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. This information is provided by RNS The company news service from the London Stock Exchange
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