25th Jul 2006 07:01
Microgen PLC25 July 2006 microgen Information Management Solutions www.microgen.co.uk 25 July 2006 MICROGEN plc ("Microgen") INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2006 Microgen plc, the Information Management Solutions company reports results forthe six months ended 30 June 2006 in line with the Board's declared operatingmargin target and consistent with the investment to drive the organic growthstrategy. Highlights • Operating margin before intangible amortisation and exceptional items of 15.1% in line with 15% declared target range. • Reinstatement of dividend payments for the first time since 2000 with an interim dividend of 0.5 pence per share (2005: Nil). • Adjusted eps (excl. intangible amortisation, exceptional items) of 2.1p (2005: 2.6p). Basic eps of 2.0p (2005: 2.6p). • In line with the defined investment programme and market expectations, operating profit before intangible amortisation and exceptional items of £3.0 million (2005: £3.3 million). Profit before tax of £2.9 million (2005: £3.6 million). • Positive operating cash flow of £1.8 million (2005: £2.5 million) producing cash of £12.8 million and net funds at 30 June 2006 of £6.8 million. • Investment in development and support of software products increased by 21%. All costs expensed. • New name customers include Gasunie, Euler Hermes a subsidiary of AGF and a member of Allianz, Clydesdale Bank International, Guernsey Branch, a branch of Clydesdale Bank PLC and a member of National Australia Bank Group, Close Brothers, Saltus and Guardian Asset Management. • Awarded framework agreement enabling the Group to provide services under the Catalist ICT Consultancy catalogue. Commenting on the results, David Sherriff, Chief Executive Officer of Microgenplc, said: "The evolution of Microgen's strategy, to an organic rather than acquisitionfocus, will take time to be fully reflected in the financial performance butsignificant progress has been made in the period and the early signs areencouraging. Looking forward, the Board considers that the investments insoftware development and sales & marketing, position the Group well in itstarget markets." Contacts:David Sherriff, Chief Executive Officer 01252-772315Mike Phillips, Group Finance Director Giles Sanderson, Financial Dynamics 020-7831-3113Haya Chelhot microgen Information Management Solutions www.microgen.co.uk 25 July 2006 MICROGEN plc ("Microgen") Interim Results for the Six Months ended 30 June 2006 Chief Executive Officer's Statement At the beginning of April 2006, Microgen announced that in future its strategicfocus would be on the organic development of the Group and in achieving the fullpotential of the new products being launched this year. As a result, and giventhe Group's strong profitability and operating cash flow, the Board isrecommencing dividend payments for the first time since 2000. The results announced today reflect this period of strategic transition andprovide some early indications of success in deploying Microgen Aptitude basedsolutions. The operating margin before intangible amortisation and exceptionalitems at 15.1% is in line with the guidance of 15% given at the time of thePreliminary Results for 2005 and is towards the upper end of the range for ourpeer group in the IT industry. Group Financial Performance In the six months ended 30 June 2006, Microgen generated operating profit beforeintangible amortisation and exceptional items of £3.0 million (2005: £3.3million) from revenue of £19.6 million (2005: £21.2 million). Operating marginbefore intangible amortisation and exceptional items at 15.1% was in line withthe Group's defined target of around 15%, a slight reduction on 2005 (15.6%),consistent with the investment in the organic strategy. Operating profit for the period was £2.8 million (2005: £3.2 million). Profitbefore tax in the period was £2.9 million (2005: £3.6 million). Adjustedearnings per share were 2.1p (2005: 2.6p) with a basic earnings per share of2.0p (2005: 2.6p). Headcount at 30 June 2006 was 409, of which approximately 7%were associates, contractors or temporary staff (2005: 431, of which 10% wereassociates, contractors or temporary staff). During the period, the Group produced positive operating cash flow of £1.8million (2005: £2.5 million) and continues to have a strong balance sheet withcash of £12.8 million (2005: £17.1 million prior to three acquisitions andpurchase of freehold property) and net funds of £6.8 million at 30 June 2006 . Consistent with the organic strategy and the strong operating cash flow,Microgen is