TIDMINS
RNS Number : 8414I
Instem plc
26 March 2018
This announcement contains inside information for the purposes
of Article 7 of EU Regulation 596/2014.
Instem plc
("Instem", the "Company" or the "Group")
Unaudited Results for the Year Ended 31 December 2017
12 months of significant operational and financial progress
resulting in record full year revenue and operating profits with a
strong and scalable platform for future growth
Instem (AIM: INS.L), a leading provider of IT solutions to the
global early development healthcare market, announces its unaudited
full year results for the year ended 31 December 2017.
Financial Highlights:
-- Revenues increased 19% to GBP21.7m (2016: GBP18.3m)
o Recurring revenues increased 9% to GBP12.8m (2016:
GBP11.7m)
o Software as a Service (SaaS) revenues increased 10% to GBP4.4m
(2016: GBP4.0m)
-- EBITDA* of GBP3.0m (2016: GBP1.3m)
-- Adjusted** profit before tax of GBP1.9m (2016: GBP0.7m)
-- Reported profit before tax of GBP0.8m (2016: GBP0.02m)
-- Basic earnings per share of 6.9p (2016: 6.9p)
-- Adjusted** fully diluted earnings per share of 13.8p (2016: 11.2p)
-- Net cash balance as at 31 December 2017 of GBP3.1m (2016: GBP4.2m)
*Earnings before interest, tax, depreciation, amortisation and
non-recurring costs.
**After adjusting for the effect of foreign currency exchange on
the revaluation of inter-company balances included in finance
income/(costs), non-recurring items and amortisation of intangibles
on acquisitions. Profit is adjusted in this way to provide a
clearer measure of underlying operating performance.
Operational Highlights:
-- Appointment of Chief Operating Officer, Ms. MaryBeth Thompson
-- Significant amendment to a contract with the US National
Institute of Environmental Health Sciences (NIEHS)
-- Successfully completed Group-wide re-organisation in June
2017 to reduce annualised operational overheads by approximately
GBP1.5m or 10%, which:
o helped to significantly improve the Group's profitability in
the second half of 2017
o will deliver a full year benefit in the current financial
year
-- Instem's largest customer brought into operation over 700
additional Provantis user licenses during 2017, delivering enhanced
recurring revenue
-- Successfully completed the integration of Samarind &
Notocord, acquired in May and September 2016, respectively, with a
solid contribution to overall revenue for the period
-- Secured two new Alphadas clients in the second half of 2017
with a major pharmaceutical company and an India-based CRO
Post period highlights:
-- Secured the largest S outsourced services contract win to
date with a top five global nonclinical CRO that plans to outsource
all S data set generation to Instem
Phil Reason, CEO of Instem, said: "Instem products and services
now address aspects of the entire drug development value chain,
from discovery through to market launch, and are currently deployed
by over 500 companies, including all of the largest 25
pharmaceutical companies in the world. Management estimate that
over 50% of all drugs on the market have been through some part of
the Group's platform at some stage of their development."
"While new software license revenue was particularly strong in
2017, we also focused on opportunities to increase SaaS revenues
and were very pleased to deliver an increase of over 10% during
2017, with both new SaaS customers and existing clients switching
from on-premise to SaaS deployment."
"The current financial year has started strongly with the
largest S outsourced services contract win to date and one of the
world's largest chemical products companies converting to the
Company's market leading SaaS delivery model. These will deliver
increased revenue and improved visibility for 2018 respectively.
Furthermore, the recent restructuring will deliver the full
twelve-month benefit in the current year."
"The Board therefore looks forward to the coming year and beyond
with increasing optimism on the back of an enhanced delivery
platform, which promises to deliver significant revenue growth,
enhanced profitability and improved quality of earnings."
For further information, please contact:
Instem plc +44 (0) 1785 825 600
Phil Reason, CEO
Nigel Goldsmith, CFO
N+1 Singer (Nominated
Adviser & Broker) +44 (0) 20 7496 3000
Richard Lindley
James White
Rachel Hayes
Walbrook Financial PR +44 (0) 20 7933 8780
Paul Cornelius instem@walbrookpr.com
Sam Allen
Helen Cresswell
About Instem
Instem is a leading provider of IT solutions & services to
the life sciences market delivering compelling solutions for Study
Management and Data Collection; Regulatory Solutions for
Submissions and Compliance; and Informatics-based Insight
Generation.
Instem solutions are in use by over 500 customers worldwide,
including all the largest 25 pharmaceutical companies, enabling
clients to bring life enhancing products to market faster. Instem's
portfolio of software solutions increases client productivity by
automating study-related processes while offering the unique
ability to generate new knowledge through the extraction and
harmonisation of actionable scientific information.
Instem products and services now address aspects of the entire
drug development value chain, from discovery through to market
launch. Management estimate that over 50% of all drugs on the
market have been through some part of Instem's platform at some
stage of their development. To learn more about Instem solutions
and its mission, please visit instem.com.
Chairman's Statement
Our priority in 2017 was to establish the platform for the next
stage in the development of the Company, both operationally and
financially. In this regard I am pleased to report that we believe
that both objectives have been achieved.
