (2012: £9.1 million)*. Group operating profit on a statutory basis of £8.7 million (2012: £9.0 million).
· Adjusted earnings per share marginally lower at 8.3 pence (2012: 8.5 pence) following changes to the capital structure and resulting reduced net interest income.
· Strong balance sheet with cash of £40.2 million (2012: £32.1 million). Net funds of £20.9 million (2012: £32.1 million) following the return of £17.0 million in the year to shareholders by way of tender offer and dividends.
· Proposed final dividend of 2.2 pence per share (2013: 2.2 pence) representing a full year dividend of 3.3 pence (2012: 3.3 pence) in addition to the special dividend paid in May 2013 of 5.2 pence per share.
Contacts
Martyn Ratcliffe, Executive Chairman 020-7496-8100
Philip Wood, Group Finance Director
Lucy Delaney, FTI Consulting 020-7269-7208
* Throughout this statement adjusted operating profit and margin excludes exceptional and other items, unless stated to the contrary.
MICROGEN plc ("Microgen")
Audited Preliminary Results for the Year ended 31 December 2013
Chairman's Statement and Group Strategy
Microgen maintained a resilient financial performance in 2013. The year was significant due to the Board's extensive review of the strategies of the Group and its businesses ("Strategic Review" or "Review"). The timing of the Review coincided with achieving the milestone of returning in cash the Group's market capitalisation to shareholders over the 5 year period following the completion of the previous review in October 2008. The £10 million tender offer announced as one of the outcomes of the Review brought the total cash returned to shareholders over the 5 year period to 130% of the October 2008 market capitalisation. The detail of the Strategic Review was announced on 29 October 2013 and is incorporated in this statement by reference.
The Strategic Review detailed that the Group strategy is to "Acquire, Enhance and Realise Value" for Microgen shareholders. As a result Microgen plc is now the corporate parent of a series of technology businesses and strategic investments, operated as independent business units. Reflecting the new organisational structure, reports on the Group's existing businesses, Aptitude Software and Financial Systems, are provided by the respective Managing Directors. Pursuant to the Strategic Review, investment is being significantly increased in the Aptitude Software business in order to pursue the developing Big Data opportunity. In parallel, the Financial Systems business is focussing resources on the growing wealth management sector and delivered a substantial increase in return on capital employed following the change in capital structure.
Despite a period of strategic evolution, in aggregate, the Group reports adjusted operating profit in line with expectations and with the prior year (throughout this statement adjusted operating profit and margin excludes exceptional and other items, unless stated to the contrary). Pursuant to this performance the Board is recommending a final dividend of 2.2 pence per share (2012: 2.2 pence), representing a full year dividend of 3.3 pence (2012: 3.3 pence) in addition to the special dividend of 5.2 pence paid in May 2013. Subject to shareholder approval, the proposed final dividend will be payable on 27 May 2014 to shareholders on the register at the close of business on 25 April 2014.
Microgen is continuously identifying and appraising technology businesses and strategic investments which the Board believes, based on the Group's capabilities and technologies, may benefit from being operated as an independent business unit under Microgen's stewardship. Consistent with the scope set out in the Strategic Review announcement, the businesses and investments appraised to date have been predominantly UK based across a broad technology spectrum.
During 2013, Microgen returned £17.0 million of cash to shareholders through dividends and the tender offer which completed in December. The Group's balance sheet, with cash of £40.2 million at 31 December 2013 (2012: £32.1 million) and net funds of £20.9 million (2012: £32.1 million), still provides the Group with the cash resources to be a credible acquirer although the Board would seek additional support from shareholders if appropriate. However, the Board will maintain its prudent approach and there can be no certainty that any material acquisition will be completed.
Martyn Ratcliffe
Executive Chairman
Aptitude Software Report
The Aptitude Software business provides enterprise level application products and solutions, typically where customers require very rapid processing of very high volume (often referred to as "Big Data") complex, business event-driven transactions. The Aptitude software and associated applications have been, and continue to be, developed at the Aptitude Technology Centre in Wroclaw, Poland. The cost of this development is expensed as incurred on an annual basis. The business generates revenue from this software through a combination of annual licence fees, software maintenance and support, professional services and, to a lesser extent, initial licence fees.
