TIDMMCGN
RNS Number : 8018T
Microgen PLC
25 March 2019
25 March 2019
MICROGEN plc ('Microgen' or 'Group')
Audited Preliminary Results for the Year Ended
31 December 2018
Microgen plc (LSE: MCGN), a leading provider of
business-critical software and services, reports its audited
preliminary results for the year ended 31 December 2018.
Group Highlights:
-- The Group continued its progress in 2018 demonstrated by
strong organic growth in Aptitude Software's Recurring Revenue
Base(1) of 24% with an excellent new business performance from the
Aptitude Insurance Calculation Engine
-- Microgen Financial Systems' strengthening focus on Trust
& Fund Administration continues with the disposal of its
non-core Payments business in the year
-- Overall revenue growth of 12% to GBP70.3 million (2017(2) :
GBP63.0 million), Organic Growth(3) of 6%
-- Group Adjusted Operating Profit(4) increased by 9% to GBP15.7
million (2017: GBP14.5 million). Group operating profit on a
statutory basis of GBP16.8 million (2017: GBP12.0 million) with
2018 benefitting from a GBP3.2 million gain from the disposal of
the non-core Payments business
-- Adjusted Basic Earnings per Share increased by 8% to 19.4
pence (2017: 18.0 pence). Basic earnings per share increased to
22.6 pence (2017: 17.3 pence)
-- Proposed final dividend of 4.40 pence per share (2017: 4.25
pence) representing a full year dividend of 6.60 pence (2017: 6.25
pence), an increase of 6%
-- Cash conversion was 97% in the year (2017: 113%) with the
Group benefitting from a growing Recurring Revenue Base with
customers typically paying annually in advance
-- Strong balance sheet with cash of GBP29.2 million (2017:
GBP19.1 million) and net funds of GBP17.3 million (2017: GBP4.9
million) following a net corporate cash inflow of GBP2.9 million in
2018 (GBP6.8 million net proceeds from the disposal of the non-core
Payments business less GBP3.9 million dividends)
Strategic Update:
-- Proposed demerger and admission to trading on AIM of Microgen
Financial Systems, allowing the Group to focus on the specialised
financial management software market served by Aptitude Software,
and providing Microgen Financial Systems with the best ownership
environment for it to successfully focus on its specialist target
market and service its international customer base
-- Intention to change name in early April 2019 from Microgen
plc to Aptitude Software Group plc to reflect the new focus of the
Group
Aptitude Software:
-- Aptitude Software is successfully transitioning its focus to
the growing opportunity with the Aptitude Insurance Calculation
Engine and the Aptitude Lease Accounting Engine
-- Multiple sales of the recently launched Aptitude Insurance
Calculation Engine across Asia, Europe and North America
demonstrating the growing international reach of the business
complemented by an encouraging number of sales of Aptitude
Software's growing suite of cloud-deployed applications, the
Aptitude Lease Accounting Engine and Aptitude RevStream
-- Early success at the start of 2019 with material new business
contracts for the Aptitude Insurance Calculation Engine and
Aptitude RevStream
-- Software revenue growth, the key focus of the business, of
37% to GBP24.8 million (2017: GBP18.1 million), Organic Growth of
23%
-- Recurring Revenue Base at 31 December 2018 increased during
2018 by 24% to GBP24.0 million (31 December 2017: GBP19.3
million)
-- Overall revenue growth of 17% to GBP52.3 million (2017:
GBP44.7 million), Organic Growth of 7%. Overall revenue impacted by
the anticipated slowing of growth in services revenue
-- Services revenue growth of 3% to GBP27.5 million (2017:
GBP26.6 million). As expected, the growth in demand for services
experienced in 2017 moderated in 2018 principally due to the
growing partner model
-- Adjusted Operating Profit growth of 21% to GBP10.4 million
(2017: GBP8.6 million). Operating profit on a statutory basis of
GBP9.4 million (2017: GBP7.8 million). Growth in Adjusted Operating
Margin to 20% (2017: 19%) achieved whilst investment continued in
people, technology, organisation and a number of growth
opportunities
-- In addition to the growing contribution from its two
cloud-deployed applications, Aptitude Software also successfully
launched its Solution Management Service to a major North American
telco in the second half of the year, with further opportunities
available for this new service
-- Investment continued in the well-established Aptitude
Technology Centre in Poland which released in the year both the
Aptitude Insurance Calculation Engine and the cloud version of the
Aptitude Lease Accounting Engine, with multiple sales of both
applications completed in 2018
-- Aptitude Software has made good progress in 2018 and enters
2019 with a growing suite of product and service offerings,
increasing worldwide presence and established partner network
Microgen Financial Systems:
-- A solid performance with an increasing focus on Trust &
Fund Administration ('T&FA') following the disposal of the
small non-core Payments software business in the year for GBP6.9
million
-- Ongoing Revenue(5) of GBP17.3 million (2017: GBP16.9 million)
of which 75% (2017: 75%) is recurring in nature. Total revenue of
GBP18.0 million (2017: GBP18.3 million)
-- Ongoing Adjusted Operating Profit of GBP6.5 million (2017:
GBP6.5 million). Operating profit on a statutory basis of GBP9.2
million (2017: GBP6.1 million)
-- T&FA revenues increased by 7% to GBP12.1 million (2017:
GBP11.3 million), Organic Growth of 7%, now representing 70% of
Ongoing Revenue (2017: 62%) with increased investment planned to
accelerate growth
-- T&FA Recurring Revenue Base at 31 December 2018 increased
during 2018 to GBP9.0 million (31 December 2017: GBP8.8
million)
-- Application Management revenues in line with the Board's
expectations at GBP5.2 million (2017: GBP5.6 million) with a number
of material long term contract extensions secured in the year
Commenting on the results and today's strategic update, Ivan
Martin, Chairman, said:
'Aptitude Software performed well in 2018 with an excellent new
business sales performance demonstrated by a 24% growth in the
Recurring Revenue Base of the business. Particularly pleasing is
the performance of the recently launched new applications, the
Aptitude Lease Accounting Engine and the Aptitude Insurance
Calculation Engine, the progress of which has continued in the
opening months of 2019 and provides the Board with confidence for
the year ahead.
The proposed demerger and admission to trading on AIM of
Microgen Financial System will represent a significant milestone in
the strategic development of the Group. The Board believes the
demerger enhances the long-term prospects of both businesses for
the benefit of their shareholders, clients and employees. It will
simplify the Group allowing the higher growth Aptitude Software
business with its specialised financial management software
applications to be the sole focus going forwards whilst Microgen
Financial Systems looks forward positively to its future as a
focused independent software business based on its leading product,
Microgen 5Series. The precise mechanics of the demerger and listing
will be communicated in due course but is expected to be completed
in the current calendar year.'
Contacts
Ivan Martin, Chairman 020-3880-7100
Philip Wood, Chief Financial Officer
Darius Alexander, FTI Consulting 020-3727-1063
(1) Throughout this report Recurring Revenue Base includes
recurring revenues contracted but yet to commence and excludes
recurring revenues which are currently being received but are known
to be terminating in the future
(2) Throughout this report the FY 2017 comparatives have been
restated as a result of changes in accounting policies, see note 13
for further information
(3) Throughout this report Organic Growth percentages have been
provided with the benefit of the acquisitions completed in 2017 and
the impact of the 2018 small disposal removed, see note 1(c) for
further information
(4) Throughout this report Adjusted Operating Profit, Adjusted
Operating Margin and Adjusted Basic Earnings per Share excludes
non-underlying operating items, unless stated to the contrary.
Further detail in respect of the non-underlying operating items can
be found within note 2 of this statement.
(5) Ongoing Revenue, Ongoing Adjusted Operating Profit and
Ongoing Operating Margin are calculated to exclude the contribution
from the Payments software business, a non-core part of Microgen
Financial Systems, disposed on 2 July 2018, see note 1(d) for
further information.
Certain non-IFRS financial measures (e.g. Adjusted Operating
Profit) are included which assist management in comparing
performance on a consistent basis
MICROGEN plc ('Microgen' or 'Group')
Audited Preliminary Results for the Year ended 31 December
2018
Chairman's Statement
The Group continued its progress in 2018 with an excellent new
business performance from the Aptitude Software business supported
by a solid performance from the Microgen Financial Systems
business. A key highlight was the success achieved in 2018 with the
recently launched Aptitude Insurance Calculation Engine, with sales
in Asia, Europe and North America.
