Aptitude Regulatory News (APTD)

27 February 2012

MICROGEN plc ("Microgen" or "the Group")

Audited Preliminary Results for the Year ended

31 December 2011

Microgen reports a strong operating performance for the twelve months ended 31 December 2011.

SUMMARY

·; Revenue growth of 15% to £38.8 million (2010: £33.7 million) with growth in the Microgen Aptitude Solutions Division of 28%.

·; Adjusted operating profit increased by 19% to £9.6 million (2010: £8.1 million)*. All internal research and development costs have been expensed as incurred with no capitalisation of development costs.

·; Adjusted diluted earnings per share increased by 24% to 8.4 pence (2010: 6.8 pence)*.

·; £12.5 million (2010: £11.3 million) of cash generated from operations with year end net funds of £27.0 million (2010: £23.6 million) after returning a total of £6.6 million to shareholders during 2011.

·; Proposed final dividend of 2.2 pence per share (2010: 2.1 pence) increasing the full year dividend by 10% to 3.3 pence (2010: 3.0 pence).

STATUTORY RESULTS

·; Profit for the year attributable to equity shareholders of £7.3 million (2010: £6.5 million).

·; Diluted earnings per share of 8.7 pence (2010: 7.5 pence).

Contacts

Martyn Ratcliffe, Chairman 020-7496-8100

David Sherriff, Chief Executive Officer

Philip Wood, Group Finance Director

James Melville-Ross / Clare Thomas, FTI Consulting 020-7831-3113

* Throughout this statement adjusted operating profit and operating margin exclude intangible amortisation unless stated to the contrary.

Chairman's Statement

Microgen reports a strong operating performance for the year ended 31 December 2011, with revenue growth of 15% for the Group. Operating margins increased to 25% (2010: 24%) while continuing to expense all research and development costs. As a result of good cash generation, the Group had net funds of £27.0 million at 31 December 2011 (2010: £23.6 million) after returning £6.6 million to shareholders during the year through dividends, including the special dividend in December.

The Microgen Aptitude Solutions Division ("MASD") reported revenue growth of 28% and an increased operating margin of 19% in 2011 (2010: 15%). The division continues to see good demand for its technology, although the Board remains cautious in the macro-economic environment, the effects of which became progressively more apparent in the second half of 2011, particularly in the financial services sector. In 2012, a new 3D version of Microgen Aptitude is scheduled for launch, which is anticipated to further extend Microgen's product leadership in a market where the challenges of "Big Data" and related project complexity are becoming increasingly recognised.

The Financial Systems Division ("FSD") provides software products and services in mature financial market sectors where growth is more limited. The division is highly profitable producing operating margins of 47% in 2011 (2010: 48%) with strong cash flow and high recurring revenues. The Board anticipates the market and business characteristics of FSD to continue in 2012.

The Board has always recognised the need for operational performance to convert into shareholder value and introduced the Value Enhancement and Realisation Bonus Scheme ("VERBS") in October 2008. At that time, the market capitalisation of Microgen was £37.0 million with a share price of 36 pence. Since the introduction of VERBS and up to 31 December 2011, the Board has now returned £28.2 million through tender offers and dividends, representing 76% of the market capitalisation prior to the introduction of VERBS. Furthermore, despite this substantial return of capital to shareholders, at 31 December 2011, Microgen had a market capitalisation of £105.2 million.

Reflecting the strong operating performance in 2011 and the Group's robust balance sheet, the Board is recommending a final dividend of 2.2 pence per share (2010: 2.1 pence), thereby increasing the full year dividend by 10% to 3.3 pence (2010: 3.0 pence), in addition to the special dividend of 5.0 pence per share paid in December 2011. Subject to shareholder approval, the final dividend will be payable on 11 May 2012 to shareholders on the register at the close of business on 20 April 2012.

