Final Results
Microgen PLC
28 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
Contacts
Martyn Ratcliffe, Chairman 01252-772311
David Sherriff, Chief Operating Officer
Philip 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 year
ended 31 December 2006, maintaining strong operating profitability and cash flow
while continuing to invest in the development and marketing of its products and
services. At the start of the year, the Board defined the adjusted operating
margin target for the Group to be in the order of 15%, which is at the upper end
of companies in the IT sector; this key objective has been achieved.
2006 has been a year of consolidation with greater emphasis on the organic
development of the Group, to ensure that the foundations for future growth, both
organic and through acquisition, are in place. The priorities of the Board in
2007 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 investment
in recent years, is increasingly being recognised by both customers and
analysts. Independent analysts have affirmed that the transactional performance
and user interface of this exciting product are at the leading edge in the
Business Process Management market sector. New customer wins, upgrades from
OST-BR, and the developing pipeline of prospects, give the Board confidence that
the investment in Microgen Aptitude will deliver benefit to shareholders in the
medium term.
During the second half of the year, the Board undertook a strategic review and
the outcome of that review was reported in October 2006. This has provided
greater external visibility of the constituent businesses within the Group and
greater internal focus on the strategy for each individual business, as outlined
in the Divisional Review below. In particular, the Board has determined that the
Group's SAP support operations are sub-scale and the investment required to
achieve the necessary scale would be unlikely to deliver a satisfactory return
for 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 2006
Patrick Barbour retired from the Board after 28 years of service. Richard Holway
resigned as a non-executive director in September 2006, to be replaced by Peter
Bertram. In addition to his significant IT sector experience, Peter is a Fellow
of the Institute of Chartered Accountants in England and Wales and will be
appointed 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 leaves
the Board today. The Board would like to record their appreciation to Patrick,
Richard and Mike for their contribution to Microgen and to welcome Peter Bertram
and Philip Wood to the Group.
Overall, the Board considers that an adjusted operating margin from the Group's
continuing operations in the order of 15% remains an appropriate target,
positioning Microgen at the upper end of companies in the IT sector in terms of
profitability. This profitability and associated cash flow provide the resources
for investment to increase the organic growth rate from the Group's software
businesses. In addition, with consistent profitability, strong cash flow and
cash balance as at 31 December 2006 of £15.3 million (excluding the property
mortgages), the Board continues to explore strategic opportunities for the
further development of Microgen, including mergers and acquisitions, that could
enhance the Group's offerings and customer base. Reflecting the continued
confidence 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 Ratcliffe
Chairman
Group Financial Performance and Finance Director's Report
In the year ended 31 December 2006, Microgen generated adjusted operating profit
of £5.8 million (2005: £7.0 million) from revenue of £37.6 million (2005: £40.8
million). Adjusted operating margins remained strong at 15.3% (2005: 17.2%) in
line with the target defined by the Board. (Throughout this report adjusted
operating 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%). Group
overhead (including all share based payments) was £2.3 million (2005: £2.2
million), the increase being related to the share-based payments charge and
excess property space. Following the restructuring of the Group's businesses in
October, and in accordance with that announcement, the Board has undertaken a
review of goodwill and intangibles being carried on the balance sheet. As a
result of this review, an impairment charge of £14.0 million has been taken in
2006 (2005: nil) related to the consultancy business, including the closure of
the SAP activities. Including the goodwill and intangibles impairment/
amortisation, which are non-cash adjustments, and an exceptional profit
associated with the termination of leases, the Group reported a loss before tax
of £8.8 million (2005: profit before tax of £5.5 million) with a diluted loss
per share of 10.3p (2005: diluted earnings per share of 4.1p). Adjusted diluted
earnings per share was 4.0p (2005: 5.3p) after adjustments for the goodwill and
intangibles impairment/amortisation charges, exceptional items and applying the
effective tax rate.
