microgen 11 February 2003
Information Management Solutions
www.microgen.co.uk
Microgen plc
Preliminary Audited Results
for the Year ended 31 December 2002
Highlights
Microgen plc, the IT services group which provides software, managed services
and consultancy, announces preliminary audited results for the year ended 31
December 2002 in line with expectations.
Strong operating performance in difficult market conditions. All operating
divisions profitable. Results in line with expectations
Operating profit before tax, goodwill amortisation and exceptional items
increased by 83% to �2.0 million (2001 : �1.1 million)
Operating margin increased to 8.0% (2001 : 5.3%)
Revenue of �25.3 million (2001 : �21.0 million)
Fully diluted adjusted earnings per share increased by 13.0% to 2.6p (2001 :
2.3p). Net loss per share of 4.2p including �1.5 million exceptional charge as
a result of acquisition integrations, primarily excess property provision.
(2001 : eps of 1.5p restated for FRS19).
Gross cash at 31 December 2002 of �9.8m and net free cash of �8.3 million. Net
cash inflow from operations of �2.6 million in the period.
Microgen-Kaisha : Operating margin maintained at 25% despite difficult market
environment for IT consultancy. Revenue of �6.6 million and operating profit of
�1.6 million.
Microgen-OST : Formed following the acquisition of OST Business Rules in
February. Integration successful. Revenue for the 10 months was �7.8 million
producing operating profit of �1.1 million.
Microgen-Telesmart : Significant improvement in operating margin to 13.1%,
producing operating profit growth of 39% to �1.4 million on revenue of �10.9
million.
Acquisition of Wishstream, reaffirming Microgen's leading position in e-billing
managed service provision in the UK. Successfully integrated.
Revenues from managed e-services and payment solutions now exceed legacy print
services as e-Services revenue growth rate increased to 34%.
Group Development : Benefits of cost-effective operations in Poland, from the
OST acquisition, being realised. Investment in R&D increased by 92%. New
products to be launched in all divisions in H1 2003.
Martyn Ratcliffe, Executive Chairman commented: "Despite the difficult market
conditions, Microgen's disciplined management approach has again produced
strong results. The acquisitions completed during the year have been
successfully integrated into the Group, delivering increased operating margin
and growth in revenue, operating profit and adjusted earnings per share."
Contact :
Martyn Ratcliffe, Executive Chairman 01753-847123
Mike Phillips, Group Finance Director
Giles Sanderson, Financial Dynamics 020-7831-3113
Ben Way, Financial Dynamics
A results presentation will be available from www.microgen.co.uk.
Chairman's Statement
Despite the challenging market environment, the Board of Microgen reports a
strong performance for the year ended 31 December 2002, in terms of both
operating results and the strategic development of the Group. The three
operating divisions are all profitable and the two acquisitions made during the
year have been successfully integrated, with the objectives behind each
acquisition being realised.
The Group continues to focus on information management solutions which enable
customers to manage their data to enhance business processes and information.
These solutions are delivered through managed services, software products and
consultancy.
FINANCIAL SUMMARY
For the year ended 31 December 2002, Microgen increased operating profit before
tax, exceptional items and goodwill amortisation by 83% to �2.0 million on
revenue of �25.3 million (2001: �1.1 million on revenue of �21.0 million).
Operating costs have been well managed during the year, reducing by �3.5
million on continuing activities compared with 2001. Together with the
acquisition integration strategy, this cost management has delivered a
significant improvement in operating margin to 8.0% (2001: 5.3%), while
increasing investment in new products and services.
Profit before tax, exceptional items and goodwill amortisation increased by 33%
to �2.2 million (2001 : �1.7 million). Adjusted earnings per share, (to reflect
the underlying operating performance; see note 3) was 2.6p, a 13.0% increase on
prior year (2001: 2.3p). As a result of the integration of the acquisitions, a
one-time exceptional charge of �1.5 million has been taken, primarily due to an
excess property provision. Therefore the Group produced a net loss on ordinary
activities after tax and goodwill amortisation of �2.6 million (2001 : net
profit of �0.7 million, restated following adoption of FRS19) and a fully
diluted loss per share of 4.2p (2001 : eps of 1.5p, restated following
adoption of FRS19)
As a result of the acquisitions, headcount, including external contractors,
peaked in March at 342, but was reduced to 289 at 31 December 2002 (31 December
2001 : 234).