The past year has seen an evolution of the Microgen Board, with Mr David Sherriff being appointed Chief Executive Officer in April and an effective transition of the non-executive Directors following the decision of Mr Ralph Kanter and Mr Paul Davies to retire from the Board. The Board would like to thank Mr Kanter and Mr Davies for their long service to Microgen and their contribution to the transition of the Group from a microfiche and printing company to the technology leading organisation that is Microgen today. Replacing the retiring directors, Ms Vanda Murray OBE joined the Board as a non-executive Director in September 2011, also becoming Chairman of the Remuneration Committee in January 2012, and Mr Peter Whiting was appointed as a non-executive Director in February 2012. The senior independent non-executive Director of the Board remains Mr Peter Bertram who also chairs the Audit Committee.

In summary, the Board is pleased with the performance of the Group in 2011. However, consistent with other suppliers having material exposure to the financial services sector, Microgen did experience contract deferrals and increasing pressure on consultant utilisation in the second half of the year. While the Group's high level of recurring revenue provides resilience against the full effects of the market deterioration, the macro-economic uncertainty will impact the Group in the first half of 2012. However, some deferred deals are now starting to progress and overall, due to Microgen's annual licensing business model and conservative operational approach, the Board anticipates that the impact on revenue in 2012 will not translate into a material impact on the Group's profit performance for the year ahead. Furthermore, the continued investment (fully expensed) in Microgen Aptitude should maintain the market leadership position of this high performance product in an increasingly technically demanding environment, a competitive position that the Board believe is sustainable in the foreseeable future.

Martyn Ratcliffe

Chairman

Group Financial Performance and Finance Director's Report

Revenue for the year ended 31 December 2011 was £38.8 million (2010: £33.7 million) producing an adjusted operating profit of £9.6 million (2010: £8.1 million). (Throughout this statement adjusted operating profit and operating margin exclude intangible amortisation unless stated to the contrary.) The Group reported a profit for the year attributable to equity shareholders of £7.3 million (2010: £6.5 million).

In accordance with IFRS, the Board has continued to determine that all internal research and development costs incurred in the year are expensed and therefore the Group has no capitalisation of development expenditure. This is consistent with the Group's conservative accounting policies. The overall group expenditure on research, development and support activities in 2011 was £5.4 million (2010: £4.9 million) of which £3.2 million (2010: £2.8 million) was incurred by the Microgen Aptitude Solutions Division.

Headcount at 31 December 2011 was 273 including 15 contractors and associates (31 December 2010: 264 including 21 contractors and associates). At the year end there were 162 employees (2010: 154) within the Microgen Aptitude Solutions Division ("MASD") and 85 employees (2010: 84) within the Financial Systems Division ("FSD"). In addition there were 26 employees (2010: 26) within Group and Central Functions.

Adjusted diluted earnings per share for the year ended 31 December 2011 increased by 24% to 8.4 pence (2010: 6.8 pence) with diluted earnings per share of 8.7 pence (2010: 7.5 pence). The Group's tax rate used in calculating adjusted earnings per share is 28.0% (2010: 27.4%). The total tax charge of £2.3 million (2010: £1.3 million) represents 24% of the Group's profit before tax (2010: 17%).

Cash generated from operations in the year was £12.5 million (2010: £11.3 million) benefitting once again from good year end cash collections and some advance client payments. After returning £6.6 million (2010: £8.2 million including the 2010 tender offer) of cash to shareholders through dividends and the special dividend, the Group continues to have a strong balance sheet with net funds at 31 December 2011 of £27.0 million (2010: £23.6 million) with no debt at the year end following the repayment of the £1.6 million loan associated with the Group's Fleet freehold property in September.

Philip Wood

Group Finance Director

Chief Executive Officer's Report

Microgen's two operating divisions performed well in 2011. The Microgen Aptitude Solutions Division reported continued growth and increased profitability as the business continued to scale and the Financial Systems Division maintained its strong operating margins and high levels of recurring revenues.