recommencing dividend payments to shareholders this year for thefirst time since 2000. An interim dividend of 0.5 pence per share (2005: nil)will be paid on 4 September 2006 to shareholders on the register as at 4 August2006. Operational Overview Microgen's strategy is now focused on driving the organic development of theGroup and achieving the full potential from the investments made over the pastfew years and in the new products being launched in 2006. The Group hascompleted the final integration of the three acquisitions made during the secondhalf of 2005 and is focusing the company on growth through the sale of productsand services to the enlarged customer base. Good progress has been made inthese areas and we expect to see the benefits flow through into 2007 and 2008. Microgen continues to invest significantly in its software products, withdevelopment and support expenditure increasing by 21%, compared to the firsthalf of 2005. In the period to 30 June 2006, development activities totalled£3.6 million (2005: £3.0 million), comprising investment in new product/solutiondevelopment, customer-funded developments and the support of existing products.The Group's development strategy is based around Microgen Aptitude which formsthe core architecture for the development of the Group's application softwareproducts, the development of sector and client business solutions and as aProject and Enterprise Application Platform Suite (APS). All of the Group'ssoftware development activities are managed as a single organisation and haverecently been consolidated into two main locations; Fleet in Hampshire andWroclaw in Poland in a further move to make the Development operation asefficient and cost effective as possible. This has resulted in the announcementof the closure of product development activities in both South Africa andBelfast. Both the Financial Services Division and Commercial Division are focused onidentifying opportunities to position Microgen Aptitude as the technology ofchoice either as an APS (on an Enterprise or Project basis) or as thedevelopment platform for a specific business solution incorporating both theproduct and Microgen's business and technical consultancy resources. The Grouphas invested in an active campaign of marketing into its target market sectors,demonstrating a strong presence at exhibitions and conferences as well asstrengthening our telemarketing, pre-sales and sales capability. This investmentwill continue during the rest of the year to position the Group to realise itsorganic growth strategy. Financial Services: The Financial Services Division contributed 64% of Grouprevenue (2005: 63 %), delivering solutions for Wholesale Banking, DerivativesTrading, Payment Solutions and Asset & Wealth Management. Revenue in the perioddecreased to £12.5 million (2005: £13.3 million), primarily due to thecompletion of the BACS-IP upgrade cycle which peaked in the first half of 2005together with the completion in May 2005 of two large contracts for the OSTBusiness Rules product, the forerunner of Microgen Aptitude. However, operatingmargins before group costs increased to 21.5% (2005: 20.7%) resulting inoperating income of £2.7 million (2005: £2.8 million). The Asset & Wealth Management business unit has enjoyed a strong first halfperformance with new business wins at Clydesdale Bank International, GuernseyBranch, a branch of Clydesdale Bank PLC and a member of National Australia BankGroup , Guardian Asset Management, Saltus and Close Brothers through sales of4Series and Microgen Aptitude along with the associated IPR related consultancy.Whilst the contracts were signed in the first half of the year, most of therevenue derived from these contracts will be recognised in future periods. Inaddition, the first release of Socrates+ was also launched and is undergoingextensive testing within the business ahead of a planned migration programme ofthe current user base starting in Q4 2006. The Banking business unit continues to strengthen its presence in the sectorwith a set of vertical product and solution offerings. The business has achieveda number of significant new business wins, including those of Microgen Aptitudeto Euler Hermes, subsidiary of AGF and a member of Allianz, which is the firstphase of a wider roll out programme, and ABN AMRO and Triland, currently usersof Cortex, who have committed to the roll out of Cortex+, Microgen's nextgeneration of core banking product for the metals trading sector, which is basedon Microgen Aptitude. The business has invested significantly in marketingactivity, especially