TIDMINS

RNS Number : 0600V

Instem plc

12 April 2021

Instem plc

("Instem" or "the Company")

Audited Results for the Year Ended 31 December 2020 & Investor Presentation

Instem plc (AIM: INS), a leading provider of IT solutions to the global life sciences market, announces its audited results for the year ended 31 December 2020 (the "Period").

Financial Highlight:

   --      Revenues increased 10% to GBP28.2m (2019: GBP25.7m) 

o Software as a Service (SaaS) revenues increased by 25% to GBP8.0m (2019: GBP6.4m)

o Recurring revenues (annual support and SaaS) increased 13% to GBP16.9m (2019: GBP14.9m)

o Organic revenue growth (excluding Leadscope acquisition in November 2019) of 3% to GBP26.3m (2019: GBP25.5m)

   --      Adjusted EBITDA* of GBP5.9m (2019: GBP4.9m) 
   --      Reported profit before tax of GBP2.5m (2019: loss of GBP0.9m) 
   --      Adjusted profit before tax** of GBP4.0m (2019: GBP3.2m) 
   --      Fully diluted earnings per share of 11.6p (2019: 5.7p loss per share) 
   --      Adjusted fully diluted earnings per share** of 19.1p (2019: 18.4p) 

-- Cash balance as at 31 December 2020 of GBP26.7m (2019: GBP6.0m) - reflecting both very strong operating cash generation and the oversubscribed placing in July 2020

*Earnings before interest, tax, depreciation, amortisation , impairment of goodwill and capitalised development costs plus non-recurring items.

**After adjusting for the effect of foreign currency exchange on the revaluation of inter-company balances included in finance income/(costs), non-recurring items, impairment of goodwill and capitalised development costs plus amortisation of intangibles on acquisitions.

Operational Highlights

   --      Strong performance despite wider market impact of COVID-19 
   --      Placing raising GBP15m net of expenses for the Group to accelerate its acquisition strategy 
   --      Continued transition to SaaS deployment, increasing recurring revenue 
   --      New business revenue came from a balanced blend of new and existing clients 
   --      Further expansion of footprint in the Asia-Pacific region 

Post Period-End Highlights

-- Completed the acquisitions of The Edge Software Consultancy ("The Edge") and d-Wise Technologies Inc ("d-wise")

o Extending the Group's reach across the drug discovery and development lifecycle

o Increasing recurring revenues

o Strengthening relationships with existing clients

-- Current cash position of circa GBP14m following payment of initial acquisition consideration

   --      Deferred and contingent consideration payable of up to approx. GBP11.1m 

Analyst Presentation: 11:00 today

Management will be hosting a presentation via web conference today at 11:00. Analysts wishing to join should

register their interest by emailing instem@walbrookpr.com   or by telephoning 020 7933 8780. 

Investor Presentation: 16:00 today

Management will be providing a presentation and hosting an Investor Q&A session on the results and future prospects today at 16:00, through the digital platform Investor Meet Company. Investors can sign up for free and add to attend the presentation via the following link https://www.investormeetcompany.com/instem-plc/register-investor

Questions can be submitted pre event and at any time during the live presentation via the Investor Meet Company Platform.

Phil Reason, CEO of Instem, commented: " The performance during the Period highlighted our resilience - especially given the COVID-19 backdrop. Our proven model continues to generate strong cash flows while the combination of increasing demand for regulatory-backed solutions and a growing demand for artificial intelligence and in silico solutions in the drug discovery process underpins our confidence in further leveraging our product base. Importantly, we already have good visibility for the current year with growing SaaS revenues and a strong pipeline.

"We are extremely pleased with our continued strong organic growth and increasing ability to cross sell to existing and new clients. Furthermore, we are primed to build on this momentum, having strengthened our proposition post Period end. The recent acquisitions of d-wise and The Edge highlight our ability to add scale and leverage existing customer relationships with a view to further enhancing earnings and profitability, while providing a strong platform for continued growth. In addition, we are continuing discussions with a number of other potential acquisition targets.

"Given the structural backdrop and opportunities within our existing client base, we are confident that we are well placed to continue growing recurring revenues, margins, and cash generation, and look forward to augmenting organic growth via our ongoing acquisition strategy. "

For further information, please contact:

 
 Instem plc                       Via Walbrook 
 Phil Reason, CEO 
 Nigel Goldsmith, CFO 
 
 N+1 Singer (Nominated Adviser 
  & Broker)                       +44 (0) 20 7496 3000 
 Peter Steel 
  Alex Bond 
  Rachel Hayes 
 
 Walbrook Financial PR            +44 (0) 20 7933 8780 
 Tom Cooper                       instem@walbrookpr.com 
 Nick Rome 
  Nicholas Johnson 
 

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 600 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 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 www.instem.com

Chairman's Statement

The performance of the Group during the Period highlights the resilience of our business model as we generated growing cash flows, revenues and profits, despite the wider global economic malaise caused by the COVID-19 pandemic.

Whilst clearly this pandemic had, and continues to have, a destabilising effect on a number of sectors and businesses, we were able to take advantage of the continued demand for our leading solutions and services to the global life sciences market. Further, we were able to meet new requirements from customers looking to produce rapid solutions for COVID-19 related drug and vaccine development projects.

Operationally, we continued to perform in line with market expectations - with a 10% increase in revenues year-on-year, and the continued shift towards SaaS further increasing visibility. We also successfully raised GBP15m net of expenses to accelerate our acquisition programme through the placing of 3,620,690 new ordinary shares. The combination of strong cash flow and funds raised meant that the cash balance at the year-end was GBP26.7m (2019: GBP6.0m).

Importantly, the investment in our global infrastructure and IT, made over recent years, meant that we were able to operate highly effectively across many geographies whilst continuing to deliver solutions to our clients without interruption. This investment had been designed to facilitate the requirement for a dispersed and continuously increasing remote business operation. With sections of our workforce already working from home prior to the pandemic, the onset of COVID-19 highlighted our ability to continue delivering solutions remotely with minimal disruption.

Strategic Direction

Our ability to quickly integrate and add value to acquired businesses was highlighted by the performance of Leadscope, which we acquired in November 2019, and which enabled our In Silico Solutions business unit to grow rapidly during the Period.

We believe that the momentum achieved provides validation of the strategic potential of the business. In particular, we were delighted to have made notable progress on a number of fronts during the Period, namely:

-- Continued growth in SaaS-based revenues (increased 25% to GBP8.03m) both through new business wins and via the ongoing conversion of existing clients.

-- The expansion of "technology enabled outsourced services", where 2020 revenue was GBP6.2m (2019: GBP5.6m).

   --      Our market leading S technology and services business continued to perform well 

Acquisitive Growth

One of the Group's key long-term objectives has been to acquire complementary technologies or enter adjacent markets - and given the wealth of opportunity, we chose to raise GBP15m in July 2020 to accelerate this strategy. We are delighted to have acquired d-wise and The Edge post Period end. Both companies bring strong management teams and synergies with our existing business and client base. We believe they will be integrated easily and will quickly be earnings enhancing, whilst also extending our reach from discovery to clinical trials across the drug discovery and development lifecycle.

When we combine the performance of the business in the recent past with the impact of the two recent acquisitions, the step change in the scale of our operations is strategically significant. We are extremely excited about the potential we have for new horizons.

Board

While the business has performed extremely well over recent years, the Board recognises that it is not currently fully compliant with the QCA guidelines for corporate governance regarding the independence of non-executive directors. We intend to address this situation through additional non-executive director appointment during the next 12 months. We look forward to updating shareholders on our efforts in due course.

Summary

Finally, on behalf of the Board, I would like to thank and congratulate the entire Instem team, who performed admirably despite the often significant challenges of having to adjust to home based working, lock downs, home schooling and the many other impacts of COVID-19. Despite these challenges, the Instem team continued to make an exceptional contribution to life sciences R&D in general and specifically to the global endeavour to rapidly bring safe and effective COVID-19 vaccines and therapies to market.

David Gare

Non-Executive Chairman

10 April 2021

Chief Executive's Report

The Group continued to enhance its position across all parts of the business with growth underpinned by the ongoing move to a SaaS model, resulting in further margin growth during the Period. This shift is in train with the majority of clients, providing increased visibility in the overall direction of travel.

The Group has a broad portfolio of products, providing a growing range of solutions to existing and new clients across the drug discovery and development lifecycle, and a strong platform for increased cross-selling and up-selling opportunities. During the Period, the Group fully integrated Leadscope, which was acquired in November 2019, further enhancing performance.