The Strategic Review reaffirmed the Group's preferred strategy of annual software licencing, producing recurring revenues, as the right approach to value creation. As such, the Board's objective of increasing licence revenue, both in absolute terms and as a proportion of revenue, is the leading performance metric for the business. (Recurring revenue includes annual licence fees, software maintenance and support).
Benefitting from both new business sales and growth from the existing client base, revenue from annual software licences and other recurring revenue grew by 9% to £7.9 million (2012: £7.2 million) and now represents 54% of revenue (2012: 44%). Whilst not materially benefitting 2013 due to the Group's conservative revenue recognition policy, a significant new European client was contracted in December 2013 with a North American opportunity in the final stages of contracting.
The number of consultants deployed during 2013 was broadly flat, although this is a reduction on 2012 particularly in the first half of the year, when customer budgetary constraints had a material impact. However, the future growth of consultancy revenue is not a strategic objective of the business, reflecting the change in emphasis towards software revenues to align with the greater potential for shareholder value-creation. As a result, despite broadly consistent services revenue throughout 2013, the impact of the decline in 2012 has led to services revenue reducing to £6.8 million compared to £8.8 million in the prior year.
Correspondingly, overall reported revenue for the business was £14.7 million (2012: £16.3 million). Nevertheless, strong operating margins of 19% (2012: 18%) delivered an operating profit of £2.8 million (2012: £2.9 million) while maintaining investment in research and development at £3.5 million (2012: £3.5 million) and continuing to expense as incurred all research and development costs.
Following the Strategic Review the Board has approved an increase in investment in order to pursue the potential from the Big Data market opportunity at a level such that the business remains profitable and cash flow positive. Details of the areas of investment were described in the Strategic Review including product development of a Hadoop interface which will expand the multi-platform Aptitude offering. Costs incurred in 2013 related to these investments have not been significant.
In 2014, the Aptitude Software business has commenced a sales partnership with IBM, further developing the indirect sales channel to complement the established direct sales force. In addition, opportunities have been identified in a number of new sectors which will benefit from the capabilities of the Aptitude software. In summary, 2013 realigned the strategy for the Aptitude Software business. While the tangible results from the changes will take time, the significant new European client contracted in December 2013, the launch of the IBM sales partnership and the new product development activities provide an exciting opportunity for the future.
Tom Crawford
Managing Director, Aptitude Software
Financial Systems Report
The Financial Systems business has a well-established customer base with an increasing focus on the wealth management sector. Revenues are generated through a combination of annual licence fees, software maintenance and support, professional services and, to a lesser extent, initial licence fees. The Strategic Review concluded that the business should focus on increasing the proportion of revenue derived from the wealth management sector through both organic growth and add-on acquisitions while continuing to explore opportunities in other financial services sectors.
During 2013 revenue from wealth management products grew 7% to £8.0 million (2012: £7.5 million) and now represents 53% (2012: 47%) of revenue. The leading wealth management product, 5Series, continues to be well received by the market with adoption increasing in line with expectations. In 2013, the business contracted with a major US bank and is currently in the process of implementing the largest ever 5Series deployment. The other more mature product categories, and non-financial services offerings in particular, continued to decline, as anticipated, with revenue in 2013 of £7.1 million (2012: £8.5 million).
Overall reported revenue was £15.1 million (2012: £16.0 million), in line with the Board's expectations. Recurring revenues account for 79% (2012: 78%) of the revenue, with 28% of revenue being generated by its top 5 clients (2012: 28%). Benefitting from continued tight cost control, the business reported strong adjusted operating profits of £8.1 million (2012: £8.4 million) representing an adjusted operating margin of 54% in 2013 (2012: 53%). The expenditure on research, development and support activities in 2013 was £2.2 million (2012: £2.2 million) the costs of which have been, and continue to be, expensed on an annual basis with no capitalisation.