Firstly, we have delivered strong financial results with an
EBITDA of GBP3.0m (FY 2016; GBP1.3m) and revenues of GBP21.7m (FY
2016; GBP18.3m). This has been achieved in a manner that has
ensured that we have either maintained or improved our position in
all our targeted sectors, with many of our products already
established global market leaders in their field.
Secondly, and importantly, at the half year we restructured and
rationalised the operations of the various businesses which had
been acquired over recent years. The efficiencies gained, whilst
apparent in the second half of the year, will be ongoing for 2018
and beyond. In addition, and whilst not directly impacting our cost
structure in 2017, we also, under the direction of Jerry Hacker,
our SVP of Global sales, changed the emphasis of our global sales
towards 'portfolio sales' of our product suite. This was a move
from our previous structure of product sales specialists, which was
an initial and inevitable consequence of the acquisitions we had
made.
These two structural changes not only enhance our organic
development plans, but pave the way for the integration of
potential future acquisitions.
As stated in my half year report in September last year, we are
now operating in all territories appertaining to the global
healthcare research sector. We also now have leading products, not
only in our traditional study management areas but also in
regulatory solutions and informatics.
Whilst we are continuing to address some remaining legacy issues
in our Clinical business, confidence is returning with the
achievement of two major new contract wins towards the year
end.
During the year, some notable achievements in our traditional
markets were:
-- Significant further commitment from the US National Institute
of Environment Health Sciences ("NIEHS") under an existing
multi-million-dollar 10-year contract
-- Further growth in our market leadership in Asia-Pacific, with
new clients in China, Japan and South Korea and successful
cross-selling of additional products to existing clients
-- Increased adoption in major pharma and CROs of our new
enterprise genetic toxicology solution Cyto Study Manager (CSM)
-- Widespread client implementation of Provantis version 10,
including the world's largest deployment of this type of software
at 14 global Charles River Laboratories sites
The 2016 acquisitions, Samarind and Notocord, both made very
positive first full year contributions to the Company and both are
expected to benefit further in 2018 from their access to Instem's
global resources.
Of particular importance during the year was our substantive
move into 'technology enabled outsourced services'. This included
further consolidating our dominant market position in the provision
of S technology and services. More recently, post year end, it has
been particularly pleasing to see demand for S significantly
increase across the industry, further justifying our strategy for
early leadership in this market segment.
Our facility in Pune, India, will be a key 'skill centre' for
this work. Pune has a rich supply of talented staff and a highly
regarded reputation for technically demanding outsourced services.
This makes it an ideal location for the expansion of our capacity
for this type of work.
Finally, and encouragingly, our 'seed' informatics business,
based in Cambridge, had a successful year, more than doubling the
number of target safety assessment (TSA) assignments completed
compared to the prior year.
To provide some measure of success the business has had over
recent years, and the scale it now has, management estimate that
over 50% of the drugs on the world market have now been through
some part of the Instem platform at some stage in their
development. This market position, together with the scalable
platform resulting from the structural changes implemented last
year, means that we believe that the Company is now well positioned
to continue its success in 2018 and beyond.
Chief Executive's Report
Strategic Development
The period under review was one of significant operational
change and strategic progress, resulting in record full year
revenue and profitability and a strong and scalable platform for
future growth.
The arrival of our new Chief Operating Officer, MaryBeth
Thompson at the start of the period, provided the opportunity to
trigger the next stage of business reorganisation and integration.
This saw the creation of centralised areas of excellence for all
key operational functions under a new Operations leadership team,
comprising new hires and existing experienced managers. The
increased senior management team bandwidth has allowed us to
analyse the opportunities, challenges and threats facing the
business and also provided valuable insights into the Company's
industry position and future opportunities. The process identified
areas of the business where there was capacity that could be
redeployed or reduced, and enabled a number of out-sourced
activities to be more cost-effectively delivered in-house using UK
and India based resources. This has all been achieved whilst
ensuring the business remained agile and responsive to the dynamic
markets in which it operates.
The Company successfully completed a Group-wide re-organisation
in June 2017 to reduce annualised operational overheads by
approximately GBP1.5m or 10%, which helped to significantly improve
the Group's profitability in the second half of 2017 and will
deliver a full year of benefit in 2018 and beyond.
We believe that Instem is now 'purpose built' to deliver
software and services which address three distinct, but
complementary, value propositions:
1. Study Management and Data Collection - efficiently capture,
analyse and report scientific study data
2. Informatics - generate new insights from existing large data
sets through the application of sophisticated big data aggregation
and analytics
3. Regulatory Solutions - help clients ensure compliance with
global regulators such as the FDA and EMA from the early stage of
product development, through an approved product's entire
commercial life
Revenue growth and profit contribution occurred in all of these
areas of the business and each enhanced its market position during
the year.
Instem products and services now address aspects of the entire
drug development value chain, from discovery through to market
launch and ongoing regulated product lifetime management. They are
currently deployed by over 500 companies, including all of the
largest 25 pharmaceutical companies in the world.