Aptitude Software overview
Aptitude Software's performance in 2018 benefitted from multiple
sales of the Aptitude Insurance Calculation Engine together with an
encouraging number of sales of Aptitude Software's growing suite of
cloud-deployed applications, the Aptitude Lease Accounting Engine
and Aptitude RevStream. Software revenue, the key focus of the
Aptitude Software business, grew 37% to GBP24.8 million (2017:
GBP18.1 million), Organic Growth of 23%. Overall revenue for the
Aptitude Software business has grown by 17% to GBP52.3 million
(2017: GBP44.7 million), Organic Growth of 7%. Overall revenue was
impacted by the anticipated slowing of growth in services revenue
principally due to the growing partner model. Adjusted Operating
Profit increased by 21% to GBP10.4 million (2017: GBP8.6 million)
representing an Adjusted Operating Margin of 20% (2017: 19%).
Operating profit on a statutory basis was GBP9.4 million (2017:
GBP7.8 million).
Microgen Financial Systems overview
Microgen Financial Systems delivered a solid performance in 2018
with an increased focus on Trust & Fund Administration
following the disposal of the small non-core Payments software
business on 2 July 2018. Microgen Financial Systems reported
Ongoing Revenue of GBP17.3 million (2017: GBP16.9 million) with
total revenue of GBP18.0 million (2017: GBP18.3 million). Microgen
Financial Systems reported Ongoing Adjusted Operating Profit of
GBP6.5 million (2017: GBP6.5 million) with operating profit on a
statutory basis of GBP9.1 million (2017: GBP6.1 million).
Group overview
Overall the Group reported revenue growth of 12% to GBP70.3
million (2017: GBP63.0 million), Organic Growth of 6%. Group
Adjusted Operating Profit increased by 9% to GBP15.7 million (2017:
GBP14.5 million). Group operating profit on a statutory basis of
GBP16.8 million (2017: GBP12.0 million) with 2018 benefitting from
a gain from the disposal of the small non-core Payments business of
GBP3.2 million.
Dividend
Having considered the Group's progress and financial performance
in 2018 the Board proposes the payment of a final dividend of 4.40
pence per share (2017: 4.25 pence), making a total of 6.60 pence
per share for the year (2017: 6.25 pence), an increase of 6%. The
proposed final dividend will be paid on 30 May 2019, subject to
shareholder approval, to shareholders on the register at 24 May
2019.
Demerger of Microgen Financial Systems
Following the change in leadership of Microgen Financial Systems
in October 2018 the Board has been exploring a range of strategic
options with the objective of delivering maximum value to
shareholders.
The Board believes that greater value will be realised through a
simpler and more focused business targeted at the specialised
financial management software market served by Aptitude Software.
The Board has therefore concluded that a demerger of Microgen
Financial Systems on to AIM will enhance Microgen plc's ability to
allocate capital and management attention on the higher growth
Aptitude Software business whilst also providing Microgen Financial
Systems with the best ownership environment for it to successfully
focus on its specialist target market and service its international
customer base.
Historically both businesses benefitted from the combined
financial and organisational scale of the Group. Firstly, the
Aptitude Software business leveraged the more established corporate
credentials of the wider Group when securing new business contracts
with prospects for whom the corporate strength of a key supplier is
a material consideration. With the growth experienced by Aptitude
Software in recent years this benefit has reduced materially as
demonstrated by Aptitude Software's 2018 revenue of GBP52.3 million
being significantly ahead of the Group's total revenue in earlier
years (for example, in 2013 the Group's revenue was GBP29.8 million
of which Aptitude Software represented GBP14.7 million). The second
key historical benefit from the combined financial and
organisational scale of the Group were the operational synergies
focused principally on back office administration. In recent years
these synergies have largely been reduced as the finance, legal and
human resources functions have been embedded into each business
unit separately, to provide greater and more tailored support for
their growth.
In parallel with the reduction in synergies the Board
implemented a number of changes which would facilitate the eventual
demerger of Microgen Financial Systems in the future. These changes
included the establishment of strong management teams into each of
Microgen's two businesses, the separate branding adopted by the
Aptitude Software business, the devolution to each business of the
back-office administration functions, the recent disposal of the
non-core Payments business and finally the signing in 2018 of
material multi-year contract extensions with a number of Microgen
Financial Systems' Application Management clients. As Microgen
Financial Systems makes its final preparations for independence,
further investment is now being made focusing on product
development, business development and the further strengthening of
its management team.
The demerger is subject to shareholder approval and it is
expected that the demerged Microgen Financial Systems entity will
apply to be admitted to AIM during the course of 2019. It is
intended that shareholders of Microgen plc will have a direct
shareholding in the demerged entity in proportion to their
respective shareholding in Microgen plc. The Board will provide
further information on the precise mechanics of the demerger and
listing in due course.
Once demerged and admitted to AIM, the newly independent
Microgen Financial Systems will become the total focus of its board
and shareholders. This focus is expected to facilitate the ability
to target acquisitions in Microgen Financial Systems' specialist
market space whilst also allowing highly targeted and effective
incentive schemes for its dedicated team.
It is expected that Peter Whiting, currently Senior Independent
Non-Executive Director of Microgen plc, will chair the Board of the
demerged Microgen Financial Systems. Peter's knowledge of the
business and extensive public company experience will be a key
asset for the business and its executive team. Shortly after
demerger it is expected that Peter will step down from the Board of
Microgen plc.
Robert Browning, currently leading Microgen Financial Systems'
management team in his role of Chief Operating Officer, is expected
to be appointed Chief Executive Officer of the demerged business
upon admission to AIM. Philip Wood, currently Acting Chief
Executive Officer of Microgen Financial Systems in addition to
Chief Financial Officer of the Group will continue with Microgen
plc in his longstanding role of Chief Financial Officer.
Change of Name of Microgen plc to Aptitude Software Group
plc
With the Aptitude Software business expected to be the total
focus of the Group in the near future, it is now considered
appropriate to change the name of Microgen plc to Aptitude Software
Group plc. The name change will be effective from early April
2019.
Outlook
After a solid performance in 2018 Microgen Financial Systems
looks forward positively to the future with a number of investments
either underway or planned to accelerate growth within Trust &
Fund Administration as the business prepares for its future
independence. The business continues to benefit from excellent
revenue visibility arising from its strong Recurring Revenue Base
and the signing in 2018 of material multi-year contract extensions
with a number of its Application Management clients.
The opportunity for Aptitude Software is significant with the
business benefitting from a number of new applications and services
focussed across a number of different geographies and verticals.
This increasingly well positioned suite of applications have
enabled Aptitude Software, assisted by its growing partnership
network, to establish a strong pipeline of opportunities allowing
the business and the Group to look forward confidently to achieving
continued success in 2019.
Ivan Martin
Chairman
Aptitude Software Report
The Aptitude Software business provides a series of specialised
financial management software applications which have the common
capability of unifying, analysing and rapidly processing high
volume, complex, business event-driven transactions, scenarios and
calculations to deliver finance insight and control. Development
continues to be performed principally at the Aptitude Technology
Centre in Poland with sales, support and implementation services
provided from Aptitude Software's London headquarters in addition
to the North American and Singaporean offices. The business
generates revenue from its software through a combination of
licence fees (primarily annual recurring licences), software
maintenance/support, software subscriptions for its cloud-based
offerings and implementation and other support services.
Highlights and Financial Summary
Aptitude Software has made good progress in the year as the
business transitions from its previous focus on the Aptitude
Revenue Recognition Engine to the significant opportunity with its
latest application, the Aptitude Insurance Calculation Engine
('AICE'). The business has now completed multiple sales of AICE
across Asia, Europe and North America to both existing and new
customers demonstrating Aptitude Software's increasing geographic
reach and the complementary nature of the broadening suite of
applications. The business also achieved an encouraging number of
sales of Aptitude Software's growing suite of cloud-deployed
applications, the Aptitude Lease Accounting Engine and Aptitude
RevStream.
Software revenues recognised in 2018 have increased 37% to
GBP24.8 million (2017: GBP18.1 million), Organic Growth of 23%. At
31 December 2018 the Recurring Revenue Base stood at GBP24.0
million (31 December 2017: GBP19.3 million), an increase of 24%
during the year. The business continues to be focused on increasing
its Recurring Revenue Base by promoting the annual licence fee
model, however, the Recurring Revenue Base also now includes
software subscription income in respect of the cloud-deployed
applications with such income included within the software revenue
disclosed above.
Overall revenue for the Aptitude Software business has grown by
17% to GBP52.3 million (2017: GBP44.7 million), Organic Growth of
7%. Overall revenue was impacted by the anticipated slowing of
growth in services revenue principally due to the growing partner
model, with services revenue increasing by only 3% to GBP27.5
million (2017: GBP26.6 million), marginally below the prior year if
the benefit of the 2017 RevStream acquisition is excluded.
Adjusted Operating Profit increased by 21% to GBP10.4 million
(2017: GBP8.6 million) representing an Adjusted Operating Margin of
20% (2017: 19%). Operating profit on a statutory basis was GBP9.4
million (2017: GBP7.8 million).