The Strategic Review provided the catalyst for the Board to consider the capital structure of the Financial Systems business and the opportunity for Microgen to manage the business using a more efficient capital model. As a result the Review announced the agreement of a £20 million bank loan, secured solely against the Financial Systems business at a very competitive interest rate, reflecting the consistently strong cash flow from the business. £5 million of the received funds were retained by the business to fund add-on acquisitions with £15 million distributed to Microgen plc. The loan is repayable over five years with an annual capital repayment of £3 million and the remainder at the end of the period. The interest rate has been fixed by an appropriate financial instrument at 3.24% over the five year period. Operating covenants are limited to the performance of the Financial Systems business based on net debt leverage, interest cover and a minimum cash balance of £3 million being held within the business. Furthermore, in the event of a default by the Financial Systems business, Microgen plc has the option, but not the obligation, to remedy. Following the agreement of this loan and the capital reorganisation of the business during the year, the Return on Capital Employed ("ROCE") for 2013 is 30% (2012: 18%). (For the purposes of calculating ROCE, capital is defined as being the average of the consolidated net assets of the business at the beginning and end of each year). The interest cost in 2013, representing only the two months since the loan was advanced on 29 October 2013, was £0.1 million. The loan outstanding at 31 December 2013 was £19.3 million (2012: £nil).
In pursuing the major strategic objective of the business, namely to increase the proportion of revenues generated from the wealth management sector, the business has continued to identify and appraise a number of add-on acquisitions. However, the Board remains prudent and there can be no certainty that any acquisitions will be completed in the near future. Meanwhile, the existing Financial Systems business benefits from its high level of recurring revenues and the business is confident the adoption of the 5Series wealth management product will continue to progress in 2014.
Simon Baines
Managing Director, Financial Systems
Group Financial Performance and Finance Director's Report
Value to shareholders is derived from the aggregation of the performance of the operating businesses. The Group results are therefore provided for statutory purposes but in isolation provide minimal additional perspective.
Revenue for the year ended 31 December 2013 was £29.8 million (2012: £32.3 million) producing an adjusted operating profit in line with both expectations and the prior year of £9.1 million (2012: £9.1 million). Operating profit on a statutory basis was £8.7 million (2012: £9.0 million). The Group reported a profit for the year attributable to equity shareholders of £6.4 million (2012: £6.9 million). In accordance with IFRS, 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 overall group expenditure on research, development and support activities in 2013 was £5.7 million (2012: £5.7 million). Despite the reduction in revenue, adjusted operating margins increased to 30% (2012: 28%) due to the Group's conservative operational approach. This has been achieved by the growth in the proportion of the Group's higher margin annual software licences and other recurring revenues together with a reduction in the Group's overheads. Headcount at 31 December 2013 was 228 including contractors and associates (31 December 2012: 238).
Whilst the majority of the Group's revenue is invoiced in Pounds Sterling, £4.1 million of the revenue was invoiced in US Dollars at an average exchange rate of 1.56 (2012: £2.3 million at 1.59) and £1.3 million was invoiced in South African Rand at an average exchange rate of 15.22 (2012: £1.5 million at 13.04). It is Microgen's policy to hedge foreign exchange cash flows once the size and timing of transactions can be predicted with sufficient certainty. To date only the costs in relation to the Aptitude Technology Centre in Poland are hedged but in light of the changes in the business the Board continue to monitor whether it is appropriate to hedge other currencies.
Pursuant to the shareholder approval on 18 November 2013, options in respect of 5.5 million ordinary shares were issued to directors and management. A profit and loss charge of £0.1 million was incurred in the period in respect of these options and is included in the total exceptional and other item costs of £0.4 million together with costs in respect of the arrangement of the £20.0 million loan entered into by the Financial Systems business in the year, details of which are summarised in the Financial Systems Report. The total tax charge of £2.3 million (2012: £2.2 million) represents 26% of the Group's profit before tax (2012: 24%). The Group's tax charge benefitted from the recognition of £0.1 million (2012: £0.2 million) tax losses in the year. The deferred tax asset in relation to taxable trading losses represents only £0.1 million (2012: £0.2 million) of the overall deferred tax asset of £0.8 million (2012: £1.0 million) with short term timing differences representing the principal component at £0.3 million (2012: £0.4 million). Adjusted earnings per share for the year ended 31 December 2013 was 8.3 pence (2012: 8.5 pence).