The focus remains on building on this success, with the Group primed for further acquisitive growth following the recent acquisitions of d-wise and The Edge - having successfully raised GBP15m net of expenses during the Period to accelerate our acquisition strategy. Active discussions are ongoing with a number of targets, with the aim of further driving value across our existing solutions with the possibility of also broadening our portfolio.

Market Review

The market backdrop continues to be favourable for the Group, with global population growth and life expectancy underpinning increased demand for successful innovation in life sciences. Increasing amounts of money are being invested in the biotech industry with the pharmaceuticals sector investing heavily in drug development, underpinning a strong pipeline for Instem. The market dynamics were highlighted further by the onset of COVID-19, which presented a number of new opportunities as R&D increased with all of the major pharma companies (and many smaller ones) focusing on developing vaccines or therapies.

In the pharmaceutical industry, which represents the largest proportion of Instem's revenue, we refer again to the Pharma R&D Annual Review, the 2021 version of which was released by Pharma Intelligence in March 2021. This report shows that the industry grew strongly in the last 12 months with a 4.8% increase (2019: 9.6%) in the total number of drugs in the regulatory stages of global R&D, continuing a multi-year growth trend that, subject to the potential impact of COVID-19, shows no sign of abating. Most relevant to Instem was the 6.0% increase (2019: 13.2%) in the number of drugs at the preclinical (or non-clinical) phase of drug development, that accounted for much of our business.

The constant development of the drug discovery pipeline continues to drive demand for Instem's solutions - enabling companies to provide faster and cheaper routes to market. Importantly, the regulatory-backed Standard for the Exchange of Non-clinical Data ("S") continues to underpin longer term opportunity and visibility. Further regulatory-backed business lines were added to the Group's portfolio with the acquisition of Leadscope, providing solutions for the ICH M7 (R1) standard.

Business Performance

Study Management

Performance here was relatively flat, as expected, partly since revenue recognition from certain software contracts won during the Period will not be recognised until the current financial year, coinciding with client deployment and the commencement of annual support payments.

Encouragingly, the transition to SaaS continued at pace, outstripping management's expectations - with the accelerated growth meaning there were fewer new perpetual software licenses, and correspondingly lower annual support and maintenance fees.

We were delighted to add Biotoxtech, a prominent non-clinical Contract Research Organization in South Korea, as a new client during the Period - further enhancing the Group's footprint in the Asia Pacific region. The contract, worth approximately $1 million, is for Instem to provide a comprehensive package of preclinical data collection, analysis and regulatory submissions management solutions to automate and optimise study related processes.

Separately, the Group was awarded new business with an existing client worth c.GBP2.2m, which has been extended by a further $0.8m order post Period end. The new contracts combined Study Management and Regulatory Solutions products and services, including the expansion of the client's Provantis user base by over 25% - reflecting the continuing growth in non-clinical research and development. Among other things, the funded product development work under this contract will involve Provantis integration with a leading third-party digital pathology solution, offering clients the potential for significant future productivity enhancement and facilitating the work of an increasingly distributed pathologist community.

In Silico Solutions

The Group continued to generate strong In Silico Solutions (previously Informatics) revenue growth, which benefitted from a solid organic performance as well as a full year's trading from Leadscope, acquired in November 2019. The addition of Leadscope broadened the Group's in silico reach, which now incorporates drug discovery through to early deployment (and beyond), providing a more rounded offering for existing and new clients.

Having fully integrated Leadscope, which only contributed six-weeks trading in 2019, the Group was able to drive significant in silico solutions returns, with comparative revenues more than doubling to GBP3.3m.

Regulatory Solutions

Every drug company is required to submit non-clinical data in the S format to the FDA (Food and Drug Administration) as part of the processes for testing and getting approval for a new drug. The combination of the industry's focus on addressing a backlog of S conversion work, in addition to the standard being extended to new study types, provides a solid platform for continued growth.

Instem's technology creates, manages and visualizes S datasets, while the Group also provides technology-enabled outsourced services, enabling customers to make FDA submissions with confidence. The industry is increasingly looking to unlock silos of information and importantly, customers are starting to contemplate Instem's S solutions as a consistent approach to leveraging their valuable historic studies for more efficient and effective research. This is providing a growing source of revenue for the Group, highlighted through a GBP0.7m top-30 pharmaceutical company contract for conversion of historical studies to the S format, won during the Period.

Furthermore, as part of the GBP2.2m contract with an existing client (mentioned above), Instem will provide S staff augmentation support, which will act as an extension of the client's staff to help address both current and growing future demand (and backlog) for S study services.

Financial Review

Key Performance Indicators (KPIs)

The directors review monthly revenue and operating costs to ensure that sufficient cash resources are available for the working capital requirements of the Group. Primary KPIs at the year-end were:

 
                                                          2020      2019 
                                                        GBP000    GBP000     % Change 
 
 Total revenue                                          28,217    25,717          10% 
 
 Recurring revenue *                                    16,941    14,862          13% 
 
 Recurring revenue as a percentage of total revenue        60%       58%      +200bps 
 
 Adjusted EBITDA **                                      5,919     4,864          22% 
 
 Adjusted EBITDA Margin %                                21.0%     18.9%      +210bps 
 
 Cash and cash equivalents                              26,724     5,957         349% 
 

* Recurring revenue includes Annual support fees and SaaS subscription and support fees.

** Earnings before interest, tax, depreciation, amortisation, i mpairment of goodwill and capitalised

development costs plus   non-recurring costs. 

In addition, non-financial KPIs are periodically reviewed and assessed, including customer and staff retention rates.

Instem's revenue model consists of perpetual licence income with annual support and maintenance contracts, professional fees, technology enabled outsourced services fees and SaaS subscriptions.

Total revenues increased by 10% to GBP28.2m (2019: GBP25.7m) including Leadscope Inc ('Leadscope') revenue, which was acquired in November 2019. Total organic revenue increased by 3% to GBP26.3m (2019: GBP25.5m). Recurring revenue, comprising Support & Maintenance contracts and SaaS subscriptions, increased during the year by 13% to GBP16.9m (2019: GBP14.9m). Recurring revenue as a percentage of total revenue was 60% (2019: 58%). Revenue from technology enabled outsourced services increased to GBP6.2m (2019: GBP5.6m). Operating expenses increased by 7% in the Period reflecting the addition of the Leadscope cost base, ongoing investment in operational teams and higher third-party costs associated with the revenue mix, offset by savings in business travel due to the pandemic.

Earnings before interest, tax, depreciation, amortisation, impairment of goodwill and capitalised development cost plus non-recurring items (Adjusted EBITDA) increased by 20% to GBP5.9m (2019: GBP4.9m). Excluding Leadscope, the total comparable Adjusted EBITDA increased by 13% to GBP5.3m (2019: GBP4.7m). The EBITDA margin as a percentage of revenue increased in the year to 21.0% from 18.9% in 2019.

Non-recurring costs in the year of GBP0.6m (2019: GBP0.3m) included GBP0.5m of acquisition costs and GBP0.1m of legal costs associated with historical contract disputes (2019: GBP0.2m acquisition costs and GBP0.1m legal costs).

The reported profit before tax for the year was GBP2.5m (2019: loss of GBP0.9m). Adjusted profit before tax (i.e. adjusting for the effect of foreign currency exchange on the revaluation of inter-company balances included in finance income/(costs), non-recurring items, impairment of goodwill and capitalised development costs plus amortisation of intangibles on acquisitions) was GBP4.0m (2019: GBP3.2m).

The total income tax charge in the year of GBP0.3m (2019: GBP0.02m) represents 10.8% of the Group's profit before tax (2019: 2.4% of the Group's loss before tax ), with the reduction against the United Kingdom corporate tax rate of 19% due to the Group's ability to receive additional tax relief on its research and development expenditure. This additional relief is expected to continue into future years.

The Group continues to maintain its investment in its product portfolio. Research and development costs incurred during the year were GBP3.4m (2019: GBP3.0m), of which GBP1.2m (2019: GBP1.3m) was capitalised.

The Group operates internationally and is exposed to foreign currency risk on transactions denominated in a currency other than the functional currency and on the translation of the statement of financial position and statement of comprehensive income of foreign operations into sterling. The currency that gave rise to this risk in 2020 was primarily from realised US dollar transactions. The foreign exchange loss recorded during 2020 was GBP454k (2019: GBP41k) which is composed of realised and unrealised gains/losses.

Basic and diluted earnings per share calculated on an adjusted basis were 20.4p and 19.1p respectively (2019: 19.3p basic and 18.4p diluted). The reported basic and diluted earnings per share were 12.7p and 11.9p respectively (2019: (5.7)p basic and (5.7)p diluted).