Acceleration of Investment
Building on the recent sales successes and in anticipation of
the proposed new structure of the Group, the Board has accelerated
investment in the future growth of Aptitude Software to both
maximise current opportunities and to ensure the continued
long-term development of the business. Overall, these investments
moderate margin growth expectations for 2019 only.
The focus of investment has been the strengthening of the
product development, product management and subject matter
expertise capability of the business with a number of new senior
hires. Investment has especially been accelerated on AICE where the
new business opportunity will be at its peak in the period leading
up to the effective date for IFRS 17 (accounting periods commencing
on or after 1 January 2022).
Investment has also been accelerated ahead of earlier
expectations in establishing the new Solution Management Service
and further strengthening Aptitude Software's cloud capability,
with both services attracting new customers in 2018.
Our People
Aptitude Software's people are the key asset of the business,
whether through their knowledge of the market and the complex
accounting challenges our clients face or the technical know-how on
the development and implementation of our market leading
specialised financial management software applications. This
knowledge and know-how is leveraged through the outstanding
commitment of its exceptionally talented employees across the globe
enabling the business to make the excellent progress it achieved in
2018. The Board continues to be grateful to the wider Aptitude
Software team for their outstanding contribution to the business.
To ensure we retain knowledge leadership it is important that
career development and training remain a key focus for the
business. A series of training courses aimed at developing
functional, technical and managerial skills within the business
continue to be rolled out with further initiatives planned for
2019.
It is considered that re-naming Microgen plc to Aptitude
Software Group plc will be a positive contributor to employee
engagement with the Group, with the proposed demerger of Microgen
Financial Systems likely to increase the effectiveness of future
long-term incentive schemes for the Aptitude Software team.
Key Product Review
Aptitude Software has a growing suite of specialised financial
management software applications which have the common capability
of unifying, analysing and rapidly processing high volume, complex,
business event-driven transactions, scenarios and calculations to
deliver finance insight and control. During the year the business
strengthened its product management capability highlighted by the
appointment of a Chief Product Officer, a newly established role
within Aptitude Software. The strengthened product management
function ensures market driven insight remains at the heart of the
decision-making process determining the focus of Aptitude
Software's investment in both existing and new applications.
Aptitude Insurance Calculation Engine ('AICE')
Aptitude Software has made excellent progress in 2018 with its
latest application, the Aptitude Insurance Calculation Engine.
After completing the strategically important first sale to an Asian
insurance group in February 2018, further contracts have now been
signed with major insurers in three separate continents with a
further material new business contract signed in the opening months
of 2019 with an insurer in the UK. Success has been achieved with
both insurers contracting for their first application with Aptitude
Software as well as existing clients contracting for the
application to build on their use of the Aptitude Accounting Hub
('AAH').
AICE allows insurers to address the requirements of IFRS 17, an
accounting standard focused on insurance contracts. This new
standard will require significant change by the insurance industry,
a sector within which Aptitude Software has had a longstanding
presence with a number of insurers using Aptitude Software's
applications, a number of whom have now contracted for AICE. This
new application leverages both Aptitude Software's existing
technology and its experience of the insurance industry.
IFRS 17 will now be effective for accounting periods commencing
on or after 1 January 2022, twelve months later than previously
expected due to a recent extension in the effective date. Whilst
this change has caused some delay to certain on-going sales
processes, it is considered that in the medium term it will be
beneficial to Aptitude Software as it provides insurers further
time to select and implement more strategic and specialised
software to address the requirement as opposed to short term
tactical solutions.
There are a number of further global opportunities for AICE, the
success of which will be a key part of the continued development of
the business in both the short and medium term.
Aptitude Accounting Hub ('AAH')
AAH is a high volume operational accounting platform and
sub-ledger that centralises control, improves reporting and
generates a rich foundation of contract level finance and
accounting data. Regulatory and industry change continues to be a
driver of demand for AAH as complexity of contracts, products and
services increases across a number of industries. AAH allows
clients to simultaneously address the regulatory change and also
leverage the detailed finance and accounting data within the system
to drive commercial change within their business. AAH has clients
within banking, healthcare, insurance and telecommunications with
both new name business and account growth in 2018.
The opportunity for AAH remains significant. Whilst a number of
target companies are currently prioritising regulatory requirements
within their business (requirements addressed by a number of
Aptitude Software's applications), AAH, regardless of regulation,
is often the first element a client will licence to allow them to
better control and manage the complexity of the finance
transformation.
AAH is the cornerstone system in a number of client accounts and
integrates with Aptitude Software's other leading applications. A
number of sales of AICE or the Aptitude Revenue Recognition Engine
have been made in recent years to existing users of AAH whilst
sales of AICE to new customers will frequently be accompanied by a
sale of AAH.
Aptitude Lease Accounting Engine ('ALAE')
The Aptitude Lease Accounting Engine has made good progress in
2018 with a number of new business sales building on the first
contract for the application in December 2017 with a global
technology firm. With the demand for ALAE expected to be sustained
in the short term the business is satisfied with the Recurring
Revenue Base already established for this application.
ALAE addresses the requirements of IFRS 16 / ASC 842, the
leasing accounting standards effective for accounting periods
commencing on or after 1 January 2019. Contracts have been secured
across a number of different industries including insurance,
logistics, facilities management and manufacturing. ALAE is a
particularly compelling proposition when the accounting complexity
is high and / or involving a multi-currency, multi-entity,
multi-country dimension.
With ALAE well suited to cloud deployment the majority of the
users of ALAE have subscribed for Aptitude Software's growing
Software-as-a-Service offering, a capability accelerated by the
addition of the 2017 RevStream acquisition.
Aptitude Revenue Recognition Engine ('ARRE')
ARRE addresses the requirements of IFRS 15 / ASC 606 the revenue
accounting standards first effective for accounting periods
commencing on or after 1 January 2018 (1 January 2019 in certain
markets). Whilst providing capability applicable to many sectors
the base is comprised of telecom clients where the capabilities of
ARRE are well suited to the accounting complexity and data volumes
experienced in this market.
The majority of users have now entered live use with the
application with future growth anticipated to be generated from
growth in existing accounts.
Aptitude RevStream
Aptitude RevStream continues to see a number of new business
opportunities due to the broad revenue management capability of the
software. In addition to a number of new clients secured in 2018,
2019 has started well for this application with a material new
business contract secured at the start of the year. The software
provides clients with business benefits in addition to regulatory
compliance and Aptitude Software is committed to this revenue
management market with ongoing investment. In addition to the
positive financial contribution from the application, the
contribution of the RevStream acquisition to the development of the
cloud offering of Aptitude Software's other applications is
material. The knowledge and references provided by RevStream has
significantly accelerated the introduction of Aptitude Software's
cloud offering for the Aptitude Lease Accounting Engine.
New Service Offerings
In addition to Aptitude Software's growing software-as-a-service
revenues, the business completed the first sale of its Solution
Management Service ('SMS'), a three year contract with a large
North American telco client. The revenues for these services are
disclosed within Aptitude Software's service revenues, however,
they are fixed and recurring in nature.
The services, which are expected to further enhance the
longevity of applications with clients, extend the responsibilities
of Aptitude Software beyond traditional maintenance services to
include services typically performed by the clients' own IT teams,
for example monitoring of system performance, user administration
and release management. Investment was made in both the proposition
and the delivery capability of this new service in 2018, earlier
than previously expected by the Board. The business is now
targeting a number of opportunities within the client base to whom
it can sell and deploy this new capability.
Research and Development
The Aptitude Technology Centre in Poland is responsible for the
development of Aptitude Software's applications with the exception
of Aptitude RevStream where development is augmented by teams in
California. Modern development methodologies are followed with
multi-discipline teams focused on specific applications.
Benefitting from this approach the teams are able to rapidly and
frequently release new functionality, a key requirement given the
continuing and evolving requirements from Aptitude Software's
client base. Research and development expenditure, including the
cost of the growing product management function, in the year was
GBP8.5 million (2017: GBP6.0 million) with all costs expensed as
incurred with the increase in cost including GBP1.6 million in
respect of the full year of Aptitude RevStream development
costs.
Geographical Expansion
Aptitude Software's opportunity is worldwide with an established
presence in Asia, Europe and its largest market, North America
which represents 57% of the Recurring Revenue Base. Particularly
pleasing is the material growth during the year in the value of the
Recurring Revenue Base from Asia.
At the start of 2018 a Chief Revenue Officer for International
(Asia and Europe) was appointed to lead business development across
these two regions. Under his leadership an office in Singapore was
established in the year with a multi-discipline team established to
support this market and Aptitude Software's growing client base. In
addition, Aptitude Software will be strengthening its presence in
North America during 2019 with a senior appointment to lead the
strategy and business in this key market, a market that has grown
its Recurring Revenue Base from GBP1.6 million on 31 December 2013
to GBP13.1 million on 31 December 2018.
