28th Feb 2007 07:03
Microgen PLC28 February 2007 Information Management Solutions www.microgen.co.uk 28 February 2007 MICROGEN PLC Audited Preliminary Results for the Year ended 31 December 2006 HIGHLIGHTS • Operating performance slightly ahead of current market expectations • Adjusted operating margin* remains strong at 15.3%, in line with the Board's stated target and in the upper quartile of IT sector performance • Strong cash flow and balance sheet • Microgen Aptitude gaining momentum and market recognition • In line with Strategic Review announced in October 2006, Group reorganised into five operating businesses and goodwill and intangibles impairment charge taken in respect of Consultancy activities • Proposed final dividend of 1.0p per share making a total of 1.5p for the year (2005 : nil), reflecting the Board's continued confidence ContactsMartyn Ratcliffe, Chairman 01252-772311David Sherriff, Chief Operating OfficerPhilip Wood, Group Finance Director Giles Sanderson, Financial Dynamics 020-7831-3113 * Throughout this statement adjusted operating profit and margin excludes goodwill and intangible impairment/amortisation and exceptional items 28 February 2007 MICROGEN plc ("Microgen") AUDITED PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2006 Chairman's Statement Microgen reports another period of strong operating performance for the yearended 31 December 2006, maintaining strong operating profitability and cash flowwhile continuing to invest in the development and marketing of its products andservices. At the start of the year, the Board defined the adjusted operatingmargin target for the Group to be in the order of 15%, which is at the upper endof companies in the IT sector; this key objective has been achieved. 2006 has been a year of consolidation with greater emphasis on the organicdevelopment of the Group, to ensure that the foundations for future growth, bothorganic and through acquisition, are in place. The priorities of the Board in2007 continue to be to : • focus on profitability, both short and long term, with corresponding cash conversion;• increase the proportion of business derived from Microgen software products;• increase recurring revenue, with an emphasis on annual licensing of software products;• balance investment in product development and marketing with short-term profitability to maximise medium term shareholder value; and• explore mergers and acquisitions which may enhance shareholder value through the addition of products, services or customer base. The capability of Microgen Aptitude, which has received significant investmentin recent years, is increasingly being recognised by both customers andanalysts. Independent analysts have affirmed that the transactional performanceand user interface of this exciting product are at the leading edge in theBusiness Process Management market sector. New customer wins, upgrades fromOST-BR, and the developing pipeline of prospects, give the Board confidence thatthe investment in Microgen Aptitude will deliver benefit to shareholders in themedium term. During the second half of the year, the Board undertook a strategic review andthe outcome of that review was reported in October 2006. This has providedgreater external visibility of the constituent businesses within the Group andgreater internal focus on the strategy for each individual business, as outlinedin the Divisional Review below. In particular, the Board has determined that theGroup's SAP support operations are sub-scale and the investment required toachieve the necessary scale would be unlikely to deliver a satisfactory returnfor shareholders. Therefore, the Board has determined to exit this activity,which is anticipated to be completed during 2007. There have been a number of Board changes over the past year. In April 2006Patrick Barbour retired from the Board after 28 years of service. Richard Holwayresigned as a non-executive director in September 2006, to be replaced by PeterBertram. In addition to his significant IT sector experience, Peter is a Fellowof the Institute of Chartered Accountants in England and Wales and will beappointed to chair the Audit Committee following the Annual General Meeting.Philip Wood joined the Board as Group Finance Director on 2 January 2007,replacing Mike Phillips who