Final Results

Microgen PLC 8 February 2002 FOR IMMEDIATE RELEASE 8 February 2002 Microgen plc ('Microgen') Preliminary Announcement of Audited Results for the Year ended 31 December 2001 Highlights â€¢ Strong operating performance â€¢ Profit before tax and goodwill amortisation of Â£1.7m (2000: loss of Â£1.8m) â€¢ Fully diluted adjusted earnings per share (before goodwill amortisation and prior year tax credits) of 2.6p (2000: loss of 2.7p). Fully diluted net earnings per share of 2.8p (2000: loss per share of 5.2p). â€¢ Revenue of Â£21.0m in line with planned reduction of legacy print services (2000: Â£25.3m) â€¢ Operating cost reductions of Â£5.4m excluding goodwill â€¢ Net cash inflow from operations of Â£3.0m in the period. Additional cash inflow from a Â£1.3m prior year tax rebate, producing net free cash at 31 December 2001 of Â£12.9m. â€¢ Solid performance from Microgen-Kaisha consultancy division in the current market environment, delivering revenue of Â£8.8m and operating profit of Â£2.2m. â€¢ Significant improvement in profitability in Microgen-Telesmart division, producing operating profit of Â£1.0 million on revenue of Â£12.2m. â€¢ e-Services revenue growth of 24% â€¢ Over 30 e-billers now operational with over 1,000 live recipients, maintaining Microgen's leading position in B2B e-billing service provision in the UK. â€¢ Acquisition of OST Business Rules for an initial consideration of Â£13.9m and associated placing of up to 5.12m shares, announced separately today, expands the Group's information management solutions portfolio, provides entry into a sector where Microgen has low penetration and is anticipated to be earnings enhancing in 2002. For the year to 31 December 2001, OST had revenue of Â£9.3m producing operating profit of Â£0.9m. Martyn Ratcliffe, Executive Chairman commented: 'The benefits from Microgen's disciplined management approach are clearly evident in the results for 2001. In a much more difficult IT market environment, the Group has delivered a strong performance, at the upper end of expectations. 'The Microgen strategy based on information management is further enhanced today with the proposed acquisition of OST Business Rules, bringing compatible skills, technology and new customer sectors into the Group.' Contact: Martyn Ratcliffe, Executive Chairman 01753-847123 Mike Phillips, Group Finance Director www.microgen.co.uk Steve Liebmann, Buchanan Communications 0207-466-5000 CHAIRMAN'S STATEMENT The Microgen Group has delivered a strong performance in 2001, despite a difficult IT market environment. The Group continues to focus on information management solutions which enable customers to manage their data to enhance business processes and information, a model called 'Business Process Integration '. In furthering this strategy, the proposed acquisition of OST Business Rules Ltd ('OST') is being announced today, together with a placing of up to 5.12 million shares. Subject to shareholder approval of the proposed acquisition, Microgen plc will comprise three operating divisions of broadly similar size: â€¢ Microgen-Telesmart: Focused on added-value transactional services in billing, payment and hosted database 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. â€¢ Microgen-Kaisha: The Group's consultancy division applies data warehousing and application integration techniques to deliver information from customer data, typically in customer relationship management, knowledge management or business intelligence environments. â€¢ Microgen-OST: A leading provider of enterprise integration solutions to major financial institutions, using software developed by OST enabling user-defined business rules, to integrate disparate front, middle and back office systems. FINANCIAL SUMMARY For the year ended 31 December 2001, Microgen generated profit before tax and goodwill amortisation of Â£1.7 million from revenue of Â£21.0 million (2000: loss of Â£1.8 million on revenue of Â£25.3 million). The decline in revenue was due to the continuing reduction in legacy print services, being partially offset by growth in the strategic business operations. Operating costs having been tightly controlled during the year and reduced by Â£5.4 million, excluding goodwill and the exceptional costs incurred in 2000. Headcount at 31 December 2001 was 233 (2000: 288) The Group produced a net profit on ordinary activities after tax and goodwill amortisation of Â£1.4 million (2000: net loss Â£2.7 million) and a fully diluted adjusted earnings per share (before goodwill amortisation and prior year tax credits) of 2.6p (2000: loss of 2.7p). Diluted earnings per share of 2.8p including a one-off tax credit of Â£1.5 million, equivalent to 3.0p per share (2000: loss per share of 5.2p). The Group continues to maintain a strong balance sheet and positive operating cash flow with net free cash of Â£12.9 million at 31 December 2001. Together with the proceeds from the share placing, a proportion of this cash will be used to finance the proposed acquisition