Whilst activities in Asia, North America and non-European Union
European states are unlikely to be impacted by the United Kingdom's
withdrawal from the European Union, Aptitude Software performs its
development at the Aptitude Technology Centre in Poland and has a
number of on-going implementation projects within European Union
states (2018 revenue from European Union states excluding United
Kingdom: GBP8.6 million). The business is continuing to monitor the
developing situation, however, whilst there may be short term
disruption it does not believe that there will be a long-term
material impact given Aptitude Software's experience in deploying
its highly skilled consultants across the world in addition to the
flexibility provided by the partner network and the option of
expanding the consulting capability of the Aptitude Technology
Centre located in the European Union.
Partner Network
Aptitude Software's partner network is a very key influencer in
our target markets where consultancies are frequently engaged to
advise on technology selection. A significant number of partner
resources have been training in Aptitude Software's applications
providing partners with the capability to implement, or contribute
to the implementation of, our applications. This capability
augments the delivery capability for Aptitude Software's
applications helping to accelerate their adoption.
Aptitude Software's partner network has continued to develop
during 2018 with the majority of new business being partner
influenced. A series of partnerships and alliances were publicly
announced in 2018 with a number of different organisations
including Deloitte, KPMG and Workday. In addition, Aptitude
Software has hosted 25 partner events across 13 countries in 3
different continents.
Foreign Exchange
Aptitude Software is an increasingly international business with
54% of its revenues invoiced in US Dollars to North American
clients (2017: 57%). Aptitude Software's 2018 revenue would have
been reported higher at GBP52.7 million on a constant currency
basis (compared to actual result of GBP52.3 million). On a constant
currency basis adjusted operating profit in 2018 would be unchanged
to that reported at GBP10.4 million. Constant currency is
calculated by comparing the 2017 results with 2018 results
retranslated at the rates of exchange prevailing during 2017.
Summary
In summary, the business has achieved excellent early success
with the Aptitude Insurance Calculation Engine establishing an
already valuable Recurring Revenue Base for this application. Good
progress has also been made to develop new service offerings with
the launch of its Solution Management Service and it is
particularly pleasing to see a number of sales of the cloud-enabled
Aptitude Lease Accounting Engine. Early success has also been
achieved in the opening months of 2019 with material new business
contracts secured for each of the Aptitude Insurance Calculation
Engine and Aptitude RevStream applications.
The opportunity for Aptitude Software remains significant. With
a growing suite of products and services focused across a number of
different geographies and verticals the business looks forward
confidently to achieving continued success in 2019.
Tom Crawford
Chief Executive Officer, Aptitude Software
Microgen Financial Systems Report
In 2018 the Microgen Financial Systems business made good
progress in increasing the proportion of its revenues from the
Trust & Fund Administration ('T&FA') sector, both through
organic growth and the disposal of the non-core Payments software
business. Microgen Financial Systems' key product in this sector is
Microgen 5Series which addresses the core operational and
regulatory requirements of a number of organisations including
Trust Administrators, Fiduciary Companies, Corporate Services
Providers and Fund Administrators. In addition to Microgen
Financial Systems' T&FA operations, revenue is generated from
an Application Management business covering a range of
Microgen-owned and third party systems principally focused on the
financial services industry. Until 2 July 2018 revenue was also
generated by a Payments software business at which time this
business was disposed. Revenues are generated through a combination
of software licence fees (primarily annual recurring licences),
software maintenance/support fees and professional services.
Highlights and Financial Summary
Microgen Financial Systems' Ongoing Revenue for the year ended
31 December 2018 increased to GBP17.3 million (2017: GBP16.9
million) of which 75% (2017: 75%) is recurring in nature. Total
revenue, impacted by the disposal of the Payments software business
on 2 July 2018, of GBP18.0 million (2017: GBP18.3 million).
The key highlight in 2018 was the disposal of the Payments
software business for cash consideration of GBP6.9 million. In 2018
this non-core part of Microgen Financial Systems contributed
revenue of GBP0.8 million (2017: GBP1.4 million) and operating
profit (before non-underlying items) of GBP0.5 million (2017:
GBP1.0 million). Following the disposal of this non-core part of
Microgen Financial Systems the 2018 Ongoing Revenue generated by
T&FA increased to 70% (2017: 62%).
Adjusted Ongoing Operating Profit is reported at GBP6.5 million
(2017: GBP6.5 million) representing an Adjusted Ongoing Operating
Margin of 38% (2017: 38%). Operating profit on a statutory profit
basis is reported at GBP9.1 million (2017: GBP6.1 million) with
2018 benefitting from a GBP3.2 million gain from the disposal of
the non-core Payments business.
Trust and Fund Administration
T&FA saw solid progress with revenue growing by 7% to
GBP12.1 million (2017: GBP11.3 million), Organic Growth of 7%.
T&FA recurring revenue in 2018 increased by 7% to GBP8.7
million (2017: GBP8.1 million), Organic Growth of 7%.
The T&FA Recurring Revenue Base increased during the year by
5% to GBP9.0 million at 31 December 2018 (31 December 2017: GBP8.8
million). Within the T&FA Recurring Revenue Base of GBP9.0
million at 31 December 2018 is GBP5.0 million (2017: GBP4.5
million) relating to the Microgen 5Series product with the
Recurring Revenue Base on acquired and legacy T&FA products of
GBP4.0 million (2017: GBP4.3 million).
In preparation for being an independent business a number of
investments are being made to accelerate the growth of Microgen
Financial Systems' T&FA revenues. In addition to further
strengthening of the management team, investment has increased in
particular within product and business development with
profitability expected to be impacted in the short term.
Application Management
The Application Management business comprises a number of
Microgen-owned and third party systems focused principally on
financial services. The Application Management business reported
revenue in line with management expectations at GBP5.2 million
(2017: GBP5.6 million) with a number of long-term contract
extensions secured in the year to provide the business with
increased visibility and resilience in coming years.
Our People and Leadership
Following the departure of Microgen Financial Systems' Chief
Executive Officer in October 2018, Philip Wood has been leading the
business and providing support to the management team headed by
Robert Browning. It is now confirmed that Robert will lead the
business through its proposed demerger at which time it is expected
he will be appointed Chief Executive Officer of Microgen Financial
Systems.
The wider Microgen Financial Systems team are a key strength of
the business and the Board are grateful for their excellent
contribution in the year. Since the start of 2018 the team have
successfully embraced several changes, whether the adoption of new
modern development methodologies, enhanced approaches to
implementation or refined go-to-market strategies. It is
particularly pleasing to see individuals flourish in their new
roles or responsibilities as part of these changes.
Summary
Microgen Financial Systems made solid progress in 2018 and
enters 2019 with an increased focus on T&FA following the
disposal of the non-core Payments business in July 2018. Microgen
Financial Systems is now looking to accelerate its growth within
T&FA through investment in several different areas of the
business. Benefiting from these investments, high levels of
recurring revenue and the material multi-year contract extensions
with a number of Application Management clients, the business looks
forward to being an independent software business focused on its
core market and further improving its competitive position.
Philip Wood
Acting Chief Executive Officer, Microgen Financial Systems
Group Financial Performance and Chief Financial Officer's
Report
Throughout this report:
-- The FY 2017 comparatives have been restated as a result of
changes in accounting policies, see note 13 for further
information
-- Recurring Revenue Base includes recurring revenues contracted
but yet to commence and excludes recurring revenues which are
currently being received but are known to be terminating in the
future
-- Organic Growth percentages have been provided with the
benefit of the acquisitions completed in 2017 and the impact of the
2018 small disposal removed, see note 1(c) for further
information
-- Adjusted Operating Profit, Adjusted Operating Margin and
Adjusted Basic Earnings per Share excludes non-underlying operating
items, unless stated to the contrary. Further detail in respect of
the non-underlying operating items can be found within note 2.
-- Ongoing Revenue, Ongoing Adjusted Operating Profit and
Ongoing Operating Margin are calculated to exclude the contribution
from the Payments software business, a non-core part of Microgen
Financial Systems, disposed on 2 July 2018, see note 1(d) for
further information
Revenue for the year ended 31 December 2018 was GBP70.3 million
(2017: GBP63.0 million) resulting in an Adjusted Operating Profit
of GBP15.7 million (2017: GBP14.5 million) representing growth of
12% and 9% respectively. Organic Growth in revenue was 6%.