In order to build the long-term recurring revenue base, the Group continues to promote software licence sales on multi-year annual licence contracts, with a conservative revenue recognition policy, although a minority of customers with capital budgets do require traditional initial/maintenance software licensing models. The Group has also maintained its disciplined approach to overhead and operating costs, while selectively investing in key areas to support growth in target geographies and market sectors.

·; Microgen Aptitude Solutions Division ("MASD")

MASD provides enterprise level application products and solutions to some of the world's largest financial and digital media organisations, typically where the business requires high volume processing of complex, business-event driven transactions. Through the combination of Microgen Aptitude (both in its native form and as the core technology platform for the Microgen Accounting Hub) and the extensive business domain knowledge of the division's consultants, MASD has extended its customer base into the treasury and retail banking sectors in addition to building on its success in the investment banking, insurance and digital media sectors. During 2011, MASD has been investing in the division's USA operation, a market that is proving to be comparatively more resilient in the economic environment, and also exploring new sectors and business opportunities where the high performance and functionality of the Microgen Aptitude technology can be deployed.

Revenue in MASD increased in the year by 28% to £21.8 million (2010: £17.0 million) and the division reported an operating profit of £4.2 million (2010: £2.6 million), an increase of 61%, while continuing to expense all research and development costs. As reported by other software companies who serve the financial services sector, MASD experienced the effect of the market deterioration in the second half of the year, with existing customers reducing their consultancy expenditure due to internal budget constraints and sales cycles extending. However, while the market remains unpredictable, the sales pipeline remains strong, with the majority of prospects having been deferred rather than lost or cancelled, and a number of these key sales opportunities have progressed subsequent to the year end.

Product developments during the year have further enhanced Microgen Aptitude's ability to deliver the market-leading levels of transaction processing performance increasingly required as the growth in transaction data volume continues and the challenge of "Big Data" is more widely recognised. (The Big Data term is currently applied to data sets whose size is beyond the ability of commonly used software tools to capture, manage, and process the data within an acceptable elapsed time.) Microgen Aptitude has been designed to address the challenges of processing exceptionally large volumes of data and complex transactions in a timescale to meet demanding operational and reporting requirements. This high performance together with the ability to integrate complex technology environments enables Microgen to successfully compete against some of the world's largest software vendors.

The continued investment in product development has also resulted in the recent launch of DBClarity Developer which, by using the same graphical user interface as Microgen Aptitude, enables business and IT users to collaboratively and rapidly define and implement SQL queries and procedures. In addition, recognising that our customers and prospects are faced with increasingly complex business processes within highly technical environments, Microgen has focused development of the core Microgen Aptitude technology on accelerating the solution design and implementation capability whilst enabling business users to be engaged in a collaborative and transparent development process. As a result a new product is anticipated to be launched in the summer to provide a 3 Dimensional Graphical User Interface that will further enhance the usability of the Microgen Aptitude technology. Microgen believes that this technology is highly innovative and will address many of the issues facing organisations seeking to automate complex, large and, often, enterprise wide processes. Microgen has filed patents in the UK and USA related to this new technology, further increasing the intellectual property protection associated with Microgen Aptitude.

MASD has continued to actively increase the proportion of software revenue and reduce the dependency on implementation consultancy. This strategy is consistent with ensuring the long term scalability of the business. Consequently, whilst the market deterioration is anticipated to result in revenue in the first half of 2012 being below that of the comparative period in 2011, the increase in the division's recurring software revenues pursuant to the above strategy provides resilience for the division's profitability.

·; Financial Systems Division ("FSD")

The Financial Systems Division has a well-established customer base with 86% (2010: 86%) of divisional revenue being derived from financial systems software. Recurring revenues account for 78% of the divisional revenue, providing good forward visibility.

The Financial Systems Division delivers:

• Wealth Management software and solutions;

• Banking software and solutions;

• Asset Management software and solutions; and

• Energy software and Application Management.

