Microgen plc reports results for the six months ended 30 June 2009 ahead of the Group's annual plan ('Plan') driven by strong performance from Microgen Aptitude.
- Adjusted operating profit* increased by 10% to £3.2 million (H1, 2008 : £2.9 million).
- Adjusted operating margin* ahead of Plan at 19.7% (H1, 2008 : 17.4%).
- Strong demand for Microgen Aptitude and Microgen Accounting Hub. Microgen Aptitude based revenues accounted for 29% (H1, 2008 : 22%) of Group turnover. Overall revenue decreased slightly to £16.5 million (H1, 2008 : £16.9m).
- Adjusted Basic EPS (excluding intangible amortisation and exceptional items) increased to 2.8p (H1, 2008 : 2.4p).
- Strong balance sheet with excellent cash conversion.
- Interim dividend increased by 14% to 0.8 pence per share (2008 : 0.7 pence per share).
- Operating profit £2.8 million (H1, 2008 : £3.5 million, including benefit from £1.0m exceptional gain on property disposal).
- Basic EPS of 2.3p (H1, 2008 : 2.8p, including exceptional gain on property disposal).
* Throughout this statement adjusted operating profit and margin excludes intangible amortisation & exceptional items.
The significant investment made in recent years in the development of Microgen Aptitude and associated products, particularly the Microgen Accounting Hub, is now converting into demand for these market leading products in both Europe and North America. Microgen is now engaged on a number of strategic projects and with a strong pipeline of further opportunities, the Board remains confident in the potential of this product category.
This performance is even more satisfying having been delivered in a very difficult economic environment. These same market conditions, however, have affected the Group's other businesses, although both the Financial Systems Division and the Billing Services Division remain profitable, high margin businesses with strong cash flow.<.
Group Financial Performance
Throughout this statement adjusted operating profit and margin excludes intangible amortisation & exceptional items.
In the six months ended 30 June 2009, Microgen generated adjusted operating profit of £3.2 million (H1, 2008 : £2.9 million) from revenue of £16.5 million (H1, 2008 : £16.9 million). Adjusted operating margin at 19.7% (H1, 2008 : 17.4%) was ahead of Plan. Whilst the Group has consistently reported strong operating margins, Microgen has not capitalised R&D costs, including the investment made in Microgen Aptitude and related products. Furthermore, by expensing all R&D costs, not only does Microgen have good correlation between profit and cash flow, but the profitability of the Microgen Aptitude business should correlate with the growth in revenue.
Profit before tax for the period was £2.8 million (H1, 2008 : £3.9 million) with the comparable period in 2008 benefiting from an exceptional gain of £1.0 million from the disposal of a long leasehold property and £0.4 million due to higher interest rates on the higher cash balance prior to the share buy-back of £8.0 million in November 2008. Adjusted basic earnings per share was 2.8p (H1, 2008 : 2.4p) with a basic earnings per share of 2.3p (H1, 2008 : 2.8p, including the exceptional profit on the property disposal). Recurring revenues remain high at 66% of Group turnover (H1, 2008 : 65%) and the cost base is tightly controlled with headcount at 30 June 2009 of 284 (31 December 2008 : 286) although recruitment is currently active in the Microgen Aptitude Solutions Division.
Cash conversion has been excellent with cash generated from operations ahead of operating profit. The Group continues to have a strong balance sheet with cash of £15.2 million at 30 June 2009 (H1, 2008 : £21.2 million before share buy-back of £8.0 million, dividends of £1.9 million and repayment of £1.3 million of the debt on the Group's freehold property) and net funds of £12.8 million at 30 June 2009 (H1, 2008 : £17.3 million). The difference between cash and net funds relates to borrowings associated with the Group's freehold property in Fleet. At 30 June 2009 investments in marketable securities were valued at £1.5 million (H1, 2008 : £1.3 million).
Reflecting the increasing confidence in Microgen Aptitude, the interim dividend has been increased by 14% to 0.8 pence per share (2008 : 0.7 pence per share). The interim dividend proposed will be paid on 28 August 2009 to shareholders on the register as at 31 July 2009.
Microgen plc is structured into three operating divisions, with shared central services to achieve the benefits of scale. Operating margins referred to below include the costs of the shared services but exclude interest, exceptional items, intangible amortisation and Group costs. The allocated costs of shared functional services are included within the divisional operating results.