The Group produced a positive operating cash flow of �2.6 million and has
maintained a strong balance sheet. Following the two acquisitions and a share
buy-back of 9.8% of the issued share capital, the Group had a gross cash
balance of �9.8 million with net free cash of �8.3 million at 31 December 2002.
(The difference in gross cash and net free cash takes account of loan notes and
deferred consideration resulting from acquisitions, and net corporation tax
payable. All deferred considerations have now been finalised.) After careful
consideration, the Board has concluded not to recommend a dividend (2001 : nil)
but believe that investment in the strategic development of the Group and/or
buy-back of shares is more appropriate in the current market.
In accordance with FRS11, the Board has conducted a review of the goodwill held
on the balance sheet. While market sentiment may infer an impairment of
goodwill, the accounting treatment accepts the results of a discounted cash
flow model and, on this basis, the Board have determined that there is
currently no justification to take a charge for impairment of goodwill on the
acquisitions of Kaisha Technology (1999), Telesmart Developments (2000) or OST
Business Rules (2002). With regard to the goodwill associated with the
acquisition of Wishstream in September 2002, the Board have decided to write
the goodwill off in the first year of acquisition.
MICROGEN-TELESMART
Microgen-Telesmart provides added-value transactional services in billing,
payment and hosted database and document management, where Microgen adds value
by processing, distributing, storing and analysing data for a wide variety of
applications, including the Group's market-leading business-to-business ("B2B")
e-billing service. This position in the e-billing market was further reinforced
in September through the acquisition of Wishstream Limited.
The division is also one of the leading providers of payment software and
solutions. The next generation of BACS software is currently being developed in
the Group's development facility in Poland and Microgen has been participating
in a deployment programme of the new BACS IP technology with a leading UK bank.
For the year ended 31 December 2002, revenue from the division was �10.9
million, producing an operating profit of �1.4 million before Group overhead
(2001: revenue of �12.2 million produced an operating profit of �1.0 million).
The revenue decline in the legacy print business continued as anticipated while
the annual revenue growth rate in managed e-services (database management,
payment and billing) increased to 34% (2001 : 24%), such that during the second
half of the year, the legacy print business was less than half of the total
divisional revenue for the first time. This transition also produced the
increase in operating margin to 13.1% (2001 : 8.4%), despite a significant
increase in investment in product/service development.
MICROGEN-KAISHA
Microgen-Kaisha is the Group's consultancy division applying data warehousing
and application integration techniques to transform data into information. By
combining these skills with the provision of managed services and software
available through the Group's other businesses, Microgen-Kaisha has developed a
number of new business streams, including :
Application Management : Providing greater forward visibility, this business
area accounted for over 20% of the division's revenue in the second half of
2002 and benefits from the managed services infrastructure and expertise of the
Microgen-Telesmart business.
Payment Solutions : Using the technology and expertise from the
Microgen-Telesmart payments business, large payment solutions have been
deployed as a combination of software product and consultancy.
Enterprise Information Integration : Developed from the Microgen-OST
technology, but targeted at the commercial sector, this new product will be
launched in the first half of 2003. This development continues to differentiate
Microgen-Kaisha by combining the application of Group IPR using the skill base
of application integration and data transformation.
Considering the deterioration in the IT consultancy market, Microgen-Kaisha
produced a laudable performance, achieving the strategic objective of
maintaining profitability at 25% (2001: 25%). For the year ended 31 December
2002, revenue for the division was �6.6 million, producing an operating profit
of �1.6 million before Group overhead and goodwill amortisation (2001 : revenue
of �8.8 million, operating profit of �2.2 million). The legacy support services
now account for less than 10% of the division's revenue.