The exceptional profit resulted from negotiating final settlements with a number
of landlords on property leases, significantly reducing the exposure to legacy
property matters. In aggregate, these settlements have been achieved at less
than the accrued provisions and together with a review of the remaining vacant
and 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 software
businesses (2005: 52%) and adjusted operating profit before Group overhead for
the period was £7.9 million (2005: £9.2 million). Recurring revenues (comprising
software maintenance/support, annual licence fees, applications management and
managed services) also contributed 59% of 2006 continuing revenues (2005: 49%).
In accordance with IFRS, the Board has determined that all development costs
incurred in the year are expensed. This is consistent with the Group's
conservative accounting policies. Total expenditure on product development,
including customer-funded activities and support was £6.2 million (2005: £6.2
million).
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 December
2006 (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 from
the impact of non-deductible expenses for tax purposes being outweighed by the
Group's conservative recognition of deferred tax assets.
Philip Wood
Group Finance Director
Divisional Review and Chief Operating Officer's Report
Microgen is now organised into five operating businesses, with the benefits of
scale being achieved through shared central services which are charged into each
business. All development is managed through a single organisation whose costs
are fully charged into the business units and all costs are expensed within the
year. The divisional operating profit and margin figures referenced below are
reported 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's
software contributed 59% of the Group's continuing revenues (2005: 52%) and
revenue of a recurring nature contributed 59% (2005: 49%) of the Group's
continuing revenues. The Board continues to promote software license sales on
multi-year annual licence contracts, with a conservative revenue recognition
policy, although some customers do demand traditional perpetual software
licensing models.
The Group has maintained its disciplined approach to its cost base, while
selectively investing in those areas which the Board anticipates will deliver
the best return for shareholders. Headcount at 31 December 2006 was 369 (31
December 2005: 460), including contractors and associates.
• Asset & Wealth Management
Established through the consolidation of three acquisitions, the Asset & Wealth
Management division has had an excellent year, delivering good organic growth
from 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 banking
systems into the wealth management sector. In addition, the division has a
significant presence within the asset management sector, both in back office
systems and in performance measurement. The division had approximately 80
material active customers during 2006 with the top five customers accounting for
26% of the total revenue of the division. Recurring revenue accounted for 69% of
the total. While the Board anticipates some decline in support contracts during
2007, it is expected that this should be offset by growth generated by the newer
products during the course of the year.
• Banking
While prior year comparisons are materially affected by the BACS-IP industry
changes in 2005 and the end-of-life of OST-BR, the treasury and commodities
trading products experienced good organic growth in 2006. While these changes
had both a revenue and margin impact in 2006, the operating margins of the
division remained strong at 17% on revenue of £8.6 million (2005: 28% on revenue
of £13.1 million). The Banking division had approximately 50 material active
customers during 2006 with the top five customers accounting for 38% of the
revenue. In addition, there were approximately 1,000 users of the division's
payments software at 31 December 2006. Recurring revenue accounted for 63% of
the 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 and
achieved both new name business successes for Microgen Aptitude and upgrades
from existing OST-BR accounts. A number of the projects undertaken in 2006 by
this division have led to the development of additional Microgen Aptitude-based
solutions which are being actively marketed into this sector. With a
strengthened sales and marketing team together with the increased marketing
investment, the pipeline is encouraging for the year ahead.
• Energy
The installed base and expertise in the Energy sector has provided a platform
for the development and implementation of Microgen Aptitude-based applications
with a number of successfully delivered projects. Revenue was £1.8 million in
2006 and the operating margin was 20% (2005 revenue of £2.1 million and
operating margin of 18%).
The decline in revenue was primarily due to an extended negotiation with a
long-term customer to revise terms of business for support and development
enhancements 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 of
which are substantial utilities, such deferrals can have a material impact on
this business. However, the division has established excellent reference sites
for Microgen Aptitude-based solutions associated with pricing and margin
management, working both directly and with key partners.
• Consultancy & Applications Management
The UK consultancy market continued to commoditise during 2006 with increased
price competition arising from off-shore suppliers. However the Board has
maintained its focus on profitability, allowing revenue to decline rather than
pursue unprofitable business. The strategic review highlighted the lack of scale
in the SAP support business and the investment required to make this business
successful. As a result, the Board has determined to exit the SAP operations
which is anticipated to be completed during 2007. For the continuing operations,
strong operating margins of 24% were achieved in 2006, on revenue of £9.4
million (2005: £12.4 million and operating margin of 25%).
