microgen
Information Management Solutions
www.microgen.co.uk
21 July 2003
MICROGEN plc ("Microgen")
Interim Results for the Six months ended
30 June 2003
Microgen plc, the Information Management Solutions company which provides
software, services and consultancy, announces earnings in line with
expectations.
HIGHLIGHTS
Profit before tax, goodwill amortisation and exceptional items of �1.1 million
(2002: �1.1million).
Positive operating cash flow of �0.8 million producing gross cash at 30 June
2003 of �9.5 million and net free cash of �8.4 million taking into
consideration all deferred cash payments and loan notes on acquisitions,
exceptional items and taxation.
Revenue �11.1 million (2002 : �12.3 million)
Microgen-Telesmart : Operating margin increased to 18% (2002 : 16%). Increased
revenue growth rate in managed services offset by continuing expected decline
in legacy print.
Microgen-Solutions : Operating margin maintained at a respectable 15% (2002 :
17%) despite the revenue decline due to the impact of the market conditions for
consultancy businesses.
Exceptional operating costs of �0.7 million arising from :
Successful migration of all core development operations to Microgen's Poland
development facility. Closure of UK development operation.
Consolidation of UK office facilities to reduce fixed cost base and improve
operational efficiency. (Negotiations of Finsbury Pavement lease well advanced.
If completed, release of �0.4 million from property provision anticipated.)
Adjusted eps (excl. goodwill amortisation, exceptional items and normalised
taxation) of 1.3p (2002: 1.3p). Net loss per share of 1.8p (2002 : loss per
share 0.7p)
Martyn Ratcliffe, Executive Chairman, commented: "Despite poor market
conditions the Microgen Group has again delivered a solid performance with
earnings in line with expectations. The Board's emphasis on managing the cost
base and leveraging infrastructure continues to deliver profitability and cash
flow, while the investment in R&D provides a strong base for the future."
Contacts :
Martyn Ratcliffe, Executive
Chairman
01753-847123
Mike Phillips, Group Finance Director
Giles Sanderson/Ben Way, Financial Dynamics
020-7831-3113
microgen
Information Management Solutions
www.microgen.co.uk
21 July 2003
MICROGEN plc ("Microgen")
Interim Results for the Six months ended
30 June 2003
Chairman's Statement
Despite the challenging market conditions, Microgen has again delivered a solid
performance, maintaining operating margins at 9% and positive operating cash
flow, before goodwill and exceptional items, in line with expectations. These
results reaffirm the Microgen Board's commitment to disciplined financial
management and to maximising scale benefits through consolidation of operations
in order to position the business for the current environment.
Group Financial Performance
In the six months ended 30 June 2003, Microgen generated profit before tax,
goodwill amortisation and exceptional items of �1.1 million (2002 : �1.1
million) from revenue of �11.1 million (2002 : �12.3 million). Adjusted
earnings per share was 1.3p (2002 : 1.3p) and a net loss per share of 1.8p
(2002: loss per share 0.7p).
During the period, the Group produced positive operating cash flow of �0.8
million and continues to have a strong balance sheet with gross cash of �9.5
million and net free cash of �8.4 million at 30 June 2003, after taking into
consideration all deferred cash payments and loan notes on acquisitions,
exceptional items and taxation. This close correlation of operating cash flow
and operating profit reflects the Board's consistent and conservative revenue
recognition policies. As previously announced, the Group does not pay a
dividend.
Microgen-Telesmart
Revenue in the division was �5.5 million (2002 : �5.5 million) producing
operating profit before Group overhead, goodwill amortisation and exceptional
items of �1.0 million (2002 : �0.9 million). The managed services revenue
growth rate has increased following the successful integration of Wishstream,
offset by the planned decline in revenue in the legacy print & mail services.
As a result of this ongoing transition, the divisional operating margin further
increased to 18% before Group overhead, goodwill amortisation and exceptional
items (2002 : 16%).
Microgen-Solutions
The difficult market conditions for IT consultancies which have prevailed for
the past two years have continued, with particular pressure on fee rates
affecting comparative prior-year performance. This resulted in a revenue
decline for the division in the period to �5.6 million (2002 : �6.8 million).