in the area of telemarketing and attendance at industryseminars and exhibitions. As a result a strong prospect pipeline for its productbased solutions and services is developing. The Payments business has now beenfully integrated into the Banking business unit and as forecast has seen reducedactivity as the BACS IP replacement programme, which was at its peak in thefirst three months of 2005, was completed in April 2006. We expect this part ofthe business to now enter into a period of steady state performance although weare actively seeking to identify further opportunities for our Microgen Aptitudebased PCS. As part of the organic development of this Division Microgen will be opening anoffice in Sydney, Australia in order to strengthen the sales and managementpresence in the Asia Pacific region as the demand for proven technologycontinues to grow. This presence will take time to establish but it is expectedto increase growth in the region in 2007. Commercial: Revenue in the period was £7.1 million (2005: £7.9 million). GenericIT consultancy continued to come under pressure and, as a result, operatingmargins decreased to 20.3% (2005: 23.3%) producing operating income of £1.4million (2005: £1.8 million). Microgen continues to reduce its exposure tolower margin General IT consultancy as these services continue to commoditise.The strategy for this Division is to transition increasingly towards providingsolutions based on Microgen Aptitude enabling the business to deliver benefitsto target industry vertical sectors whilst continuing to deliver services thatsupport this strategy (eg Business Intelligence, Data Warehousing). The Commercial Division has achieved a number of successes in the first half,including the sale of a Microgen Aptitude based solution to Gasunie, a Dutchbased energy supplier. This contract continues to build on Microgen'sestablished presence in the European Energy sector. The multi-channel billingand analysis managed services provided within the Commercial Division benefitedfrom Virgin Mobile extending its contract with Microgen to provide a completebill fulfilment service. Other sectors that have been active include theLeisure Sector and Emergency Services although the revenue resulting from theNMIS programme declined in the first half as the programme came to completionand new business opportunities in this sector slowed as some programmes in theHome Office suffered delays. The Division also entered into the Government procurement catalogue process,Catalist, and Microgen announced in May that the Division had been selected infour of the procurement categories. This opportunity will allow Microgen tobuild on the experience and knowledge gained during the past three years andexpand its presence in both Central and Local Government. Prospects The Group's results reflect a continued focus on profitability, combined withprudent investment to accelerate organic revenue growth. The results are in linewith the defined target operating margin. The Group has invested significantlyin strengthening its sales & marketing activities and in broadening itsgeographic reach to take advantage of emerging market opportunities in theFinancial Services sector. These investments are expected to enable the Groupto realise its organic growth ambitions while maintaining strong profitability. In addition, investment has continued in enhancing existing products and in newproduct development, particularly those based on Microgen's core architecture:Microgen Aptitude. Success in the sale of the products is expected to bereflected in recurring revenue as the Group continues to follow through on anAnnual License model, whilst recognising the need for some of its clients tocapitalise their investment in new systems by taking a traditional InitialLicence Fee. In summary, the Board considers that the performance of the Group in the firsthalf is in line with the defined evolution of the strategy. Looking forward,the Board expects the investments in product/solution development and sales &marketing to position the Group well in its target markets. David SherriffChief Executive Officer Microgen plc GROUP INTERIM INCOME STATEMENTFor the six months ended 30 June 2006 Unaudited six months Unaudited six months Audited year ended 30 June 2006 ended 30 June 2005 ended 31 Dec 2005 Note Before Total Before Total Before Total in- in- in- in- in- in- tangible tangible tangible tangible tangible tangible amort- amort- amort- amort- amort- amort- isation isation isation isation isation isation and and and and and and