A new Managing Director has recently been appointed to focus this division on
the areas of the Consultancy market that benefit from high quality on-shore
capability such as Business Intelligence and Test Planning and Management.
During the year, Catalist accreditation was achieved in four categories which
should provide opportunities for this division in the Public Sector. In 2006,
the division had over 50 material active customers with the top five customers
accounting for 38% of the total revenue. Consultancy services accounted for 76%
of the revenue from continuing operations with the balance of 24% being derived
from applications management services.
• Billing & Database Management
Derived from the original bill printing business of Microgen, this managed
services business, with strong recurring revenues, maintains a good reputation
and customer base in multi-channel billing and hosted document management. The
Board anticipated the decline in print several years ago and reduced capacity
accordingly, while investing in e-billing and related value-added services.
Whilst the adoption of e-billing has been slower than the market originally
predicted, this service has experienced a significant increase in adoption
during 2006, with over 13% of all bill output being distributed electronically
in January 2007, compared to just 2% two years ago.
Revenue in 2006 was £5.6 million producing operating margin of 25% (2005: £6.6
million with operating margin of 31%). The decline in revenue is broadly in line
with that experienced in prior years, although the division reported an increase
in revenue and output volumes in the second half of the year. The division had
over 50 material active customers in 2006, with the top five customers
accounting for 46% of total revenue.
Product Development
The Group's product development activities are managed as a single function in
order 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 costs
incurred in the year have been expensed.
The investment in the Microgen Aptitude product, together with related solutions
and applications, has continued throughout the year. An independent review of
the product was performed by the Butler Group, which confirmed the leading-edge
transactional performance, user interface and positioning of the product within
the competitive landscape. This report is available for download from the
Microgen web site at www.microgen.co.uk.
Operations Summary
The restructuring of the Group into the constituent businesses has brought
greater focus onto the strategic drivers in each business. The Group has a
strong product and service offering, combining industry expertise with technical
capability. The benefits of scale have been sustained through the use of shared
services centres for support functions and development operations. Microgen has
proven the success of this business model, delivering consistently strong
operating profitability and cash flow.
David Sherriff
Chief 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 - 40,782
Operating 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 - 535
Finance cost (426) - (426) (159) - (159)
153 - 153 376 - 376
(Loss)/profit on ordinary
activities before tax 5,911 (14,758) (8,847) 7,392 (1,862) 5,530
Taxation 3 (1,684) (1,299)
(Loss)/profit for the year
attributable to equity
shareholders (10,531) 4,231
(Loss)/earnings per share
Basic 4 (10.3p) 4.2p
Diluted 4 (10.3p) 4.1p
Adjusted earnings per share
(before goodwill and
intangibles impairment/
amortisation, exceptional
items and with effective
tax rate)
Basic 4 4.1p 5.4p
Diluted 4 4.0p 5.3p
Dividend per share pence £000 pence £000
Interim - 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 £000
Cash 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) 87
Exchange differences on translation of foreign operations (117) 84
Net (expense)/income recognised directly in equity (74) 239
(Loss)/profit for the year (10,531) 4,231
Total 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 £000
ASSETS
Non-current assets
Goodwill 46,980 61,442
Intangible assets 1,021 1,410
Property, plant and equipment 9,104 9,340
Deferred tax asset 2,103 2,572
59,208 74,764
Current assets
Inventories - raw materials 73 75
Trade and other receivables 5 7,801 8,534
Financial assets - derivative financial instruments 151 112
Cash and cash equivalents 15,297 11,804
23,322 20,525
LIABILITIES
Current liabilities
Financial 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 liabilities
Financial liabilities - borrowings (5,333) (6,000)
Provisions 7 (525) (910)
(5,858) (6,910)
NET ASSETS 59,581 70,389
SHAREHOLDERS' EQUITY
Ordinary shares 8 5,132 5,120
Share premium account 9 11,214 11,167
Other reserves 9 37,462 37,376
Retained 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 £000
Cash flows from operating activities
Cash generated from operations 10 5,631 4,656
Interest received 606 551
Interest paid (352) (43)
Tax paid (1,143) (302)
Net cash generated from operating activities 4,742 4,862
Cash flows from investing activities
Acquisition of subsidiaries (including debt acquired) - (7,353)
Proceeds from sale of property, plant and equipment - 1
Purchase 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 activities
Net proceeds from issue of ordinary share capital 59 28
Dividends 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 operating
structure of the Group, which is the primary segmentation of the operating
performance reviewed by the Board. In line with the strategic review and the
announcement made on 25 October 2006 the Group is now structured in five
operating divisions; Asset & Wealth Management, Banking, Energy, Consultancy &
Applications Management and Billing & Database Management. The principal
activity of the Group is the provision of IT services and solutions, including
software based activity, managed services and general consultancy. Software
based activity includes revenue generated from software licences, maintenance,
support, funded development and related consultancy.