The Period saw strong net cash generated from operating activities of GBP6.6m (2019: GBP5.4m), largely due to cash inflow from key contracts, outsourced services, working capital management and a GBP0.7m tax credit claimed across the Group. In July 2020 the Group successfully raised equity funds from institutional investors amounting to GBP15.0m, net of expenses, for the purpose of funding its M&A strategy. As a result of this cash injection and the positive organic cash generation achieved in the year, cash balances increased to GBP26.7m at 31 December 2020, compared with GBP6.0m as at 31 December 2019.

Following the reporting Period end the Group completed the acquisition of The Edge Software Consultancy Ltd. ('The Edge') in March 2021. The acquisition extends the Group into early-stage drug Discovery, with software products that improve customer productivity and ensure high-quality data capture in the laboratory. Total consideration payable for The Edge is up to GBP8.5m with initial consideration of GBP6.0m satisfied by GBP4.0m in cash from the equity funds raised in 2020 and GBP2.0m via the issuance of 391,920 new ordinary shares of 10p each in Instem plc, GBP0.5m of deferred consideration and up to a further GBP2.0m payable contingent on The Edge's trading performance in the year ending 31 December 2021.

On 20 March 2021, Instem exchanged contracts to acquire US-based clinical trial technology & consulting leader d-Wise Technologies, Inc ("d-wise"). Completion of the Acquisition took place on 1 April 2021. d-wise adds a market leading position to the Group in an attractive adjacent area of clinical trial analysis and submission, with good future visibility through recurring revenue streams and already contracted, high value consultancy projects. The combined strength of Instem and d-wise positions the enlarged Group as the foremost authority and driving force globally in generating, analysing and leveraging data from Discovery through late-stage Clinical Trials. The total consideration is up to $31m comprising $20m on completion, $8m of deferred consideration and up to a further $3m which is payable contingent upon the future financial performance of d-wise. The initial consideration on completion is being satisfied by $13m in cash and $7m via the issuance of 868,203 new ordinary shares of 10p each in Instem plc . The cash is being funded from the Group's existing financial resources.

The Group's legacy defined benefit pension scheme continues to remain closed to new members and future accrual. The most recent triennial actuarial valuation of the Scheme was due as at 5 April 2020 with the results expected to be announced along with the publication of the Group's interim results for the six-month Period ending 30 June 2021. At 31 December 2020, the IAS19 accounting pension deficit increased by GBP2.1m to GBP3.9m (2019: GBP1.8m). The agreed Group cash contributions currently approximate to GBP0.5m per annum, payable through to October 2024. The deficit at the 2020 year-end of GBP3.9m (2019: GBP1.8m) is represented by the fair value of assets of GBP12.5m (2019: GBP12.0m) and the present value of funded obligations of GBP16.4m (2019: GBP13.8m), after applying a discount rate of 1.40% (2019: 2.20%).

The table below provides the data for certain performance measures mentioned above:

 
 
                                                                  2020       2019 
                                                                GBP000     GBP000 
 
 Annual support fees                                             8,917      8,418 
 SaaS subscription and support fees                              8,024      6,444 
 
 Recurring revenue                                              16,941     14,862 
 
 Licence fees                                                    3,477      3,501 
 Professional services                                           1,603      1,773 
 Technology enabled outsourced services                          6,196      5,581 
 
 Total revenue                                                  28,217     25,717 
 
 
 EBITDA                                                          5,313      4,562 
 Non-recurring costs                                               606        302 
 
 * Adjusted EBITDA                                               5,919      4,864 
 
 
 Profit/(Loss) before tax                                        2,549      (901) 
 Amortisation of intangibles arising on acquisition                664        523 
 Impairment of goodwill and capitalised development costs            -      3,175 
 Non-recurring costs                                               606        302 
 Intercompany foreign exchange loss/(gain)                         208         61 
 
 **Adjusted profit before tax                                    4,027      3,160 
 
 
 Weighted average number of shares (000's)                      19,652     17,053 
 Adjusted diluted earnings per share                             19.4p      18.4p 
 
 Cash at bank                                                   35,722     14,955 
 Bank overdraft                                                (8,998)    (8,998) 
 
 Cash balance                                                   26,724      5,957 
 
 

* Earnings before interest, tax, depreciation, amortisation, i mpairment of goodwill and capitalised development costs plus 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, impairment of goodwill and capitalised development costs plus amortisation of intangibles on acquisitions.

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. However, the Group's products may be adversely affected if economic and market conditions are unfavourable and revenue may be affected from by impact of accounting or regulatory changes.

Additionally, weak economic conditions, including the potential impact of the trading arrangements between the UK and EU at the end of the Brexit transition period in December 2020 may affect the future performance of the Group and its clients. One area of mitigation for the Group is the presence of its wholly owned subsidiary, Notocord SA, which is based in the EU.

The Group seeks to mitigate exposure to all forms of risk through a combination of regular performance review and a comprehensive insurance programme. Additionally, t he Group has a significant proportion of recurring revenue (circa 60% of total) from annual support & maintenance and SaaS contracts from a well-established global customer base. Consequently, the Group ensures that it maintains a diversified portfolio in terms of customers, revenue mix, geography and markets.

v Foreign currency risk

The Group operates internationally and is exposed to foreign currency risk on transactions denominated in a currency other than the functional currency and on the translation of the statement of financial position and statement of comprehensive income of foreign operations into sterling. The main currency giving rise to this risk is US dollars. The Group mitigates the foreign currency risk by having both cash inflows and outflows in the relevant foreign currency due to local revenue generation generally offset by a local cost base that creates a natural hedge.

The Group also generates material cash reserves through its Chinese subsidiary that are not readily available to the UK Group at short notice and, as such, the Group has to maintain sufficient working capital headroom to accommodate any delays in repatriating cash from China. In managing currency risks the Group aims to reduce the impact of short-term fluctuations on the Group's cash inflows and outflows in a foreign currency. The Group continually assesses the most appropriate approach to managing its currency exposure in line with the overall goal of achieving predictable earnings growth. Over the longer term, changes in foreign exchange could have an impact on consolidation of foreign subsidiaries earnings. A 10% decrease in the average value of Sterling against the US dollar would have resulted in an increase in the Group's profit before tax by approximately GBP0.1m (2019: GBP0.1m).

v Credit risk

Management aims to minimise the risk of credit losses.

The Group's financial assets are bank balances and cash and trade and other receivables, which represent the Group's maximum exposure to credit risk in relation to financial assets.

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. No customer individually amounts to more than 10% of the Group revenue. At the 2020 year end the Group had a maximum credit risk exposure of GBP6.1m (2019: GBP6.9m).

The amounts presented in the statement of financial position are net of impairment provisions.

The Group's exposure to losses from defaults on trade receivables is reduced due to contractual terms which require installation, training, annual licensing and support fees to be invoiced and paid annually in advance.

v Liquidity risk

Liquidity risk is the risk that the Group will not be able to meet its financial commitments as they fall due. The Group's objective is to ensure that adequate facilities are available through use of bank overdrafts and leases. 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 2020, its GBP0.5m bank facility was undrawn (2019: GBP0.5m undrawn). The Group had positive cash reserves of GBP26.7m at the end of the Period, in addition to the GBP0.5m undrawn working capital facility, although GBP2.5m of the cash was held in bank accounts in China, where it has been traditionally harder to repatriate funds quickly. There are no long-term restrictions on the transfer of funds from the Group bank accounts in China. Since the year-end the Group has repatriated GBP1.6m of cash from China to the UK.

v Interest rate risk

The Group operates an interest rate policy designed to minimise interest costs and reduce volatility in reported earnings. The Group's bank facility does not allow the US Dollar cash balances to generate interest therefore the Group transfers funds from the US dollar account into the sterling account. Currency transfers have been utilised to maximise the interest gains whilst minimising foreign exchange risks. As at 31 December 2020, the indications are that the UK bank base interest rate will not materially differ over the next 12 months. On the basis of the net cash position at 31 December 2020 and assuming no other changes occur (such as material changes in currency exchange rates) the change in interest rates will not have a material impact on net interest income/(expense).

v Cyber risk

The Group handles much data electronically and is therefore extremely aware of the risks that a cyber-attack could have on its business. It has robust standards in place for establishing and maintaining systems and processes to ensure that the highest standards of data protection are in place. This also applies to any third party who is handling data on behalf of the Group and its customers, such as third-party hosting providers.

v Technology risk

Due to the evolving nature of technology platforms there is a risk of obsolescence. The Group's future performance depends on software development, by introducing new and enhancing new products to meet customer demand. If the Group does not respond effectively to technological changes, changes in client requirements and regulatory industry changes then its business may be negatively affected.