had filled this position since 1998 and who leavesthe Board today. The Board would like to record their appreciation to Patrick,Richard and Mike for their contribution to Microgen and to welcome Peter Bertramand Philip Wood to the Group. Overall, the Board considers that an adjusted operating margin from the Group'scontinuing operations in the order of 15% remains an appropriate target,positioning Microgen at the upper end of companies in the IT sector in terms ofprofitability. This profitability and associated cash flow provide the resourcesfor investment to increase the organic growth rate from the Group's softwarebusinesses. In addition, with consistent profitability, strong cash flow andcash balance as at 31 December 2006 of £15.3 million (excluding the propertymortgages), the Board continues to explore strategic opportunities for thefurther development of Microgen, including mergers and acquisitions, that couldenhance the Group's offerings and customer base. Reflecting the continuedconfidence of the Board, a final dividend of 1.0 pence per share is proposed,making a total of 1.5 pence for the year (2005: nil). Martyn RatcliffeChairman Group Financial Performance and Finance Director's Report In the year ended 31 December 2006, Microgen generated adjusted operating profitof £5.8 million (2005: £7.0 million) from revenue of £37.6 million (2005: £40.8million). Adjusted operating margins remained strong at 15.3% (2005: 17.2%) inline with the target defined by the Board. (Throughout this report adjustedoperating profit and margin excludes goodwill and intangibles impairment/amortisation and exceptional items). Adjusted operating profit before Group overhead for the period was £8.1 million(2005: £9.3 million) equivalent to a margin of 21.5% (2005: 22.7%). Groupoverhead (including all share based payments) was £2.3 million (2005: £2.2million), the increase being related to the share-based payments charge andexcess property space. Following the restructuring of the Group's businesses inOctober, and in accordance with that announcement, the Board has undertaken areview of goodwill and intangibles being carried on the balance sheet. As aresult of this review, an impairment charge of £14.0 million has been taken in2006 (2005: nil) related to the consultancy business, including the closure ofthe SAP activities. Including the goodwill and intangibles impairment/amortisation, which are non-cash adjustments, and an exceptional profitassociated with the termination of leases, the Group reported a loss before taxof £8.8 million (2005: profit before tax of £5.5 million) with a diluted lossper share of 10.3p (2005: diluted earnings per share of 4.1p). Adjusted dilutedearnings per share was 4.0p (2005: 5.3p) after adjustments for the goodwill andintangibles impairment/amortisation charges, exceptional items and applying theeffective tax rate. The exceptional profit resulted from negotiating final settlements with a numberof landlords on property leases, significantly reducing the exposure to legacyproperty matters. In aggregate, these settlements have been achieved at lessthan the accrued provisions and together with a review of the remaining vacantand sublet properties resulted in an exceptional gain of £112,000 in the year.Furthermore, since the year end, part of the excess space has been sublet,whilst a long-leasehold property is being marketed for sale. Excluding the SAP business, revenue from continuing operations was £36.3 million(2005: £39.8 million), of which 59% was derived from the Group's softwarebusinesses (2005: 52%) and adjusted operating profit before Group overhead forthe period was £7.9 million (2005: £9.2 million). Recurring revenues (comprisingsoftware maintenance/support, annual licence fees, applications management andmanaged services) also contributed 59% of 2006 continuing revenues (2005: 49%). In accordance with IFRS, the Board has determined that all development costsincurred in the year are expensed. This is consistent with the Group'sconservative accounting policies. Total expenditure on product development,including customer-funded activities and support was £6.2 million (2005: £6.2million). During the period the Group generated cash from operations of £5.6 million(2005: £4.7 million) and continues to have a strong balance sheet