During the period Instem continued to win the majority of new
business placed in nonclinical, our largest market, for both data
collection and regulatory solutions, with strong year over year
revenue growth in both early phase clinical and informatics.
While new software license business was particularly strong in
2017, we also focused on opportunities to increase SaaS revenue and
were very pleased to see this increase over 10% during 2017 with
both new SaaS customers and existing clients switching from
on-premise to SaaS deployment.
Study Management and Data Collection
The global market demand for software that ensures the efficient
capture, management and reporting of scientific study data remains
robust as the number of compounds in Research and Development
continues to increase. According to a recent report from Informa's
Pharma Intelligence, a leading industry and market analysis firm,
the number of compounds in the Global R&D Pipeline increased by
2.7% to 15,267 in 2018, its highest ever number. We believe that
this is due to a number of factors, but the overall trend is
largely underpinned by global population growth and from increasing
life expectancy, which is unlikely to change over the
near-term.
Importantly, the number of compounds in the R&D Pipeline
within preclinical and Phase I trials, where Instem specialises,
has increased year on year by 7.3% and 3.0% respectively,
indicating a growing potential for the Company's products and
services within these market segments.
The Company is particularly pleased to report that its contract
with the NIEHS has progressed well since it was first announced in
2013. As anticipated, this 10-year contract for the capture,
recording and analysis of preclinical safety evaluation study data
has expanded in scope since commencement, with the number of
locations and the number of authorised users both increasing over
the period, further demonstrating the increasing value of the
Company's software and services to the NIEHS.
Our largest customer also brought into operation over 700
additional Provantis user licenses during 2017, triggering enhanced
recurring revenue.
Assisted by our mid-2017 restructuring, significant software
development investment continues to be made in Alphadas to ensure
that we fully satisfy existing client needs and continue to secure
a sizeable market share in a competitive market. We were
particularly pleased to secure two new Alphadas clients in the
second half of 2017, a major pharmaceutical company and an India
based CRO, which we anticipate being an important reference client
in a region with several potential additional clients.
Our genetic toxicology solutions continue to dominate their
market and following the release of our new Cyto Study Manager
solution, we made new sales into existing Instem key pharma and CRO
accounts.
The Notocord business acquired in September 2016 has integrated
well and has made a solid contribution during the period. Of
particular note was a large order for the U.S. Army Medical
Research Institute of Infectious Diseases, however the majority of
new business generated in this area was from a large number of
contracts; generally additional modules for existing clients,
averaging less than GBP15,000 each.
Informatics
The KnowledgeScan(TM) informatics-based service was formally
launched by the Company in 2016 and has developed well in 2017. It
offers the pharmaceutical industry insightful new ways to create
value from huge volumes of public and proprietary scientific
health-related data to reduce the risk and cost of bringing new
drugs to market.
The initial application of KnowledgeScan(TM) is for Target
Safety Assessment ("TSA"), a process routinely undertaken at the
earlier stages of drug discovery, but with continuing value
throughout the drug development process. Business volume has more
than doubled in 2017, reaching production capacity in most months.
We have added some resource and TSA capacity has been further
increased through process automation. Repeat business remains
encouraging with over 80% of customers having already placed
additional orders.
Regulatory Solutions
Regulatory Solutions represent a growing market opportunity for
Instem with a broad target market in Regulatory Information
Management ("RIM") and growing demand for our regulatory submission
related products and services that implement the FDA mandated
Standard for the Exchange of Nonclinical Data.
Regulatory Information Management
Our SamarindRMS RIM product made an excellent first full year
contribution, with solid recurring revenue and the addition of some
new client wins. These new business orders were received in four
niche sectors of the RIM market, where we see further opportunity
for Instem, and were for:
-- One of the world's top 10 medical device businesses, for the entire Samarind RMS suite
-- A leading generic medicines supplier
-- A veterinary health products provider
-- A European specialist pharma company
The new business sales function was fully integrated into our
global sales department in 2017, bringing additional resources and
a consistent sales process and management.
The industry and regulatory initiative to implement an
internationally harmonised standard for the Identification of
Medicinal Products ("IDMP") has been delayed by several years,
while the working groups finalise the details of the standard and
how to successfully roll it out. However, it remains of keen
interest to our current customers and prospects. We remain
confident, given our leadership in implementing the current
European standard, that we are well placed to execute on this
initiative as and when it comes into force. We are also well-placed
to support medical device businesses as they implement FDA Unique
Device Identification ("UDI") requirements in the USA and start the
process of responding to the new Medical Device Regulations ("MDR")
and In-vitro Diagnostics Regulations ("IVDR") that are being rolled
out in Europe.
Standard for the Exchange of Nonclinical Data ("S")
Based on historic regulatory submission volumes, Instem
anticipates that, to meet mandated FDA submission requirements, S
related market expenditure will increase from approximately $10m in
2016 to around $130m in 2020. As Instem is currently the leading
provider of S software products and technology enabled outsourced
services this represents a significant growth opportunity.