of OST. After careful consideration, the Board has concluded that it is in the best interests of Microgen and its shareholders to continue to invest in the strategic development of the Group and are not therefore recommending a dividend (2000: 1.0p). MICROGEN-TELESMART For the year ended 31 December 2002, revenue from the division was Â£12.2 million, producing an operating profit of Â£1.0 million before Group overhead (2000: revenue of Â£14.5 million produced an operating profit of Â£0.1 million). Revenue and profit for the year include Â£0.25 million of royalty income earned between January and September 2001, derived under the terms of the 2000 agreement for the disposal of the COM business. The revenue decline occurred in the legacy print business and the Board anticipate that print revenue will continue to decline during 2002 as part of the ongoing managed transition process. Annual revenue growth in hosted e-services (database management, payment and billing) was 24%. The division continues to transition customers from legacy output into electronic services, primarily on a transactional hosted service model using database management techniques. Investment in this business has continued during the year, particularly in the billing sector where Microgen continues to lead the market in B2B e-billing services. The Group now has over 30 billers with in excess of 1,000 recipients transacting billing and related documentation via Microgen's hosted service model. MICROGEN-KAISHA The Group's consultancy division, had another solid year. Acquired in April 1999, the business was repositioned to focus on information management projects using data warehousing and application integration techniques, to deliver customer relationship management, knowledge management and business intelligence solutions. This positioning, together with the Group's disciplined approach, has enabled the division to maintain high utilisation rates which have produced the strong operating performance despite the more difficult market environment. Revenue for the division was Â£8.8million, producing an operating profit of Â£2.2 million before Group overhead and goodwill amortisation, equivalent to a 25% operating margin. (2000: revenue of Â£8.0 million, operating profit of Â£2.2 million). ACQUISITION The Board is today announcing the proposed acquisition of OST Business Rules Limited and details are provided under a separate announcement. OST provides enterprise application integration ('EAI') solutions, incorporating user-defined business rules. To date, OST has primarily applied their technology to integrating the front, middle and back office systems of major financial institutions, a sector where Microgen has historically had low penetration and cross-selling opportunities are anticipated in the future. Similarly, the Board believe that there are areas in the existing businesses where the technology and skills developed by OST could be applied. The initial consideration is Â£13.9 million comprising Â£6.6 million in cash and/ or loan notes and Â£7.3 million in new Microgen shares. Subject to performance criteria, including annualised EBIT of between Â£1.3 million and Â£1.8 million, deferred consideration may be payable up to a maximum of Â£5.7 million. Since being formed in 1998, OST has been consistently profitable and has delivered strong revenue growth. For the year ended 31 December 2001, OST had revenue of Â£9.3 million and profit before tax of Â£0.9 million. FUTURE PROSPECTS Despite the more difficult market environment, the disciplined management approach adopted by the Board has enabled the Group to deliver a solid performance in 2001. This disciplined style will be maintained in the year ahead. While the Board do not envisage near-term improvement in the IT market, the progress achieved in the two operating divisions during the past year is anticipated to continue. The proposed acquisition of OST Business Rules will provide greater scale and new opportunities for the Group, using similar technical and process skills. Upon completion of the OST acquisition, and based on results for 2001, businesses acquired or developed during the past three years would account for approximately 75% of the Enlarged Group revenue on an annualised basis. Furthermore, the Board believe that the IT sector is likely to consolidate and the Board will continue to explore strategic opportunities for the further development of Microgen. In summary, the Board are pleased with the performance and development of the Group during the past year. Martyn Ratcliffe 8 February 2002 Chairman MICROGEN PLC Group Profit and Loss Account for the year ended 31 December 2001 Audited Audited Year ended Year ended 31 Dec 2001 31 Dec 2000 Notes Â£'000 Â£'000 Turnover - Continuing operations 21,009 22,578 - Discontinued operations - 2,766 1a 21,009 25,344 Operating costs (21,329) (26,711) Operating loss Continuing operations -Operating profit before goodwill amortisation 1,112 415 -Goodwill amortisation (1,432) (1,328) (320) (913) Discontinued operations - (454) Operating loss 1b (320) (1,367) Exceptional items - discontinued operations 1c - (2,323) Loss on ordinary activities before interest and tax (320) (3,690) Net interest 571 604 Profit/(loss) on ordinary activities before tax Profit/(loss) on ordinary activities before tax and goodwill amortisation 1,683 (1,758) Goodwill amortisation (1,432) (1,328) Profit/(loss) on ordinary activities before tax 251 (3,086) Tax on profit/loss on ordinary activities 2 1,198 358 Profit/(loss) on ordinary activities after taxation 1,449 (2,728) Dividends 3 - (512) Retained profit/(loss) transferred to reserves 1,449 (3,240) Earnings/(loss) per share (after goodwill amortisation) 4 Basic 2.8p (5.4)p Diluted 2.8p (5.2)p Adjusted earnings per share (before goodwill amortisation and prior years' tax credit) 4 Basic 2.6p (2.8)p Diluted 2.6p (2.7)p Dividend per share - 1.0p Statement of total recognised gains and losses 2001 2000 Â£000 Â£000 Profit/(loss) on ordinary activities after taxation 1,449 (2,728) Exchange rate adjustments - 12 Total recognised gains and losses for the period 1,449 (2,716) MICROGEN PLC Consolidated Balance Sheet Audited Audited 31 Dec 2001 31 Dec 2000 Notes Â£'000 Â£'000 Fixed assets - Intangible assets 24,599 26,665 - Tangible assets 1,215 2,044 - Investment in own shares 114 252 25,928 28,961 Current assets - Stock - raw materials and consumables 91 122 - Debtors 5 3,423 5,023 - Cash at bank and in hand 13,168 13,871 16,682 19,016 Creditors: due within one year 6(a) (6,074) (12,236) Net current assets 10,608 6,780 Total assets less current liabilities 36,536 35,741 Creditors: due after more than one year 6(b) - (295) Provisions for liabilities and charges 7 (1,273) (1,708) Net assets 35,263 33,738 Equity capital and reserves - Called up share capital 8 2,561 2,560 - Share premium account 9 17,594 17,569 - Other reserves 9 300 250 - Profit and loss account 9 14,808 13,359 Equity shareholders' funds 35,263 33,738 MICROGEN PLC Consolidated Cash Flow Summary for the Year Ended 31 December 2001 Audited Audited Year ended Year ended 31 Dec 2001 31 Dec 2000 Notes Â£'000 Â£'000 Net cash flow from operating activities 10 (i) 2,997 1,520 Returns on investments and servicing of finance Interest received 702 928 Interest paid (87) (229) Interest element of finance lease rental payments (16) (95) 599 604 Taxation Tax paid in respect of the current period (313) - Tax (paid)/received relating to prior years (360) 102 Tax refund 1,346 - 673 102 Capital expenditure and financial investment Purchase of tangible fixed assets (559) (736) Sale of tangible fixed assets 9 233 (550) (503) Acquisitions and disposals - (2,675) Equity dividends paid to shareholders (512) (509) Cash inflow / (outflow) before use of liquid resources and 3,207 (1,461) financing Management of liquid resources 1,085 4,040 Financing Issue of share capital 2 124 Redemption of loan notes (2,994) (1,381) Payment of deferred consideration (350) (1,806) Capital element of finance lease rental payments (568) (429) (3,910) (3,492) Increase / (decrease) in cash in the period 10 (ii) 382 (913) Notes: - 1. Turnover, profit and exceptional items Audited Audited Year Ended Year Ended 31 Dec 2001 31 Dec 2000 Â£'000 Â£'000 1 (a) Turnover Continuing operations - Microgen-Telesmart 12,229 14,533 - Microgen-Kaisha 8,780 8,045 21,009 22,578 Discontinued operations - 2,766 21,009 25,344 1 (b) Operating profit / (loss) Continuing operations - Microgen-Telesmart 1,025 141 - Microgen-Kaisha 2,204 2,198 3,229 2,339 - Group overhead (2,198) (2,255) 1,031 84 Movement on property provision 81 331 Operating profit from continuing operations before goodwill amortisation 1,112 415 Goodwill amortisation - Microgen-Telesmart (180) (75) - Microgen-Kaisha (1,252) (1,253) (1,432) (1,328) Operating loss after goodwill amortisation from continuing operations (320) (913) Operating loss on discontinued operations - (454) Operating loss after goodwill amortisation (320) (1,367) 1 ( c ) Exceptional items - discontinued operations Loss on disposal of discontinued operations - (240) Loss on disposal of fixed assets - discontinued operations - (1,006) Restructuring costs - discontinued operations - (1,077) - (2,323) 2. Taxation The taxation credit for the year comprises: Audited Audited Year ended Year ended 31 Dec 2001 31 Dec 2000 Â£'000 Â£'000 UK corporation tax (charge)/credit (346) 358 Adjustment in respect of prior years 1,544 - 1,198 358 The effective rate of tax for the group on its profit on ordinary activities before goodwill is 20.6% (2000: 20.4%). At 31 December 2001 the UK group had a potential deferred tax asset of Â£737,000 (2000: Â£1,423,000) due to timing differences relating to accounting provisions and capital allowances which has not been recognised in the accounts. In December 2001 the Company announced that it had agreed Microgen UK Limited's 1998 corporation tax computation resulting in the prior years' tax credit of Â£1,544,000. The principal issues that gave rise to the tax credit were: (1) the agreement with the Inland Revenue of March 1982 valuations of shares in Microgen UK Limited's overseas subsidiaries, Capella AB and Eurocom Depora, disposed of in 1998 in the first phase of the strategic restructuring of the Group; and (2) a provision for obligations under surplus property leases made in 1998 that is now an allowable deduction for tax purposes. The latter has significantly reduced the Group's deferred tax asset. The decrease in the deferred tax asset in the year was Â£686,000 (2000: increase Â£103,000). 