with cash of£15.3 million (2005: £11.8 million) and net funds of £9.3 million at 31 December2006 (2005: £5.8 million). The Group's tax rate used in calculating adjusted earnings per share is 29.7%(2005: 26.5%). Adjustment is made for goodwill and intangibles impairment/amortisation, exceptional items and prior year tax. The tax rate results fromthe impact of non-deductible expenses for tax purposes being outweighed by theGroup's conservative recognition of deferred tax assets. Philip WoodGroup Finance Director Divisional Review and Chief Operating Officer's Report Microgen is now organised into five operating businesses, with the benefits ofscale being achieved through shared central services which are charged into eachbusiness. All development is managed through a single organisation whose costsare fully charged into the business units and all costs are expensed within theyear. The divisional operating profit and margin figures referenced below arereported before Group overhead, goodwill and intangibles impairment/amortisation, exceptional items, interest and tax. In line with the Board's strategic objectives, revenue derived from Microgen'ssoftware contributed 59% of the Group's continuing revenues (2005: 52%) andrevenue of a recurring nature contributed 59% (2005: 49%) of the Group'scontinuing revenues. The Board continues to promote software license sales onmulti-year annual licence contracts, with a conservative revenue recognitionpolicy, although some customers do demand traditional perpetual softwarelicensing models. The Group has maintained its disciplined approach to its cost base, whileselectively investing in those areas which the Board anticipates will deliverthe best return for shareholders. Headcount at 31 December 2006 was 369 (31December 2005: 460), including contractors and associates. • Asset & Wealth Management Established through the consolidation of three acquisitions, the Asset & WealthManagement division has had an excellent year, delivering good organic growthfrom the businesses acquired in 2005. Revenue in 2006 was £10.9 million (2005:£5.7 million) and operating margins increased significantly to 22%, (2005: 3%)as the benefits of greater operational scale were achieved. Microgen is now established as a leading provider of trust, fund and bankingsystems into the wealth management sector. In addition, the division has asignificant presence within the asset management sector, both in back officesystems and in performance measurement. The division had approximately 80material active customers during 2006 with the top five customers accounting for26% of the total revenue of the division. Recurring revenue accounted for 69% ofthe total. While the Board anticipates some decline in support contracts during2007, it is expected that this should be offset by growth generated by the newerproducts during the course of the year. • Banking While prior year comparisons are materially affected by the BACS-IP industrychanges in 2005 and the end-of-life of OST-BR, the treasury and commoditiestrading products experienced good organic growth in 2006. While these changeshad both a revenue and margin impact in 2006, the operating margins of thedivision remained strong at 17% on revenue of £8.6 million (2005: 28% on revenueof £13.1 million). The Banking division had approximately 50 material activecustomers during 2006 with the top five customers accounting for 38% of therevenue. In addition, there were approximately 1,000 users of the division'spayments software at 31 December 2006. Recurring revenue accounted for 63% ofthe total revenue in the Banking division. Following the appointment of a new Divisional Managing Director in January 2006,the Banking division gained significant momentum throughout the year andachieved both new name business successes for Microgen Aptitude and upgradesfrom existing OST-BR accounts. A number of the projects undertaken in 2006 bythis division have led to the development of additional Microgen Aptitude-basedsolutions which are being actively marketed into this sector. With astrengthened sales and marketing team together with the increased marketinginvestment, the pipeline is encouraging for the year ahead. • Energy The installed base and expertise in the Energy sector has provided a platformfor the