MICROGEN-OST
Microgen-OST was established following the acquisition of OST Business Rules
Ltd in February 2002. The division provides business rules based application
integration solutions, using OST-developed software, incorporating user-defined
business rules to integrate the front, middle and back office systems of major
financial institutions. In addition the cross-selling of Microgen-Kaisha
consultancy services into the financial services sector made progress in the
second half of the year, enabling Microgen-OST to offer a broader range of
services to their customer base.
During the year, the division was affected by the slow down in the financial
services sector, with project deferrals and pressure on consultancy fee rates.
Action to realign the cost base has been taken during the second half of the
year, including a property provision associated with the relocation of the
London offices, in order to position the business more appropriately for 2003.
Despite these difficult market conditions, the division produced a creditable
performance. For the period from completion of the acquisition to 31 December
2002, revenue of �7.8 million produced an operating profit before Group
overhead, exceptional items and goodwill amortisation of �1.1 million, an
operating margin of 14%.
GROUP DEVELOPMENT CAPABILITY
One of the assets acquired with OST was a high quality, cost-effective software
product development operation based in Wroclaw, Poland. In order to realise the
benefits of scale and establish consistency of process, a Group Development
operation was established in Q3 such that all development programs are managed
by a Group Development Director responsible for the two facilities in Poland
and UK. The Poland development centre is focused on software product
development while the UK development operation primarily supports the
Microgen-Telesmart services business.
A number of development programs have been transferred to Poland and new
products for all three divisions are scheduled for launch in the first half of
2003. These include :
The next generation BACS IP payment products, currently being implemented in
the deployment programme.
Two new reconciliation products, based on the same OST-based technology, but
with one solution for commercial applications, compatible with the Payment
Solutions business (Microgen-Telesmart & Microgen-Kaisha) and a high end
product designed for the financial services industry (Microgen-OST).
A new Enterprise Information Integration ("EII") product for Microgen-Kaisha.
Using the core technology of OST Business Rules, the EII product has been
designed for commercial system integration applications.
These new products will support Microgen's position at the forefront of
Information Management technology.
Development staff now account for approximately 20% of the headcount of the
Group and consequently the Group's research and development expenditure
increased significantly in 2002 to �2.5 million (2001 : �1.3 million). In
accordance with the Group's accounting policy, all research and development
expenditure is charged to the profit and loss account as incurred.
SHARE BUY-BACK
During the second half of the year, 6,320,000 shares equivalent to 9.8% of the
issued share capital of the Group were purchased for cancellation for a total
consideration of �1.96 million. At the forthcoming Annual General Meeting, the
Board shall propose to continue this program and will be seeking authorisation
to purchase 14.99% of the outstanding issued share capital of the Group.
However, it should not be assumed that the Board will exercise any or all of
the authorisation which will be a considered decision determined by the Board
at the appropriate time, taking into account the strategic objectives of the
Group, enhancement of earnings per share and the best interests' of
shareholders.
FUTURE PROSPECTS
While the Group has experienced the impact of the slowdown in the IT sector,
the Board's strong financial management continues to prove effective in
maintaining both profitability and positive operating cash flow. Furthermore,
during 2002, Microgen completed two acquisitions, OST Business Rules Ltd and
Wishstream Ltd and the strategic benefits anticipated at the time of each
acquisition are being achieved, with both of these businesses now successfully
integrated into the Group. This strategy of active integration of acquisitions
to realise the operational and cost benefits of scale and thereby deliver
increased profitability has proven successful. As the business models of
Microgen-OST and Microgen-Kaisha converge with consultants from both divisions
being deployed on projects in the Financial Services sector and the OST
Business Rules technology being repackaged for the Commercial sector, the Board
has now decided to merge these two business units into a single operating
division.
In planning for 2003, the Board has done so on the assumption that market
conditions will not improve in the near term. However the actions taken in
integrating the acquisitions, together with the disciplined management approach
adopted by the Board, have positioned the Group appropriately for the year
ahead. Furthermore, the Board continues to believe that the IT sector is likely
to consolidate and will continue to explore strategic opportunities for the
further development of Microgen.