Instem continues to dominate the S technology market, with
software sales during the period predominantly focused on our
modules for viewing and exploring S datasets. With the first
regulatory mandate coming into force in December 2016, those
companies who hadn't already equipped themselves with the
technology to create S datasets are now predominantly looking for
out-sourced service providers for S creation. Whilst we have won
the majority of out-sourced services contracts, many clients were
initially slow to provide data for conversion, however this picked
up during the second half of 2017 and has accelerated further in
the first quarter of 2018.
During 2017, enquiries for the Company's S software solutions
and its outsourcing services in particular, continued to increase,
as the next major milestone of the S mandate came into effect in
December 2017. This mandate covers shorter duration studies that
are undertaken in much greater volume, to tighter deadlines. As
expected, it has generated a significant increase in S conversion
demand.
Instem now has a total of 92 customers that have procured the
Company's S technology and/or out-sourced services, which includes
nine of the top 10 preclinical CROs and 20 of the world's top 25
global pharmaceutical companies. Established S-related client
relationships are expected to be a significant source of future
business as the volume of out-sourced services increases.
During 2017, the Group introduced a new software module,
STrial(TM), that will deliver significant efficiencies for clients
(and our internal Services team) by reducing processing time in one
specific area by up to 80%. This product is the first of its type
on the market and offers a solution which can be deployed alongside
Instem's existing submit(TM) products, or used independently.
STrial(TM) will create additional opportunities for Instem as those
companies that are currently running competing systems cannot
efficiently meet these specific requirements.
In addition, Instem has released an updated version of our
submit(TM) software that enables clients to satisfy an FDA request
for test data, supporting the development of the next version of
the standard.
Financial Review
Instem's revenue model consists of perpetual licence income with
annual support contracts, professional and technology managed
outsourced services fees, SaaS subscriptions with annual support
contracts and funded development initiatives. Total revenue for the
year to 31 December 2017 increased by 19% to GBP21.7m (2016:
GBP18.3m). This increase includes the impact of full year revenues
from the prior year acquisitions of GBP2.5m combined with organic
growth in respect of the majority of our products, and the benefit
of average exchange rates, which increase the underlying revenues.
These are offset by costs of our overseas subsidiaries.
A key performance indicator of the Group is recurring revenue.
During the year the total recurring revenue, from support &
maintenance contracts, SaaS based subscriptions and annual support
fees relating to these subscriptions increased by 9% to GBP12.8m
(2016: GBP11.7m), representing 59% of total revenue (2016: 64%).
This includes recurring revenue generated from our 2016
acquisitions of GBP1.7m (2016: GBP0.8m).
Earnings before interest, tax, depreciation and amortisation and
non-recurring items for the year were GBP3.0m (2016: GBP1.3m).
Adjusted profit before tax (i.e. adjusting for the effect of
foreign currency exchange on the revaluation of inter-company
balances included in finance costs, non-recurring items and
amortisation of intangibles on acquisitions) was GBP1.9m (2016:
GBP0.7m). The unadjusted profit before tax for the year was GBP0.8m
(2016: GBP0.02m).
The non-recurring items in the year of GBP0.6m included the
restructuring costs relating to the redundancy and legal costs
connected with the Group's business reorganisation implemented in
the first half of 2017, together with a cost provision relating to
historical contract disputes. The non-recurring items also included
income of GBP0.2m in respect of an amendment to the deferred
contingent consideration payable in respect of the Notocord
acquisition.
Development costs incurred during the year were GBP3.3m (2016:
GBP2.6m), of which GBP1.4m (2016: GBP0.8m) was capitalised. The
Group claimed research and development tax credits in respect of
2017 of GBP0.6m (2016: GBP0.4m)
Basic and fully diluted earnings per share calculated on an
adjusted basis were 14.1p and 13.8p respectively (2016: 11.5p basic
and 11.2p adjusted).
The Group generated net cash from operating activities of
GBP1.4m (2016: GBP0.1m). The Group had net cash reserves of GBP3.1m
at 31 December 2017, compared with GBP4.2m as at 31 December 2016.
The Group paid GBP0.7m in respect of deferred consideration during
the year and continued to invest in the software products developed
by the Group. There is one final deferred consideration amount of
GBP0.2m within Current Financial Liabilities in respect of prior
year acquisitions, which is payable in the first half of 2018.
The Group's legacy defined benefit pension scheme has remained
closed to new members since 2000 and to future accrual since 2008.
It experienced a decrease in the funding deficit during the year,
calculated in accordance with the provisions of IAS19, that
amounted to GBP0.8m (net of deferred tax) (2016: increase in
funding deficit GBP0.7m) due to gains on the pension scheme assets
in excess of interest. This is mainly a non-cash credit and was
recognised in Other Comprehensive Income/(Expense). The overall
deficit at the year-end stood at GBP3.8m (2016: GBP4.7m),
represented by the fair value of assets of GBP10.8m (2016: GBP9.7m)
and the present value of funded obligations of GBP14.6m (2016:
GBP14.4m). As part of the scheme's triennial actuarial valuation as
at 5 April 2014, the Group agreed in June 2015 a schedule of
payments to the scheme designed to eliminate the funding deficit by
November 2023. The next triennial valuation will be calculated as
at 5 April 2017, the results of which will be reported in the
Company's 2018 Interim financial statements.