Benefitting from unusually strong consultancy demand and some one-off benefits, FSD's revenue increased by 2% in the year to £17.0 million (2010: £16.7 million). The division is highly profitable producing operating margins of 47% in 2011 (2010: 48%) with strong cash flow and high recurring revenues. The Board anticipates the market and business characteristics of FSD to continue in 2012 during which period it is anticipated consultancy demand will return to more normal levels.

Whilst FSD continues to review the future viability of a number of its smaller product offerings, the Group's strong balance sheet affords the division the capability to evaluate add-on acquisitions in financial back office processing to complement its current market offerings.

Summary

The Group has a strong and established portfolio of products and solutions, combining proven domain and industry expertise with leading technical and functional capability. The benefits of scale are achieved through the use of shared service centres for support functions. This foundation provides a good platform from which to continue to leverage the success of Microgen Aptitude and its associated application products and, if appropriate, to integrate acquisition opportunities into the Financial Systems Division. Furthermore, the Group's significant recurring revenue base and predominantly annual licensing model provide resilience against the macro-economic environment and corresponding market uncertainty.

David Sherriff

Chief Executive Officer

MICROGEN PLC

Group Income Statement

MICROGEN PLC

MICROGEN PLC

MICROGEN PLC

Notes to the Audited preliminary results for the year ended 31 December 2011

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 Microgen Aptitude Solutions Division ("MASD") and Financial Systems Division ("FSD").

The principal activity of the Group 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 divisions and business categories are allocated central function costs in arriving at operating profit/(loss). Group overhead costs are not allocated into the divisions or business categories as the Board believes that these relate to Group activities as opposed to the division or business category.

1 (a) Revenue and operating profit by division

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.

2. Income tax expense

The total tax charge of £2,348,000 (2010: £1,341,000) on continuing operations represents 24.5% (2010: 17.1%) of the Group's profit before tax of £9,598,000 (2010: £7,852,000). 

After adjusting for the impact of amortisation, change in tax rates, share based payment charge and prior year tax charges, the tax charge for the year of £2,687,000 (2010: £2,221,000) represents 28.0% of the profit before intangible amortisation (2010: 27.4%), 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 £8,518,000 (2010: £10,172,000) available to offset against future profits. A deferred tax asset has been recognised in respect of £822,000 (2010: £1,284,000) of such losses which is the maximum the Group anticipates being able to utilise in the year ending 31 December 2012. No deferred tax asset has been recognised in respect of the remaining £7,696,000 (2010: £8,888,000) 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 26.5% (2010: 28%) to the profit on ordinary activities before tax is as follows:

3. Earnings per share

To provide an indication of the underlying operating performance per share the adjusted profit after tax figure shown below excludes intangibles amortisation has a tax charge using the effective rate of 28.0% (2010: 27.4%).

Adjusted earnings per share are calculated using adjusted profit after tax.

4. Dividends

The proposed final dividend was approved by the Board on 24 February 2012 but was not included as a liability as at 31 December 2011, in accordance with IAS 10 'Events after the Balance Sheet date'. If approved by shareholders at the Annual General Meeting this final dividend will be payable on 11 May 2012 to shareholders on the register at the close of business on 20 April 2012.

5. Trade and other receivables

6. Trade and other payables

7. Provisions for other liabilities and charges

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

8. Share capital

The movement in authorised and issued Ordinary Share Capital of 5 pence each during the year is detailed below.

9. Notes to the Group Cash Flow Statement

(i) Reconciliation of profit for the year to net cash inflow from operating activities

(ii) Reconciliation of Net Funds

10. Statement by the directors

The preliminary results for the year ended 31 December 2011 and the results for the year ended 31 December 2010 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 2010.

The financial information set out in this preliminary announcement does not constitute the Company's statutory accounts for the years ended 31 December 2011 or 31 December 2010. The financial information for the year ended 31 December 2010 is derived from the Annual Report delivered to the Registrar of Companies. The Annual report and accounts for 2011 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 24 February 2012.

The Annual Report for the year ended 31 December 2011 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.