Operating profit on a statutory basis was GBP16.8 million (2017:
GBP12.0 million) benefitting from non-underlying costs of GBP2.2
million (2017: GBP2.5 million) and a GBP3.2 million gain on
disposal of the small non-core Payments software business (2017:
nil). Group overhead costs were GBP1.6 million (2017: GBP1.7
million). The Group reported a profit for the year attributable to
shareholders of GBP13.8 million (2017: GBP10.5 million). In
accordance with IFRS, the Board has continued to conclude that all
internal research and development costs are expensed as incurred
and therefore the Group has no capitalisation of development
expenditure.
Non-underlying operating costs in 2018 of GBP2.2 million (2017:
GBP2.5 million) includes a GBP1.9 million (2017: GBP1.3 million)
amortisation charge in respect of acquired intangible assets.
The total tax charge for the year is GBP1.6 million (2017:
GBP1.1 million). After adjusting for the effect of non-underlying
and other items, the Group's tax charge represents 22.93% of the
Group's adjusted profit before tax (2017: 21.90%) which is the tax
rate used for calculating the adjusted earnings per share. Adjusted
basic earnings per share for the year ended 31 December 2018 was
19.4 pence (2017: 18.0 pence). Basic earnings per share for the
year was 22.6 pence (2017: 17.3 pence).
The Group has a strong balance sheet with net assets at 31
December 2018 of GBP64.8 million (2017: GBP54.4 million), including
cash at 31 December 2018 of GBP29.2 million (2017: GBP19.1
million), and net funds at 31 December 2018 of GBP17.3 million
(2017: GBP4.9 million). During the year there were corporate cash
inflows of GBP2.9 million comprising GBP6.8 million net proceeds
from the disposal of the non-core Payments business less GBP3.9
million dividends. The net loan balance outstanding was GBP7.9
million at 31 December 2018 (2017: GBP9.8 million) with a further
GBP4.0 million of capital lease obligations pursuant to the
adoption of IFRS 16 (2017: GBP4.2 million). Trade and other
receivables outstanding at 31 December 2018 were GBP14.7 million
(2017: GBP13.6 million) with the growth in the Group's revenues
also resulting in deferred income increasing to GBP28.3 million at
31 December 2018 (2017: GBP26.7 million).
Continuing to be a focus of the Group, cash conversion (measured
by cash generated from operations as a percentage of operating
profit adjusted for the non-underlying items with no cash effect)
was once again excellent in 2018 at 97% (2017: 113%) with the Group
continuing to benefit from a growing Recurring Revenue Base with
customers typically paying annually in advance.
Philip Wood
Chief Financial Officer
Group Income Statement
for the year ended 31 December 2018
Year Ended 31 Dec 2018 Year Ended 31 Dec 2017 Restated*
Before Before
non-underlying Non-underlying non-underlying Non-underlying
Notes items items Total items items Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Revenue 1 70,286 - 70,286 63,021 - 63,021
Operating 1,
costs 2 (54,547) (2,201) (56,748) (48,518) (2,541) (51,059)
Gain on
disposal
of
subsidiary - 3,237 3,237 - - -
--------------- --------------- ----------------- --------------- --------------- -----------------
Operating
profit 15,739 1,036 16,775 14,503 (2,541) 11,962
--------------- --------------- ----------------- --------------- --------------- -----------------
Finance
income 47 - 47 13 - 13
Finance
costs (480) - (480) (472) - (472)
--------------- --------------- ----------------- --------------- --------------- -----------------
Net finance
costs (433) - (433) (459) - (459)
--------------- --------------- ----------------- --------------- --------------- -----------------
Profit
before
income tax 15,306 1,036 16,342 14,044 (2,541) 11,503
Income tax
expense 3 (3,070) 521 (2,549) (2,447) 1,447 (1,000)
--------------- --------------- ----------------- --------------- --------------- -----------------
Profit for
the
year 12,236 1,557 13,793 11,597 (1,094) 10,503
=============== =============== ================= =============== =============== =================
Earnings
per share
Basic 4 22.6p 17.3p
----------------- -----------------
Diluted 4 21.5p 16.5p
----------------- -----------------
*see note 13 for details regarding the restatement of the prior year financial
statements which has arisen as a result of a change in the Group's accounting
policies.
group statement of comprehensive income
For the year ended 31 December 2018
Year ended Year ended
31 Dec 2018 31 Dec 2017
Restated*
GBP000 GBP000
Profit for the year 13,793 10,503
-------------- -------------
Other comprehensive (expense)/income
Items that will or may be reclassified to profit
or loss:
Fair value (loss)/gain on hedged financial instruments (14) 148
Currency translation difference (370) (40)
-------------- -------------
Other comprehensive (expense)/income for the year,
net of tax (384) 108
Total comprehensive income for the year 13,409 10,611
============== =============
*see note 13 for details regarding the restatement of the prior
year financial statements which has arisen as a result of a change
in the Group's accounting policies.
Group Balance Sheet
For the year ended 31 December 2018
As at As at
31 Dec 2018 31 Dec 2017
Restated*
Notes GBP000 GBP000
ASSETS
Non-current assets
Property, plant and equipment 5,417 5,543
Goodwill 48,793 52,801
Intangible assets 14,186 16,124
Other long-term assets 1,581 1,281
Deferred tax assets 1,137 1,421
71,114 77,170
---------------------------------------- -----------------------
Current assets
Trade and other receivables 6 14,675 13,568
Financial assets - derivative financial
instruments 114 218
Current income tax assets 1,535 733
Cash and cash equivalents 29,186 19,137
---------------------------------------- -----------------------
45,510 33,656
Total assets 116,624 110,826
---------------------------------------- -----------------------
LIABILITIES
Current liabilities
Financial liabilities
- borrowings 8 (2,040) (2,040)
- derivative financial instruments (12) (37)
Trade and other payables 7 (35,484) (37,227)
Capital lease obligations 9 (1,109) (1,038)
Current income tax liabilities (489) (381)
(39,134) (40,723)
---------------------------------------- -----------------------
Net current assets/(liabilities) 6,376 (7,067)
---------------------------------------- -----------------------
Non-current liabilities
Financial liabilities - borrowings 8 (5,818) (7,778)
Capital lease obligations 9 (2,846) (3,200)
Provisions 10 (424) (404)
Deferred tax liabilities (3,582) (4,297)
---------------------------------------- -----------------------
(12,670) (15,679)
---------------------------------------- -----------------------
NET ASSETS 64,820 54,424
======================================== =======================
*see note 13 for details regarding the restatement of the prior
year financial statements which has arisen as a result of a change
in the Group's accounting policies.
Group Balance Sheet
For the year ended 31 December 2018
As at As at
31 Dec 2018 31 Dec 2017
Restated*
SHAREHOLDERS' EQUITY Notes GBP000 GBP000
Share capital 11 3,958 3,939
Share premium account 6,488 6,449
Capital redemption reserve 12,372 12,372
Other reserves 34,265 34,279
Retained earnings/(accumulated losses) 8,010 (2,712)
Foreign currency translation reserve (273) 97
TOTAL EQUITY 64,820 54,424
======================================== ======================
*see note 13 for details regarding the restatement of the prior
year financial statements which has arisen as a result of a change
in the Group's accounting policies.
Group Statement of changes in shareholders' equity
for the Year Ended 31 December 2018
Retained Foreign
earnings/ currency Capital
Share Share (accumulated translation redemption Total
capital premium losses) reserve reserve Other Equity
GBP000 GBP000 GBP000 GBP000 GBP000 reservesGBP000 GBP000
Restated total
equity
At 1 January
2018* 3,939 6,449 (2,712) 97 12,372 34,279 54,424
========== ========== ============== ============== ============= ================ =========
Profit for the
year - - 13,793 - - - 13,793
Cash flow
hedges
- net fair
value
losses in the
year - - - - - (14) (14)
Exchange rate
adjustments - - - (370) - - (370)
---------- ---------- -------------- -------------- ------------- ---------------- ---------
Total
comprehensive
income for the
year - - 13,793 (370) - (14) 13,409
---------- ---------- -------------- -------------- ------------- ---------------- ---------
Shares issued
under
share option
schemes 19 39 - - - - 58
Share options -
value of
employee
service - - 1,074 - - - 1,074
Deferred tax on
financial
instruments - - (17) - - - (17)
Deferred tax on
share options - - (331) - - - (331)
Corporation tax
on share
options - - 131 - - - 131
Dividends to
equity
holders of the
company - - (3,928) - - - (3,928)
Total
Contributions
by and
distributions
to owners of
the
company
recognised
directly in
equity
income 19 39 (3,071) - - - (3,013)
---------- ---------- -------------- -------------- ------------- ---------------- ---------
At 31 December
2017 3,958 6,488 8,010 (273) 12,372 34,265 64,820
========== ========== ============== ============== ============= ================ =========
*see note 13 for details regarding the restatement of the prior
year financial statements which has arisen as a result of a change
in the Group's accounting policies.