Principal risks and uncertainties
The directors consider that the global pharmaceutical market is
likely to continue to provide growth opportunities for the
business. The combination of the high level of annual support
renewals and low levels of customer attrition provides revenue
visibility to underpin the Group strategy on product and market
development.
The Group seeks to mitigate exposure to all forms of risk
through a combination of regular performance review and a
comprehensive insurance programme.
The global nature of the market means that the Group is exposed
to currency risk as a consequence of a significant proportion of
its revenue being earned in US Dollars, some of which is mitigated
by operating costs incurred by its US operation. The Group
continually assesses the most appropriate approach to managing its
currency exposure in line with the overall goal of achieving
predictable earnings growth.
The Group's credit risk is primarily attributable to its trade
receivables and the Group has policies in place to ensure that
sales of products and services are made to customers with
appropriate creditworthiness.
The Group has identified the risk of cyber security and breach
of information as a principal risk. The Group mitigates against
this risk with compliance to ISO 27001 certified processes, strong
IT controls and specific cyber insurance.
The Group manages liquidity risk through regular cash flow
forecasting and monitoring of cash flows, management review and
regular review of working capital and costs. The Group regularly
monitors its available headroom under its borrowing facilities. At
31 December 2017, its GBP2.0m bank facility was undrawn (2016:
GBP2.0m undrawn).
Outlook
The current financial year has started strongly with the largest
S outsource contract win to date and one of the world's largest
chemical products companies adopting the Company's market leading
SaaS delivery model. These two announcements combine to illustrate
increasing revenue potential and improved visibility for 2018
respectively. Furthermore, the restructuring in 2017 will deliver
the full twelve-month benefit in the current year and beyond.
The Board therefore looks forward to the coming year and beyond
with increasing optimism on the back of an enhanced delivery
platform, which promises to deliver significant revenue growth,
enhanced profitability and improved quality of earnings.
Phil Reason
Chief Executive
25 March 2018
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2017
Note Unaudited Audited
Year ended Year ended
Continuing Operations 31 December 2017 31 December 2016
GBP000 GBP000
REVENUE 2 21,668 18,319
Operating expenses (18,549) (16,843)
Share based payment (157) (223)
EARNINGS BEFORE INTEREST, TAXATION, DEPRECIATION, AMORTISATION AND
NON-RECURRING (COSTS)/INCOME
('EBITDA') 2,962 1,253
Depreciation (186) (156)
Amortisation of intangibles arising on acquisition (931) (667)
Amortisation of internally generated intangibles (473) (380)
PROFIT BEFORE NON-RECURRING (COSTS)/INCOME 1,372 50
Non-recurring (costs)/income 4 (443) 619
PROFIT FROM OPERATIONS 929 669
Finance income 5 186 -
Finance costs 6 (318) (646)
PROFIT BEFORE TAXATION 797 23
Taxation 3 297 1,035
PROFIT FOR THE YEAR 1,094 1,058
OTHER COMPREHENSIVE INCOME/(EXPENSE)
Items that will not be reclassified to profit and loss account
Actuarial gain/(loss) on retirement benefit obligations 664 (1,192)
Deferred tax on actuarial (gain)/loss (113) 215
551 (977)
Items that may be reclassified to profit and loss account
Exchange differences on translating foreign operations (565) 844
OTHER COMPREHENSIVE EXPENSE FOR THE YEAR (14) (133)
TOTAL COMPREHENSIVE INCOME FOR THE YEAR 1,080 925
PROFIT ATTRIBUTABLE TO OWNERS OF THE PARENT COMPANY 1,094 1,058
TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO OWNERS OF THE PARENT
COMPANY 1,080 925
Earnings per share from continuing operations
Basic 7 6.9p 6.9p
Diluted 7 6.8p 6.8p
Consolidated Statement of Financial Position
As at 31 December 2017
Unaudited Audited
31 December 31 December
2017 2016
ASSETS GBP000 GBP000 GBP000 GBP000
NON-CURRENT ASSETS
Intangible assets 17,440 17,607
Property, plant and equipment 299 374
Deferred tax assets 300 947
TOTAL NON-CURRENT ASSETS 18,039 18,928
CURRENT ASSETS
Inventories 29 916
Trade and other receivables 9,470 6,899
Current tax receivable 1,267 -
Financial asset - 10
Cash and cash equivalents 3,064 4,189
TOTAL CURRENT ASSETS 13,830 12,014
TOTAL ASSETS 31,869 30,942
LIABILITIES
CURRENT LIABILITIES
Trade and other payables 2,777 2,670
Deferred income 10,370 9,092
Current tax payable 226 429
Financial liabilities 220 979
TOTAL CURRENT LIABILITIES 13,593 13,170
NON-CURRENT LIABILITIES
Financial liabilities 51 242
Retirement benefit obligations 3,750 4,746
Provision for liabilities
and charges 250 -
TOTAL NON-CURRENT LIABILITIES 4,051 4,988
TOTAL LIABILITIES 17,644 18,158
EQUITY
Share capital 1,589 1,577
Share premium 12,488 12,462
Merger reserve 1,598 1,432