The Group completed a £10.0 million tender offer in December 2013 purchasing 8,130,075 ordinary shares. In addition, ordinary dividends paid during 2013 totalled £2.7 million with a further £4.3 million returned to shareholders by way of a special dividend. The total returned to shareholders in 2013 was £17.0 million. Following the agreement of the loan for the Financial Systems business of £20.0 million and the above returns to shareholders, the Group continues to have a strong balance sheet with net assets at 31 December 2013 of £54.4 million (2012: £64.7 million), including cash at 31 December 2013 of £40.2 million (2012: £32.1 million), and net funds at 31 December 2013 of £20.9 million (2012: £32.1 million). Continuing to be a focus of the Group, cash conversion (measured by cash generated from operations as a percentage of operating profit) was 93% in the year (2012: 115%).
Philip Wood
Group Finance Director
Group Income Statement
for the year ended 31 December 2013
Year Ended 31 Dec 2013
| Year Ended 31 Dec 2012
|
| |||||||
Notes | Before exceptional and other items amortisation |
Exceptional and other items
|
Total | Before exceptional and other items
| Exceptional and other items |
Total | |||
£000 | £000 | £000 | £000 | £000 | £000 | ||||
Revenue | 1 | 29,824 | - | 29,824 | 32,318 | - | 32,318 | ||
Operating costs | 1 | (20,755) | (381) | (21,136) | (23,187) | (118) | (23,305) | ||
Operating profit | 9,069 | (381) | 8,688 | 9,131 | (118) | 9,013 | |||
Finance income | 119 | - | 119 | 174 | - | 174 | |||
Finance cost | (119) | - | (119) | - | - | - | |||
Net finance income | - | - | - | 174 | - | 174 | |||
Profit before income tax | 9,069 | (381) | 8,688 | 9,305 | (118) | 9,187 | |||
Income tax expense | 2 | (2,250) | (2,238) | ||||||
Profit for the year | 6,438 | 6,949 | |||||||
Earnings per share | |||||||||
Basic | 3 | 7.9p | 8.5p | ||||||
Diluted | 3 | 7.7p | 8.3p | ||||||
group statement of comprehensive income
For the year ended 31 December 2013
| Year ended 31 Dec 2013 | Year ended 31 Dec 2012 |
| £000 | £000 |
Profit for the year | 6,438 | 6,949 |
Other comprehensive income |
|
|
Items that will or may be reclassified to profit or loss: |
|
|
Fair value (loss)/ gain on hedged financial instruments | (7) | 409 |
Currency translation difference | 75 | 80 |
Other comprehensive income for the year, net of tax | 68 | 489 |
Total comprehensive income for the year | 6,506 | 7,438 |
Group Balance Sheet
For the year ended 31 December 2013
|
| As at 31 Dec 2013 | As at 31 Dec 2012 |
| Notes | £000 | £000 |
ASSETS |
|
|
|
Non-current assets |
|
|
|
Property, plant and equipment |
| 5,022 | 5,391 |
Goodwill |
| 41,774 | 41,774 |
Deferred income tax assets |
| 752 | 1,041 |
|
| 47,548 | 48,206 |
Current assets |
|
|
|
Trade and other receivables | 5 | 5,049 | 3,163 |
Financial assets - derivative financial instruments |
| 94 | 69 |
Cash and cash equivalents |
| 40,200 | 32,134 |
|
| 45,343 | 35,366 |
Total assets |
| 92,891 | 83,572 |
|
|
|
|
LIABILITIES |
|
|
|
Current liabilities |
|
|
|
Financial liabilities |
|
|
|
|
|
|
|
-borrowings | 7 | (3,000) | - |
- derivative financial instruments |
| (47) | (15) |
Trade and other payables | 6 | (18,186) | (17,845) |
Current income tax liabilities |
| (701) | (742) |
Provisions for other liabilities and charges | 8 | (33) | (42) |
|
| (21,967) | (18,644) |
Net current assets |
| 23,376 | 16,722 |
|
|
|
|
Non current liabilities |
|
|
|
Financial liabilities - borrowings | 7 | (16,250) | - |
Provisions for other liabilities and charges | 8 | (269) | (256) |
|
| (16,519) | (256) |
NET ASSETS |
| 54,405 | 64,672 |
|
|
|
|
SHAREHOLDERS' EQUITY |
|
|
|
Share capital | 9 | 3,724 | 4,078 |