The Group monitors this risk and develops strategic development plans to ensure it remains compliant with technological advances. Additionally, the Group produces roadmaps for its key software products through its close relationships with clients and partners. In addition, the Group reviews forthcoming regulations to identify any need to change existing products and to identify opportunities for developing new products and services.

v Acquisition risk

Any corporate acquisition has associated integration risk. In respect of every acquisition the Group creates an integration plan with assigned responsibilities to a team led by an appointed project manager for delivering against an agreed timetable. This is monitored closely throughout the integration process and any deviations against the plan are flagged and actioned accordingly. Acquisitions are carefully assessed by the Board to ensure alignment with the Group's acquisition strategy. The Group performs thorough due diligence, supported by the appropriate use of external advisers, to help identify any unexpected material adverse consequences prior to deal completion.

v Recruitment and retention risk

As its people are the Group's major asset, it is critical to ensure that it recruits the best staff possible and that these individuals are rewarded and developed appropriately. If the Group is unable to attract and retain qualified personnel it is unlikely to meet its growth objectives and stakeholder expectations. The Group has a global HR team that manages the process of ensuring the staff benefit and reward packages are incentivising for both recruitment and retention purposes. This includes benchmarking against peers and industry norms and considering staff feedback through regular performance review. During 2020 the Group implemented an all-staff share scheme for the first time.

COVID-19

The risk to the Group, as for any business, is that the COVID-19 pandemic impacts new and existing business activities as clients and suppliers focus on short term priorities arising from pandemic or struggle to remain in business.

The Group remains well placed and has seen minimal impact from COVID-19, with working from home practices implemented and the majority of business relatively unaffected. There was a small shortfall in Professional Services revenue compared with budget due to travel restrictions preventing on-site service delivery plus Academia was closed for part of the year. It is expected that a small element of revenue slippage will move into the current year as we fulfil our strong services backlog.

Post Period-End

The Group completed the earnings enhancing acquisitions of The Edge and d-wise. The Edge, which was acquired for up to GBP8.5m, is a discovery software solutions provider with an established client base across the pharmaceutical, biotechnology, biopharmaceutical and animal health sectors. Its addition further broadens Instem's reach into the closely adjacent Discovery Study Management market.

d-wise, which is a US-based clinical trial technology & consulting leader, was acquired for up to $31.0m. The d-wise team and its solutions will create a new operating segment at Instem, Clinical Trial Acceleration Solutions, which will focus on leveraging the combined capabilities to further expand areas of application.

Outlook

The performance during the Period highlighted our resilience - especially given the COVID-19 backdrop. Our proven model continues to generate strong cash flows while the combination of increasing demand for regulatory-backed solutions and a growing demand for artificial intelligence and in silico solutions in the drug discovery process underpin our confidence in further leveraging our product base.

We are extremely pleased with our continued strong organic growth and increasing ability to cross sell to existing and new clients. Furthermore, we are primed to build on this momentum, having strengthened our proposition post Period end. The recent acquisitions of d-wise and The Edge highlight our ability to add scale and leverage existing customer relationships with a view to further enhancing earnings and profitability, while providing a strong platform for continued growth. In addition, we are continuing discussions with a number of other potential acquisition targets.

Given the structural backdrop and opportunities within our existing client base we are confident that we are well placed to continue growing recurring revenues, margins, and cash generation, and look forward to augmenting organic growth via our ongoing acquisition strategy.

Phil Reason

Chief Executive

10 April 2021

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 December 2020

 
                                                                                            Year ended      Year ended 
                                                                                           31 December     31 December 
                                                                                   Note           2020            2019 
                                                                                                GBP000          GBP000 
 
 REVENUE                                                                              2         28,217          25,717 
 Employee benefits expense                                                                    (16,508)        (13,609) 
 Other expenses                                                                                (5,790)         (7,244) 
 
 EARNINGS BEFORE INTEREST, TAXATION, DEPRECIATION, AMORTISATION AND 
  NON-RECURRING COSTS (ADJUSTED 
  EBITDA)                                                                                        5,919           4,864 
 Depreciation                                                                                    (138)           (155) 
 Amortisation of intangibles arising on acquisitions                                             (664)           (523) 
 Amortisation of internally generated intangibles                                                (736)           (755) 
 Depreciation of right of use assets                                                             (572)           (607) 
 Impairment of goodwill and capitalised development costs                                            -         (3,175) 
 
 OPERATING PROFIT/(LOSS) BEFORE NON-RECURRING COSTS                                              3,809           (351) 
 Non-recurring costs                                                                  3          (606)           (302) 
 
 OPERATING PROFIT/(LOSS) AFTER NON-RECURRING COSTS                                               3,203           (653) 
 
 Finance income                                                                       4             38               7 
 Finance costs                                                                        5          (692)           (255) 
 
 PROFIT/(LOSS) BEFORE TAXATION                                                                   2,549           (901) 
 Taxation                                                                             6          (275)            (22) 
 
 PROFIT/(LOSS) FOR THE YEAR                                                                      2,274           (923) 
 
 OTHER COMPREHENSIVE (EXPENSE)/INCOME 
 Items that will not be reclassified to profit and loss account: 
 Actuarial (loss)/gain on retirement benefit obligations                                       (2,537)              30 
 Deferred tax on actuarial gain/loss                                                               518             (6) 
 Deferred tax on share options                                                                     322               - 
 
                                                                                               (1,697)              24 
 Items that may be reclassified to profit and loss account: 
 Exchange differences on translating foreign operations                                             10           (208) 
                                                                                               _______         _______ 
 
   OTHER COMPREHENSIVE EXPENSE FOR THE YEAR                                                    (1,687)           (184) 
                                                                                               _______         _______ 
 
   TOTAL COMPREHENSIVE INCOME/(EXPENSE) FOR THE YEAR                                               587         (1,107) 
 
 
   PROFIT/(LOSS) ATTRIBUTABLE TO OWNERS OF THE PARENT COMPANY                                    2,274           (923) 
 
 TOTAL COMPREHENSIVE INCOME/(EXPENSE) ATTRIBUTABLE TO OWNERS OF THE PARENT 
  COMPANY                                                                                          587         (1,107) 
 
 Earnings per share 
 Basic                                                                                7           12.3          (5.7p) 
 Diluted                                                                              7           11.6          (5.7p) 
 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

At 31 December 2020

 
                                                       2020                             2019 
                                             GBP000           GBP000           GBP000           GBP000 
 ASSETS 
 NON-CURRENT ASSETS 
 Intangible assets                           18,023                            18,108 
 Property, plant and equipment                  238                               237 
 Right of use assets                          1,742                             2,165 
 Finance lease receivables                      128                               175 
 
 TOTAL NON-CURRENT ASSETS                                     20,131                            20,685 
 
 CURRENT ASSETS 
 Inventories                                     50                                36 
 Trade and other receivables                  6,093                             6,921 
 Finance lease receivables                       41                                39 
 Tax receivable                                 724                             1,158 
 Cash and cash equivalents                   26,724                             5,957 
 
 TOTAL CURRENT ASSETS                                         33,632                            14,111 
 
 TOTAL ASSETS                                                 53,763                            34,796 
 
 LIABILITIES 
 CURRENT LIABILITIES 
 Trade and other payables                     2,958                             2,662 
 Deferred income                              9,878                             8,942 
 Tax payable                                      -                               404 
 Financial liabilities                          268                               301 
 Lease liabilities                              608                               565 
 Deferred tax liabilities                        90                               506 
 
 TOTAL CURRENT LIABILITIES                                    13,802                            13,380 
 
 NON-CURRENT LIABILITIES 
 Financial liabilities                        1,131                               559 
 Retirement benefit obligations               3,868                             1,804 
 Provision for liabilities                      250                               250 
 Lease liabilities                            1,476                             2,004 
 
 TOTAL NON-CURRENT LIABILITIES                                 6,725                             4,617 
 
 TOTAL LIABILITIES                                            20,527                            17,997 
 
 EQUITY 
 Share capital                                2,048                             1,662 
 Share premium                               28,172                            13,135 
 Merger reserve                               2,432                             2,432 
 Share based payment reserve                    930                               654 
 Translation reserve                             92                                82 
 Retained earnings                            (438)                           (1,166) 
 
 TOTAL EQUITY ATTRIBUTABLE TO 
  OWNERS OF THE PARENT                                        33,236                            16,799 
 