In summary, despite the deterioration in market conditions, Microgen has
delivered improved operating margin on increased revenue, producing growth in
operating income and adjusted (operational) earnings per share, together with
strong positive cash flow. The Board is pleased with this performance and with
the organic and strategic development of the Group during the past year.
Martyn Ratcliffe
Executive Chairman
MICROGEN PLC
Group Profit and Loss Account
for the year ended 31 December 2002
Audited Year Audited
ended Year ended
31 Dec 2002 31 Dec 2001
As restated
Notes �'000 �'000
Turnover
Continuing operations 1(a) 17,394 21,009
Acquisitions 1(a) 7,938 -
25,332 21,009
Operating costs
Continuing operations 1(b) (17,771) (21,329)
Acquisitions 1(b) (8,240) -
Exceptional items 1(b) (1,495)
-
(27,506) (21,329)
Operating (loss)/profit
Operating profit before goodwill amortisation and
exceptional items
Continuing operations 1(c) 1,024 1,112
Acquisitions 1(c) 1,008 -
Operating profit before goodwill amortisation and 2,032 1,112
exceptional items
Goodwill amortisation 1(b) (2,711) (1,432)
Exceptional items 1(b) (1,495) -
Operating loss after goodwill amortisation and (2,174) (320)
exceptional items
Operating loss 1(d) (2,174) (320)
Net finance income 210 571
(Loss)/Profit on ordinary activities before tax
Profit on ordinary activities before tax, goodwill 1(c) 2,242 1,683
amortisation and exceptional items
Goodwill amortisation (2,711) (1,432)
Exceptional items (1,495) -
(Loss)/Profit on ordinary activities after goodwill (1,964) 251
amortisation and exceptional items and before tax
(Loss)/profit on ordinary activities before tax 1(d) (1,964) 251
Tax on (loss)/profit on ordinary activities 2 (616) 490
(Loss)/Profit on ordinary activities after taxation (2,580) 741
and transferred to reserves
Earnings per share 3
Basic and diluted (4.2)p 1.5p
Adjusted earnings per share (before goodwill 3
amortisation and exceptional items and with
normalised tax charge)
Basic and diluted 2.6p 2.3p
Statement of total recognised gains and losses 2002 2001
�000 �000
(Loss)/Profit on ordinary activities after taxation (2,580) 741
Exchange rate adjustments 15 -
Total recognised (losses)/gains for the year (2,565) 741
Prior Year Adjustment 930
Total recognised (losses)/gains since last Annual (1,635)
Report
MICROGEN PLC
Group Balance Sheet
Audited Audited
31 Dec 2002 31 Dec 2001
As Restated
Notes �'000 �'000
Fixed assets
Intangible assets 37,149 24,599
Tangible assets 1,349 1,215
Investment in own shares 282 114
38,780 25,928
Current assets
Stocks - raw materials 86 91
Debtors 4 6,439 4,353
Cash at bank and in hand 9,848 13,168
16,373 17,612
Creditors: due within one year 5(a) (8,115) (6,074)
Net current assets 8,258 11,538
Total assets less current 47,038 37,466
liabilities
Creditors: due after more than one 5(b) (650) -
year
Provisions for liabilities and 6 (2,628) (1,273)
charges
Net assets 43,760 36,193
Equity capital and reserves
Called up share capital 7 2,920 2,561
Share premium account 8 29,011 17,594
Other reserves 8 616 300
Profit and loss account 8 11,213 15,738
Equity shareholders' funds 43,760 36,193
MICROGEN PLC
Group Cash Flow Statement
for the Year Ended 31 December 2002
Audited Audited
Year ended Year ended
31 Dec 2002 31 Dec 2001
As restated
Notes �'000 �'000
Net cash flow from operating activities 9(i) 2,640 2,997
Returns on investments and servicing of
finance
Interest received 404 702
Interest paid (248) (87)
Interest element of finance lease - (16)
payments
156 599
Taxation
Tax paid in respect of the current year (190) (313)
Tax paid relating to prior years (293) (360)
Tax refund 8 1,346
(475) 673
Capital expenditure and financial
investment
Purchase of tangible fixed assets (367) (559)
Sale of tangible fixed assets 1 9
(366) (550)
Acquisitions and disposals
Purchase of subsidiary undertakings 10 (4,108) -
Net cash acquired with subsidiary 122 -
undertakings
Adjustment to consideration on purchase 100 -
of subsidiary undertaking
