Final Results - Year Ended 31 Dec 1999, Part 1

Microgen PLC
24 February 2000



PART I


Information Management Services
     www.microgen.co.uk
                                 
                     Microgen plc ('Microgen')
                                 
     Preliminary Results for the Year  ended 31 December 1999

Highlights

*    Adjusted operating profit of £3.0 million (1998 : operating
     loss of £3.4 million), excluding restructuring charges and 
     surplus property provisions, goodwill amortisation and
     charges related to positive share price movements

*    Adjusted earnings per share of 5.8p (1998 : 2.2p)

*    Microgen's e-Business application service provider ('ASP')
     operations continue to make good progress, with primary
     emphasis on B2B sectors. Disciplined investment program
     being implemented to maximise development of e-business
     opportunities.
     *    e-Billing  ASP : 18 corporate biller customers now
          signed up confirming Microgen's position as the
          leading B2B e-billing service provider in the UK.
     *    Microgen Axess ASP : over 40 customers now signed up
          with over 60 applications for on-line database
          management. 70% recurring revenue.

*    Transition out of legacy services being accelerated,
     including :
     *    Exit from COM business
     *    Disposal of Ireland COM operations
     *    Consolidation of legacy print & mail bureaux

*    Final dividend proposed of 1.0 p, making 1.5 p for the year
     (1998 : 1.0p)

Commenting on the results, Martyn Ratcliffe, Executive Chairman
of Microgen plc, said

'1999 has been a year of dynamic change, producing a
well-executed operational turnaround and successful strategic
redirection. The e-business opportunities are developing well
and the Board have determined to accelerate the transition
out of the legacy businesses. During the past year, Microgen 
has established a strong position as one of the leading ASPs
in the UK and has used this model to great effect to develop
the database management and e-billing opportunities.
The primary focus of the Group continues to be in B2B
sectors where the greater near-term opportunities
exist, whilst continuing to explore those B2C sectors where
sustainable advantage may be realised from Microgen's business
model.'

Contact :

Martyn Ratcliffe, Chairman, Microgen plc     01753-847123
Mike Phillips, Group Finance Director
Steve Liebmann, Buchanan Communications      0171-466-5000
Chairman's Statement

The transformation of Microgen plc has made substantial
progress during 1999, both in terms of operating performance
and strategic direction. The Group has been successfully
repositioned as an IT services and application service
provider ('ASP') company at the forefront in a number
of e-business sectors in the UK. The strategy for 
continuing Microgen's transition from the legacy services
is well defined and continues to progress in line with
the Board's expectations.

Financial Summary

The preliminary results for the 12 months ended 31 December 1999
confirm  the  success of the operational turnaround following the
restructuring of the Group in 1998. Turnover for the  period  was
£31.3  million (1998 : £35.7 million for the 14 month period from
continuing operations) producing an adjusted operating profit of
£3.0  million (1998 : operating loss of £3.4 million for the 14
month period  from  continuing operations.) The  Group's balance
sheet remains strong with net cash at 31 December 1999 of £10.8
million.

(As a result of the 1998 restructuring and the change in the
accounting period in 1998, prior year comparisons provide limited
insight and should be interpreted with caution. The adjusted
operating profit provides the closest comparison and excludes
goodwill amortisation, restructuring charges, surplus property
provisions and charges related to positive share price movements.
The share-price related charges are explained more fully in note
4 but are primarily related to the introduction in April 1999 of
National Insurance Contributions on share options.)

As a result, the adjusted earnings per share before goodwill
amortisation and the share price related charges were 5.8p 
(1998:2.2p). The impact of deferred tax asset movements in the
year contributed 0.8 p to the adjusted earnings per share and is
explained in note 6. The Board are recommending a final dividend
of 1.0p per share, making a total dividend of 1.5p for the year
(1998 : 1.0p). The final dividend is payable on 12 May 2000 to
shareholders on the register at the close of business on 24 March
2000.


e-Business Services

In November, Microgen announced a major investment program to
accelerate the transition from the legacy services into
e-business sectors where the Group has already proven
its capability. This strategy includes :
-    Increasing investment in the e-business opportunities and
     redirecting existing resources to support the strategy
-    The development of a Central Processing Facility integrating
     the processing of all Microgen's outsource services
-    Strengthening the operational management infrastructure

As a result, the former Managed Information Services and Document
Processing Services divisions were consolidated, consistent with
the convergence of the strategic direction of the divisions using
Microgen Axess technology and infrastructure in the development 
of the database management and e-billing services. The future
services are based on an ASP model producing sustainable,
recurring revenue streams as the key strategic objective.