 TOTAL EQUITY AND LIABILITIES                                 53,763                            34,746 
 
 CONSOLIDATED STATEMENT OF CASH FLOWS 
  For the year ended 31 December 2020 
----------------------------------------------------------------------------------------------------------------------- 
                                                                       2020                              2019 
                                                              GBP000           GBP000           GBP000           GBP000 
 CASH FLOWS FROM OPERATING 
  ACTIVITIES 
 Profit/ (loss) before taxation                                                 2,549                             (901) 
 Adjustments for: 
 Depreciation                                                                     138                               155 
 Amortisation of intangibles                                                    1,400                             1,278 
 Depreciation of right of use assets                                              572                               607 
 Impairment of goodwill and 
  capitalised development costs                                                     -                             3,175 
 Share based payment charge                                                       427                                75 
 Retirement benefit obligations                                                 (512)                             (475) 
 Finance income                                                                  (38)                               (7) 
 Finance costs                                                                    692                               255 
 Loss on disposal of fixed assets                                                   2                                 - 
 
 CASH FLOWS FROM OPERATIONS BEFORE 
  MOVEMENTS IN WORKING CAPITAL                                                  5,230                             4,162 
 Movements in working capital: 
 (Increase)/decrease in inventories                                              (14)                                 1 
 Decrease in trade and other receivables                                          742                               790 
 Increase in trade, other payables and deferred 
  income                                                                        1,410                               693 
 
 NET CASH GENERATED FROM OPERATIONS                                             7,368                             5,646 
 Finance income                                                                    38                                 7 
 Finance costs                                                                  (648)                             (255) 
 Income taxes                                                                     183                                25 
 
 NET CASH GENERATED FROM OPERATING 
  ACTIVITIES                                                                    6,941                             5,423 
 CASH FLOWS FROM INVESTING ACTIVITIES 
 Capitalisation of development costs 
  and software                                               (1,272)                           (1,344) 
 Purchase of property, plant and 
  equipment                                                    (141)                              (91) 
 Payment of deferred consideration                             (277)                                 - 
 Purchase of subsidiary undertakings 
  (net of cash acquired)                                           -                           (1,268) 
 
 NET CASH USED IN INVESTING ACTIVITIES                                        (1,690)                           (2,703) 
 CASH FLOWS FROM FINANCING ACTIVITIES 
 Proceeds from issue of share 
  capital                                                     15,423                               648 
 Lease interest payment                                            -                               (2) 
 Proceeds from government support                                810                                 - 
  loan 
 Repayment of lease liabilities                                (621)                             (693) 
 Receipts from sublease of asset                                  40                                 7 
  Repayment of lease capital                                    (15)                              (34) 
 
 NET CASH GENERATED FROM/(USED IN) FINANCING 
  ACTIVITIES                                                                   15,637                              (74) 
 
 NET INCREASE IN CASH AND CASH EQUIVALENTS                                     20,888                             2,646 
 Cash and cash equivalents at start 
  of year                                                                       5,957                             3,572 
 Effects of exchange rate changes on 
  the balance of cash held in 
  foreign currencies                                                            (121)                             (261) 
 
 CASH AND CASH EQUIVALENTS AT OF 
  YEAR                                                                         26,724                             5,957 
 
 
 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

 
                                                                            Shares 
                                                                             based 
                             Share       Share             Merger          payment      Translation         Retained              Total 
                           capital     premium            reserve          reserve          reserve         earnings             equity 
                            GBP000      GBP000             GBP000           GBP000           GBP000           GBP000             GBP000 
 Balance as at 
  1 January 2018             1,592      12,535              1,598            1,010              290            (630)             16,395 
 
 Adjustment on initial 
  application of 
  IFRS 16                        -           -                  -                -                -             (68)               (68) 
 
 Adjusted balance 
  as at 1 January 
  2019                       1,592      12,535              1,598            1,010              290            (698)             16,327 
 
 Loss for the year               -           -                  -                -                -            (923)              (923) 
 Other comprehensive 
  (expense)/income 
  for the year                   -           -                  -                -            (208)               24              (184) 
                           _______     _______            _______          _______          _______          _______            _______ 
  Total comprehensive 
    (expense)/income             -           -                  -                -            (208)            (899)          (1,107) 
 
  Shares issued                 70         600                834                -                -                -              1,504 
  Share based payment            -           -                  -               75                -                -                 75 
  Reserve transfer 
   on exercise of 
   share options                 -           -                  -            (431)                -              431                  - 
 
 Balance at 31 
  December 
  2019                       1,662      13,135              2,432              654               82          (1,166)             16,799 
 
 
 Profit for the 
  year                           -           -                  -                -                -            2,274              2,274 
 Other comprehensive 
  income/(expense) 
  for the year                   -           -                  -                -               10          (1,697)            (1,697) 
 
  Total comprehensive 
   income                        -           -                  -                -               10              577                587 
 Shares issued                             386      15,037      -                -                -                -           15,423 
 Share based payment             -           -                  -              427                -                -                427 
 Reserve transfer 
  on lapse of share 
  options                        -           -                  -             (65)                -               65                  - 
 Reserve transfer 
  on exercise of 
  share options                  -           -                  -             (86)                -               86                  - 
 
 Balance as at 31 
  December 2020              2,048      28,172              2,432              930               92            (438)             33,236 
 
 
 

NOTES TO THE FINANCIAL STATEMENTS

   1             GENERAL INFORMATION 

The principal activity and nature of operations of the Group is the provision of world class IT solutions to the life sciences market. Instem's solutions for data collection, management and analysis are used by customers worldwide to meet the needs of life science and healthcare organisations for data-driven decision making leading to safer, more effective products. Instem plc is a public limited company, listed on AIM, and incorporated in England and Wales under the Companies Act 2006 and domiciled in England and Wales. The registered office is Diamond Way, Stone Business Park, Stone, Staffordshire, ST15 0SD.

STATEMENT OF COMPLIANCE

The financial information set out in this preliminary announcement does not constitute the Group's statutory financial statements for the years ended 31 December 2020 or 2019 as defined in section 435 of the Companies act 2006 (CA 2006) but is derived from those audited financial statements. Statutory financial statements for 2019 have been delivered to the Registrar of Companies and those for 2020 will be delivered in due course. The auditors reported on those accounts; their reports were unqualified and did not contain a statement under either Section 498(2) or Section 498(3) of the Companies Act 2006.

ANNUAL REPORT AND FINANCIAL STATEMENTS

Copies of the Annual Report and Financial Statements and Notice of Annual General Meeting ("AGM") will be posted to the Group's shareholders on Wednesday 5 May 2021 and will be made available, along with this announcement, to view from that date on Instem's website at https://investors.instem.com .

The AGM is to be held at 2.00pm on Thursday 27 May 2021 at the Company's registered office, 2 Diamond Way, Stone Business Park, Stone, Staffordshire, ST15 0SD.

At the time of this results announcement, current restrictions in respect of COVID-19 prohibit public gatherings, with a limited number of exceptions which do not include attending an AGM. Given these restrictions, and our commitment to shareholder and employee safety, we will be unable to admit shareholders to the AGM in person.

The AGM will therefore be convened with the minimum necessary quorum (which will be fulfilled by directors of the Company). The business of the AGM will be restricted to the purposes set out in the formal Notice of AGM. There will be no additional presentations or opportunities for the board of directors to answer questions.

It remains important to the board of directors that your votes are counted at the AGM. All shareholders are therefore strongly encouraged to submit their votes on the formal business to be transacted using the proxy form enclosed with the Notice of AGM.

The chairman of the AGM will propose that each resolution, as set out in the Notice of AGM, is voted on via a poll. This means that each shareholder present in person (which shall only be such number of directors as is sufficient to ensure that the AGM is quorate) or by proxy will have one vote for each share held.

The Company will continue to monitor developments relating to COVID-19. If a situation should arise which necessitates that the arrangements for the AGM be altered, shareholders will be notified promptly via an RNS announcement and the Company's website.

In normal circumstances, the Company's AGM plays an important role in providing an opportunity for the Company's directors to engage with shareholders. The board of directors would therefore like to thank all shareholders in advance for their cooperation with and understanding of the alternative arrangements that the Company has been required to implement this year.

FORWARD-LOOKING STATEMENTS

These results were approved by the Board of Directors and authorised for issue on 10 April 2021. This document contains certain forward-looking statements which reflect the knowledge and information available to the Company during the preparation and up to the publication of this document. By their very nature, these statements depend upon circumstances and relate to events that may occur in the future thereby involving a degree of uncertainty. Therefore, nothing in this document should be construed as a profit forecast by the Company.

STATEMENT OF COMPLIANCE

While the financial information included in this preliminary announcement has been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 , this announcement does not in itself contain sufficient information to comply with IFRSs.

BASIS OF PREPARATION

The Group's accounting reference date is 31 December.

This financial information has been prepared on a going concern basis and prepared on the historical cost basis. Refer to the Going Concern note for further details.

ADOPTION OF IFRS

The Group and Company financial statements have been prepared in accordance with IFRS, IAS and International Financial Reporting Interpretations Committee (IFRICs) effective as at 31 December 2020. The Group and Company have chosen not to adopt any amendments or revised standards early.