However, due to effective cost control and the benefits derived from
integrating the Kaisha and OST businesses, operating margins have been
maintained at a respectable 15% (2002 : 17%), producing an operating profit
before Group overhead, goodwill amortisation and exceptional items of �0.9
million (2002 : �1.2 million).
Group Organisation
Following the acquisition of OST in February 2002 and the establishment of
OST's Polish facility as the Group's primary development centre in August, all
UK core software development has now been migrated to Poland. The BACS-IP
development was the first project to be transferred and a completely new
product set is now well advanced, with the first products being delivered on
time, to budget and of a high quality standard. Based on this development
success, the Group's Wellingborough development facility has now been closed
and all work transferred to the Polish operation.
In addition, since being formed in 1992, the Kaisha consultancy and
applications management business, acquired by Microgen in 1999, has been based
in Swindon. The lease on this facility expires in March 2004 and the Board
therefore undertook a review of office space requirements. The outcome of this
review was that there were significant benefits to be realised, both in terms
of cost and scaling of operations, by co-locating the applications management
business at the Group's data and operations centre in Welwyn Garden City with
the administrative functions being absorbed within the Windsor organisation.
This transition is now well advanced and should be completed by September.
These actions have resulted in a headcount reduction of 16% to 242 (31 December
2002 : 289), consolidation of facilities and exceptional charges being incurred
in the 6 months to 30 June 2003 of �0.7 million. With regard to the property
at Finsbury Pavement, which was acquired with the OST acquisition and vacated
at the end of last year, negotiations are currently well advanced to dispose of
this lease and, if successful, should result in a release from the property
provision of �0.4 million.
Prospects
The Group's results demonstrate the Board's continued emphasis on profitability
and cash flow. The Board does not anticipate that there will be any significant
improvement in the market conditions in the near term and therefore the actions
taken to reduce the fixed overhead cost structure and to maximise the scale
benefits from the Group's operations, position the business appropriately for
the current environment.
Notwithstanding the emphasis on cost management and cash flow, the Group
continues to invest in new product development. The Group's development
facility in Poland has proven to be both highly capable and cost effective.
The Board continues to explore strategic opportunities for the further
development of Microgen, including mergers and acquisitions, that will enhance
and/or strengthen the Group's offerings and improve shareholder value.
In summary, the Board is pleased with the solid performance of the Group in the
first half of the year and with the positioning of the business for the future.
Martyn Ratcliffe
Executive Chairman
Notes to Editors:
About Microgen:
Microgen plc(London Stock Exchange: MCGN) provides software, consultancy and
managed services enabling businesses to collate, process and distribute
corporate data to enhance their business processes and information output.
There are two operating divisions:
Microgen-Telesmart
Microgen-Telesmart delivers value-added transactional services including
billing, payment and hosted document and database applications to provide a
comprehensive range of managed services for B2B e-business process integration.
The division is also one of the leading providers of BACS software solutions
and offers consultancy services and solution delivery on all aspects of payment
processing.
Microgen Solutions
Microgen Solutions provides enterprise information integration solutions,
software, consultancy and applications management to enhance business
performance within major organisations. The division has significant presence
in the financial services sector enabling the application of user-defined
business rules to integrate front, middle and back office systems.