except- except- except- except- except- except- ional ional ional ional ional ional items items items items items items £000 £000 £000 £000 £000 £000 £000 £000 £000 Revenue 1 19,608 - 19,608 21,227 - 21,227 40,782 - 40,782Operating costs (16,645) (162) (16,807) (17,924) (54) (17,978) (33,766) (1,862) (35,628) Operating profit 1 2,963 (162) 2,801 3,303 (54) 3,249 7,016 (1,862) 5,154Interest payable and similar charges (214) - (214) (50) - (50) (159) - (159)Interest receivable 270 - 270 362 - 362 535 - 535 Profit on ordinaryactivities before tax 3,019 (162) 2,857 3,615 (54) 3,561 7,392 (1,862) 5,530 Taxation 3 (863) (942) (1,299) Retained profittransferred toreserves 1,994 2,619 4,231 Earnings per share 4Basic 2.0p 2.6p 4.2pDiluted 1.9p 2.6p 4.1p Adjusted earnings per share 4Basic 2.1p 2.6p 5.4pDiluted 2.1p 2.6p 5.3p Proposed interimdividend per share 6 0.5p 0.0p 0.0p Microgen plcGROUP STATEMENT OF RECOGNISED INCOME AND EXPENSEFor the six months ended 30 June 2006 Unaudited Unaudited Audited six six year months months ended ended ended 30 June 30 June 31 Dec 2006 2005 2005 £000 £000 £000Cash flow hedges: - net fair value gains net of tax 65 - 69 - reclassified and reported in net profit (56) - (1)Exchange differences on translation of foreign operations (51) 69 84Net (expense)/income recognised directly in equity (42) 69 152 Profit for the period 1,994 2,619 4,231 Total recognised income and expense for the period 1,952 2,688 4,383 Microgen plcGROUP BALANCE SHEETAs at 30 June 2006 Unaudited Unaudited Audited Note as at as at as at 30 June 30 June 31 Dec 2006 2005 2005ASSETS £000 £000 £000Non-current assetsGoodwill 61,892 53,272 61,892Intangible assets 1,248 458 1,410Property, plant and equipment 9,303 3,544 9,340Deferred tax asset 1,941 1,642 2,122 74,384 58,916 74,764Current assetsInventories 88 126 75Trade and other receivables 7,346 6,829 8,534Financial assets - derivative financial instruments 80 - 112Cash and cash equivalents 12,787 17,101 11,804 20,301 24,056 20,525LIABILITIESCurrent liabilitiesFinancial liabilities - borrowings (333) - - - derivative financial instruments - - (43)Trade and other payables (13,297) (12,615) (16,015)Current tax liabilities (1,564) (814) (1,367)Provisions (467) (680) (565) (15,661) (14,109) (17,990) Net current assets 4,640 9,947 2,535 Non-current liabilitiesFinancial liabilities - borrowings (5,667) - (6,000)Provisions (808) (1,039) (910) (6,475) (1,039) (6,910) NET ASSETS 72,549 67,824 70,389 SHAREHOLDERS' EQUITYOrdinary shares 5,132 5,079 5,120Share premium account 11,213 11,143 11,167Other reserves 37,385 36,723 37,376Retained earnings 18,819 14,879 16,726 EQUITY SHAREHOLDERS' FUNDS 7 72,549 67,824 70,389 Microgen plcGROUP CASH FLOW STATEMENTFor the six months ended 30 June 2006 Unaudited Unaudited Audited six months six months year ended ended ended 30 June 30 June 31 Dec 2006 2005 2005 Note £000 £000 £000Cash flows from operating activitiesCash generated from operations 5 1,806 2,472 4,656Interest received 270 374 551Interest paid (178) (50) (43)Tax (paid)/received (482) 82 (302)Net cash from operating activities 1,416 2,878 4,862 Cash flows from investing activitiesAcquisition of subsidiaries (including debt acquired) - - (7,353)Proceeds from the sale of property, plant and equipment - - 1Purchase of property, plant and equipment (356) (355) (6,441)Adjustment to purchase consideration - - 60 Net cash used in investing activities (356) (355) (13,733) Cash flows from financing activitiesNet proceeds from issue of ordinary share capital 58 - 28Net proceeds from borrowings - - 6,000Net cash from financing activities 58 - 6,028 Net increase/(decrease) in cash and cash equivalents 1,118 2,523 (2,843)Opening cash and cash equivalents 11,804 14,600 14,600Effects of exchange rate changes (135) (22) 47 Closing cash and cash equivalents 12,787 17,101 11,804 Microgen plcNotes to interim financial information 1 Segmental Information The segmental information below reflects the divisional operating structure of the Group, which is the primary segmentation of the operating performance reviewed by the Board. Unaudited six months ended Unaudited six months ended Audited year ended 30 June 2006 30 June 2005 31 Dec 2005 Revenue Financial Commercial Total Financial Commercial Total Financial Commercial Total services services services £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Software based 10,048 968 11,016 10,173 1,204 11,377 19,549 2,089 21,638 Managed services 635 3,960 4,595 799 4,101 4,900 1,659 8,730 10,389 General consultancy 1,847 2,150 3,997 2,339 2,611 4,950 3,898 4,857 8,755 Total revenue 12,530 