The divisions and business categories are allocated central function
costs in arriving at operating profit/(loss). Group overhead costs are not
allocated into the divisions or business categories as the Board believes that
these relates to Group activities as opposed to the division or business
category.
(a) Revenue and operating profit by division
Year ended 31 December 2006
Asset & Energy Consultancy & Billing &
Wealth Applications Database
Management Banking Management Management Group Total
Revenue £000 £000 £000 £000 £000 £000 £000
Software based 10,897 8,594 1,802 - - - 21,293
Managed services - - - 3,732 5,605 - 9,337
General consultancy - - - 7,002 - - 7,002
Total 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 Group
overheads (8,452) (7,136) (1,449) (8,304) (4,217) - (29,558)
Operating profit
before Group
overheads 2,445 1,458 353 2,430 1,388 - 8,074
Unallocated Group
overheads (2,316) (2,316)
Operating profit
before goodwill
and intangibles
impairment
/amortisation and
exceptional items 5,758
Goodwill and
Intangibles
impairment - - - (14,000) - - (14,000)
Intangibles
amortisation (261) (44) - (19) - - (324)
Exceptional
income/(costs)
- Property provision - - - - - 112 112
- Goodwill
adjustment - - - - - (546) (546)
(261) (44) - (14,019) - (434) (14,758)
Operating
profit/(loss) 2,184 1,414 353 (11,589) 1,388 (2,750) (9,000)
Net finance income 153
Loss 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 Total
Revenue £000 £000 £000 £000 £000 £000 £000
Software based 5,667 13,081 2,086 - - - 20,834
Managed services - - - 3,775 6,563 - 10,338
General consultancy - - - 9,610 - - 9,610
Total 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 costs
before Group
overheads (5,492) (9,481) (1,707) (10,303) (4,548) - (31,531)
Operating profit
before Group
overheads 175 3,600 379 3,082 2,015 - 9,251
Unallocated Group
overheads (2,235) (2,235)
Operating profit
before intangibles
amortisation and
exceptional items 7,016
Intangibles
amortisation (123) (44) - (9) - - (176)
Exceptional
income/(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)
Operating
profit/(loss) (937) 3,588 143 2,946 1,955 (2,541) 5,154
Net finance income 376
Profit before tax 5,530
Taxation (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 the
home country of the Company.
The following table provides an analysis of the Group's sales by origin and by
destination.
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 are
sub-scale and the investment required to achieve the necessary scale would be
unlikely to deliver a satisfactory return for shareholders. Therefore, the
Board determined to exit this activity which is anticipated to be completed
during 2007.