Shares to be issued 794 864
Translation reserve 483 1,048
Retained earnings (2,727) (4,599)
TOTAL EQUITY ATTRIBUTABLE
TO OWNERS OF THE PARENT 14,225 12,784
TOTAL EQUITY AND LIABILITIES 31,869 30,942
Consolidated Statement of Cashflows
For the year ended 31 December 2017
Unaudited Audited
Year ended Year ended
31 December 31 December
2017 2016
GBP000 GBP000 GBP000 GBP000
CASH FLOWS FROM OPERATING
ACTIVITIES
Profit before taxation 797 23
Adjustments for:
Depreciation 186 156
Amortisation of intangibles 1,404 1,047
Loss on disposal of property,
plant and equipment - 2
Share based payments 157 223
Retirement benefit obligations (461) (517)
Finance income (186) -
Finance costs 318 646
Decrease in deferred
contingent consideration (148) (1,017)
CASH FLOWS FROM OPERATIONS
BEFORE MOVEMENTS IN WORKING
CAPITAL 2,067 563
Movements in working
capital:
Decrease in inventories 700 12
Increase in trade and other
receivables (3,043) (1,737)
Increase in trade and other
payables and deferred income 1,808 (535) 1,809 84
CASH GENERATED FROM OPERATIONS 1,532 647
Finance income 186 -
Finance costs (112) (379)
Income taxes (214) (140) (141) (520)
NET CASH GENERATED FROM
OPERATING ACTIVITIES 1,392 127
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of intangible
assets (1,517) (890)
Purchase of property,
plant and equipment (117) (113)
Payment of deferred contingent (687) -
consideration
Repayment of capital
from finance leases (30) (33)
Purchase of subsidiary
undertakings - (2,347)
NET CASH USED IN INVESTING
ACTIVITIES (2,351) (3,383)
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from issue of
share capital (net of
fees) 29 4,823
Finance lease interest (6) (8)
NET CASH GENERATED FROM
FINANCING ACTIVITIES 23 4,815
NET (DECREASE)/INCREASE
IN CASH AND CASH EQUIVALENTS (936) 1,559
Cash and cash equivalents
at start of year 4,189 2,183
Effects of exchange rate
changes on the balance
of cash held in foreign
currencies (189) 447
CASH AND CASH EQUIVALENTS
AT OF YEAR 3,064 4,189
Consolidated Statement of Changes in Equity
Attributable to Owners of the Company
Called Share Merger Shares Translation Retained Total
up premium reserve to be reserve earnings equity
share issued
capital
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Balance
as at
1 January
2016 1,304 7,903 1,241 641 204 (4,680) 6,613
Profit for
the year - - - - - 1,058 1,058
Other comprehensive
income/(expense)
for the
year - - - - 844 (977) (133)
Total comprehensive
income - - - - 844 81 925
Shares issued 273 4,559 191 - - - 5,023
Share based
payment - - - 223 - - 223
Balance
as at
31 December
2016 1,577 12,462 1,432 864 1,048 (4,599) 12,784
Profit for
the year - - - - - 1,094 1,094
Other comprehensive
income/(expense)
for the
year - - - - (565) 551 (14)
Total comprehensive
income - - - - (565) 1,645 1,080
Shares issued 12 26 166 - - - 204
Share based
payment - - - 157 - - 157
Transfer - - - (227) - 227 -
__
Balance
as at
31 December
2017 1,589 12,488 1,598 794 483 (2,727) 14,225
Notes to the Financial Statements
1. Basis of Preparation
FINANCIAL INFORMATION
The preliminary financial information does not constitute
statutory accounts within the meaning of section 434 of the
Companies Act 2006 but is derived from accounts for the years ended
31 December 2017 and 31 December 2016. The figures for the year
ended 31 December 2016 were audited. The preliminary financial
information is prepared on the same basis as will be set out in the
statutory accounts for the year ended 31 December 2017. The figures
for the year ended 31 December 2017 are unaudited.
The preliminary financial information was approved for issue by
the Board of Directors on 25March 2018.
The audit of the statutory accounts for the year ended 31
December 2017 is not yet complete. These accounts will be finalised
on the basis of the financial information presented by the
directors in the preliminary announcement. The statutory accounts
for the year ended 31 December 2017 will be delivered to the
Registrar of Companies following the Company's Annual General
Meeting. Statutory accounts for the year ended 31 December 2016
have been filed with the Registrar of Companies. The auditor's
report on those 2016 accounts was unqualified and did not contain
any statement under Section 498 (2) or (3) of the Companies Act
2006.
The definition of recurring revenues has been amended in this
preliminary statement in comparison to the 2016 financial
statements. The recurring revenue as disclosed in the prior year
included annual support and maintenance fees together with the SaaS
subscription and annual support fees together with other recurring
professional services. In this preliminary statement the other
recurring professional services have been excluded from the
recurring revenue calculation. The 2017 and 2016 comparative
disclosures in this preliminary statement are calculated on a
consistent basis. This change has been made to provide clarity in
the calculation of recurring revenue.