Share premium account |
| 12,037 | 11,885 |
Capital redemption reserve |
| 1,558 | 1,152 |
Other reserves |
| 37,021 | 37,028 |
Retained earnings |
| 65 | 10,529 |
TOTAL EQUITY |
| 54,405 | 64,672 |
Group Statement of changes in shareholders' equity
for the Year Ended 31 December 2013
|
|
Share capital
£000 |
Share premium
£000 |
Retained earnings
£000 |
Capital redemption reserve £000
|
Other reserves
£000 |
Total equity
£000 |
At 1 January 2013 |
| 4,078 | 11,885 | 10,529 | 1,152 | 37,028 | 64,672 |
Profit for the year |
| - | - | 6,438 | - | - | 6,438 |
Cash flow hedges - net fair value losses in the year |
| - | - | - | - | (7) | (7) |
Exchange rate adjustments |
| - | - | 75 | - | - | 75 |
Total comprehensive income for the year |
| - | - | 6,513 | - | (7) | 6,506 |
Shares issued under share option schemes |
| 52 | 152 | - | - | - | 204 |
Own shares purchased and cancelled |
| (406) | - | (10,269) | 406 | - | (10,269) |
Share options - value of employee service |
| - | - | 157 | - | - | 157 |
Deferred tax on financial instruments
|
| - | - | 9 | - | - | 9 |
Deferred tax on share options |
| - | - | 7 | - | - | 7 |
Corporation tax on share options |
| - | - | 135 | - | - | 135 |
Dividends to equity holders of the company |
| - | - | (7,016) | - | - | (7,016) |
Total Contributions by and distributions to owners of the company recognised directly in equity income |
| (354) | 152 | (16,977) | 406 | - | (16,773) |
At 31 December 2013 |
| 3,724 | 12,037 | 65 | 1,558 | 37,021 | 54,405 |
Group Cash Flow Statement
for the Year Ended 31 December 2013
|
|
|
|
|
| Year ended | Year ended |
|
| 31 Dec 2013 | 31 Dec 2012 |
| Notes | £000 | £000 |
Cash flows from operating activities |
|
|
|
Cash generated from operations | 10 | 8,103 | 10,348 |
Interest paid |
| (119) | - |
Income tax paid |
| (1,728) | (2,023) |
Net cash flows generated from operating activities |
| 6,256 | 8,325 |
|
|
|
|
Cash flows from investing activities |
|
|
|
Purchase of property, plant and equipment |
| (427) | (624) |
Interest received |
| 119 | 174 |
Net cash used in investing activities |
| (308) | (450) |
|
|
|
|
Cash flows from financing activities |
|
|
|
Proceeds from bank loan |
| 20,000 | - |
Net proceeds from issuance of ordinary share capital |
| 204 | 59 |
Dividends paid to company's shareholders | 4 | (7,016) | (2,691) |
Repayment of loan |
| (750) | - |
Purchase of own shares |
| (10,269) | (146) |
Net cash generated from/ (used in) financing activities |
| 2,169 | (2,778) |
|
|
|
|
Net increase in cash and cash equivalents |
| 8,117 | 5,097 |
Cash, cash equivalents and bank overdrafts at beginning of year |
| 32,134 | 26,971 |
Exchange rate (losses)/ gains on cash and cash equivalents |
| (51) | 66 |
Cash and cash equivalents at end of year |
| 40,200 | 32,134 |
Notes to the Audited preliminary results for the year ended 31 December 2013
1. Segmental analysis
Business segments
The Board has determined the operating segments based on the reports it receives from management to make strategic decisions.
The segmental analysis is split into Aptitude Software and Financial Systems operating businesses.
The principal activity of the Group throughout 2012 and 2013 is the provision of IT services and solutions, including software based activity generating the majority of its revenue from software licences, maintenance, support, funded development and related consultancy.
The operating businesses are allocated central function costs in arriving at operating profit/(loss). Group overhead costs are not allocated into the operating businesses as the Board believes that these relate to Group activities as opposed to the operating businesses.