Microgen Aptitude Solutions Division ('MASD')
The highlight of the first half has been the demand for Microgen Aptitude and the Microgen Accounting Hub. MASD is now engaged in the UK, Europe and North America, on a number of strategic customer projects, either directly or in conjunction with major systems integrators. In addition, a number of smaller contracts and project extensions have been secured and the pipeline of prospects continues to be strong.
Microgen Aptitude's reputation is built not only on its technology but also on its track record of delivering successful projects that realise a tangible return on investment for its customers. During the first half of 2009, projects with a major North American bank and with a large UK transport infrastructure provider have gone live with very positive feedback from these customers. The first of these was managed directly by Microgen and the second was delivered in conjunction with a major systems integrator, reflecting the capability and flexibility of the Microgen structure and delivery methodology.
For the period ended 30 June 2009, MASD reported revenue of £4.7 million (H1, 2008 : £3.7 million). In line with this revenue growth, the operating loss was reduced by 55% to £0.6 million (H1, 2008 : loss of £1.3 million) ahead of Plan and whilst maintaining the investment in development activities. With the momentum noted above, the Board anticipates significant growth in the second half of the year.
Financial Systems Division ('FSD')
The Financial Systems Division has been affected by the economic climate with a slow down in new business activity. However the high recurring revenue (approximately 76%) and installed base provide a solid foundation and underpin the operating performance of this division. Revenue in FSD for the period ended 30 June 2009 was £8.9 million (H1, 2008 : £9.9 million) with approximately half of this decline associated with the managed exit from general IT consultancy which is now effectively complete. FSD has maintained its very strong operating margin at 48% (H1, 2008 : 47%) and good cash flow.
Billing Services Division ('BSD')
The revenue in the Billing Services Division is directly related to the number of transactions processed. The economic environment has affected a number of BSD customers and hence transaction volume has declined with a corresponding impact on BSD revenue. This correlation resulted in BSD reporting revenue of £2.9 million in the period ended 30 June 2009 (H1, 2008 : £3.3 million) and the Board anticipates a further decline in the second half of the year. However operating margins remained strong at 26% (H1, 2008 : 30%) and electronic document distribution now accounts for approximately 60% of all document output (H1, 2008 : 31%).
Consultant Utilisation and Fee Rates
Over recent years, Microgen has progressively and pro-actively reduced its exposure to general IT consultancy, such that this revenue accounted for just 2% in the period ended 30 June 2009 (H1 2008 : 3%). Where possible consultants with legacy skills have been cross-trained onto Microgen Aptitude and the Microgen Accounting Hub. Throughout this transition, utilisation has been maintained at high levels and Microgen is currently actively recruiting both functional and technical consultants in both Europe and North America to support the demand for Microgen Aptitude and Microgen Accounting Hub resources. As a result, contrary to the market trend, consultancy fee rates have increased by 16% compared to the first half of 2008.
Statement on Principal Risks and Uncertainties
Pursuant to the requirements of the Disclosure and Transparency Rules the Group provides the following information on its principal risks and uncertainties. The Group considers strategic, operational and financial risks and identifies actions to mitigate those risks. These risk profiles are updated at least annually. The principal risks and uncertainties detailed within the Group's 2008 Annual Report remain applicable for the final six months of the financial year. The Group's 2008 Annual Report is available from the Microgen website: www.microgen.com.
There were no related party transactions during the period, as disclosed in Note 14.
The Group's performance in the first half of 2009 reflects the success of the investment in Microgen Aptitude and related products, supported by high recurring revenues from the Group's other products and services in slower growth market sectors. As a result, despite the difficult economic and market conditions, the operating margins reported in the first half of the year were ahead of Plan, with all development costs expensed.
The market-leading capability of Microgen Aptitude and the Microgen Accounting Hub is now converting into tangible results and the products continue to win against market leading competitors in Europe and North America. With a rapidly expanding blue-chip customer base and excellent references from successful projects (often leading to further projects within existing customers), the Board are confident that the return on the investment in Microgen Aptitude will be realised. While the Board remains cautious and prudent, particularly in the current unpredictable market, Microgen has delivered another excellent operating performance and, as advised in the recent trading update, remains on track to meet, or possibly exceed, the Board's expectations for the year.
Read the full statement here:» Download the document now 55.2 kb (PDF File)