IFRSs ADOPTED IN THE YEAR

There are a number of standards, amendments to standards, and interpretations which have been issued by the IASB which are all effective from 1 January 2020. The most significant of these are as follows:

-- IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting

Estimates and Errors (Amendment - Definition of Material)

-- IFRS 3 Business Combinations (Amendment - Definition of Business)

-- Revised Conceptual Framework for Financial Reporting

-- Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS 7)

Those standards, amendments to standards, and interpretations have been adopted and did not have a material impact on the accounting policies of the Group.

The practical expedient for COVID-19 Rent Related Concessions (Amendments to IFRS 16) have not been applied in the current reporting period.

IFRSs ISSUED BUT NOT YET EFFECTIVE

There are a number of standards, amendments to standards, and interpretations which have been issued by the IASB that are effective in future accounting periods that the Group has decided not to adopt early. The most significant of these is are as follows, which are all effective for the period beginning 1 January 2021:

-- References to the Conceptual Framework

-- Proceeds before Intended Use (Amendments to IAS 16)

-- Onerous Contracts - Cost of Fulfilling a Contract (Amendments to IAS 37)

-- Annual Improvements to IFRS Standards 2018-2020 Cycle (Amendments to IFRS 1, IFRS 9, IFRS 16, IAS 41)

-- Classification of Liabilities as Current or Non-current (Amendments to IAS 1)

These standards are not expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions.

BUSINESS COMBINATIONS

Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition date fair values of the assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity interests issued by the Group in exchange for control of the acquiree. Acquisition related costs are recognised in profit or loss as incurred.

At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value, except that deferred tax assets or liabilities are recognised and measured in accordance with IAS 12 'Income taxes'.

Consideration may consist of deferred consideration and contingent consideration. Deferred consideration is not based on any performance related conditions and is payable on an agreed future date. Contingent consideration is based on certain performance related conditions and payable on an agreed future date, if those conditions are met.

Deferred consideration and contingent consideration is measured at their acquisition-date fair value and are taken into account in the determination of goodwill. Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. The subsequent accounting for changes in the fair value of the contingent consideration that do not qualify as measurement period adjustments depends on how the contingent consideration is classified.

GOING CONCERN

The financial position of the Group, its cash flows and liquidity position are set out in the primary statements within these financial statements.

Background

The Directors have adopted the going concern basis in preparing these financial statements after careful assessment of identified principal risks and the possible adverse impact on financial performance. The Directors have assessed the financial position and liquidity at the end of the reporting period and for the forecast period up to 31 December 2022, including sensitivity analysis. The going concern period covers the 12 months from the date of signing the financial statements. The process and key judgments in coming to this conclusion are set out below.

The Group's activities, including the factors likely to affect its future development, performance and position are set out in the Chairman's Statement and Strategic report. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in the Financial Review.

Current trading and liquidity

The Group's trading performance for the year ended 31 December 2020 has been strong with Revenues of GBP28.2m and Adjusted EBITDA of GBP5.9m. Instem is fully operational, with all staff in all territories working from home in accordance with governmental guidelines, no staff have been furloughed and there is no intention of curtailing any business activities. The company has continued to recruit staff across its geographic footprint.

The Group's financing arrangements consist of a net overdraft facility of GBP0.5m and a gross limit of GBP9.0m with NatWest Bank plc to support the Group's working capital needs. As of 31 December 2020, the net facility was undrawn (2019: undrawn). There are no material covenants associated with the facility.

Following the announcement of the 2019 preliminary results Instem undertook an equity fund raise in July 2020. This was a success as it was oversubscribed, raising gross funds of GBP15.75m, GBP15.0m net of expenses. A further six prestigious institutions were added to the list of shareholders. We spent GBP4.0m initially funding the acquisition of The Edge on 1st March 2021 and $13m spent on the initial funding of the d-wise acquisition on 1st April 2021. The group remains in a strong financial position as both of these acquisitions are expected to be accretive and cash generative.

During 2020, the Group received a US government support loan of $1.1m (GBP0.9m). The Group have applied for these sums to be forgiven and based on meeting all of the qualifying criteria, expect to receive a favourable outcome.

The Group acquired the earnings enhancing, cash generative business of Leadscope Inc. in November 2019, which has been steadily integrated within the Group during 2020. The only financial obligation associated with this acquisition during 2021 is a deferred consideration payment of $0.3m due in November 2021.

Other than the initial consideration already paid for The Edge and d-wise, there are no further financial obligations payable associated with the acquisitions until 2022, when deferred and contingent consideration will be due.

Sensitivity Analysis

The Company has considered three scenarios which are also linked to the company's risks when modelling the forecast results and cash flow. The sensitivity assessment includes the trading performance and cash flows of the Edge and d-wise from the date of the acquisitions.

   (a)   Base Case Scenario 

The Group's detailed forecasts and projections, taking account of potential risks and uncertainties in the business, market and liquidity through sensitivity analysis, show that the Group has adequate resources to enable it to continue in operation through the forecast period ending 31 December 2022 from the approval date of these Consolidated Financial Statements. Accordingly, the Group continues to adopt the going concern basis in preparing its Consolidated Financial Statements.

The uncertainty as to the future impact on the Group of the recent COVID-19 outbreak has been considered as part of the sensitivity analysis and as part of Group's adoption of the going concern basis. Thus far we have not observed any material impact on our overall existing business or in the level of new business opportunities that are being presented to us in the markets in which we operate.

The Group has a significant proportion of recurring revenue (circa 60% of total) from annual support & maintenance and SaaS contracts from a well-established global customer base. Revenue is supported by a largely fixed cost base comprising staff and offices. The Group had net current assets (excluding deferred income) of GBP29.7m as of 31 December 2020 (2019: GBP10.0m). The deferred income recurs each year on renewal of contracts and in general the Group has either received the related cash or has raised invoices for the services. The Group had positive cash reserves of GBP26.7m at 31 December 2020, in addition to the GBP0.5m undrawn working capital facility, although GBP2.6m of the cash was held in bank accounts in China, where it has been traditionally harder to repatriate funds quickly. There are however no long-term restrictions on the transfer of funds from the Group bank accounts in China and since the 2020 year-end we have been able to repatriate GBP1.6m, significantly reducing our financial exposure to that territory.

   (b)   Sensitised Scenario 

Further stress testing has been carried out to ensure that the Group has sufficient cash resources to continue its operations until at least 31 December 2022. In the downside scenario analysis performed, the Board considered the potential impact of the COVID-19 outbreak on the Group's results. In preparing this analysis the following key risks were included: COVID-19 causing a 25% loss of new business for the next twelve months and the risk effect of foreign exchange movements, particularly between the USD and GBP. Despite the negative impact of these sensitivities the model demonstrated that the Group remained viable, even though profitability and cash over the next twelve months was reduced.

   (c)    Extreme downside Scenario 

The Group then considered a more extreme situation where the impact of its risks would be more severe such as a significant negative impact of COVID-19 continuing for an extended period of time into 2022, assuming there would be no new business at all. This sensitivity exercise resulted in the Group showing an operating loss in each of the years ending 31 December 2021 and 31 December 2022 and exhausting its cash reserves from October 2021, having not drawn its bank facility.

In a scenario where many of the identified risks occurred the Group would take remedial action to counter the dramatic reduction in profit and cash through a cost cutting and fund-raising exercise that would include staff redundancies, general cost control measures, office space reduction and seeking alternative sources of funding.

These downside scenarios are considered unlikely.

Even applying the extreme downside scenario sensitivity analysis throughout the forecast period to 31 December 2022, by taking sufficient remedial action we expect the Group to remain a going concern.

Conclusion and Going Concern Statement

After considering the uncertainties described above, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For these reasons, they continue to adopt the going concern basis in preparing this annual report and accounts.

SIGNIFICANT JUDGEMENTS AND ESTIMATES

In the process of applying the Group's accounting policies, which are described above, management have made judgements and estimations about the future that have the most significant effect on the amounts recognised in the financial statements. The estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of revision and future periods if the revision affects both current and future periods.

Significant judgements

The following judgments have the most significant effect on the financial statements.

Revenue Recognition

The Group generates revenue from the provision of software licences, annual support, SaaS subscriptions, subscription and support, professional services and technology enabled outsourced services. Software licences, professional services and annual support are often bundled together in a contract which do not meet the criteria to be distinct performance obligation, due to a lack of interdependence between performance obligations. Promises that are not distinct are combined with other promised goods or services in the contract, until a performance obligation is satisfied.