1 (a) Revenue and operating profit by operating business
|
| |||||
Year ended 31 December 2013 |
| Aptitude Software | Financial Systems |
Group |
Total | |
£000 | £000 | £000 | £000 | |||
Revenue | 14,676 | 15,148 | - | 29,824 | ||
Operating costs | (11,839) | (7,042) | - | (18,881) | ||
Operating profit before Group overheads | 2,837 | 8,106 | - | 10,943 | ||
Unallocated Group overheads | (1,874) | (1,874) | ||||
Operating profit before exceptional and other items | 9,069 | |||||
Exceptional and other items | - | (285) | (96) | (381) | ||
Operating profit/(loss) | 2,837 | 7,821 | (1,970) | 8,688 | ||
Net finance income | - | |||||
Profit before tax | 8,688 | |||||
Income tax expense | (2,250) | |||||
Profit for the year | 6,438 | |||||
|
| |||||
Year ended 31 December 2012 |
| Aptitude Software | Financial Systems |
Group |
Total | |
£000 | £000 | £000 | £000 | |||
Revenue | 16,316 | 16,002 | - | 32,318 | ||
Operating costs | (13,388) | (7,588) | - | (20,976) | ||
Operating profit before Group overheads | 2,928 | 8,414 | - | 11,342 | ||
Unallocated Group overheads | (2,211) | (2,211) | ||||
Operating profit before exceptional and other items | 9,131 | |||||
Exceptional and other items | - | (118) | - | (118) | ||
Operating profit/ (loss) | 2,928 | 8,296 | (2,211) | 9,013 | ||
Net finance income | 174 | |||||
Profit before tax | 9,187 | |||||
Income tax expense | (2,238) | |||||
Profit for the year | 6,949 | |||||
1(b) Geographical analysis
The Group has two geographical segments for reporting purposes, the United Kingdom & Ireland and the Rest of the World.
The following table provides an analysis of the Group's sales by origin and by destination.
| Sales revenue by origin | Sales revenue by destination | ||
| Year ended | Year ended | Year ended | Year ended |
| 31 Dec 2013 | 31 Dec 2012 | 31 Dec 2013 | 31 Dec 2012 |
| £000 | £000 | £000 | £000 |
United Kingdom and Ireland | 19,686 | 23,696 | 11,666 | 16,157 |
Rest of World | 10,138 | 8,622 | 18,158 | 16,161 |
| 29,824 | 32,318 | 29,824 | 32,318 |
2. Income tax expense
| Year ended | Year ended |
| 31 Dec 2013 | 31 Dec 2012 |
Analysis of charge in the year | £000 | £000 |
Current tax: |
|
|
- current year charge | (1,860) | (1,973) |
- prior year charge | (143) | (71) |
| (2,003) | (2,044) |
Deferred tax: |
|
|
- current year charge | (327) | (139) |
- prior year credit/(charge) | 80 | (55) |
| (247) | (194) |
Income tax expense | (2,250) | (2,238) |
The total tax charge of £2,250,000 (2012: £2,238,000) on continuing operations represents 25.9% (2012: 24.4%) of the Group's profit before tax of £8,688,000 (2012: £9,187,000).
After adjusting for the change in tax rates, prior year tax charges and exceptional and other items, the tax charge for the year of £2,286,000 (2012: £2,319,000) represents 25.21% of the profit before exceptional and other items (2012: 25.23%) which is the tax rate used for calculating the adjusted earnings per share.
At the balance sheet date, the Group has unused tax losses of £6,797,000 (2012: £7,606,000) available to offset against future profits. A deferred tax asset has been recognised in respect of £484,000 (2012: £790,000) of such losses which is the maximum the Group anticipates being able to utilise in the year ending 31 December 2014. No deferred tax asset has been recognised in respect of the remaining £6,313,000 (2012: £6,816,000) due to the unpredictability of future profit streams.