(3,886) -
Equity dividends paid to shareholders - (512)
Cash (outflow)/ inflow before financing (1,931) 3,207
Financing
Issue of share capital 4,165 2
Buyback of share capital (1,960) -
Purchase of shares for Trust (200) -
Redemption of loan notes (3,394) (2,994)
Payment of deferred consideration - (350)
Capital element of finance lease rental - (568)
payments
(1,389) (3,910)
Decrease in cash in the period 9(ii) (3,320) (703)
Notes to the Preliminary Announcement of Audited results for the Year ended 31
December 2002
1. Turnover, profit and exceptional items
1(a) Turnover Continuing Acquisitions Audited Audited
operations �'000 Year Year Ended
Ended
�'000 31 Dec 2001
31 Dec
2002 �000
�000
Microgen-Telesmart 10,805 97 10,902 12,229
Microgen-Kaisha 6,589 - 6,589 8,780
Microgen-OST - 7,841 7,841 -
17,394 7,938 25,332 21,009
1( b) Operating costs Continuing Acquisitions Audited Audited
operations �'000 Year Year Ended
Ended
�'000 31 Dec 2001
31 Dec
2002 �000
�000
Divisional operating costs
Microgen-Telesmart (9,324) (151) (9,475) (11,204)
Microgen-Kaisha (4,953) - (4,953) (6,576)
Microgen-OST - (6,779) (6,779)
-
(14,277) (6,930) (21,207) (17,780)
Group costs (2,195) - (2,195) (2,198)
Movement in property provision 102 81
- 102
Operating costs before goodwill and (16,370) (6,930) (23,300) (19,897)
exceptional items
Goodwill amortisation
Microgen-Telesmart (158) (690) (848) (180)
Microgen-Kaisha (1,243) - (1,243) (1,252)
Microgen-OST - (620) (620) -
Goodwill amortisation (1,401) (1,310) (2,711) (1,432)
Operating costs before exceptional (17,771) (8,240) (26,011) (21,329)
items
Exceptional items
Property provision - (1,471) (1,471) -
Acquisition integration costs - (24) (24) -
Exceptional operating costs - (1,495) (1,495) -
Total operating costs (17,771) (9,735) (27,506) (21,329)
1 (c) Profit before tax, goodwill Continuing Acquisitions Audited Audited
amortisation and exceptional items
operations �'000 Year Year Ended
Ended
�'000 31 Dec 2001
31 Dec
2002 �000
�000
Operating profit before goodwill
amortisation and exceptional items
Microgen-Telesmart 1,481 (54) 1,427 1,025
Microgen-Kaisha 1,636 - 1,636 2,204
Microgen-OST - 1,062 1,062 -
Divisional operating profit before 3,117 1,008 4,125 3,229
Group costs
Group costs (2,195) - (2,195) (2,198)
Movement on property provision 102 - 81
102
Operating profit before goodwill 1,024 1,008 2,032 1,112
amortisation and exceptional items
Net finance income 210 - 210 571
Profit before tax, goodwill 1,234 1,008 2,242 1,683
amortisation and exceptional items
1 (d) (Loss)/Profit on ordinary Continuing Acquisitions Audited Audited
activities before tax
operations �'000 Year Year Ended
Ended
�'000 31 Dec 2001
31 Dec
2002 �000
�000
Operating profit before goodwill 1,024 1,008 2,032 1,112
amortisation and exceptional items
Goodwill amortisation (1,401) (1,310) (2,711) (1,432)
Exceptional items - (1,495) (1,495) -
Operating loss (377) (1,797) (2,174) (320)
Net finance income 210 - 210 571
(Loss)/Profit before tax (167) (1797) (1.964) 251
2. Taxation
The taxation charge for the year comprises:
Audited Audited
Year ended Year ended
31 Dec 31 Dec 2001
2002
As restated
Current Tax �'000 �'000
UK Corporation tax charge (692) (346)
Tax credit on exceptional items 449 -
Overseas Corporation Tax (36) -
Current Year taxation charge (279) (346)
UK Corporation tax prior year (charge)/credit (196) 1,544
Total Current taxation charge (475) 1,198
Deferred Taxation
Deferred Tax charge for the year (141) (708)
Total taxation on profit on ordinary activities (616) 490
Prior Year Adjustment
Microgen Plc has adopted FRS 19 deferred tax for the first time in 2002 which
has resulted in a deferred tax asset of �796,000 (2001as restated: �930,000)
due to timing differences relating to accounting provisions and capital
allowances. In addition the UK group had a potential deferred tax asset of �
420,000 (2001 as restated: �260,000) relating to taxable trading losses carried
forward which has not been recognised in the accounts.
