23rd Feb 2005 07:00
23 February 2005 Microgen plc Preliminary Audited Results for the Year ended 31 December 2004 Microgen plc, the IT solutions and services group announces preliminary auditedresults for the year ended 31 December 2004 with strong operating performanceand successful acquisition integration.Highlights * Preliminary results ahead of expectations * Adjusted diluted earnings per share* up 45% to 4.2p (2003 : adjusted eps of 2.9p), 4th consecutive year of growth in adjusted eps * Operating profit** from Continuing Operations increased by 126% to ‚£5.1 million (2003 : ‚£2.3 million) * Operating margin** on Continuing Operations increased to 12.6% (2003 : 9.3%) * Total revenue of ‚£42.4 million increased by 61% (2003 : ‚£26.4 million) * Profit before tax** increased by 119 % to ‚£5.5 million (2003 : ‚£2.5 million) * Operating profit of ‚£0.1 million (2003: operating loss of ‚£2.6 million) after goodwill amortisation and exceptional charges. Profit before tax of ‚£ 1.1 million (2003: loss before tax ‚£2.4 million) and profit after tax of ‚£ 0.2 million (2003: loss after tax ‚£2.0 million) * Earnings per share of 0.2p (2003 : loss per share of 3.2p) * Net cash inflow from operations of ‚£5.4 million in the period * Net funds at 31 December 2004 of ‚£14.6 million * Acquisition of AFA Systems plc completed in September 2004. Restructuring of the business completed ahead of schedule producing profitable contribution in November and December and break-even operating profit** in the 16 weeks since completion compared to a significant operating loss** in the first six months of 2004 prior to acquisition. * Investment in Group Development Function increased by 75% to ‚£4.2m (2003 : ‚£2.4m). Microgen Aptitude ¢â€ž¢ launched. * excluding goodwill and exceptional items and with a normalised tax charge of30%** before goodwill amortisation and exceptional itemsContact :Martyn Ratcliffe, Executive Chairman 01753-847122 Mike Phillips, Group Finance Director Giles Sanderson, Financial Dynamics 020-7831-3113 Ben Way, Financial Dynamics An analyst presentation will commence at 10.30 a.m. today at the office of UBS,7th Floor, 1 Finsbury Avenue, London CE2M 2PPA results presentation will be available from www.microgen.co.uk. Chairman's Statement Although the general market environment in 2004 continued to be unpredictable,there were signs of improvement in some sectors. This operating climate wasconsistent with the Board's planning assumptions at the start of the year. As aresult, Microgen is reporting a strong operating performance for the year ended31 December 2004, with a significant increase in operating margins oncontinuing operations to 12.6% and a 45% increase in adjusted diluted earningsper share.Microgen's rapid acquisition integration model proved highly effective in 2004as the two transactions completed towards the end of 2003 (MMT Computing plcand Imago QA Limited) were consolidated, delivering significantly enhancedearnings in this first full year following completion of these transactions.The acquisition of AFA Systems plc in September 2004 has followed a similarpost-acquisition integration model which has already been effective in reducingthe cost base, turning a significant reported loss in the first half of theyear when it was an independent listed company, into a profitable contributionin November and December.This strong financial and operating performance has been achieved whileincreasing investment in the Group's software product development, which willunderpin the organic development of Microgen in the future. In particular thefirst version of Microgen Aptitude ¢â€ž¢ was completed, on time and to budget,after a 15 month development programme. This exciting new product has evolvedfrom the Group's rules-based integration expertise, but also offers theflexibility to deploy solutions rapidly for a wide variety of applications,both within existing Microgen products and to address new market opportunities.FINANCIAL SUMMARYFor the year ended 31 December 2004, Microgen increased operating profit beforegoodwill amortisation and exceptional items from Continuing Operations to ‚£5.1million on revenue of ‚£40.6 million (2003: ‚£2.3 million on revenue of ‚£24.2million). Including the acquisition of AFA Systems plc, (which contributed ‚£1.9million of revenue and an operating