development and implementation of Microgen Aptitude-based applicationswith a number of successfully delivered projects. Revenue was £1.8 million in2006 and the operating margin was 20% (2005 revenue of £2.1 million andoperating margin of 18%). The decline in revenue was primarily due to an extended negotiation with along-term customer to revise terms of business for support and developmentenhancements and a general slow down in enhancement work for the installed base.With around 80% of revenue being derived from the top five customers, all ofwhich are substantial utilities, such deferrals can have a material impact onthis business. However, the division has established excellent reference sitesfor Microgen Aptitude-based solutions associated with pricing and marginmanagement, working both directly and with key partners. • Consultancy & Applications Management The UK consultancy market continued to commoditise during 2006 with increasedprice competition arising from off-shore suppliers. However the Board hasmaintained its focus on profitability, allowing revenue to decline rather thanpursue unprofitable business. The strategic review highlighted the lack of scalein the SAP support business and the investment required to make this businesssuccessful. As a result, the Board has determined to exit the SAP operationswhich is anticipated to be completed during 2007. For the continuing operations,strong operating margins of 24% were achieved in 2006, on revenue of £9.4million (2005: £12.4 million and operating margin of 25%). A new Managing Director has recently been appointed to focus this division onthe areas of the Consultancy market that benefit from high quality on-shorecapability such as Business Intelligence and Test Planning and Management.During the year, Catalist accreditation was achieved in four categories whichshould provide opportunities for this division in the Public Sector. In 2006,the division had over 50 material active customers with the top five customersaccounting for 38% of the total revenue. Consultancy services accounted for 76%of the revenue from continuing operations with the balance of 24% being derivedfrom applications management services. • Billing & Database Management Derived from the original bill printing business of Microgen, this managedservices business, with strong recurring revenues, maintains a good reputationand customer base in multi-channel billing and hosted document management. TheBoard anticipated the decline in print several years ago and reduced capacityaccordingly, while investing in e-billing and related value-added services.Whilst the adoption of e-billing has been slower than the market originallypredicted, this service has experienced a significant increase in adoptionduring 2006, with over 13% of all bill output being distributed electronicallyin January 2007, compared to just 2% two years ago. Revenue in 2006 was £5.6 million producing operating margin of 25% (2005: £6.6million with operating margin of 31%). The decline in revenue is broadly in linewith that experienced in prior years, although the division reported an increasein revenue and output volumes in the second half of the year. The division hadover 50 material active customers in 2006, with the top five customersaccounting for 46% of total revenue. Product Development The Group's product development activities are managed as a single function inorder to maximise efficiency and the benefits of scale. During the past year,the development operations have been consolidated into three centres in Fleet,Hampshire; the Channel Islands and Wroclaw, Poland. All development costsincurred in the year have been expensed. The investment in the Microgen Aptitude product, together with related solutionsand applications, has continued throughout the year. An independent review ofthe product was performed by the Butler Group, which confirmed the leading-edgetransactional performance, user interface and positioning of the product withinthe competitive landscape. This report is available for download from theMicrogen web site at www.microgen.co.uk. Operations Summary The restructuring of the Group into the constituent businesses has broughtgreater focus onto the strategic drivers in each business. The Group has astrong product and service offering, combining