Within the prior tax charge, �128,000 relates to additional UK tax payable in
respect of dividends received in 1997 from the Group's former German subsidiary
upon which agreement of the underlying tax rate was only reached in 2002.
The differences between the total current tax charge and the amount calculated
by applying the national rates of corporation tax (UK 30%, Poland 28% US 35%)
to the (loss)/profit on ordinary activities before tax is as follows:
Audited Audited
Year ended Year ended
31 Dec 31 Dec 2001
2002
As restated
�'000 �'000
(Loss)/Profit on ordinary activities before tax (1,964) 251
Corporation tax credit/(charge) at standard rate 589 (68)
of tax of 30% based on (loss)/profit on ordinary
activities before tax
Adjustment for the effects of:
Unrelieved trading losses (178) -
Goodwill amortisation not deductible for tax (813) (430)
purposes
Other expenses not deductible for tax purposes (73) (59)
Capital allowances in excess of depreciation 196 211
Current Year taxation charge (279) (346)
Uk Corporation tax prior year (charge)/credit (196) 1,544
Group current tax (charge)/credit for the period (475) 1,198
The current year taxation charge of �279,000 (2001: �346.000) represents an
effective rate of tax for the group on its profit on ordinary activities before
goodwill of 37.3% (2001: 20.6%).
3. Earnings and dividend per share
To provide an indication of the underlying operating performance per share the
adjusted profit after tax figure shown below excludes goodwill amortisation,
exceptional items, prior year tax charges and credits and the impact of
adopting FRS 19 Deferred Tax.
Year ended Year ended
31 Dec 31 Dec 2001
2002
�'000 �'000
Profit before tax, goodwill amortisation and 2,242 1,683
exceptional items
Normalised tax charge at 30% (673) (505)
Adjusted Profit on ordinary activities after tax 1,569 1,178
Adjustment to actual current year tax charge (55) 159
Goodwill amortisation (2,711) (1,432)
Exceptional items net of tax (1,046) -
Prior Year tax (charge)/credit (196) 1,544
Deferred tax charge (141) (708)
Profit on ordinary activities after tax (2,580) 741
Earnings Basic Diluted
EPS EPS
�'000 Pence Pence
Profit on ordinary activities after tax (2,580) (4.2)p (4.2)p
Normalisation of tax charge 55 0.1 0.1
Goodwill amortisation 2,711 4.5 4.5
Exceptional Item net of tax 1,046 1.7 1.7
Prior years' tax charge 196 0.3 0.3
Deferred Tax charge 141 0.2 0.2
Adjusted Profit on ordinary activities after 1,569 2.6p 2.6p
tax
Adjusted earnings per share are calculated using the adjusted profit after tax
and the weighted average number of shares in issue during the year of
61,308,631 (2001: 51,210,517). Diluted earnings per share calculations are
based on 61,308,631 (2001: 51,579,616) ordinary shares calculated as the basic
weighted average number of ordinary shares plus nil (2001: 731,099) dilutive
share options.