Judgement is applied in determining how many performance obligations there are within each contract and the period in which these obligations will be fulfilled and recognised as revenue, based on the Group's accounting policies. For SaaS subscription and support, the Group determines for each contract whether the promise is considered to be a single performance obligation as the subscription and support are highly interdependent on one another given that the customers are required to take the full package of both the software and support services i.e Instem would not be able to provide the support services without the provision of the software nor provide the software without the support services.

Impairment of goodwill

CGUs are identified by the fact they are separate legal entities and so have their own intangible and tangible assets, other current assets and generate cash from their products and services that are separately identifiable from one another. The judgements were made in respect of the WACC, the revenue growth rate applied and the allocation of costs across the CGUs.

The carrying value of goodwill must be assessed for impairment annually. This requires a value in use estimate which is dependent on estimation of future cashflows and the use of an appropriate discount rate to discount those cash flows to their present value. The carrying value of goodwill as at 31 December 2020 was GBP10.2m (2019: GBP10.2m).

Management approved to use the same pre-tax WACC across all CGUs, as it was determined based on the Groups risks and there were no specific risks related to each CGU or CGU's jurisdiction.

The revenue growth rates and margins are based on current Board-approved budgets and forecasts covering a period of five years. Management estimates are considering business growth rates, payroll and other cost base increases.

The data used for impairment testing procedures are directly linked to the Group's latest approved budget, adjusted as necessary to exclude the effects of future reorganisations and asset enhancements. The budgeted unallocated departmental costs are assigned to each CGU applying a standard methodology approved by the Board.

Development Costs

The Group invests on a continual basis in the development of software for sale to third parties. There is a continual process of enhancements to and expansion of the software with judgement required in assessing whether the development costs meet the criteria for capitalisation. These judgements have been applied consistently year on year. In making this judgement, the Group evaluates, amongst other factors, whether there are future economic benefits beyond the current period, the stage at which technical feasibility has been achieved, management's intention to complete and use or sell the product, the likelihood of success, availability of technical and financial resources to complete the development phase and management's ability to measure reliably the expenditure attributable to the project. Judgement is therefore required in determining the practice for capitalising development costs.

Estimation uncertainty

Information about estimations and assumptions that may have the most significant impact on recognition and measurement of assets, liabilities, income and expenses is provided below. Actual results may be substantially different.

Provision for liabilities

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 2020, the Group has a provision of GBP0.25m (2019: 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 input received by the Group.

Contingent consideration

Where acquisition consideration includes consideration contingent on performance outcomes being met, the consideration is valued at the acquisition date based on performance forecasts available at the time. Those forecasts are reviewed at the reporting date and the consideration revised where materially different.

Impairment of other intangible assets

Other intangibles assets consist of assets acquired (customer relationships, intellectual property and brand names) as part of the net assets of certain subsidiaries and software, being mainly capitalised development costs. Impairment testing requires if there is an indication that the other intangible asset is impaired and the value in use method would be estimated based on an estimation of future cashflows and the use of an appropriate discount rate to discount those cash flows to their present value. The carrying amounts of acquired intangibles and software at the reporting date was GBP3.6m and GBP4.3m respectively (2019: GBP4.2m and GBP3.7m). There was an impairment charge of GBP0.7m on the year ended 31 December 2019.

Pension scheme

As stated above the Group operates a defined benefit pension scheme. At the end of each six-monthly reporting period the Group seeks external expert actuarial advice on the assumptions to apply to the calculation of the scheme's liabilities. The Group then engages a separate, independent firm of pension advisors to calculate the scheme surplus or deficit at the reporting date for accounting purposes. The scheme deficit at 31 December 2020 is GBP3.9m (2019: GBP1.8m).

Revenue Recognition

For Professional services and technology enabled outsourced services revenue recognition there is a significant estimation of the planned project hours, which determines the percentage of completion of service revenue contracts. Before the project is started, the project manager estimates the budgeted hours needed for the agreed services. If the project is expected to overrun, then the project manager will amend the expected budgeted hours in accordance with the new available information which also mitigates the risk of early revenue recognition.

   2             REVENUE FROM CONTRACTS WITH CUSTOMERS 

Segmental reporting

The Group has disaggregated revenue into various categories in the following tables which are intended to depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.

Prior to 2019, the Group reported its business as one operating segment; Global Life Sciences. The Board managed the Group by monitoring its revenue streams and considered the cost base as a whole. Historically the Group's finance systems have recorded costs centrally and have managed costs in this way. Without systems capable of allocating costs accurately, the Board concluded that there was only one operating segment in which revenues and costs were reported. Over recent years the Group has expanded both organically and through acquisition, increasing the number of products and services. During 2019 the business was divided into three operating segments to better manage and report revenues; Study Management, Regulatory Solutions and In Silico Solutions.

There has been an ongoing project to enhance the quality of management information (MI) following the implementation of a new finance system. During the final quarter of 2019 certain direct costs were allocated to the revenue streams whilst the majority of costs were still recorded and reported centrally. The treatment in 2019 was based on information that was provided to the Instem Board, the Group's Chief Operating Decision Maker, at the end of 2019.

During 2020 the business implemented a process to more accurately allocate centrally held operational costs to the individual segments. However, it will take time for the allocations to be sufficiently accurate for the Board to use segmental cost information for meaningful decision making.

The operations of the Group are managed centrally with group-wide functions including sales and marketing, development, customer support, human resources and finance & administration.

The analysis provided below reflects costs directly attributable to the respective segments in 2020 and 2019, which are primarily third-party costs of sale and costs of allocated employees. The remaining indirect operational costs are accounted for centrally and are not allocated to specific segments.

 
 SEGMENTAL REPORTING                     Study Management   Regulatory       In Silico 
  2020                                                       Solutions       Solutions           Total 
                                                   GBP000       GBP000          GBP000          GBP000 
 
 Total revenue                                     15,054        9,839           3,324          28,217 
 Direct attributable costs                        (3,516)      (2,046)         (1,630)         (7,192) 
                                                   ______       ______          ______          ______ 
 Contribution to indirect 
  overheads                                        11,538        7,793           1,694          21,025 
 
 Central unallocated indirect 
  costs                                                                                       (15,106) 
                                                                                                ______ 
   Adjusted EBITDA                                                                               5,919 
 
 Depreciation                                                                                    (138) 
 Amortisation of intangibles 
  arising on acquisitions                                                                        (664) 
 Amortisation of internally 
  generated intangibles                                                                          (736) 
 Amortisation of right of 
  use assets                                                                                     (572) 
 Impairment of goodwill and                                                                          - 
  capitalised development 
  costs 
                                                                                                ______ 
 OPERATING PROFIT BEFORE 
  NON-RECURRING COSTS                                                                            3,809 
 Non-recurring costs                                                                             (606) 
                                                                                                ______ 
 OPERATING PROFIT AFTER NON-RECURRING 
  COSTS                                                                                          3,203 
 
 Finance income                                                                                     38 
 Finance costs                                                                                   (692) 
                                                                                                ______ 
 PROFIT BEFORE TAXATION                                                                          2,549 
 
 SEGMENTAL REPORTING                     Study Management   Regulatory       In Silico 
  2019                                                       Solutions       Solutions           Total 
 
                                                   GBP000       GBP000          GBP000          GBP000 
 
 Total revenue                                     15,188        9,037           1,492          25,717 
  Direct attributable costs                       (4,370)      (2,111)           (660)         (7,141) 
                                                   ______       ______          ______          ______ 
  Contribution to indirect                         10,818        6,926             832          18,576 
   overheads 
 Central unallocated indirect 
  costs                                                                                       (13,712) 
                                                                                                ______ 
   Adjusted EBITDA                                                                               4,864 
 
 Depreciation                                                                                    (155) 
 Amortisation of intangibles 
  arising on acquisitions                                                                        (523) 
 Amortisation of internally 
  generated intangibles                                                                          (755) 
  Amortisation of right of 
   use assets                                                                                    (607) 
  Impairment of goodwill and 
   capitalised development 
   costs 
                                                                                               (3,175) 
                                                                                                ______ 
 OPERATING LOSS BEFORE NON-RECURRING 
  COSTS                                                                                          (351) 
 Non-recurring costs                                                                             (302) 
                                                                                                ______ 
 OPERATING LOSS AFTER NON-RECURRING 
  COSTS                                                                                          (653) 
 
 Finance income                                                                                      7 
 Finance costs                                                                                   (255) 
                                                                                                ______ 
 LOSS BEFORE TAXATION                                                                            (901) 
 
 
 
                                                                                  2020                2019 
                                                                                GBP000              GBP000 
    REVENUE BY PRODUCT TYPE 
 
  Licence fees                                                                   3,477               3,501 
  Annual support fees                                                            8,917               8,418 
  SaaS subscription and support fees                                             8,024               6,444 
  Professional services                                                          1,603               1,773 
  Technology enabled outsourced services                                         6,196               5,581 
                                                                                ______             _______ 
                                                                                28,217              25,717 
 
 
 
 
                                            2020      2019 
                                          GBP000    GBP000 
     REVENUE BY GEOGRAPHICAL LOCATION 
   UK                                      2,740     3,414 
   Rest of Europe                          5,656     5,051 
   North America                          14,586    12,701 
   Rest of World                           5,235     4,551 
                                          ______    ______ 
                                          28,217    25,717 
 
 
 
 
     NON-CURRENT ASSETS EXCLUDING DEFERRED TAXATION BY GEOGRAPHICAL LOCATION        2020       2019 
                                                                                  GBP000     GBP000 
   UK                                                                             17,549     17,779 
   Rest of Europe                                                                  1,436      1,107 
   North America                                                                     524        432 
   Rest of World                                                                     622        881 
                                                                                  ______     ______ 
                                                                                  20,131     20,199 
 
 

There were no customers which represented more than 10% of the Group revenue in 2020 (2019: none).