industry expertise with technicalcapability. The benefits of scale have been sustained through the use of sharedservices centres for support functions and development operations. Microgen hasproven the success of this business model, delivering consistently strongoperating profitability and cash flow. David SherriffChief Operating Officer MICROGEN PLC GROUP INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2006 Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended 31 Dec 2006 31 Dec 2006 31 Dec 2006 31 Dec 2005 31 Dec 2005 31 Dec 2005 Notes Before goodwill Goodwill and and intangibles intangibles Before impairment/ impairment/ intangibles Intangibles amortisation amortisation amortisation amortisation and and and and exceptional exceptional exceptional exceptional items items Total items items Total £000 £000 £000 £000 £000 £000 Revenue 1 37,632 - 37,632 40,782 - 40,782Operating costs 1 (31,874) (14,758) (46,632) (33,766) (1,862) (35,628)Operating (loss)/profit 5,758 (14,758) (9,000) 7,016 (1,862) 5,154 Finance income 579 - 579 535 - 535Finance cost (426) - (426) (159) - (159) 153 - 153 376 - 376(Loss)/profit on ordinaryactivities before tax 5,911 (14,758) (8,847) 7,392 (1,862) 5,530 Taxation 3 (1,684) (1,299)(Loss)/profit for the yearattributable to equityshareholders (10,531) 4,231 (Loss)/earnings per shareBasic 4 (10.3p) 4.2pDiluted 4 (10.3p) 4.1p Adjusted earnings per share(before goodwill andintangibles impairment/amortisation, exceptionalitems and with effectivetax rate)Basic 4 4.1p 5.4pDiluted 4 4.0p 5.3p Dividend per share pence £000 pence £000Interim - paid 0.5p 513 0.0p -Final - proposed 1.0p 1,027 0.0p - MICROGEN PLC STATEMENT OF RECOGNISED INCOME AND EXPENSE Year ended Year ended 31 Dec 2006 31 Dec 2005 £000 £000Cash flow hedges:- net fair value gains net of tax 82 69- reclassified and reported in net profit 4 (1)Deferred tax on share options (43) 87Exchange differences on translation of foreign operations (117) 84Net (expense)/income recognised directly in equity (74) 239(Loss)/profit for the year (10,531) 4,231Total recognised income and expense for the year attributable to equity shareholders (10,605) 4,470 MICROGEN PLC GROUP BALANCE SHEET As at As at 31 Dec 2005 31 Dec 2006 as restated Notes £000 £000ASSETSNon-current assetsGoodwill 46,980 61,442Intangible assets 1,021 1,410Property, plant and equipment 9,104 9,340Deferred tax asset 2,103 2,572 59,208 74,764Current assetsInventories - raw materials 73 75Trade and other receivables 5 7,801 8,534Financial assets - derivative financial instruments 151 112Cash and cash equivalents 15,297 11,804 23,322 20,525LIABILITIESCurrent liabilitiesFinancial liabilities- borrowings (667) -- derivative financial instruments - (43)Trade and other payables 6 (14,445) (16,015)Current tax liabilities (1,476) (1,367)Provisions 7 (503) (565) (17,091) (17,990) Net current assets 6,231 2,535 Non-current liabilitiesFinancial liabilities - borrowings (5,333) (6,000)Provisions 7 (525) (910) (5,858) (6,910) NET ASSETS 59,581 70,389 SHAREHOLDERS' EQUITYOrdinary shares 8 5,132 5,120Share premium account 9 11,214 11,167Other reserves 9 37,462 37,376Retained earnings 9 5,773 16,726 EQUITY SHAREHOLDERS' FUNDS 59,581 70,389 MICROGEN PLC GROUP CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2006 Year ended Year ended 31 Dec 2006 31 Dec 2005 Notes £000 £000Cash flows from operating activitiesCash generated from operations 10 5,631 4,656Interest received 606 551Interest paid (352) (43)Tax paid (1,143) (302) Net cash generated from operating activities 4,742 4,862 Cash flows from investing activitiesAcquisition of subsidiaries (including debt acquired) - (7,353)Proceeds from sale of property, plant and equipment - 1Purchase of property, plant and equipment (552) (6,441)Adjustment to purchase consideration - 60 Net cash used in investing activities (552) (13,733) Cash flows from financing activitiesNet proceeds from issue of ordinary share capital 59 28Dividends paid (513) -Net proceeds from borrowings - 6,000 Net cash (used in)/generated from financing activities (454) 6,028 Net increase/(decrease) in cash and cash equivalents 3,736 (2,843) Opening cash and cash equivalents 11,804 14,600 Effects of exchange rate changes (243) 47 Closing cash and cash equivalents 15,297 11,804 Notes to the