4. Debtors
Audited Audited
31 Dec 2002 31 Dec 2001
As restated
�'000 �'000
Trade debtors 4,467 2,449
Corporation tax recoverable 105 125
Other debtors 132 258
Prepayments and accrued income 939 591
Deferred tax asset 796 930
6,439 4,353
5. Creditors
Audited Audited
31 Dec 2002 31 Dec 2001
As restated
(a) due within one year �'000 �'000
Trade creditors 710 642
Other taxes and social security costs 834 854
Other creditors 392 274
Deferred consideration 250 150
Loan notes payable 652 225
Accruals and deferred income 5,277 3,929
8,115 6,074
(b) due after more than one year
Loan notes 650 -
6. Provisions for liabilities and charges
Provisions for liabilities in respect of surplus properties.
Audited Audited
31 Dec 2002 31 Dec 2001
As restated
�'000 �'000
Balance brought forward 1,273 1,708
Credited to the profit and loss account (131) (243)
Charged to profit and loss account 29 162
Exceptional charge to the Profit and 1,471 -
Loss account
Utilised in the year (54) (396)
Amortisation of discount 40 42
Balance carried forward 2,628 1,273
7. Share Capital
The movement in authorised and issued Ordinary Share Capital of 5 pence each
during the period is detailed below.
Authorised Issued and fully paid
Number Amount Number Amount
At 1 January 2002 70,000,000 � 51,214,953 �2,560,748
3,500,000
Increase in authorised share 20,000,000 �
capital on 26 February 2002 1,000,000
Movement in issued share
capital in the year:
Issued re Placing to raise 5,116,373 255,819
funds in respect of the
acquisition of OST Business
Rules Limited
To the vendors of OST Business 8,302,521 415,126
Rules Limited
Shares bought back during the (6,320,000) (316,000)
year
To the vendors of Wishstream 95,238 4,762
Limited
At 31 December 2002 90,000,000 � 58,409,085 2,920,455
4,500,000
8. Movement on reserves
Share --------Profit and Loss
Account--------
Premium Other Revenue Goodwill
Account reserves Reserve Reserve Total
�'000 �'000 �'000 �'000 �'000
At 1 January 2002 as 17,594 300 26,452 (11,644) 14,808
previously stated
Prior Year Adjustment - 930 930
(FRS 19 Deferred Tax - -
Asset)
At 1 January 2002 (as 17,594 300 27,382 (11,644) 15,738
restated)
Retained loss for the - - (2,580) - (2,580)
year
Exchange Rate - - 15 - 15
adjustments
Issue re Placing to 4,042 - - - -
raise funds in respect
of the acquisition of
OST Business Rules
Limited
Shares issued to the 7,472 - - - -
vendors of OST Business
Rules Limited
Shares issued to the 35 - - - -
vendors of Wishstream
Limited
Shares bought back - 316 (1,960) - (1,960)
during the year
Expenses relating to (132) - - - -
share placing
At 31 December 2002 29,011 616 22,857 (11,644) 11,213
9. Notes to the Group Cash Flow Statement
(i) Reconciliation of operating loss to net cash inflow from
operating activities
Audited Audited
year ended year ended
31 Dec 2002 31 Dec
2001
�'000 �'000
Operating loss (2,174) (320)
Depreciation 775 1,365
Goodwill amortisation 2,711 1,432
Exceptional Item- Property Provision 1,471 -
Exceptional Item - Other 24 -
Loss on sale of fixed assets 25 14
Other non-cash movements - 146
Decrease in stocks 5 31
Decrease in debtors 1,300 1,356
Decrease in creditors (1,497) (1,027)
Net cash inflow from operating 2,640 2,997
activities
9 (ii) Reconciliation of net cash flow to movement in funds/(debt)
Audited Audited
Year ended Year ended
31 Dec 2002 31 Dec 2001
�'000 �'000
Decrease in cash in the period (3,320) (703)
Cash outflow from decrease in lease - 568
financing
Change in net funds resulting from cash (3,320) (135)
flows
Issue of loan notes (4,471) -
Redemption of loan notes 3,394 2,994
Movement in net funds in the period (4,397) 2,859
Net funds at beginning of the period 12,943 10,084
Net funds at end of period 8,546 12,943
9 (iii) Analysis of net funds
At At
1 Jan 2002 Cash flow Acquisitions 31 Dec
2002
�'000 �'000 �'000 �'000
Cash at bank and in 13,168 (3,320) - 9,848
hand
Debt due within 1 (225) 225 (652) (652)
year
Debt due after 1 - (650) (650)
year -
Total 12,943 (3,095) (1,302) 8,546
The net free cash figure of �8.3 million referred to in the Chairman's
Statement is arrived at after deducting cash deferred consideration of �250,000
from the net funds figure shown above.