7,078 19,608 13,311 7,916 21,227 25,106 15,676 40,782 Development costs (3,179) (399) (3,578) (2,501) (464) (2,965) (5,162) (1,002) (6,164) Other operating costs (6,660) (5,242) (11,902) (8,049) (5,604) (13,653) (14,232) (11,135) (25,367) Total operating costs (9,839) (5,641) (15,480) (10,550) (6,068) (16,618) (19,394) (12,137) (31,531) Operating profit before group overheads 2,691 1,437 4,128 2,761 1,848 4,609 5,712 3,539 9,251 Group overheads (1,165) (1,306) (2,235) Operating profit before intangible amortisation and exceptional items 2,963 3,303 7,016 Divisional intangible amortisation and exceptional costs - Intangible amortisation (153) (9) (162) (54) - (54) (167) (9) (176) - Property provision - - - - - - 107 (258) (151) - Restructuring costs - - - - - - (1,124) (105) (1,229) Divisional operating profit 2,538 1,428 2,707 1,848 4,528 3,167 Group exceptional costs - Goodwill adjustment - - (300) - Property provision - - 93 - Restructuring costs - - (99) Total intangible amortisation and exceptional costs (162) (54) (1,862) Operating profit 2,801 3,249 5,154 Net finance income 56 312 376 Profit before tax 2,857 3,561 5,530 Taxation (863) (942) (1,299) Profit for the period 1,994 2,619 4,231 For the six months ended 30 June 2005, £770,000 has been reallocated fromSoftware based to General consultancy within Financial Services. 2. Basis of preparation This financial information comprises the group interim balance sheet as at 30June 2006 and 30 June 2005, related group interim statements of income, cashflows and recognised income and expense and related notes for the six monthsthen ended of Microgen plc (hereinafter referred to as 'financial information'). This financial information has been prepared in accordance with the ListingRules of the Financial Services Authority. In preparing this financialinformation management has used the principal accounting policies as set out inthe group's annual financial statements for the year ended 31 December 2005 onpages 27 to 33. The group has chosen not to adopt IAS 34, 'Interim financial statements', inpreparing its 2006 interim statements and, therefore, this interim financialinformation is not in compliance with IFRS. 3. Taxation The tax charge of £863,000 is at an effective tax rate of 30.2% (2005: 26.5%) ofthe profit before tax. 4. Earnings per share Unaudited six Unaudited six Audited year months ended months ended ended 31 Dec 30 June 2006 30 June 2005 2005 pence pence penceEarnings per shareBasic 2.0 2.6 4.2 Diluted 1.9 2.6 4.1 Adjusted earnings per shareBasic 2.1 2.6 5.4 Diluted 2.1 2.6 5.3 The earnings per share for June 2005 has been restated to be on a consistentbasis with other periods. As a result, the basic and diluted adjusted earningshave increased from 2.5p to 2.6p per share. To provide an indication of the underlying operating performance the adjustedearnings per share calculation above excludes intangible amortisation,exceptional items and has a tax charge based on the effective rate. Unaudited six Unaudited six Audited year months ended months ended ended 31 Dec 30 June 2006 30 June 2005 2005 pence pence pence Basic earnings per share 2.0 2.6 4.2Exceptional charge net of tax - - 1.0Prior years' tax charge - - 0.1Intangible amortisation net of tax 0.1 - 0.1 Adjusted earnings per share 2.1 2.6 5.4 5. Cash generated from operations Unaudited Unaudited six months six months Audited ended ended year ended 30 June 2006 30 June 31 Dec 2005 2005 £000 £000 £000 Profit for the period 1,994 2,619 4,231Adjusted for: Taxation 863 942 1,299Depreciation 405 488 813Loss on disposal of property, plant and equipment - 85 195Amortisation of intangibles 162 54 176Share-based payment expense 150 75 198Change in value of goodwill - - 300Interest income (270) (362) (535)Interest expense 214 50 159 Changes in working capital: (Increase)/decrease in inventories (13) (26) 58Decrease in receivables 1,187 1,281 1,157Decrease in payables (2,720) (2,009) (2,332)Decrease in provisions (166) (725) (1,063) Cash generated from operations 1,806 2,472 4,656 6. Equity dividends on ordinary shares Unaudited Unaudited six months six months Audited ended ended year ended 30 June 30 June 31 Dec 2006 2005 2005 £000 £000 £000 Proposed but not recognised as a liability:Interim dividend for the year ending 31 December 2006: 0.5 pence per share (2005: £nil) 513 - - The proposed interim dividend was approved by the Board on 24 July 2006 but wasnot included as a liability as at 30 June 2006, in accordance with IAS 10'Events after the Balance Sheet date'. This interim dividend will be payable on4 September 2006 to shareholders on the register at the close of business on 4August 2006. 