MICROGEN PLC
Group Profit and Loss Account
for the Six Months ended 30 June 2003
As restated
Unaudited six Unaudited six Audited
months ended months ended Year ended
Notes 30 June 2003 30 June 2002 31 Dec 2002
�'000 �'000 �'000
Turnover
- Continuing
operations 1 (a) 11,058 12,271 25,332
Operating costs
- Continuing
operations (11,161) (12,260) (26,011)
- Exceptional Items (718) - (1,495)
Operating costs (11,879) (12,260) (27,506)
Operating (loss)/
profit
Operating profit
before goodwill
amortisation and
exceptional items
- Continuing
operations 1 (b) 968 1,054 2,032
Goodwill amortisation 1 (b) (1,071) (1,043) (2,711)
Exceptional items 1 (b) (718) - (1,495)
Operating (loss)/
profit after goodwill
amortisation and
exceptional items (821) 11 (2,174)
Operating (loss)/
profit (821) 11 (2,174)
Net interest 104 92 210
(Loss)/Profit on
ordinary activities
before tax
Profit on ordinary
activities before tax,
goodwill amortisation
and exceptional items 1,072 1,146 2,242
Goodwill amortisation (1,071) (1,043) (2,711)
Exceptional items (718) - (1,495)
(Loss)/Profit on
ordinary activities
after goodwill
amortisation and
exceptional items and
before tax (717) 103 (1,964)
(Loss)/Profit on
ordinary activities
before tax (717) 103 (1,964
Tax on (loss)/profit
on ordinary activities 2 (337) (506) (616)
Retained loss
transferred to
reserves (1,054) (403) (2,580)
Earnings per share 3
Basic (1.8)p (0.7)p (4.2)p
Diluted (1.8)p (0.7)p (4.2)p
Adjusted earnings per
share (before goodwill
amortisation,
exceptional items and
with normalised tax
charge) 3
Basic 1.3p 1.3p 2.6p
Diluted 1.3p 1.3p 2.6p
Dividend per share NIL Nil Nil
MICROGEN PLC
Group Balance Sheet
As restated
Unaudited Unaudited Audited
as at as at as at
30 June
2003 30 June 2002 31 Dec 2002
�'000 �'000 �'000
Fixed assets
- Intangible 36,034 43,965 37,149
- Tangible 1,332 1,520 1,349
- Investments 283 283 282
37,649 45,768 38,780
Current assets
- Stock - raw materials and
consumables 127 115 86
- Debtors 5,284 7,208 6,439
- Cash at bank and in hand 9,512 14,274 9,848
14,923 21,597 16,373
Creditors: due within one year (7,354) (17,634) (8,115)
Net current assets 7,569 3,963 8,258
Total assets less current liabilities 45,218 49,731 47,038
Creditors: due after more than one
year - (709) (650)
Provisions for liabilities and
charges (2,512) (1,178 (2,628)
Net assets 42,706 47,844 43,760
Equity capital and reserves
- Called up share capital 2,920 3,232 2,920
- Share premium account 29,011 28,976 29,011
- Other reserves 616 300 616
- Profit and loss account 10,159 15,336 11,213
Equity shareholders' funds 42,706 47,844 43,760
MICROGEN PLC
Group Cash Flow Summary
for the Six Months Ended 30 June 2003
Unaudited Unaudited
six months six months Audited
Year
ended ended ended
31 Dec
30 June 2003 30 June 2002 2002
Notes �'000 �'000 �'000
Net cash inflow from operating
activities 4(i) 787 1,298 2,640
Returns on investments and servicing
of finance 130 116 156
Taxation (7) (248) (475)
Capital expenditure and financial
investment (341) (175) (366)
Acquisitions and disposals (3) (3,625) (3,886)
____ _____ _____
Cash inflow/(outflow) before
financing 566 (2,634) (1,931)
Financing 4(ii) (902) 3,740 (1,389)
___ ___ _____
4
(Decrease)/Increase in cash (iii) (336) 1,106 (3,320)
Notes to the interim results for the six months ended 30 June 2003
1 Turnover and operating (loss)/profit
Unaudited Unaudited
six six
months months Audited
Year
ended ended ended
30 June 30 June 31 Dec
2003 2002 2002
�000 �000 �000
1 (a) Turnover
Continuing operations
- Microgen-Telesmart 5,484 5,497 10,902
- Microgen-Solutions 5,574 6,774 14,430
11,058 12,271 25,332
1 (b) Operating profit
Continuing operations
- Microgen-Telesmart 988 887 1,427
- Microgen-Solutions 858 1,163 2,698
1,846 2,050 4,125
- Group overhead (916) (1,093) (2,195)
930 957 1,930
Non-exceptional movement on property provision 38 97 102
Operating profit before goodwill amortisation and
exceptional items 968 1,054 2,032
Goodwill amortisation
- Microgen-Telesmart (75) (83) (848)
- Microgen-Solutions (996) (960 (1,863)
(1,071) (1,043) (2,711)
Exceptional items
Exceptional costs - property provision (246) - (1,471)
Exceptional costs - restructuring costs (472) - (24)
(718) - (1,495)
Operating (loss)/profit after goodwill amortisation
and exceptional items (821) 11 (2,174)
2 Taxation
The tax charge for the period includes �283,000 related to prior years' tax
(2002: �167,000). The remaining tax charge of �54,000 (2002: �339,000) is at
an effective tax rate of 15.2% (2002:29.6%) of the profit before tax and
goodwill amortisation. This lower rate is achieved primarily due to
utilisation of tax losses.