10. Acquisition of Subsidiaries
The group made two acquisitions during the year for a total consideration of �
16,861,000. The total adjustments required to the book values of the assets
and liabilities acquired in order to present the net assets of those companies
acquired in accordance with group accounting principles were �270,000 details
of which are set out below together with the resulting amount of goodwill
arising. Both of these purchases have been accounted for as acquisitions.
(a) Acquisition of OST
On 8 February 2002 the company announced the acquisition, subject to
shareholder approval, of the OST Group. Shareholders' approval was obtained at
the EGM on 26 February 2002 and the acquisition of the OST Group was formally
completed on 27 February 2002.
The key financial details in respect of the acquisition are
scheduled below.
Notes �000
Consideration and cost in respect
of the acquisition:
Cash 2,118
Loan Notes 4,471
Ordinary Shares 7,265
Initial consideration 13,854
Increase in fair value of consideration (i) 623
Deferred consideration 250
Fees and costs in respect of the 1,485
acquisition
16,212
Provisional Fair Value Provisional
net assets Adjustments Fair Values
acquired
�000 �000 �000
Fixed Assets 503 - 503
Debtors 4,132 (245) 3,887
Cash 145 - 145
Bank Loan (127) - (127)
Creditors (2,958) (25) (2,983)
Taxation (84) - (84)
Net Assets 1,611 (270) 1,341
Goodwill on acquisition 14,781
Total Consideration and 16,212
costs
(i) The increase in the fair value of consideration represents the
increase in value of the ordinary shares in Microgen plc between exchange of
contracts for the transaction and completion.
(ii) The provisional fair value adjustments relate to adjustments of
accounting policies to bring them in line with those of Microgen plc.
(b) Acquisition of Wishstream
On 9 September 2002 the company announced the acquisition of
Wishstream Limited. The acquisition was formally completed on 11 September
2002.
The key financial details in respect of the acquisition are
scheduled below.
Notes �000
Consideration and cost in respect of
the acquisition:
Cash 485
Ordinary Shares 40
Initial consideration 525
Deferred consideration 65
Fees and costs in respect of the 59
acquisition
649
Provisional Provisional
net Fair Value Fair
liabilities Adjustments Values
acquired
�000 �000 �000
Fixed Assets 64 - 64
Debtors 2 - 2
Cash 104 - 104
Creditors (211) - (211)
Net Liabilities (41) - (41)
Goodwill on acquisition 690
Total Consideration and 649
costs
From the dates of acquisition to 31st December 2002 the acquisitions have
contributed �7,938,000 to turnover and �1,008,000 to Operating Profit before
interest, goodwill amortisation and exceptional items.
11. Statement by the directors
The figures in the consolidated Profit and Loss Account and Balance Sheet do
not amount to full accounts within the meaning of Section 254 of the Companies
Act 1985.
The Annual Report for the period ended 31 December 2002 will be posted to
shareholders in due course and will also be available 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 Company Secretary at 11 Park Street,
Windsor, Berkshire SL4 1LU.
The comparative figures for 2001 have been extracted from the annual report for
the year ended 31 December 2001 and have been restated to reflect the change in
accounting policy arising from the adoption by the Group of FRS 19: Deferred
Tax.
END