3. Dividends As explained in the Chairman's Statement the Board do not recommend the payment of a final dividend (2000: 1.0 pence). The total dividend for the year will be nil pence per share (2000: 1.0 pence). 4. Earnings per share Earnings Basic Diluted EPS EPS Â£'000 Pence Pence Profit on ordinary activities after tax 1,449 2.8 2.8 Goodwill amortisation 1,432 2.8 2.8 Prior years' tax credit (1,544) (3.0) (3.0) Profit on ordinary activities after tax but before goodwill amortisation 1,337 2.6 2.6 The above basic earnings per share calculations are based on the weighted average number of shares in issue during the period of 50,848,517 (2000: 50,617,742). Diluted earnings per share calculations are based on 51,579,616 (2000: 52,386,756) ordinary shares calculated as the basic weighted average number of ordinary shares plus 731,099 (2000: 1,769,014) dilutive share options. 5 Debtors Audited Audited 31 Dec 2001 31 Dec 2000 Â£'000 Â£'000 Trade debtors 2,449 3,911 Corporation tax recoverable 125 369 Other debtors 258 122 Prepayments and accrued income 591 621 3,423 5,023 6 Creditors Audited Audited 31 Dec 2001 31 Dec 2000 (a) due within one year Â£'000 Â£'000 Finance leases - 358 Trade creditors 642 1,559 Corporation tax - 769 Other taxes and social security costs 854 835 Other creditors 1,617 834 Deferred consideration 150 773 Loan notes payable 225 3,219 Accruals 2,586 3,377 Proposed dividend - 512 6,074 12,236 (b) due after more than one year Other taxes and social security costs - 85 Finance leases - 210 - 295 7 Provisions for liabilities and charges Provisions for liabilities in respect of surplus properties. Audited Audited 31 Dec 2001 31 Dec 2000 Â£'000 Â£'000 Balance brought forward 1,708 2,438 Credited to the profit and loss account (243) (748) Charged to profit and loss account 162 417 Utilised in the year (396) (399) Amortisation of discount 42 - Balance carried forward 1,273 1,708 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 At 1 January 2001 70,000,000 Â£3,500,000 51,202,281 Â£2,560,114 Shares issued during the year: Under savings related share option scheme 1,982 99 To the vendors of Microgen - Kaisha 10,690 535 At 31 December 2001 70,000,000 Â£3,500,000 51,214,953 2,560,748 9 Movement on reserves Share --------Profit and Loss Account-------- Premium Other Revenue Goodwill Account reserves Reserve Reserve Total Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 At 1 January 2001 17,569 250 25,003 (11,644) 13,359 Retained profit for the year - - 1,449 - 1,449 Shares issued during the year under savings related share option scheme 2 - - - - Shares issued to the vendors of Microgen - Kaisha 23 - - - - Charges related to positive share price movements - 50 - - - At 31 December 2001 17,594 300 26,452 (11,644) 14,808 10 Notes to the Consolidated Cash Flow Statement (i) Reconciliation of operating loss to net cash inflow from operating activities Audited Audited year ended year ended 31 Dec 2001 31 Dec 2000 Â£'000 Â£'000 Operating loss (320) (1,367) Depreciation 1,365 1,832 Goodwill amortisation 1,432 1,328 Loss on sale of fixed assets 14 24 Other non-cash movements 146 (123) Decrease in stocks 31 158 Decrease in debtors 1,356 535 Decrease in creditors (1,027) (867) Net cash inflow from operating activities 2,997 1,520 (ii) Reconciliation of net cash flow to movement in funds/(debt) Audited Audited Year ended Year ended 31 Dec 2001 31 Dec 2000 Â£'000 Â£'000 Increase/(decrease) in cash in the period 382 (913) Cash outflow from movement in term deposits (1,085) (4,040) Cash outflow from decrease in lease financing 568 429 Change in net funds/(debt) resulting from cash flows (135) (4,524) Redemption of loan notes 2,994 1,381 Disposal of leases from discontinued operations - 18 Movement in net funds in the period 2,859 (3,125) Net funds at beginning of the period 10,084 13,209 Net funds at end of period 12,943 10,084 iii) Analysis of net funds At At 1 Jan 2001 Cash flow 31 Dec 2001 Â£'000 Â£'000 Â£'000 Cash at bank and in hand 13,871 (703) 13,168 Debt due within 1 year (3,219) 2,994 (225) Finance leases (568) 568 - Total 10,084 2,859 12,943 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 2001 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 2000 have been extracted from the annual report for the year ended 31 December 2000. This information is provided by RNS The company news service from the London Stock Exchange

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