3 Earnings per share
To provide an indication of the underlying operating performance per share the
adjusted profit after tax figure used in the calculation of the adjusted
earnings per share excludes goodwill amortisation, exceptional items and has a
normalised tax charge.
Adjusted and basic earnings per share are based on the share capital of
58,280,260 shares (2002: 60,515,936) being the weighted average number of
shares in issue during the period. Diluted earnings per share are based on
share capital of 58,585,240 (2002: 60,515,936). The Company's authorised share
capital at 1 January and 30 June 2003 was 90,000,000 ordinary shares of 5 pence
each with a nominal value of �4,500,000. At 1 January and 30 June 2003 the
issued, allotted and fully paid share capital was 58,409,085 ordinary shares.
4 Notes to the group cash flow statement
(i) Reconciliation of operating (loss)/profit to net cash inflow from
operating activities:
Unaudited Unaudited Audited
six months six months Year
ended ended ended
31 Dec
30 June 2003 30 June 2002 2002
�'000 �'000 �'000
Operating (loss)/profit (821) 11 (2,174)
Depreciation 357 360 775
(Profit)/Loss on disposal of tangible
fixed assets (7) 13 25
Goodwill amortisation 1,071 1,043 2,711
Exceptional item - property provision
charges 246 - 1,471
Exceptional item - other - - 24
(Increase)/Decrease in stocks (41) (24) 5
Decrease in debtors 1,062 798 1,300
Decrease in creditors (1,080) (903) (1,497)
Net cash inflow from operating activities 787 1,298 2,640
(ii) Analysis of movement in financing
Unaudited Unaudited Audited
six
six months months Year
ended ended ended
30 30 June 31 Dec
June 2003 2002 2002
�'000 �'000 �'000
Issue of ordinary shares - 4,165 4,165
Payment of deferred consideration (250) - -
Purchase of own shares held in Microgen Employee
Share Participation Scheme Trust - (200) (200)
Purchase of own shares - - (1,960)
Repayment of loan notes (652) (225) (3,394)
Net cash (outflow)/inflow from financing (902) 3,740 (1,389)
(iii) Reconciliation of net cash flow to movement in net funds:
Unaudited Unaudited Audited
six months six months
ended ended Year ended
31 Dec
30 June 2003 30 June 2002 2002
�'000 �'000 �'000
(Decrease)/Increase in cash in the
period (336) 1,106 (3,320)
Redemption of loan notes 652 225 3,394
Issue of loan notes - (4,471) (4,471)
Movement of net funds in the period 316 (3,140) (4,397)
Net funds at beginning of period 8,546 12,943 12,943
Net funds at end of period 8,862 9,803 8,546
(iv) Analysis of net funds
1 Jan 2003 Cash Flow Reallocation 30 June 2003
�000 �000 �000 �000
Cash at bank and in hand 9,848 (336) - 9,512
Debt due within 1 year (652) 652 (650) (650)
Debt due after 1 year (650) - 650 -
Total 8,546 316 - 8,862
The net free cash figure of �8.4 million referred to in the Chairman's
Statement is arrived at after deducting creditors related to exceptional
charges of �0.1 million and net tax payable of �0.4 million from the net funds
of �8.9 million.
5. Statement by the directors
The financial information in this interim statement has been prepared on the
basis of the accounting policies set out in the statutory accounts of Microgen
plc for the year ended 31 December 2002. Consequently, the comparative figures
for the six months ended 30 June 2002 have been restated to reflect the
adoption in those statutory accounts of FRS 19 - Deferred Tax.
The financial information does not constitute statutory accounts within the
meaning of section 240 of the Companies Act 1985. This interim statement has
neither been audited nor reviewed by the Company's Auditors. Statutory
accounts for Microgen plc for the year ended 31 December 2002, on which the
auditors gave an unqualified report, have been delivered to the Registrar of
Companies.
Copies of this statement will be posted to shareholders and will also available
on the investor relations page of our web site (www.microgen.co.uk). Further
copies are available on request and free of charge from the Company Secretary
at 11 Park Street, Windsor, Berkshire SL4 1LU.
END