For the year ended 31 December 1999, including legacy businesses,
these operations generated £3.7 million operating  profit before
Group overheads  (1998 : loss of £2.3 million in  the 14 month
period) from revenue of £26.6 million (1998 : £35.7 million
in the 14 month period.) This substantial improvement
in profitability was primarily due to increased operational
productivity and the refocusing and repositioning of
Microgen's services.

Progress in transitioning the Group to focus on e-business
continues to be in-line with the Board's expectations. The
investment level is under continual review as part of the
management of this strategy such that a disciplined investment
program is being implemented, maximising the investment to
accelerate the transition whilst maintaining financial prudence,
taking into account the revenue reduction from the legacy
businesses as resources are redirected towards the e-business
opportunities.

Database and Document Management ASP Services :Microgen currently
has over 40 customers using, or committed to using, the Axess on-
line database management services with a total of over 60
applications. On-line recurring revenue now accounts for 70% of
the total revenue and exceeded £1.0 million during the year,
compared with £0.3 million for the 14 month period for 1998.

e-Billing ASP Services : Following the successful Business-to-
Business ('B2B') e-billing pilot during the third quarter,
recruitment of e-billing customers commenced during the fourth
quarter of 1999 and has continued aggressively thereafter.  As a
result, Microgen now has a total of 18 customers (corporate
billers) signed up to its ASP e-billing services which should go
live in the coming months. The Board are very pleased with the
current adoption rate which reaffirms the benefits of an£
ASP model in launching innovative e-business services, 
enabling Microgen to establish a leading position in the
B2B sector of the e-billing market.

While the Business-to-Consumer ('B2C') e-business sector has
received a higher profile, it is now apparent that the
complexities associated with aggregated B2C e-billing services,
together with diverging interests of some of the major
participants, indicate that the sector is unlikely to deliver on
the potential in the near term. This complexity has caused
independent researchers to forecast that the B2B sector will
account for 88% of the total UK e-billing market for the next
five years. As a result,  Microgen will continue to focus
its resources accordingly, whilst continuing to monitor
B2C opportunities and develop services to enable Microgen
to participate in this sector, as appropriate.

Microgen's customer  base and experience in  billing  outsourcing
provides a platform for launching its e-billing services.
Microgen has already proven its e-billing capability and has
established a significant position in the UK, particularly
in the B2B sector. It is  also  clear  that many
bills/statements will  continue  to  be delivered by
traditional print & mail services for some years  and the
ability  to  provide a managed transition for customers  from
print &  mail  into e-billing media is a strategic differentiator
for Microgen. However, the Board believes that e-billing
and other e-business services will accelerate the
commoditisation of print & mail  services and  that  the 
print  industry  will  experience substantial  excess 
production  capacity  in  the  future.  The combination of
excess  capacity and service commoditisation  is likely
to produce significant margin erosion  in  print &  mail
services  as  volumes  move to electronic distribution. For this
reason,  since  1998 Microgen has been pro-actively  reducing its
exposure to print customers where the value-add processing and/or
the potential for account development into e-business services is
limited. This strategy clearly has an impact on revenue but has
been  a  key  element  of the transition strategy of the Group.
Furthermore,  due  to the  substantial productivity improvements
achieved within  this  business, the Board has  now  decided to
consolidate all its print operations into the Welwyn Garden City
bureau. Accordingly, a one-time exceptional charge, primarily due
to the bureau consolidation, estimated to be £2.4 million, will
be incurred in the current year. While this strategy has an
impact on print-based revenue, it is consistent with the
transition strategy to e-billing and should reduce Microgen's 
future exposure to the commoditisation of print & mail services.