profit before goodwill amortisation andexceptional items of ‚£2,000), profit before tax, goodwill amortisation andexceptional items increased by 119% to ‚£5.5 million (2003 : ‚£2.5 million).Adjusted diluted earnings per share (before goodwill amortisation, exceptionalitems and with a normalised tax charge to reflect the underlying operatingperformance) was 4.2p, an increase of 45% on prior year (2003: 2.9p).After including goodwill amortisation of ‚£2.8 million, net exceptional chargesof ‚£1.6 million and net finance income of ‚£0.4 million, the Group produced aprofit before tax for the year of ‚£1.1 million (2003: loss before tax of ‚£2.4million), and a profit after tax of ‚£0.2 million (2003 : net loss of ‚£2.0million) producing a fully diluted earnings per share of 0.2p (2003 : loss pershare of 3.2p). The net exceptional items include a one-time exceptional chargearising from the integration of the AFA acquisition of ‚£2.1 million togetherwith ‚£0.1 million of other exceptional operating costs, partially offset by anexceptional profit of ‚£0.6 million associated with the purchase and subsequentdisposal of the strategic stake acquired in Diagonal plc (see below).Through its acquisitions, Microgen has now accumulated tax trading losses beingcarried forward in the order of ‚£17 million. As far as practicable, the Boardis working to progressively utilise these tax losses. In 2004, the effectivetax rate was 24% of profit before tax and goodwill amortisation. (The adjustedearnings per share figures above are based on a normalised tax rate of 30% anddo not take into account this additional benefit.)Headcount, including external associates and contractors at 31 December 2004was 485 (31 December 2003 : 581). The reduction in staffing is primarily due tothe integration of the acquisitions and the progressive exit from the lowmargin contractor activities which formed part of the MMT revenue base.The Group produced a positive operating cash flow of ‚£5.4 million and had netfunds of ‚£14.6 million at 31 December 2004. After careful consideration, theBoard has concluded not to recommend a dividend (2003 : nil) and continues toconsider that further investment in the strategic development of the Groupoffers greater opportunity for shareholders in the medium term.OPERATIONAL REVIEWThe acquisitions completed over the past three years have significantly changedthe structure of the Group. The Microgen approach is to fully integrateacquisitions, retaining the customer focus (sales and delivery) in eachbusiness unit, but achieving the benefits of scale by the consolidation ofsupport staff and infrastructure. In particular, the cross-training ofconsultants and centralised consultancy resource planning, enables the Group toachieve high utilisation levels, which have been a major contributor to thestrong financial performance in 2004. In addition, average fee rates increasedby 19% through the year as the contractor placement business acquired with MMTdeclined and consultants were migrated to more attractive business sectors.The Group's software applications are primarily related to transactionprocessing, analysis and systems integration; vertical solutions are targetedat financial services and energy trading, although the repackaging oftechnology increasingly offers the potential for new market opportunities.Microgen's consultancy capability includes vertical industry and productimplementation expertise, together with generic skills in data warehousing,integration, software testing and third party product applications. The Groupalso has capability in managed services, both in terms of applicationsmanagement and outsourced billing, analysis and electronic document managementservices.The Group is now structured as three divisions : * Financial Services, comprising software-based solutions for Banking, Asset Management and Derivatives applications. * Solutions, primarily consultancy based, services and applications management. * Billing Pricing & Payment, comprising the outsourced managed services associated with billing and electronic document management, the software payment solutions and the software solutions associated with pricing in energy markets. Financial Services DivisionThe Financial Services businesses are software-based with applications covering * Banking : Financial Data Repository, Treasury & Capital Markets Trading, Rules-Based Integration and Reconciliations * Asset Management : Front, Middle and Back Office, Multi-Manager/Pooled Pensions Solutions, Customer Management and Performance Measurement * Derivatives : Pricing, Risk Management and Back Office Solutions The implementation of most of these applications requires significantconsultancy resource, including industry as well as product expertise. Thisresource is provided by Microgen staff or associates, who are increasinglybeing required to undertake Microgen product accreditation.Microgen has experienced an improving market environment in Financial Servicesduring 2004. One contributing factor is undoubtedly the increasing regulatoryand reporting demands within the Financial Services industry. However, theBoard's decision to move virtually all software licensing to an annuallicensing model, thereby eliminating the high up-front initial licence fee, hasalso been attractive to customers who generally remain cautious regarding ITinvestment. This action, which should produce a less volatile revenue stream,was only feasible because of the Group's efficient operating model and coststructure.For the year ended 31 December 2004, the Financial Services Division reportedrevenue of ‚£13.7 million including ‚£1.9 million from the 16 weeks of the AFAbusinesses (2003 : ‚£6.4 million). Operating profit increased substantially to ‚£2.1 million (2003 : ‚£0.9 million) with AFA making a positive contribution inthe period since acquisition.Solutions DivisionThe Group's Solutions businesses are primarily based around consultancyservices, organised into three business sectors of Commercial, EmergencyServices and Financial. Microgen's capabilities extend throughout the projectlifecycle from analysis, through design and implementation, to testing andacceptance and thereafter to ongoing management and support of applications.During 2004, utilisation was maintained at a high level through Microgen'scentralised consultancy resource management and active cross training/deployment of staff. Overall, revenue for the division was ‚£16.3 million (2003: ‚£6.7 million), although the revenue is somewhat inflated, particularly in thefirst half of the year, by the low margin contractor placement business whichhas been, and continues to be, progressively exited. As a result, operatingprofit increased substantially to ‚£3.1m (2003 : ‚£0.8m) and operating marginincreased to 18.9% (2003 : 11.9%).Billing Pricing & Payment DivisionMicrogen is a leading provider of BACS payment software and solutions in theUK. Following the launch of BACS-IP, all UK customers processing BACS paymenttransactions will need to upgrade their payment software. Microgen hasdeveloped a completely new range of products at the Group's developmentfacility in Poland, which are being well received in the market. Almost 30% ofMicrogen's customer base has now migrated to BACS-IP and new marketinginitiatives are being pursued to increase the Group's market share in order tomaximise the long term potential of this business.The strategy for the Group's energy pricing business has been changedsignificantly during the past year. Acquired with MMT in 2003, the business hadbeen built around large systems, with an established installed base.Substantial investment had been made prior to the acquisition in a completelynew solution, which extended the software product offering to incorporatemulti-fuel, multi-country capability in a very large integrated solution.Unfortunately the cost of the software and implementation was beyond the budgetof the target market for the product and the development programme wastherefore terminated during the year. To replace this "integrated solution", amodular strategy has been adopted with solutions for pricing and registrationnow well advanced using the Microgen Aptitude ¢â€ž¢ core technology.Microgen also provides a multi-channel outsourced billing solution which candeliver the full spectrum of bill output requirements (print, e-bill,e-analysis and electronic document management) from a single billingdatastream. This multi-channel service capability continues to be a keydifferentiator in this market.For the year ended 31 December 2004, the division reported revenue of ‚£12.4million (2003 : ‚£13.4 million, including a one-off exceptional revenue of ‚£2.2million). Revenue in the legacy print services continued to decline, offset bythe growth experienced in electronic managed services and the paymentsbusiness, augmented by the revenue from the Energy business. Operating profitfor the division was ‚£2.2 million (2003 : ‚£3.7 million, including a one-offexceptional operating profit of ‚£1.5 million)CORPORATE ACTIVITYOn 7 June 2004, Microgen announced that it had acquired a strategic stake inDiagonal plc and that the Board was considering whether or not to make an offerfor Diagonal. A competing offer (at the top of Microgen's indicated pricerange) was subsequently made for the company and after due consideration of theoptions available, the Board determined to accept the alternative offer for itsshareholding in Diagonal. Following completion of the transaction, the stakewas sold and, after deducting expenses associated with the activity, Microgenmade an exceptional profit of ‚£0.6 million before tax.On 13 August 2004, Microgen made a recommended offer for AFA Systems plc, whichwas declared wholly unconditional on 13 September. The integration of AFAfollowed the established Microgen integration model and was completed rapidly,achieving significant cost savings through the consolidation of businessoperations. Restructuring charges of ‚£2.1 million have been taken in 2004,including a property provision of ‚£0.7 million for the excess property. As aresult of the rapid integration process, the loss making AFA businessesproduced profit contribution in November and December, a significant turnaroundin such a short period of time.PRODUCT DEVELOPMENT AND SUPPORTThe Group's software development and support teams are primarily based inWroclaw, Poland and Cape Town, South Africa, with a smaller presence in Belfastand London. The Cape Town facility is co-located with Microgen's South Africanbusiness operations.The Wroclaw development centre in Poland has evolved to be the primary sourceof core technology and also the hub for group-wide development servicesmanagement, such as product testing, quality, etc. The development of MicrogenAptitude ¢â€ž¢, the next generation business rules integration product whichdelivers processing performance comparable with stand-alone integration toolsbut incorporates a multi-functional rules engine and business processmanagement capability, was completed to specification, on time and to budgetthrough a 15 month development program. A patent application has also beenfiled associated with this new product technology. In addition, the Wroclawcentre supports the operating systems for the billing and document managementservices and also developed and supports the BACS-IP payment applications.The Cape Town development facility, acquired with AFA, has been restructured tofocus on the development and support of the treasury product and most of theasset management products. The established financial services sector in SouthAfrica provides cost-effective application development resource with a goodunderstanding of the business requirements, essential for applicationdevelopment in this sector.The Belfast and London development activities are primarily focused onfinancial services, particularly applications requiring strong domain knowledgeand close customer interaction. In addition, the energy trading products arecontinuing to be developed and supported in the UK.During 2004, the investment in the Group's product development and supportactivities totalled ‚£4.2 million (2003 : ‚£2.4 million), accounting for 9.9% ofthe Group's total revenue or 27.6% of the revenue derived from thesoftware-based businesses. Of this expenditure, approximately one third wasassociated with customer-funded development activity. With the increase insoftware-based businesses, following the AFA acquisition, the development spendin 2005 is anticipated to increase as a proportion of revenue, although, due tothe efficiencies of the Group's development strategy including the reuse oftechnology across applications, this metric should progressively reduce.FUTURE PROSPECTSOver the past three years, the Microgen Group has expanded dramatically throughthe acquisition of five companies. It is Microgen's ability to integrate thesebusinesses into the Group that enables real shareholder value to be delivered.Microgen has developed a successful model that