Group Cash Flow Statement
for the Year Ended 31 December 2018
Year ended Year ended
31 Dec 2018 31 Dec 2017
Restated*
Notes GBP000 GBP000
Cash flows from operating activities
Cash generated from operations 12 15,042 15,193
Interest paid (440) (472)
Income tax paid (3,068) (2,525)
Net cash flows generated from operating
activities 11,534 12,196
-------------- -------------
Cash flows from investing activities
Purchase of property, plant and equipment,
excluding right-of-use assets (985) (1,180)
Disposal of subsidiary, net of cash disposed 6,770 -
Acquisition of subsidiaries, net of cash
acquired - (10,460)
Interest received 47 13
Net cash generated from/(used in) investing
activities 5,832 (11,627)
-------------- -------------
Cash flows from financing activities
Net proceeds from issuance of ordinary
share capital 58 106
Dividends paid to company's shareholders 5 (3,928) (3,345)
Repayment of loan (2,000) (12,250)
Repayment of capital lease obligations (1,314) (895)
Repayment of debt and debt-like items - (591)
Drawdown of loan - 11,818
Net cash used in financing activities (7,184) (5,157)
-------------- -------------
Net increase/(decrease) in cash and cash
equivalents 10,182 (4,588)
Cash, cash equivalents and bank overdrafts
at beginning of year 19,137 23,849
Exchange rate losses on cash and cash equivalents (133) (124)
Cash and cash equivalents at end of year 29,186 19,137
============== =============
*see note 13 for details regarding the restatement of the prior
year financial statements which has arisen as a result of a change
in the Group's accounting policies.
Notes to the Audited preliminary results for the year ended 31
December 2018
1. Segmental analysis
Business segments
The Board has determined the operating segments based on the
reports it receives from management to make strategic
decisions.
The segmental analysis is split into the Aptitude Software and
the Microgen Financial Systems operating businesses.
The principal activity of the Group throughout 2017 and 2018 is
the provision of business-critical software and services.
The operating businesses are allocated central function costs in
arriving at operating profit/(loss). Group overhead costs are not
allocated into the operating businesses as the Board believes that
these relate to Group activities as opposed to the operating
businesses.
1(a) Revenue and operating profit by operating business
Microgen
Aptitude Financial
Year ended 31 December 2018 Software Systems Group Total
GBP000 GBP000 GBP000 GBP000
Revenue 52,274 18,012 - 70,286
Operating costs (41,873) (11,048) - (52,921)
------------------ ----------- -------- ---------
Operating profit before Group
overheads 10,401 6,964 - 17,365
Unallocated Group overheads (1,626) (1,626)
Operating profit before non-underlying
items 15,739
Non-underlying items (1,008) (1,092) (101) (2,201)
Gain on disposal of subsidiary - 3,237 - 3,237
------------------ ----------- -------- ---------
Operating profit/(loss) 9,393 9,109 (1,727) 16,775
------------------ ----------- --------
Net finance cost (433)
---------
Profit before tax 16,342
Income tax expense (2,549)
---------
Profit for the year 13,793
=========
Microgen
Year ended 31 December 2017 Aptitude Financial
Restated* Software Systems Group Total
GBP000 GBP000 GBP000 GBP000
Revenue 44,721 18,300 - 63,021
Operating costs (36,102) (10,765) - (46,867)
------------------ ------------------ -------- ---------
Operating profit before Group
overheads 8,619 7,535 - 16,154
Unallocated Group overheads (1,651) (1,651)
---------
Operating profit before non-underlying
items 14,503
Non-underlying items (829) (1,398) (314) (2,541)
------------------ ------------------ -------- ---------
Operating profit/(loss) 7,790 6,137 (1,965) 11,962
------------------ ------------------ --------
Net finance cost (459)
---------
Profit before tax 11,503
Income tax expense (1,000)
---------
Profit for the year 10,503
=========
*see note 13 for details regarding the restatement of the prior
year financial statements which has arisen as a result of a change
in the Group's accounting policies.
1(b) Geographical analysis
The Group has two geographical segments for reporting purposes,
the United Kingdom and the Rest of the World.
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 2018 31 Dec 2017 31 Dec 2018 31 Dec 2017
Restated* Restated*
GBP000 GBP000 GBP000 GBP000
United Kingdom 36,190 32,343 10,188 11,111
Rest of World 34,096 30,678 60,098 51,910
70,286 63,021 70,286 63,021
============== ============= ================ =============
*see note 13 for details regarding the restatement of the prior
year financial statements which has arisen as a result of a change
in the Group's accounting policies.
1(c) Organic Growth in Revenue
Within this report the Group discloses the level of Organic
Growth in Revenue it has generated. The following table provides an
analysis of how this has been calculated.
Aptitude Microgen Total
Software Financial
Systems
Year ending 31 December 2018 GBP000 GBP000 GBP000
Revenue as presented 52,274 18,012 70,286
Revenue generated from 2017 acquisitions (7,484) (873) (8,357)
Payments software revenue - (758) (758)
44,790 16,381 61,171
=========== =========== ========
Aptitude Microgen Total
Software Financial
Systems
Year ending 31 December 2017 GBP000 GBP000 GBP000
Revenue as presented 44,721 18,300 63,021
Revenue generated from 2017 acquisitions (2,980) (792) (3,772)
Payments software revenue - (1,448) (1,448)
41,741 16,060 57,801
=========== =========== ========
1(d) Ongoing Revenue and Adjusted Operating Profit of Microgen
Financial Systems
Within this report the Group discloses the level of Ongoing
Revenue and Adjusted Operating Profit it has generated within the
Microgen Financial Systems business. The following table provides
an analysis of how this has been calculated.
Year ending Year ending
31 Dec 2018 31 Dec 2017
Ongoing Revenue GBP000 GBP000
Revenue as presented 18,012 18,300
Payments software revenue (758) (1,448)
17,254 16,852
============== ==============
Year ending Year ending
31 Dec 2018 31 Dec 2017
Ongoing Adjusted Operating Profit GBP000 GBP000
Adjusted Operating Profit as presented 6,964 7,535
Payments software Adjusted Operating Profit (483) (1,047)
6,481 6,488
============== ==============
2. Non-underlying items
31 Dec 2018 31 Dec 2017
GBP000 GBP000
Amortisation of intangibles 1,938 1,316
Share based payments on share options issued
in 2013 101 115
Costs in relation to replacement credit
facility - 199
Acquisition and associated restructuring
costs 162 911
2,201 2,541
====================== ===================
3. Income tax expense
Year ended Year ended
31 Dec 2018 31 Dec 2017
Restated*
Analysis of charge in the year GBP000 GBP000
Current tax:
- tax charge on underlying items (3,479) (2,707)
- adjustment to tax in respect of prior
periods 145 (96)
Total current tax (3,334) (2,803)
-------------- -------------
Deferred tax:
- tax credit/ (charge) on underlying items 18 112
- tax credit on non-underlying items 521 1,447
- adjustment to tax in respect of prior
periods 2 403
- adjustment for change in accounting
policies 244 (159)
Total deferred tax 785 1,803
-------------- -------------
Income tax expense (2,549) (1,000)
============== =============
The total tax charge of GBP2,549,000 (2017 Restated*:
GBP1,000,000) represents 15.60% (2017 Restated*: 8.69%) of the
Group profit before tax of GBP16,342,000 (2017 Restated*:
GBP11,503,000).
After adjusting for the impact of non-underlying items, change
in tax rates, share based payment charge, prior year tax charges
and the change in accounting policies the tax charge for the year
of GBP3,509,000 (2017 Restated*: GBP3,075,000) represents 22.93%
(2017: 21.90%), which is the tax rate used for calculating the
adjusted earnings per share.
At the balance sheet date, the Group has unused tax losses of
GBP3,080,000 (2017: GBP3,366,000) available for offset against
future profits. A deferred tax asset has been recognised in respect
of GBP455,000 (2017: GBP756,000) of such losses which is the
maximum the Group anticipates being able to utilise in the year
ending 31 December 2019. No deferred asset has been recognised in
respect of the remaining GBP2,625,000 (2017: GBP2,610,000) due to
the unpredictability of future profit streams.
*see note 13 for details regarding the restatement of the prior
year financial statements which has arisen as a result of a change
in the Group's accounting policies.