7. Statement of changes in equity Share Share Retained Other Total capital premium earnings reserves £'000 £'000 £'000 £'000 £'000 At 1 January 2006 5,120 11,167 16,726 37,376 70,389Shares issued under share option schemes 12 46 - - 58Cash flow hedges - net fair value gains net of tax - - - 65 65- reclassified and reported in net profit - - - (56) (56)Exchange rate adjustments - - (51) - (51)Share options - value of employee service - - 150 - 150Retained profit for the period - - 1,994 - 1,994 At 30 June 2006 5,132 11,213 18,819 37,385 72,549 8. Statement by the directors The financial information in this interim statement has been prepared inaccordance with the accounting policies set out in the 31 December 2005 annualreport. The financial information does not constitute statutory accounts within themeaning of section 240 of the Companies Act 1985. This interim statement hasnot been audited by the company's Auditors. Statutory accounts for Microgen plcfor the year ended 2005, on which the Auditors gave an unqualified report, havebeen delivered to the Registrar of Companies. The directors of Microgen plcaccept responsibility for the information contained in this announcement. Tothe best of their knowledge and belief (having taken all reasonable care toensure that such is the case) the information contained in this announcement isin accordance with the facts and does not omit anything that is likely to affectthe import of such information. Copies of this statement are being posted to shareholders and will also beavailable on the investor relations page of our website (www.microgen.co.uk).Further copies are available from the Company Secretary at Fleet House, 3Fleetwood Park, Barley Way, Fleet GU51 2QJ. Independent review report to Microgen plc Introduction We have been instructed by the company to review the financial information forthe six months ended 30 June 2006 which comprises the group interim balancesheet as at 30 June 2006 and the related group interim statements of income,cash flows and recognised income and expense for the six months then ended andrelated notes. We have read the other information contained in the interimreport and considered whether it contains any apparent misstatements or materialinconsistencies with the financial information. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by the directors. The Listing Rulesof the London Stock Exchange require that the accounting policies andpresentation applied to the interim figures should be consistent with thoseapplied in preparing the preceding annual accounts except where any changes, andthe reasons for them, are disclosed. This interim report has been prepared in accordance with the basis set out inNote 2. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4issued by the Auditing Practices Board for use in the United Kingdom. A reviewconsists principally of making enquiries of group management and applyinganalytical procedures to the financial information and underlying financial dataand, based thereon, assessing whether the disclosed accounting policies havebeen applied. A review excludes audit procedures such as tests of controls andverification of assets, liabilities and transactions. It is substantially lessin scope than an audit and therefore provides a lower level of assurance.Accordingly we do not express an audit opinion on the financial information.This report, including the conclusion, has been prepared for and only for thecompany for the purpose of the Listing Rules of the Financial Services Authorityand for no other purpose. We do not, in producing this report, accept or assumeresponsibility for any other purpose or to any other person to whom this reportis shown or into whose hands it may come save where expressly agreed by ourprior consent in writing. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 June 2006. PricewaterhouseCoopers LLPChartered AccountantsLondon25 July 2006 Notes: (a) The maintenance and integrity of the Microgen plc web site is theresponsibility of the directors; the work carried out by the auditors does notinvolve consideration of these matters and, accordingly, the auditors accept noresponsibility for any changes that may have occurred to the interim reportsince it was initially presented on the web site. (b) Legislation in the United Kingdom governing the preparation anddissemination of financial information may differ from legislation in otherjurisdictions. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Aptitude