rapidly migrates acquisitionsfrom completion of the transaction into integrated operations, therebyminimising the risk and disruption inherent in such activities. The Boardcontinues to explore potential further opportunities that may enhanceshareholder value, but remains prudent in its evaluation of such activities andthere is no guarantee that suitable acquisitions will be identified ortransactions completed.However, while the past three years have been dominated by the changesresulting from acquisitions, the organic development of each businesspost-acquisition is as, if not more, important. Each business is reviewedregularly, both in terms of ongoing operating performance and new marketopportunities. In addition, potential new applications derived from theMicrogen Aptitude ¢â€ž¢ technology are now being actively explored in each businessarea, enabling the Group to maximise output from the development resourcewithout the inefficiency and cost of traditional parallel development programs.While market conditions in certain sectors show some signs for optimism,overall the market continues to be unpredictable and the Board of Microgen willcontinue to manage the business accordingly. This is consistent with thechallenging market environment in which the Group has operated in recent years,an environment in which Microgen has consistently delivered a strong operatingperformance, producing growth in operating income and adjusted earnings pershare, correlated with strong positive cash flow.Martyn RatcliffeExecutive Chairman MICROGEN PLC Group Profit and Loss Account for the year ended 31 December 2004 Audited Audited Audited Audited Audited Audited 2004 2004 2004 2003 2003 2003 Before Goodwill Before Goodwill goodwill amortization goodwill amortization amortization and amortization and and exceptional and exceptional exceptional exceptional items items Total items items Total Notes ‚£'000 ‚£'000 ‚£'000 ‚£'000 ‚£'000 ‚£'000 Turnover Continuing operations 1 40,561 - 40,561 24,216 2,200 26,416 Acquisitions 1 1,883 - 1,883 - - - 42,444 - 42,444 24,216 2,200 26,416 Operating costs Continuing operations (35,464) (2,756) (38,220) (21,962) (7,078) (29,040) Acquisitions (1,881) (2,257) (4,138) - - - (37,345) (5,013) (42,358) (21,962) (7,078) (29,040) Operating profit/ (loss) Continuing operations 1 5,097 (2,756) 2,341 2,254 (4,878) (2,624) Acquisitions 1 2 (2,257) (2,255) - - - Operating profit/ 5,099 (5,013) 86 2,254 (4,878) (2,624)(loss) Exceptional profit on disposal of fixed asset 2 - 606 606 - - -investment Net finance income 426 - 426 268 - 268 Profit/(Loss) on ordinary activities before tax 5,525 (4,407) 1,118 2,522 (4,878) (2,356) Tax on profit/(loss) on ordinary activities 3 (945) 384 Profit/(Loss) on ordinary activities after 173 (1,972)taxation Minority Interest (25) - Retained profit/(loss) transferred to 148 (1,972)reserves Earnings per share 4 Basic and diluted 0.2 p (3.2) p Adjusted earnings per share (before goodwill amortisation and exceptional items and with normalised tax 4 charge) Basic 4.3 p 2.9 p Diluted 4.2 p 2.9 p MICROGEN PLC Group Balance Sheet Audited Audited as at as at 31 Dec 2003 31 Dec 2004 (as restated) Notes ‚£'000 ‚£000 Fixed assets Intangible assets 51,042 44,435 Tangible assets 3,774 4,088 Investments - 11 54,816 48,534 Current assets Stocks - raw materials 100 111 Debtors 5 10,104 10,878 Cash at bank and in hand 14,600 10,457 24,804 21,446 Creditors: due within one year 6 (14,889) (13,295) Net current assets 9,915 8,151 Total assets less current liabilities 64,731 56,685 Provisions for liabilities and charges 7 (2,444) (2,604) Net assets 62,287 54,081 Capital and reserves Called up share capital 8 5,079 4,330 Share premium account 9 11,143 39,849 Shares to be issued - 185 Merger reserve 9 36,389 - Other reserves 9 334 334 Profit and loss account 9 9,342 9,226 Equity shareholders' funds 62,287 53,924 Minority Interest - 157 Capital employed 62,287 54,081 MICROGEN PLC Group Cash Flow Statement for the Year Ended 31 December 2004 Audited Audited Year ended Year ended 31 Dec 2004 31 Dec 2003 Notes ‚£'000 ‚£'000 Net cash flow from operating activities 10(i) 5,361 4,800 Returns on investments and servicing of finance Interest received 433 356 Interest paid (21) (38) 412 318 Taxation Tax paid in respect of current year (440) (368) Tax paid relating to prior