Consultancy

Microgen-Kaisha was  established  in  April  1999  following the
acquisition  of Kaisha  Technology.  The  division  focuses  on
providing  data warehousing solutions and  customer  relationship
management ('CRM')/knowledge management consultancy services,
with vendor-independence being a key differentiator. With the 
technical relationship between  CRM and billing  data, together
with  the repositioning  of  Microgen's  database  management
and  billing services,  the consultancy division should 
increasingly  provide value-added services to Microgen's
broader customer base.

For  the  period  23 April to 31 December 1999, the division  had
turnover  of  £4.7 million and operating income of £0.7  million,
before  Group overheads. As an IT consultancy, in the second half
of  1999, the division suffered from the industry-wide effects of
customer  Y2K  deferrals  but  still  maintained  growth  in  the
strategic sectors of the business. Furthermore, the new  year has
started well with a number of new customer projects and the Board
anticipate good growth in the year ahead.

Exit from Legacy COM Business and Disposal of Ireland Operations

In October 1998, Microgen outsourced the production of microfiche
in  the UK  to Anacomp. Throughout the past year, the legacy  COM
business has continued to decline, accelerated by a combination
of market factors and  also the successful migration of some COM
customers to Microgen Axess e-business services. The accelerating
decline means that the UK COM business will shortly cease to have
any  commercial value to Microgen and agreement has been reached 
with Anacomp to  amend the current  outsourcing agreement with 
effect from 1 July  2000. From  that date until September  2001,  
Microgen may receive 50% of an adjusted profit figure to be paid 
as a royalty, but  will effectively exit the UK COM business  with 
no  further exceptional charges, although an accelerated goodwill
amortisation is anticipated during the year.

The implementation of Microgen's exit strategy from COM  includes
the disposal of the Group's operations in Ireland, to Anacomp for
a total consideration of £125,000 on a nil debt/cash basis.  For
the year to 31 December 1999, the Ireland business had revenue of
£0.7 million, producing an operating income before Group
overheads of  £16,000  and had net assets, excluding cash,
of approximately £165,000  at the year end. This disposal
should give rise to an estimated exceptional loss of £50,000 
in the current year.

Managing  the transition out of the legacy COM business has  been
well executed. With the value from the COM operations now limited
and future contribution uncertain, the Board have determined  to
effectively exit this market ending over 25 years in the business
and marking a key milestone in the transition of the Group.

Future Prospects

The transformation of Microgen plc into an IT services company
over the past 18 months has been successful. During 1999, the
strategic repositioning gained momentum with Microgen becoming
established as a leading ASP in database management and e-billing
services in the UK. With the Group's strong balance sheet, proven
technology and expertise, Microgen is well positioned to continue
the transition. Managing this dynamic environment from legacy
services into e-business will however produce revenue declines
which are unlikely to be compensated in the short-term by the
growth in the evolving e-business market sectors. The Board are
implementing a disciplined investment program and will
continually review the level of investment in e-business
with the objective of maintaining satisfactory financial 
results whilst allowing the Group to take full advantage
of the strategic opportunities open to it in the identified
growth sectors. Consistent with this prudent strategy, the
Board have decided that, during the transition period, dividends
will be paid once per year after the announcement of
the full year results.

During the year ahead, the primary strategic objective is to
further develop the Group's position as a leading B2B e-business
company in the UK. This strategy is to be implemented through use
of Microgen's ASP business model, increasing market penetration
and continuing the development of the related infrastructure. In
pursuit of this strategy, the Board will continue to evaluate
acquisition and strategic partnership opportunities. However, it
should be noted that, most e-business markets are still in their
early stages and rates of adoption are difficult to predict,
although the sectors targeted by Microgen are considered by the
Board to be robust and sustainable in the future. As a result,
the Board considers that, through the adoption of the defined
strategy, Microgen has the technology, capability and
resources to deliver on the potential opportunities.


Martyn Ratcliffe
Executive Chairman
                           

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