The difference between the total tax charge and the amount
calculated by applying the effective United Kingdom corporation tax
rate of 19.00% (2017: 19.25%) to the profit on ordinary activities
before tax is as follows:
Year ended Year ended
31 Dec 2018 31 Dec 2017
Restated*
GBP000 GBP000
Profit on ordinary activities before tax 16,342 11,503
============== =============
Tax at the UK corporation tax rate of
19.00% (2017: 19.25%) (3,105) (2,214)
Effects of:
Adjustment to tax in respect of prior
periods 145 307
Adjustment for change in accounting policies 244 -
Adjustment in respect of foreign tax rates (499) (409)
Expenses not deductible for tax purposes
- Exempt gain on disposal 594 -
- Other 18 (112)
Recognition of tax losses 50 321
Change in future tax rates 4 1,107
Total taxation (2,549) (1,000)
============== =============
Changes in future tax rates for the year ended 31 December 2017
of GBP1,107,000 reflects the reduction in US tax rates which were
substantially enacted during the prior year where the federal tax
rate was reduced from 35% to 21%, which after taking into account
state taxes reduces the Group's US effective tax rate from 43% to
29% for 2018. Consequently, a revaluation of the deferred tax
liability established on the acquisition of Aptitude RevStream Inc.
was required. During the year the Group adopted a number of new
accounting standards on a retrospective basis, the result of which
was an adjustment to the reserves for the year ending 31 December
2017. The tax impact of these movements was reflected in the
deferred tax balance. In accordance with the tax legislation in the
relevant jurisdictions, adjustments which directly impact the
income statement have now been fully realised in the current
period.
*see note 13 for details regarding the restatement of the prior
year financial statements which has arisen as a result of a change
in the Group's accounting policies.
4. Earnings per share
To provide an indication of the underlying operating performance
per share, the adjusted profit after tax figure shown below
excludes non-underlying items and has a tax charge using the
effective rate of 22.93% (2017: 21.90%).
Year ended Year ended
31 Dec 2018 31 Dec 2017
Restated*
GBP000 GBP000
Profit on ordinary activities before tax
and non-underlying items 15,306 14,044
Tax charge at a rate of 22.93% (2017:
21.90%) (3,509) (3,075)
-------------- -------------
11,797 10,969
Prior years' tax charge 145 307
Non-underlying items net of tax 1,557 (1,094)
Change in accounting policies 244 -
Recognition of tax losses 50 321
Profit on ordinary activities after tax 13,793 10,503
============== =============
2018 2017
Number Number
(thousands) (thousands)
Weighted average number of shares 60,922 60,612
Effect of dilutive share options 3,336 3,228
64,258 63,840
============= =============
2018 2018 2017 Restated* 2017 Restated*
Basic Diluted Basic Diluted
EPS EPS EPS EPS
Pence pence pence pence
Earnings per share 22.6 21.5 17.3 16.5
Non-underlying items net of
tax (2.5) (2.4) 1.8 1.7
Prior years' tax credit (0.2) (0.2) (0.5) (0.4)
Change in accounting policies (0.4) (0.4) - -
Tax losses recognised (0.1) (0.1) (0.6) (0.6)
Adjusted earnings per share 19.4 18.4 18.0 17.2
======== ========== =============== ===============
Adjusted earnings per share are calculated using adjusted profit
after tax.
*see note 13 for details regarding the restatement of the prior
year financial statements which has arisen as a result of a change
in the Group's accounting policies.
5. Dividends
2018 pence 2017 pence 2018 2017
per share per share GBP000 GBP000
Dividends paid:
Interim dividend 2.20 2.00 1,340 1,217
Final dividend (prior year) 4.25 3.50 2,588 2,128
6.45 5.50 3,928 3,345
=========== =========== ======== ========
Proposed but not recognised
as a liability:
Final dividend (current year) 4.40 4.25 2,692 2,587
=========== =========== ======== ========
The proposed final dividend was approved by the Board on 4 March
2019 but was not included as a liability as at 31 December 2018, in
accordance with IAS 10 'Events after the Balance Sheet date'. If
approved by shareholders at the Annual General Meeting the proposed
final dividend will be payable on 30 May 2019 to shareholders on
the register at the close of business on 24 May 2019.
6. Trade and other receivables
31 Dec 2018 31 Dec
2017 Restated*
GBP000 GBP000
Trade receivables 11,258 10,496
Less: provision for impairment of receivables (229) (88)
------------- ----------------
Trade receivables - net 11,029 10,408
Other receivables 1,571 964
Prepayments 917 1,006
Accrued income 1,158 1,190
14,675 13,568
============= ================
*see note 13 for details regarding the restatement of the prior
year financial statements which has arisen as a result of a change
in the Group's accounting policies.
7. Trade and other payables
31 Dec 2018 31 Dec
2017 Restated*
GBP000 GBP000
Trade payables 1,778 1,797
Other tax and social security payable 1,962 1,803
Other payables 228 113
Accruals 3,240 6,843
Deferred income 28,276 26,671
35,484 37,227
============= ================
*see note 13 for details regarding the restatement of the prior
year financial statements which has arisen as a result of a change
in the Group's accounting policies.
8. Financial liabilities
31 Dec 2018 31 Dec
2017
GBP000 GBP000
Bank Loan 7,858 9,818
============ =======
The borrowings are repayable as follows:
Within one year 2,040 2,040
In the second year 2,040 2,040
In the third to fifth years inclusive 3,920 5,920
------------ -------
8,000 10,000
Unamortised prepaid facility arrangement fees (142) (182)
------------ -------
At 31 December 7,858 9,818
============ =======
9. Capital lease obligations
The Group leases various offices and plant and machinery which,
following the adoption of IFRS 16 met the criteria set out to be
recognised as capital lease agreements
31 Dec 2018 31 Dec
2017 Restated*
GBP000 GBP000
Amounts payable under capital lease agreements:
Within one year 1,243 1,155
Within two to five years 2,510 2,798
After five years 571 736
------------- ----------------
Total 4,324 4,689
Less: future finance charges (369) (451)
------------- ----------------
Present value of lease obligations 3,955 4,238
Less: Amount due for settlement within 12 months
(shown under current liabilities) (1,109) (1,038)
2,846 3,200
============= ================
31 Dec 2018 31 Dec
2017
GBP000 GBP000
The present value of financial lease liabilities
is split as follows:
Within one year 1,109 1,038
Within two to five years 2,295 2,503
After five years 551 697
3,955 4,238
============ =======
*see note 13 for details regarding the restatement of the prior
year financial statements which has arisen as a result of a change
in the Group's accounting policies.
10. Provisions for other liabilities and charges
Provisions
31 Dec 2018 31 Dec 2017
GBP000 GBP000
At 1 January 404 311
Charged to income statement 14 94
Utilised - (9)
Foreign exchange movement 6 8
At 31 December 424 404
============ ============
Provisions have been analysed between current and non-current as
follows:
Provisions
31 Dec 2018 31 Dec 2017
GBP000 GBP000
Current - -
Non-current 424 404
424 404
============ ============
11. Share capital
Ordinary shares of 6 3/7p each Number GBP000
Issued and fully paid:
At 1 January 2018 60,878,689 3,913
Issued under share option schemes 294,241 19
----------- -------
At 31 December 2018 61,172,930 3,932
=========== =======
Shares to be issued
Deferred equity consideration on acquisition 398,518 26
----------- -------
Total Ordinary shares issued and to be issued
at 31 December 61,571,448 3,958
=========== =======
12. Notes to the Group Cash Flow Statement
Reconciliation of profit before tax to net cash generated from
operations:
Year ended Year ended
31 Dec 2018 31 Dec 2017
Restated*
GBP000 GBP000
Profit before tax 16,342 11,503
Adjustments for:
Depreciation 1,869 1,529
Amortisation 1,938 1,316
Share-based payment expense 1,074 796
Gain on disposal of subsidiary (3,237) -
Finance income (47) (13)
Finance costs 480 472
Changes in working capital excluding the effects
of acquisition:
Increase in receivables (2,040) (3,924)
Increase in payables (1,357) 3,421
Increase in provisions 20 93
Cash generated from operations 15,042 15,193
============== =============
13. Changes in accounting policies
13(a) Impact on financial statements
The Group adopted IFRS 9 'Financial Instruments', IFRS 15
'Revenue from Contracts with Customers' and IFRS 16 'Leasing' from
1 January 2018 and had to change its accounting policies and make
retrospective adjustments to the financial statements.
The tables on the following pages summarise the impact of the
adjustments on the 2017 financial statements. Whilst the adoption
of IFRS 9 'Financial Instruments' from 1 January 2018 resulted in
changes in accounting policies, no adjustments were made to the
amounts recognised in the financial statements as the effect was
deemed to be insignificant.