years (123) (68) Tax refund 208 - (355) (436) Capital expenditure and financial investment Purchase of tangible fixed assets (919) (598) Sale of tangible fixed assets 480 9 Purchase of fixed asset investment 2 (2,894) - Sale of fixed asset investment 2 3,500 - 167 (589) Acquisitions and disposals Purchase of subsidiary undertakings 11 (3,511) (7,488) Net cash acquired with subsidiary 11 732 5,505undertakings Repayment of subsidiary debt acquired during the period (250) (644) Payment of deferred consideration (205) (250) Adjustment to consideration on purchase of subsidiary undertakings - 41 (3,234) (2,836) Equity dividends paid to shareholders - - Cash inflow before financing 2,351 1,257 Financing Issue of share capital 2,416 2 Redemption of loan notes (652) (650) 1,764 (648) Increase in cash in the period 10(ii) 4,115 609 1. Segmental analysis The segmental breakdown given below reflects the divisional operatingbusinesses of the Group following the significant change in the structurearising from the acquisitions made in the past three years. This is the primarysegmentation of the operating performance of the Group reviewed by the Board.Group operating performance was previously reported by business category(Software Based, Managed Services and Consultancy) and this information is alsoprovided below.There is no inter-segment turnover.The divisions and business categories are allocated central function costs inarriving at operating profit/(loss). Group overhead costs, goodwill andexceptional costs are not allocated into the divisions or business categoriesas the Board believes that these relates to Group activities as opposed to thedivision or business category.1(a) Turnover, operating profit by division Audited year ended Audited year ended 31 Dec 2004 31 Dec 2003 Continuing Operations Acquisition Total Total ‚£000 ‚£000 ‚£000 ‚£000 Turnover by division Continuing operations - Financial services 11,845 1,883 13,728 6,357 - Billing, pricing & payment 12,419 - 12,419 11,163 - Solutions 16,297 - 16,297 6,696 40,561 1,883 42,444 24,216 Exceptional revenue - Billing, pricing & payment - - - 2,200 40,561 1,883 42,444 26,416 Audited year ended Audited year ended 31 Dec 2004 31 Dec 2003 Continuing operations Acquisition Total Total Operating profit/(loss) by division ‚£000 ‚£000 ‚£000 ‚£000 Continuing operations - Financial services 2,122 2 2,124 934 - Billing, pricing & payment 2,221 - 2,221 2,190 - Solutions 3,075 - 3,075 794 7,418 2 7,420 3,918 Group overhead (2,321) - (2,321) (1,702) 5,097 2 5,099 2,216 Movement in property provisions - - - 38 Operating profit before goodwill amortisation and exceptional items 5,097 2 5,099 2,254 Goodwill amortisation (2,634) (140) (2,774) (2,211) Exceptional operating items Exceptional profit on exceptional - - - 1,460revenue Exceptional Group overhead costs - - - (295) Exceptional (costs)/credits - Property provision 58 (685) (627) (1,133) - Restructuring costs (180) (1,432) (1,612) (2,699) (122) (2,117) (2,239) (2,667) Total Goodwill and exceptional operating items (2,756) (2,257) (5,013) (4,878) Operating profit/(loss) 2,341 (2,255) 86 (2,624) Exceptional profit on disposal of fixed asset investment (see note 2) 606 - Net finance income 426 268 Profit/(Loss) on ordinary activities before taxation 1,118 (2,356)1 (b) Turnover and operating profit by business category Audited year ended Audited year ended 31 Dec 2004 31 Dec 2003 Continuing Turnover by business category operations Acquisition Total Total ‚£000 ‚£000 ‚£000 ‚£000 - Software based 13,450 1,883 15,333 7,773 - Managed services 11,125 - 11,125 11,080 - Consultancy 15,986 - 15,986 5,363 40,561 1,883 42,444 24,216 Exceptional revenue - Managed services - - - 2,200 40,561 1,883 42,444 26,416 Audited year ended Audited year ended 31 Dec 2004 31 Dec 2003 Continuing operations Acquisition Total Total ‚£000 ‚£000 ‚£000 ‚£000 Operating profit/(loss) by business category - Software based 2,644 2 2,646 864 - Managed services 1,938 - 1,938 2,853 - Consultancy 2,836 - 2,836 201 7,418 2 7,420 3,918 Group overhead (2,321) - (2,321) (1,702) 5,097 2 5,099 2,216 Movement in property provisions - - - 38 Operating profit before goodwill amortisation and exceptional items 5,097 2 5,099 2,254 Goodwill amortisation (2,634) (140) (2,774) (2,211) Exceptional operating items Exceptional profit on exceptional - - - 1,460revenue Exceptional Group overhead costs - - - (295) Exceptional costs - Property provision 58 (685) (627) (1,133) - Restructuring costs (180) (1,432) (1,612) (2,699) (122) (2,117) (2,239) (2,667) Total goodwill and exceptional operating items (2,756) (2,257) (5,013) (4,878) Operating profit/(loss) 2,341 (2,255) 86 (2,624) Exceptional profit on disposal of fixed asset investment (see note 2) 606 - Net finance income 426 268 Profit/(Loss) on ordinary activities before taxation 1,118 (2,356)1 (c) Geographical analysis By Year ended 31 December 2004 By origin By origin Destination Profit/(loss) Turnover before Turnover taxation ‚£'000 ‚£'000 ‚£'000 United Kingdom and Ireland 40,873 724 34,412 Rest of World 1,571 394 8,032 42,444 1,118 42,444 By Year ended 31 December 2003 By origin By origin Destination Profit/(loss) Turnover before Turnover taxation ‚£'000 ‚£'000 ‚£'000 United Kingdom and Ireland 26,134 (2,555) 22,681 Rest of World 282 199 3,735 26,416 (2,356) 26,416 2 Exceptional profit on disposal of fixed asset investmentOn 7 June 2004, Microgen plc announced that it had acquired a strategicshareholding in Diagonal plc by way of market purchases of 6,811,000 shares,equivalent to 7.46% of the issued share capital of Diagonal at a total cost of‚£2.7 million in cash. The average purchase price of the shares was 38.9p each.The stake was acquired with a view to seeking an active dialogue with Diagonalin order to determine whether or not to make an offer for the Company. Microgenindicated that any such offer would have been in the range of 50 pence to 55pence per Diagonal share in a combination of cash and new Microgen shares. TheDiagonal Board rejected Microgen's approach.On 13 July 2004, a recommended offer for Diagonal was announced at a price of55 pence in a combination of cash and new publicly quoted equity from analternative bidder.On 3 August 2004, Microgen announced that following further evaluation of theopportunity including appropriate due diligence, taking account of the thencurrent valuation of the alternative offer the Board of Microgen would acceptthe alternative offer with regard to Microgen's 7.46% shareholding in Diagonaland would not be making an offer for Diagonal.The alternative offer for Diagonal was declared wholly unconditional on 27August 2004 and Microgen subsequently sold the publicly traded equity receivedas part consideration for the Diagonal shares. The exceptional profit ondisposal of the fixed asset investment is arrived at as follows: ‚£'000 Interim dividend on Diagonal shares 48 Cash received from alternative offeror 2,060 Net proceeds of disposal of publicly quoted shares 1,392 Net proceeds from disposal of Diagonal shares 3,500 Cost of acquisition of Diagonal shares (2,678) Professional Fees (216) Exceptional profit on disposal 606The net proceeds on disposal of the shares in Diagonal is equivalent to 51.4pence per Diagonal share.The tax effect of the exceptional profit was a tax charge of ‚£214,000. 3. Taxation The taxation charge for the year comprises: Audited Audited Year ended Year ended 31 Dec 2004 31 Dec 2003 Current Tax ‚£'000 ‚£'000 UK corporation tax charge at 30% (456) (252) Foreign corporation Tax (214) (19) Current year taxation charge (670) (271) Tax credit on exceptional items 277 29 UK corporation tax prior year charge (254) (41) Total current taxation charge (647) (283) Deferred taxation Deferred tax (charge)/ credit for the year (534) 667 Prior year deferred tax credit 236 - Total deferred tax (charge)/credit (298) 667 Total taxation (charge)/credit on profit/(loss) on ordinary activities (945) 384The total tax charge of ‚£945,000 represents 24.3% of the Group profit beforetax and goodwill amortisation of ‚£3,892,000.The Group has recognised a deferred tax asset of ‚£1,940,000 (2003: ‚£1,488,000)due to trading losses, timing differences relating to accounting provisions andcapital allowances. In addition, at 31 December 2004 the Group had tax tradinglosses of ‚£17,416,000 and a cumulative unprovided deferred tax asset in respectof such losses of ‚£5,225,000 (2003: ‚£1,754,000).The differences between the total current tax charge and the amount calculatedby applying the United Kingdom corporation tax rate of 30% to the profit/(loss)on ordinary activities before tax is as follows: Audited AuditedRelated Shares:
Aptitude