The divisional results for 2005 and 2006 without the SAP business would
have been as follows:
31 Dec 2006 31 Dec 2005
£000 £000
Revenue
Consultancy & Applications Management 10,734 13,385
Less: SAP (1,288) (996)
Consultancy & Applications Management excluding SAP 9,446 12,389
Operating profit before Group overhead
Consultancy & Applications Management 2,430 3,082
Less: SAP (186) (15)
Consultancy & Applications Management excluding SAP 2,244 3,067
3. Taxation
Year ended Year ended
31 Dec 2006 31 Dec 2005
Analysis of charge in the year £000 £000
Current 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 not
deductible for tax purposes including goodwill and intangibles impairment/
amortisation, and goodwill adjustment making up a large proportion of this
figure. After adjusting for the impact of goodwill and intangibles impairment/
amortisation, goodwill adjustment, exceptional items and prior year tax charges
the tax charge for the year of £1,684,000 represents 29.7% (2005: 26.5%), which
is 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 to
accounting provisions and capital allowances. In addition, at 31 December 2006
the Group had tax trading losses of £18,684,000 (2005: £19,315,000) upon which a
deferred tax asset amounting to £5,605,000 (2005: £5,795,000) was not
recognised.
The difference between the total tax current tax charge and the amount
calculated by applying the United Kingdom corporation tax rate of 30% to the
profit 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 151 811
Goodwill adjustment - -
Total taxation (1,684) (1,299)
4. Earnings per share
To provide an indication of the underlying performance per share the adjusted
profit 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 £000
Profit on ordinary activities before tax, goodwill and
intangibles impairment/amortisation and exceptional items 5,911 7,392
Tax 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 £546,000
income 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 Pence
Loss on ordinary activities after tax (10,531) (10.3) (10.3)
Amortisation of intangibles net of tax 227 0.2 0.2
Exceptional charge net of tax 534 0.6 0.6
Prior years' tax charge (74) (0.1) (0.1)
Goodwill and intangibles impairment net of tax 14,000 13.7 13.7
Impact 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 in
issue during the year of 102,107,722 (2005: 101,350,132). Diluted earnings per
share calculations are based on 103,021,920 (2005: 102,401,208) ordinary shares
calculated 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 £000
Trade receivables 7,112 8,079
Less: provision for impairment of receivables (366) (596)
Trade receivables - net 6,746 7,483
Other receivables 249 227
Prepayments and accrued income 806 824
7,801 8,534
6. Trade and other payables - current
31 Dec 2006 31 Dec 2005
£000 £000
Trade payables 484 604
Other tax and social security payable 1,378 1,486
Other payables 510 311
Accruals 3,347 4,631
Deferred income 8,726 8,983
14,445 16,015
7. Provisions
Vacant properties
31 Dec 2006 31 Dec 2005
£000 £000
Group
At 1 January 1,475 2,444
Credited to profit and loss account (361) (387)
Charged to profit and loss account 249 445
Utilised in the year (406) (1,120)
Unwinding of discount 71 93
At 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 £000
Current 503 565
Non-current 525 910
1,028 1,475
8. 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
£000 £000
At 1 January 2006 145,000,000 7,250 102,407,409 5,120
Issued 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 - - 251
Deferred 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 for
the 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 1,299
Depreciation 777 813
Loss on disposal of property, plant and equipment 11 195
Amortisation of intangible assets 324 176
Goodwill and intangible impairment 14,000 -
Share-based payment expense 251 198
Change in value of goodwill 546 300
Interest income (579) (535)
Interest expense 426 159
Changes in working capital:
Decrease in inventories 2 58
Decrease in receivables 655 1,157
Decrease 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 £000
Cash and cash equivalents 15,297 11,804
Borrowings (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 for
the year ended 31 December 2005 are prepared under International Financial
Reporting Standards as adopted for use in the EU ('IFRS'). The accounting
policies adopted in this preliminary announcement are consistent with the Annual
Report for the year ended 31 December 2005.
The financial information set out in this preliminary announcement does not
constitute the Company's statutory accounts for the years ended 31 December 2006
or 31 December 2005. The financial information for the year ended 31 December
2005 is derived from the Annual Report delivered to the Registrar of Companies.
The auditors reported on those accounts; their report was unqualified and did
not contain a statement under either section 237(2) or section 237(3) of the
Companies Act 1985.
The Board of Microgen approved the release of this preliminary announcement on
28 February 2007.
The Annual Report for the year ended 31 December 2006 will be posted to
shareholders in due course and will be delivered to the Registrar of Companies
following the Annual General Meeting of the Company. The report 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 Fleet House, 3 Fleetwood Park, Barley Way, Fleet, Hampshire, GU51
2QJ.
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