The definition of the revenue type of SaaS has been expanded in
this preliminary statement in comparison to the 2016 financial
statements. The SaaS revenue as disclosed in the prior year
reflected the SaaS subscription revenues. In this preliminary
statement the annual support and maintenance revenues in relation
to SaaS customers has also been included in addition to the
subscription fees. The 2017 and 2016 comparative disclosures in
this preliminary statement are calculated on a consistent
basis.
It is the opinion of the directors that these above changes are
considered more appropriate to the readers and users to better
understand the performance of the Group.
GENERAL INFORMATION
The principal activity of the Group is the provision of world
class information solutions for Life Sciences research and
development in the early phase drug development market. Instem plc
is a company incorporated in England and Wales under the Companies
Act 2006 and domiciled in the UK. The registered office is Diamond
Way, Stone Business Park, Stone, Staffordshire, ST15 0SD, UK.
BASIS OF ACCOUNTING
While the financial information included in this preliminary
announcement has been prepared in accordance with the recognition
and measurement criteria of International Financial Reporting
Standards (IFRS), as adopted by the European Union (EU), this
announcement does not in itself contain sufficient information to
comply with IFRSs.
The Group's accounting reference date is 31 December.
CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
Certain year end asset and liability amounts reported in the
financial information are based on management estimates and
assumptions. There is therefore a risk of significant changes to
the carrying amounts of these assets and liabilities within the
next financial year. The estimates and assumptions are made on the
basis of information and conditions that existed at the time of the
valuation.
Recognition of deferred tax assets
The recognition of deferred tax assets is based upon whether it
is more likely than not that sufficient and suitable taxable
profits will be available in the future against which the reversal
of temporary differences can be deducted. Where the temporary
differences are related to losses, relevant tax law is considered
to determine the availability of the losses to offset against the
future taxable profits. The amount recognised in the consolidated
financial statements is derived from management's best estimation
and judgement incorporating forecasts and all available
information. Recognition therefore involves judgement regarding the
future financial performance of the particular legal entity or tax
group in which the deferred tax asset has been recognised.
Provision for liabilities and charges
Provisions are recognised when the Group has a present
obligation (legal or constructive) as a result of a past event, it
is probable that the Group will be required to settle the probable
outflow of resources, and a reliable estimate can be made of the
amount of the obligation. As at 31 December 2017, the Group has
made a provision of GBP0.25m in respect of historical contract
disputes as the directors have considered that the above provision
conditions have been met. The provision represents the best
estimate of the risks and considers all information and legal
advice received by the Group.
Impairment
At each reporting date, the Group reviews the carrying amounts
of goodwill and investments. The recoverable amount of the asset is
estimated in order to determine the extent of the impairment loss
(if any). Where the asset does not generate cash flows that are
independent from other assets, the Group estimates the recoverable
amount of the cash-generating unit to which the asset belongs. A
key factor which could result in an impairment of goodwill or
investments is lower than predicted profitability.
GOING CONCERN
Having made appropriate enquiries, the directors consider that
the Group has adequate resources to enable it to continue in
operation for the foreseeable future. The Group has a significant
proportion of recurring revenue from a well-established global
customer base, supported by a largely fixed cost base.
The financial position of the Group, its cash flows and
liquidity position are set out in the primary statements of this
financial information. Detailed projections have been made for the
12 months following the approval of the financial statements and
sensitivity analysis undertaken. This work gives the directors
confidence as to the future trading performance.
Accordingly, the directors continue to adopt the going concern
basis for the preparation of the financial statements.
2. Segmental Reporting
For management purposes, the Group is currently organised into
one operating segment - Global Life Sciences.
Segment results, assets and liabilities include items directly
attributable to a segment as well as those that can be allocated on
a reasonable basis.
2017 2016
GBP000 GBP000
REVENUE BY PRODUCT TYPE
Licence fees 5,813 4,162
Annual support fees 8,442 7,716
SaaS subscription and support fees 4,406 4,027
Professional services 3,007 2,414
-------- --------
21,668 18,319
======== ========
2017 2016
GBP000 GBP000
REVENUE BY GEOGRAPHICAL LOCATION
UK 2,670 3,329
Rest of Europe 4,567 3,232
USA and Canada 12,246 9,829
Rest of World 2,185 1,929
-------- --------
21,668 18,319
======== ========
NON-CURRENT ASSETS EXCLUDING DEFERRED TAXATION
2017 2016
GBP000 GBP000
INFORMATION BY GEOGRAPHICAL LOCATION
UK 17,167 17,750
Rest of Europe 320 16
USA and Canada 214 165
Rest of World 38 50
------------------------ -----------------------
17,739 17,981
======================== =======================
MAJOR CUSTOMERS
There were no customers which represented more than 10% of the
group revenue in 2017 (2016: Nil).