Condensed consolidated income statement extract
Year ended IFRS IFRS 16 Year ended
31 Dec 15 31 Dec
2017 As 2017 Restated
originally
presented
GBP000 GBP000 GBP000 GBP000
Revenue 62,640 381 - 63,021
Operating costs (51,560) 271 230 (51,059)
------------ ------- --------- ---------------
Operating profit 11,080 652 230 11,962
------------ ------- --------- ---------------
Finance income 13 - - 13
Finance costs (316) - (156) (472)
------------ ------- --------- ---------------
Net finance costs (303) - (156) (459)
------------ ------- --------- ---------------
Profit before income tax 10,777 652 74 11,503
Income tax expense (841) (150) (9) (1,000)
------------ ------- --------- ---------------
9,936 502 65 10,503
============ ======= ========= ===============
Earnings per share
Basic 16.4p 0.7p 0.2p 17.3p
------------ ------- --------- ---------------
Diluted 15.6p 0.7p 0.2p 16.5p
------------ ------- --------- ---------------
Condensed consolidated balance sheet extract
As at IFRS IFRS 16 As at
31 Dec 15 31 Dec
2017 As 2017 Restated
originally
presented
GBP000 GBP000 GBP000 GBP000
ASSETS
Non-current assets
Property, plant and equipment 1,825 - 3,718 5,543
Other long-term assets - 1,281 - 1,281
Deferred tax assets 1,336 (6) 91 1,421
------------ ------- --------- ---------------
72,086 1,275 3,809 77,170
------------ ------- --------- ---------------
Current assets
Trade and other receivables 13,363 205 - 13,568
------------ ------- --------- ---------------
33,451 205 - 33,656
------------ ------- --------- ---------------
Total assets 105,537 1,480 3,809 110,826
LIABILITIES
Current liabilities
Trade and other payables (36,952) (343) 68 (37,227)
Capital lease obligations - - (1,038) (1,038)
------------ ------- --------- ---------------
(39,410) (343) (970) (40,723)
------------ ------- --------- ---------------
Net current liabilities (5,959) (138) (970) (7,067)
------------ ------- --------- ---------------
Non-current liabilities
Capital lease obligations - - (3,200) (3,200)
Deferred tax liabilities (4,060) (237) - (4,297)
------------ ------- --------- ---------------
(12,242) (237) (3,200) (15,679)
------------ ------- --------- ---------------
NET ASSETS 53,885 900 (361) 54,424
------------ ------- --------- ---------------
SHAREHOLDERS' EQUITY
Accumulated losses (3,251) 900 (361) (2,712)
------------ ------- --------- ---------------
TOTAL EQUITY 53,885 900 (361) 54,424
============ ======= ========= ===============
The above table details line items within the condensed
consolidated balance sheet which have been subject to adjustment as
a result of the changes in accounting policies. Line items
unaffected by the changes have not been included.
The adoption of the new accounting standards during the year had
no impact on the comparative figures presented within the Company
balance sheet.
Condensed consolidated statement of cash flow extract
Year ended IFRS 16 Year ended
31 Dec 31 Dec
2017* 2017 Restated
GBP000 GBP000 GBP000
Cash flows from operating activities
Cash generated from operations 14,142 1,051 15,193
Interest paid (316) (156) (472)
------------ --------- ---------------
Net cash flows generated from operating
activities 11,301 895 12,196
------------ --------- ---------------
Cash flows from investing activities
Net cash used in investing activities (11,627) - (11,627)
------------ --------- ---------------
Cash flows from financing activities
Capital lease obligations - (895) (895)
------------ --------- ---------------
Net cash used in financing activities (4,262) (895) (5,157)
------------ --------- ---------------
Net decrease in cash and cash equivalents (4,588) - (4,588)
Cash, cash equivalents and bank overdrafts
at beginning of year 23,849 - 23,849
Deferred tax liabilities (124) - (124)
------------ --------- ---------------
Cash and cash equivalents at end of year 19,137 - 19,137
============ ========= ===============
*Amounts displayed above are as originally presented but after
the reclassification of the loan repayment totalling GBP0.6 million
which was made as part of the Group's acquisition of RevStream Inc.
in 2017. This amount had been shown in cash generated from
operations but was reclassified as a separate item within cash
flows from financing activities.
The above table details line items within the condensed
consolidated balance sheet which have been subject to adjustment as
a result of the changes in accounting policies. Line items
unaffected by the changes have not been included.
The adoption of the new accounting standards during the year had
no impact on the comparative figures presented within the Company
statement of cash flow.
13(b) Impact of adoption
IFRS 9
IFRS 9 'Financial Instruments' replaces the provisions of IAS 39
that relate to the recognition, classification and measurement of
financial assets and financial liabilities, derecognition of
financial instruments, impairment of financial assets and hedge
accounting.
As mentioned, the adoption of IFRS 9 from 1 January 2018 did not
result in any adjustments being made to amounts recognised in the
financial statements as the effect was deemed to be insignificant.
It does however change the Group's assessment of when a provision
for impairment of trade and other receivables is required through
the use of a forward-looking expected credit loss method.
IFRS 15
IFRS 15 'Revenue from Contracts with Customers' has resulted in
changes to the way the Group recognises revenue on its licence and
maintenance contracts along with the treatment of associated
commission costs.
Licence and maintenance revenue
Previously, licence and maintenance revenue generated from
customer contracts were both recognised on a straight-line basis
over the term of the agreement. On adoption of IFRS 15, the Group
now assesses whether ongoing contractual maintenance obligations
represent a performance obligation that is distinct from the
licence. When the licence fee is determined to be distinct, it is
recognised separately from the other performance obligations at the
time of delivery of the licenced software. The software maintenance
fees are then recognised in the period the services are providing,
using a straight-line basis over the term of the maintenance
agreement.
If, however, the conclusion is that the licence is not distinct,
a combined performance obligation is recognised over time which is
determined on a contract by contract basis and represents the
period over which significant modification and optimisation of the
software is required.
In determining the most appropriate method of recognising
revenue over time, the Group has concluded that for Aptitude
Software products the combined performance obligation will be
recognised in line with development activity related to the
relevant product over the period in which the enhancements are
required by the particular user.
Once this period of intense functionality enhancement has
diminished to a consistent level of ongoing maintenance obligation,
the transfer of the combined performance obligation is considered
complete. This ongoing obligation is delivered through Annual
Licence Fees or software maintenance fees which are recognised on a
straight-line basis in the period covered by the invoice.
For Microgen 5Series, the leading product of Microgen Financial
Systems, there is a continuing requirement to provide enhancements
to ensure regulatory compliance and consequently the recognition of
the Annual Licence fee is done on a straight-line basis over the
period covered by the invoice.
The adoption of IFRS 15 resulted in additional revenue being
recognised on Aptitude Software's customer contracts totalling
GBP381,000 and GBP509,000 for the year ended 31 December 2017 and
31 December 2018 respectively. No adjustments to revenue were
required for Microgen Financial Systems across either period.
Commission costs
Under previous accounting policies, software sales commission
costs were recognised in full through the income statement on the
date of signing the contract. On adoption of IFRS 15, these costs
meet the definition of incremental costs of obtaining a contract.
As a result, an asset is recognised at inception of the contract
for the total value of commission payable which will typically be
amortised across the contract life of each client.
To reflect this change in policy, the Group has recognised a
reduction in its commission costs of GBP271,000 and GBP113,000 for
the year ended 31 December 2017 and 31 December 2018
respectively.
IFRS 16
The Group leases a number of properties which, under IAS 17 were
classified as operating leases with rentals being charged directly
to the income statement on a straight-line basis over the life of
the lease.
On adoption of IFRS 16, the Group is now required to recognise
right-of-use assets and corresponding lease liabilities in respect
of these property leases due to its single lessee accounting model.
The right-of-use asset is subsequently depreciated using the
straight-line method from the commencement date to the earlier of
the end of the useful life or the end of the lease term.
The lease liability is initially measured at the present value
of the lease payments and then unwound over the remaining lease
term with an interest charge recognised in the income
statement.
The net impact of adoption on the Group's income statement for
the year ended 31 December 2017 and 31 December 2018 is an increase
in profit before tax of GBP74,000 and GBP291,000 respectively.
14. Statement by the directors
The preliminary results for the year ended 31 December 2018 and
the results for the year ended 31 December 2017 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 2017.
The financial information set out in this preliminary
announcement does not constitute the Company's statutory accounts
for the years ended 31 December 2018 or 31 December 2017. The
financial information for the year ended 31 December 2017 is
derived from the Annual Report delivered to the Registrar of
Companies. The Annual Report for 2018 will be delivered to the
Registrar of Companies in due course. The auditors' report on those
accounts was unqualified and neither drew attention to any matters
by way of emphasis nor contained a statement under either section
498(2) of Companies Act 2006 (accounting records or returns
inadequate or accounts not agreeing with records and returns), or
section 498(3) of Companies Act 2006 (failure to obtain necessary
information and explanations).
The Board of Microgen approved the release of this audited
preliminary announcement on 22 March 2019.
The Annual Report for the year ended 31 December 2018 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.aptitudesoftwaregroup.com).
Further copies will be available on request and free of charge from
the Company Secretary at Old Change House, 128 Queen Victoria
Street, London, EC4V 4BJ.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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