Audited preliminary results for the year ended 31 December 2006 1. Segmental analysis Business segments The segmental information below reflects the divisional operatingstructure of the Group, which is the primary segmentation of the operatingperformance reviewed by the Board. In line with the strategic review and theannouncement made on 25 October 2006 the Group is now structured in fiveoperating divisions; Asset & Wealth Management, Banking, Energy, Consultancy &Applications Management and Billing & Database Management. The principalactivity of the Group is the provision of IT services and solutions, includingsoftware based activity, managed services and general consultancy. Softwarebased activity includes revenue generated from software licences, maintenance,support, funded development and related consultancy. The divisions and business categories are allocated central functioncosts in arriving at operating profit/(loss). Group overhead costs are notallocated into the divisions or business categories as the Board believes thatthese relates to Group activities as opposed to the division or businesscategory. (a) Revenue and operating profit by division Year ended 31 December 2006 Asset & Energy Consultancy & Billing & Wealth Applications Database Management Banking Management Management Group TotalRevenue £000 £000 £000 £000 £000 £000 £000 Software based 10,897 8,594 1,802 - - - 21,293Managed services - - - 3,732 5,605 - 9,337General consultancy - - - 7,002 - - 7,002Total revenue 10,897 8,594 1,802 10,734 5,605 - 37,632 Development costs (3,166) (2,367) (571) - (51) - (6,155)Other operating costs (5,286) (4,769) (878) (8,304) (4,166) - (23,403)Operating costs before Groupoverheads (8,452) (7,136) (1,449) (8,304) (4,217) - (29,558)Operating profitbefore Groupoverheads 2,445 1,458 353 2,430 1,388 - 8,074Unallocated Groupoverheads (2,316) (2,316) Operating profitbefore goodwilland intangiblesimpairment/amortisation andexceptional items 5,758 Goodwill andIntangiblesimpairment - - - (14,000) - - (14,000)Intangiblesamortisation (261) (44) - (19) - - (324)Exceptionalincome/(costs)- Property provision - - - - - 112 112- Goodwill adjustment - - - - - (546) (546) (261) (44) - (14,019) - (434) (14,758) Operatingprofit/(loss) 2,184 1,414 353 (11,589) 1,388 (2,750) (9,000)Net finance income 153Loss before tax (8,847)Taxation (1,684)Loss for the year (10,531) Year ended 31 December 2005 Asset & Consultancy & Billing & Wealth Applications Database Management Banking Energy Management Management Group TotalRevenue £000 £000 £000 £000 £000 £000 £000 Software based 5,667 13,081 2,086 - - - 20,834Managed services - - - 3,775 6,563 - 10,338General consultancy - - - 9,610 - - 9,610Total revenue 5,667 13,081 2,086 13,385 6,563 - 40,782 Development costs (2,032) (3,068) (922) - (142) - (6,164)Other operating costs (3,460) (6,413) (785) (10,303) (4,406) - (25,367)Operating costsbefore Groupoverheads (5,492) (9,481) (1,707) (10,303) (4,548) - (31,531)Operating profitbefore Groupoverheads 175 3,600 379 3,082 2,015 - 9,251Unallocated Groupoverheads (2,235) (2,235)Operating profitbefore intangiblesamortisation andexceptional items 7,016Intangiblesamortisation (123) (44) - (9) - - (176)Exceptionalincome/(costs)- Property provision 82 25 (232) (26) - 93 (58)- Restructuring costs (1,071) 7 (4) (101) (60) (99) (1,328)- Goodwill adjustment - - - - - (300) (300) (1,112) (12) (236) (136) (60) (306) (1,862)Operatingprofit/(loss) (937) 3,588 143 2,946 1,955 (2,541) 5,154 Net finance income 376Profit before tax 5,530Taxation (1,299)Profit for the year 4,231 1(b) Geographical analysis The Group's operations are located in two main geographical areas. The UK is thehome country of the Company. The following table provides an analysis of the Group's sales by origin and bydestination. Sales revenue by origin Sales revenue by destination Year ended Year ended Year ended Year ended 31 Dec 2006 31 Dec 2005 31 Dec 2006 31 Dec 2005 £000 £000 £000 £000 United Kingdom and Ireland 34,956 37,719 29,812 34,320 Rest of World 2,676 3,063 7,820 6,462 37,632 40,782 37,632 40,782 2. Cessation of business activity The Board has determined that the Group's SAP support operations aresub-scale and the investment required to achieve the necessary scale would beunlikely to deliver a satisfactory return