3. Income Taxes
2017 2016
Income taxes recognised GBP000 GBP000
in income statement
Current tax:
UK corporation tax on result
for the year - (244)
Amounts in respect of previously
unrecognised losses - 141
Foreign tax (385) (400)
Foreign tax in respect
of previous years 337 45
Adjustments in respect
of previous years 306 312
Adjustments in respect
of R&D tax credit 567 350
-------- --------
Total current tax 825 204
-------- --------
Deferred tax:
Current year (charge)/credit (255) 421
Amounts in respect of previously
unrecognised losses - 459
Adjustment in respect of
previous years (223) 73
Effects of domestic rate
changes on opening balances 6 (46)
Retirement benefit obligation (56) (76)
-------- --------
Total deferred tax (528) 831
-------- --------
Total income tax credit
recognised in the current
year 297 1,035
======== ========
4. Non-recurring (costs)/ income
2017 2016
GBP000 GBP000
Professional fees in respect of
acquisitions - (249)
Amendment to consideration payable
in respect of Instem Clinical - 690
Restructuring costs (341)
Restructuring costs in respect of
Instem Clinical - (149)
Cost provision relating to historical (250) -
contract disputes
Amendment to contingent consideration
post acquisition in respect of acquisitions 148 327
(443) 619
-------- -------------
The professional fees in the prior year relate to the
acquisition of Samarind Limited on 27(th) May 2016 and Notocord on
2(nd) September 2016.
During the previous year, the Group reached agreement with the
previous owners of Instem Clinical resulting in the release of
Instem from its obligation to pay the final consideration
payments.
The restructuring costs relate to the redundancy and legal costs
relating the Group's business reorganisation and integration
strategy which was implemented in the first half of 2017.
As at 31 December 2017, the Group has made a provision of
GBP0.25m in respect of historical contract disputes. See Critical
Accounting Estimates and Judgements in Note 1.
The contingent consideration in respect of Samarind Limited and
the Notocord group was estimated at its fair value at the date of
acquisition. This was re-measured at each reporting date and the
estimation of the contingent consideration payable has reduced.
5. Finance income
2017 2016
GBP000 GBP000
Foreign exchange gains 184 -
Other interest 2 -
186 -
-------- --------------------
6. Finance costs
2017 2016
GBP000 GBP000
Bank overdrafts 112 32
Unwinding discount on deferred
consideration 71 120
Net interest on pension
scheme 129 139
Foreign exchange losses - 347
Finance lease interest 6 8
-------- ------------------
318 646
-------- ------------------
7. Earnings per share
Basic and fully diluted
Basic earnings per share are calculated by dividing the profit
attributable to ordinary shareholders by the weighted average
number of ordinary shares in issue during the year. Diluted
earnings per share is calculated by adjusting the weighted number
of ordinary shares outstanding to assume conversion of all dilutive
potential shares arising from the share option schemes. The
dilutive impact of the share options is calculated by determining
the number of shares that could have been acquired at fair value
(determined as the average market share price of the Company's
shares) based on the monetary value of the subscription rights
attached to the outstanding share options.
2017 2016
Profit after Weighted Earnings per Profit Weighted Earnings per
tax average number share after tax average number share
of shares of shares
'000 '000
GBP000 Pence GBP000 Pence
Earnings per
share - Basic 1,094 15,831 6.9 1,058 15,302 6.9
Potentially
dilutive
shares - 328 - - 324 -
---------------- --------------- --------------- ----------- --------------- ----------------
Earnings per
share -
Diluted 1,094 16,159 6.8 1,058 15,626 6.8
================ =============== =============== =========== =============== ================
Adjusted
Adjusted earnings per share is calculated after adjusting for
the effect of foreign currency exchange on the revaluation of
inter-company balances included in finance income/(costs),
non-recurring items and amortisation of intangibles on
acquisitions. Diluted adjusted earnings per share is calculated by
adjusting the weighted number of ordinary shares outstanding to
assume conversion of all dilutive potential shares arising from the
share option schemes. The dilutive impact of the share options is
calculated by determining the number of shares that could have been
acquired at fair value (determined as the average market share
price of the Company's shares) based on the monetary value of the
subscription rights attached to the outstanding share options.
2017 2016
Adjusted Weighted Adjusted Adjusted Weighted Adjusted
Profit after average number Earnings per Profit after average number Earnings per
tax of shares share tax of shares share
'000 '000
GBP000 Pence GBP000 Pence
Earnings per
share - Basic 2,234 15,831 14.1 1,752 15,302 11.5
Potentially
dilutive
shares - 328 - - 324 -
--------------- --------------- --------------- --------------- --------------- ---------------
Earnings per
share -
Diluted 2,234 16,159 13.8 1,752 15,626 11.2
=============== =============== =============== =============== =============== ===============
Reconciliation of reported profit after 2017 2016
tax to adjusted profit after tax: GBP'000 GBP'000
Reported profit after tax 1,094 1,058
Non-recurring costs/(income) 443 (619)
Amortisation of acquired intangibles 931 667
Foreign exchange differences on revaluation
of inter-co balances (234) 646
Adjusted profit after tax 2,234 1,752
========= =========
8. Annual report and accounts
Copies of the Annual Report and Accounts will be posted to the
Company's shareholders in due course and will be available, along
with this announcement, on Instem's website at
http://investors.instem.com.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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