The difference between the total tax charge and the amount calculated by applying the effective United Kingdom corporation tax rate of 23.25% (2012: 24.5%) to the profit on ordinary activities before tax is as follows:
| Year ended | Year ended |
| 31 Dec 2013 | 31 Dec 2012 |
|
|
|
| £000 | £000 |
Profit on ordinary activities before tax | 8,688 | 9,187 |
|
|
|
Tax at the UK corporation tax rate of 23.25% (2012: 24.5%) | (2,020) | (2,251) |
|
|
|
Effects of: |
|
|
Adjustment to tax in respect of prior period | (63) | (126) |
Adjustment in respect of foreign tax rates | (63) | 7 |
Foreign exchange gains on intercompany balances | (111) | (42) |
Research and development tax credit | 10 | 135 |
Expenses not deductible for tax purposes |
|
|
- Share based payment expenses | (51) | (89) |
- Other | (18) | (58) |
Changes in UK Corporation Tax Rates
| (55) | (20) |
Recognition of tax losses | 121 | 206 |
Total taxation | (2,250) | (2,238) |
3. Earnings per share
To provide an indication of the underlying operating performance per share, the adjusted profit after tax figure shown below excludes exceptional and other items and has a tax charge using the effective rate of 25.21%
(2012: 25.23%)
| Year ended | Year ended |
| 31 Dec 2013 | 31 Dec 2012 |
| £000 | £000 |
Profit on ordinary activities before tax and intangibles amortisation | 9,069 | 9,305 |
Tax charge at a rate of 25.21% (2012: 25.23%) | (2,286) | (2,348) |
Adjusted profit on ordinary activities after tax | 6,783 | 6,957 |
Prior years' tax charge | (63) | (126) |
Exceptional and other items net of tax | (292) | (88) |
Foreign exchange gains on intercompany balances tax charge | (111) | - |
Recognition of tax losses | 121 | 206 |
Profit on ordinary activities after tax | 6,438 | 6,949 |
| 2013 Number (thousands) | 2012 Number ( thousands) |
Weighted average number of shares | 81,649 | 81,572 |
Effect of dilutive share options | 1,535 | 1,873 |
| 83,184 | 83,445 |
| 2013 Basic EPS | 2013 Diluted EPS |
| pence | pence |
Earnings per share | 7.9 | 7.7 |
Exceptional and other items net of tax | 0.3 | 0.3 |
Prior years' tax charge | 0.1 | 0.1 |
Foreign exchange gains on intercompany balances tax charge | 0.1 | 0.1 |
Tax losses recognised | (0.1) | (0.1) |
Adjusted earnings per share | 8.3 | 8.1 |
Adjusted earnings per share are calculated using adjusted profit after tax.
4. Dividends
| 2013 pence per share | 2012 pence per share | 2013 £000 | 2012 £000 |
Dividends paid: |
|
|
|
|
Interim dividend | 1.1 | 1.1 | 908 | 897 |
Final dividend (prior year) | 2.2 | 2.2 | 1,816 | 1,794 |
Special dividend (prior year) | 5.2 | - | 4,292 | - |
| 8.5 | 3.3 | 7,016 | 2,691 |
|
|
|
|
|
Proposed but not recognised as a liability: |
|
|
|
|
Final dividend (current year) | 2.2 | 2.2 | 1,639 | 1,816 |
Special dividend (current year) | - | 5.2 | - | 4,292 |
| 2.2 | 7.4 | 1,639 | 6,108 |
The proposed final dividend was approved by the Board on 25 February 2014 but was not included as a liability as at 31 December 2013, in accordance with IAS 10 'Events after the Balance Sheet date'. If approved by shareholders at the Annual General Meeting the proposed final dividend will be payable on 27 May 2014 to shareholders on the register at the close of business on 25 April 2014.
5. Trade and other receivables
| 31 Dec 2013 | 31 Dec 2012 |
| £000 | £000 |
Trade receivables | 4,286 | 2,411 |
Less: provision for impairment of receivables | (60) | (61) |
Trade receivables - net | 4,226 | 2,350 |
Other receivables | 101 | 139 |
Prepayments and accrued income | 722 | 674 |
| 5,049 | 3,163 |
6. Trade and other payables
| 31 Dec 2013 | 31 Dec 2012 |
| £000 | £000 |
Trade payables | 532 | 368 |
Other tax and social security payable | 991 | 658 |
Other payables | 55 | 657 |
Accruals | 1,259 | 1,877 |
Deferred income | 15,349 | 14,285 |
| 18,186 | 17,845 |
7. Financial liabilities
|
| 31 Dec 2013 |
|
| £000 |
Bank Loan |
| 19,250 |
The borrowings are repayable as follows: |
|
|
Within one year |
| 3,000 |
In the second year |
| 3,000 |
In the third to fifth years inclusive |
| 13,250 |
|
| 19,250 |
Less: Amount due for settlement within 12 months (shown under current liabilities) |
| (3,000) |
Amount due for settlement after 12 months |
| 16,250 |
On 28 October 2013 Microgen Financial Systems Limited, a wholly owned subsidiary of Microgen plc, entered into a loan agreement with Royal Bank of Scotland plc for £20,000,000. The loan is secured solely against the assets of the Financial Systems operating business of the Group. Operating covenants are limited to the performance of the Financial Systems business only and are based on net debt leverage, interest cover and a minimum cash balance of £3,000,000 held within the Financial Systems business. In the event of a default of the loan, Microgen plc has the option, but not the obligation, to remedy. The loan is repayable over five years with an annual capital repayment of £3,000,000 and a final repayment of £5,000,000 on the fifth anniversary of the loan agreement. The loan is denominated in Pound Sterling and carries interest at LIBOR plus 1.75%. The Group entered into an interest rate swap on 28 October 2013, effectively fixing the interest rate at 3.24% over the five year period.