for shareholders. Therefore, theBoard determined to exit this activity which is anticipated to be completedduring 2007. The divisional results for 2005 and 2006 without the SAP business wouldhave been as follows: 31 Dec 2006 31 Dec 2005 £000 £000RevenueConsultancy & Applications Management 10,734 13,385Less: SAP (1,288) (996)Consultancy & Applications Management excluding SAP 9,446 12,389 Operating profit before Group overheadConsultancy & Applications Management 2,430 3,082Less: SAP (186) (15)Consultancy & Applications Management excluding SAP 2,244 3,067 3. Taxation Year ended Year ended 31 Dec 2006 31 Dec 2005Analysis of charge in the year £000 £000Current tax:- current year charge (1,404) (1,369)- prior year credit 102 156 (1,302) (1,213)Deferred tax:- current year (charge)/credit (354) 178- prior year charge (28) (264) (382) (86) Taxation (1,684) (1,299) The total tax charge of £1,684,000 (2005: £1,299,000) represents (19.0%) (2005:23.5%) of the Group's loss before tax of £8,847,000 (2005: profit of£5,530,000). The total charge in the year is increased due to expenses notdeductible for tax purposes including goodwill and intangibles impairment/amortisation, and goodwill adjustment making up a large proportion of thisfigure. After adjusting for the impact of goodwill and intangibles impairment/amortisation, goodwill adjustment, exceptional items and prior year tax chargesthe tax charge for the year of £1,684,000 represents 29.7% (2005: 26.5%), whichis the tax rate used for calculating the adjusted earnings per share. As at 31 December 2006 Microgen had a deferred tax asset of £2,103,000 (20005:£2,572,000) relating to trading losses, timing differences relating toaccounting provisions and capital allowances. In addition, at 31 December 2006the Group had tax trading losses of £18,684,000 (2005: £19,315,000) upon which adeferred tax asset amounting to £5,605,000 (2005: £5,795,000) was notrecognised. The difference between the total tax current tax charge and the amountcalculated by applying the United Kingdom corporation tax rate of 30% to theprofit on ordinary activities before tax is as follows: Year ended Year ended 31 Dec 2006 31 Dec 2005 £000 £000(Loss)/profit on ordinary activities before tax (8,847) 5,530 Tax at the UK corporation tax rate of 30% (2005: 30%) 2,654 (1,659) Effects of:Adjustment to tax in respect of prior period 74 (108)Adjustment in respect of foreign tax rates 13 (6)Expenses not deductible for tax purposes- Goodwill and intangibles impairment (4,200) -- Other (376) (337)Movement in unrecognised deferred taxation 151 811Goodwill adjustment - -Total taxation (1,684) (1,299) 4. Earnings per share To provide an indication of the underlying performance per share the adjustedprofit after tax figure shown below excludes goodwill and intangibles impairment/amortisation, exceptional items and prior year tax charges and credits. Year ended Year ended 31 Dec 2006 31 Dec 2005 £000 £000Profit on ordinary activities before tax, goodwill andintangibles impairment/amortisation and exceptional items 5,911 7,392Tax charge at a rate of 29.7% (2005: 26.5%) (1,755) (1,960)Adjusted profit on ordinary activities after tax 4,156 5,432 Exceptional items net of tax (534) (970)Prior years' tax charge 74 (108)Amortisation of intangibles net of tax (227) (123)Goodwill and intangibles impairment (14,000) -(Loss)/profit on ordinary activities after tax (10,531) 4,231 The after tax impact of the adjustment to goodwill is £nil as the £546,000income statement charge for the reduction in goodwill is offset under IFRS by a£546,000 credit for deferred tax. 2006 2006 2006 Earnings Basic Diluted EPS EPS £000 Pence PenceLoss on ordinary activities after tax (10,531) (10.3) (10.3) Amortisation of intangibles net of tax 227 0.2 0.2Exceptional charge net of tax 534 0.6 0.6Prior years' tax charge (74) (0.1) (0.1)Goodwill and intangibles impairment net of tax 14,000 13.7 13.7Impact of dilutive securities - - (0.1)Adjusted profit on ordinary activities after tax 4,156 4.1 4.0 Adjusted earnings per share are calculated using adjusted profit after tax.Basic earnings per share is based on the weighted average number of shares inissue during the year of 102,107,722 (2005: 101,350,132). Diluted earnings pershare calculations are based on 103,021,920 (2005: 102,401,208) ordinary sharescalculated as the basic weighted average number of ordinary shares plus 914,198(2005: 1,051,076) dilutive share options. 