8. Provisions for other liabilities and charges
| Provisions | |
| 31 Dec 2013 | 31 Dec 2012 |
| £000 | £000 |
Group |
|
|
At 1 January | 298 | 242 |
Charged/ (credited) to income statement | 13 | (45) |
Charged to property, plant and equipment | - | 100 |
Foreign exchange | (9) | 1 |
At 31 December | 302 | 298 |
Provisions have been analysed between current and non-current as follows:
| Provisions | |
| 31 Dec 2013 | 31 Dec 2012 |
| £000 | £000 |
Current | 33 | 42 |
Non-current | 269 | 256 |
| 302 | 298 |
9. Share capital
The movement in authorised and issued ordinary share capital of 5 pence each during the year is detailed below.
| Authorised | Issued and fully paid | ||
| Number | Amount | Number | Amount |
|
| £000 |
| £000 |
At 1 January 2013 | 145,000,000 | 7,250 | 81,581,850 | 4,078 |
Issued under share option schemes | - | - | 1,046,727 | 52 |
Share tender offer |
|
| (8,130,075) | (406) |
At 31 December 2013 | 145,000,000 | 7,250 | 74,498,502 | 3,724 |
In the year the Company repurchased 8,130,075 ordinary shares for a consideration of £10,000,000 via a tender offer. The shares were subsequently cancelled.
10. Notes to the Group Cash Flow Statement
Reconciliation of profit for the year to net cash generated from operations
| Year ended 31 Dec 2013 | Year ended 31 Dec 2012 |
| £000 | £000 |
Profit before tax | 8,688 | 9,187 |
Adjustments for: |
|
|
Depreciation | 790 | 788 |
Loss on disposal of fixed assets | 9 | - |
Amortisation of intangible assets | - | 118 |
Share-based payment expense | 157 | 61 |
Finance income | (119) | (174) |
Finance costs | 119 | - |
|
|
|
Changes in working capital: |
|
|
(Increase)/ decrease in receivables | (1,886) | 2,448 |
Increase/ (decrease) in payables | 341 | (2,136) |
Increase in provisions | 4 | 56 |
|
|
|
Cash generated from operations | 8,103 | 10,348 |
11. Statement by the directors
The preliminary results for the year ended 31 December 2013 and the results for the year ended 31 December 2012 are prepared under International Financial Reporting Standards as adopted for use in the EU ("IFRS"). The accounting policies adopted in this preliminary announcement are consistent with the Annual Report for the year ended 31 December 2012.
The financial information set out in this preliminary announcement does not constitute the Company's statutory accounts for the years ended 31 December 2013 or 31 December 2012. The financial information for the year ended 31 December 2012 is derived from the Annual Report delivered to the Registrar of Companies. The Annual Report for 2013 will be delivered to the Registrar of Companies in due course. The auditors' report on those accounts was unqualified and neither drew attention to any matters by way of emphasis nor contained a statement under either section 498(2) of Companies Act 2006 (accounting records or returns inadequate or accounts not agreeing with records and returns), or section 498(3) of Companies Act 2006 (failure to obtain necessary information and explanations).
The Board of Microgen approved the release of this audited preliminary announcement on 25 February 2014.
The Annual Report for the year ended 31 December 2013 will be posted to shareholders in due course and will be delivered to the Registrar of Companies following the Annual General Meeting of the Company. The report will also be available on the investor relations page of our web site (www.microgen.com). Further copies will be available on request and free of charge from the Company Secretary at Old Change House, 128 Queen Victoria Street, London, EC4V 4BJ.