5. Trade and other receivables 31 Dec 2006 31 Dec 2005 £000 £000Trade receivables 7,112 8,079Less: provision for impairment of receivables (366) (596)Trade receivables - net 6,746 7,483Other receivables 249 227Prepayments and accrued income 806 824 7,801 8,534 6. Trade and other payables - current 31 Dec 2006 31 Dec 2005 £000 £000Trade payables 484 604Other tax and social security payable 1,378 1,486Other payables 510 311Accruals 3,347 4,631Deferred income 8,726 8,983 14,445 16,015 7. Provisions Vacant properties 31 Dec 2006 31 Dec 2005 £000 £000GroupAt 1 January 1,475 2,444Credited to profit and loss account (361) (387)Charged to profit and loss account 249 445Utilised in the year (406) (1,120)Unwinding of discount 71 93At 31 December 1,028 1,475 Provisions have been analysed between current and non-current as follows: Vacant properties 31 Dec 2006 31 Dec 2005 £000 £000Current 503 565Non-current 525 910 1,028 1,475 8. Share Capital The movement in authorised and issued Ordinary Share Capital of 5 penceeach during the period is detailed below. Authorised Issued and fully paid Number Amount Number Amount £000 £000At 1 January 2006 145,000,000 7,250 102,407,409 5,120Issued under share option schemes - - 244,367 12 At 31 December 2006 145,000,000 7,250 102,651,776 5,132 9. Movement on reserves Share Premium Other Retained Account Reserves Earnings £'000 £'000 £'000 At 1 January 2006 11,167 37,376 16,726 Loss for the year - - (10,531)Share options - value of employee service - - 251Deferred tax on share options - - (43)Exchange rate adjustments - - (117)Dividends - - (513)Cash flow hedges- transfers to net income - 4 -- net fair value gains in the period - 82 -Premium on shares issued under share option schemes 47 - - At 31 December 2006 11,214 37,462 5,773 10. Notes to the Group Cash Flow Statement (i) Reconciliation of (loss)/profit forthe year to net cash inflow from operating activities Year ended Year ended 31 Dec 2006 31 Dec 2005 £000 £000(Loss)/profit for the year (10,531) 4,231 Adjustments for:Taxation 1,684 1,299Depreciation 777 813Loss on disposal of property, plant and equipment 11 195Amortisation of intangible assets 324 176Goodwill and intangible impairment 14,000 -Share-based payment expense 251 198Change in value of goodwill 546 300Interest income (579) (535)Interest expense 426 159 Changes in working capital:Decrease in inventories 2 58Decrease in receivables 655 1,157Decrease in payables (1,559) (2,332)Decrease in provisions (376) (1,063) Cash generated from operations 5,631 4,656 (ii) Reconciliation of Net Funds 31 Dec 2006 31 Dec 2005 £000 £000Cash and cash equivalents 15,297 11,804Borrowings (6,000) (6,000)Net Funds 9,297 5,804 11. Statement by the directors The preliminary results for the year ended 31 December 2006 and the results forthe year ended 31 December 2005 are prepared under International FinancialReporting Standards as adopted for use in the EU ("IFRS"). The accountingpolicies adopted in this preliminary announcement are consistent with the AnnualReport for the year ended 31 December 2005. The financial information set out in this preliminary announcement does notconstitute the Company's statutory accounts for the years ended 31 December 2006or 31 December 2005. The financial information for the year ended 31 December2005 is derived from the Annual Report delivered to the Registrar of Companies.The auditors reported on those accounts; their report was unqualified and didnot contain a statement under either section 237(2) or section 237(3) of theCompanies Act 1985. The Board of Microgen approved the release of this preliminary announcement on28 February 2007. The Annual Report for the year ended 31 December 2006 will be posted toshareholders in due course and will be delivered to the Registrar of Companiesfollowing the Annual General Meeting of the Company. The report will also beavailable on the investor relations page of our web site (www.microgen.co.uk).Further copies will be available on request and free of charge from the CompanySecretary at Fleet House, 3 Fleetwood Park, Barley Way, Fleet, Hampshire, GU512QJ. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Aptitude