   3          Non recurring costs 
 
                                                                     2020      2019 
                                                                   GBP000    GBP000 
 
 Guaranteed Minimum Pension (GMP) equalisation provision                5         - 
  Legal costs relating to historical contract disputes 
  Acquisition costs                                                   149       106 
                                                                      452       196 
 
                                                                      606       302 
 
 
   4          Finance income 
 
                                                  2020      2019 
                                                GBP000    GBP000 
 
 Right of use asset interest income                  7         - 
 Other interest                                     31         7 
 
                                                    38         7 
 
 
 
 
   5          Finance costs 
 
                                                     2020      2019 
                                                   GBP000    GBP000 
 
 Loans and overdrafts                                  38        34 
 Unwinding discount on deferred consideration          70         - 
 Net interest charge on pension scheme                 34        60 
 Lease interest cost                                    -         2 
 Right of use asset interest cost                      96       118 
 Foreign exchange losses                              454        41 
 
                                                      692       255 
 
 
 
   6          Taxation 
 
            Income taxes recognised in profit or loss:        2020      2019 
                                                            GBP000    GBP000 
 Current tax: 
 UK corporation tax in respect of previous years               (4)        28 
 Adjustments in respect of R&D tax credit                      250       464 
  Foreign tax                                                (146)     (404) 
 Foreign tax in respect of previous years                       39        67 
                                                           _______   _______ 
 Total current tax credit                                      139       155 
                                                           _______   _______ 
 Deferred tax: 
 Current year charge                                         (165)      (69) 
 Adjustment in respect of previous years                      (57)      (11) 
 Retirement benefit obligation                                (90)      (70) 
 Impact of rate change                                       (102)         - 
                                                           _______   _______ 
 Total deferred tax charge                                   (414)     (177) 
                                                           _______   _______ 
 Total income tax charge recognised in the current year      (275)      (22) 
 
 
   7          Leases 

Nature of leasing activities in the capacity of lessee

The Group leases a number of offices in the jurisdictions from which it operates. In these jurisdictions the periodic rent is fixed over the lease term, with inflationary increases incorporated into the fixed payments stipulated in the lease agreements. Where rental agreements include market rate escalations, the lease liability is re-measured when the change in cash payments takes effect. The Group also leases certain vehicles. Leases of vehicles comprise only fixed payments over the lease terms. With the exception of short-term leases, leases of low value underlying assets and a lease held for a telephone system, with less than twelve months remaining on the lease as at 31 December 2020, each lease is reflected on the balance sheet as a right of use asset and a lease liability.

Each lease generally imposes a restriction that, unless there is a contractual right for the Group to sublet the asset to another party, the right of use asset can only be used by the Group. Leases are either non-cancellable or may only be cancelled by incurring a termination fee. Some leases contain an option to extend the lease for a further term. For office leases the Group must keep those properties in a good state of repair and return the properties in their original condition at the end of the lease.

The table below describes the nature of the Groups leasing activities by type of right of use asset recognised on the balance sheet:

 
 
 
                                                         No of           No of             No of           No of 
                          No of                         leases          leases            leases          leases 
                          right            Range          with            with     with payments            with 
      Right of           of use     of remaining     extension         options            linked     termination 
      use assets         assets             term       options     to purchase             to an         options 
                         leased                                                            index 
 
 Office buildings            10        2.7 years             9               0                 1               0 
 Vehicles                     3        2.9 years             0               0                 0               0 
 
 
 
 
 
   Right of use assets             Land &        Motor 
                                buildings     vehicles                   Total 
                                   GBP000       GBP000                  GBP000 
 
 As at 1 January 2019               2,978           24                   3,002 
 Derecognition of sublease          (249)            -                   (249) 
  Amortisation                      (590)         (17)                   (607) 
 Exchange adjustment                   19            -                      19 
 
 As at 31 December 2019             2,158            7                   2,165 
 Additions                            123           31                     154 
  Lease modification and 
   remeasurement                       33            -                      33 
 Amortisation                       (564)          (8)                   (572) 
  Exchange adjustment                (38)            -                    (38) 
 
 As at 31 December 2020             1,712           30                   1,742 
 
 
 
 
 
 
                                                      Land & buildings             Motor                Total 
                                                                                vehicles 
 
           Lease liabilities 
                                                                GBP000            GBP000               GBP000 
      As at 1 January 2019                                       3,020                22                2,569 
      Interest expense                                             117                 1                  118 
       Lease payments                                            (676)              (17)                (693) 
      Exchange adjustment                                          102                 -                  102 
 
      As at 31 December 2019                                     2,563                 6                2,569 
      Additions                                                    123                31                  154 
      Lease modification and remeasurement                          32                 -                   32 
      Interest expense                                              95                 -                   95 
      Lease payments                                             (710)               (6)                (716) 
      Exchange adjustment                                         (50)                 -                 (50) 
      As at 31 December 2020                                     2,053                31                2,084 
 
 
 

Reconciliation of movements of liabilities to cash flows arising from financing activities

 
 
    Changes from financing                 Land &          Motor 
    cash flows                          buildings       vehicles         Total 
                                           GBP000         GBP000        GBP000 
 
      At 31 December 2019                     676             17           693 
 
 
      Interest expenses                        95              0            95 
      Payment of lease liabilities            615              6           621 
                                              ___              _           ___ 
      At 31 December 2020                     710              6           716 
 
 
 

Lease liability maturity analysis:

As at 31 December 2020

 
                                1 year    2 to 5   After five 
                                or less    years        years    Total 
                                 GBP000   GBP000       GBP000   GBP000 
 
         Lease liabilities          488    1,538           58    2,084 
 
 
 
         As at 31 December       1 year   2 to 5   After five 
          2019                  or less    years        years    Total 
                                 GBP000   GBP000       GBP000   GBP000 
 
         Lease liabilities          565    1,950           54    2,569 
 
 
 
 

The following amounts in respect of leases, where the company is a lessee, have been recognised in consolidated statement of comprehensive income:

 
                                                 2020      2019 
                                               GBP000    GBP000 
  Expenses relating to short-term leases           45        21 
  Low value lease expense                          95         7 
  Interest expense                                 95       118 
  Amortisation of right of use assets             572       607 
 
 

The total cash outflow for leases in 2019 was GBP0.7m.

   8          Earnings per share 

Basic and diluted earnings per share

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 scheme. 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. The diluted loss per share in 2019 is the same as basic loss per share with losses having an anti-dilutive effect.

 
                                         2020                                               2019 
                     Profit after         Weighted       Profit per   Loss after tax         Weighted   Loss per share 
                              tax   average number            share                    average number 
                                         of shares                                          of shares 
 
                                              '000                            GBP000             '000            Pence 
                           GBP000                             Pence 
 Earnings per 
  share - Basic             2,274           18,421             12.3            (923)           16,254            (5.7) 
 Potentially 
  dilutive 
  shares                        -            1,231                -                -              799                - 
                          _______          _______          _______          _______          _______          _______ 
 Earnings per 
  share - 
  Diluted                   2,274           19,652             11.6            (923)           17,053            (5.7) 
                          _______          _______          _______          _______          _______          _______ 
 

Adjusted earnings per share

Adjusted earnings per share is calculated after adjusting for the effect of foreign currency exchange on the revaluation of inter-group balances included in finance income/(costs), non-recurring items, impairment of goodwill and capitalised development 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 scheme. 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.

 
 
                                         2020                                               2019 
                         Adjusted        Weighted         Adjusted         Adjusted        Weighted           Adjusted 
                     Profit after         average     Earnings per     Profit after         average       Earnings per 
                              tax       number of            share              tax       number of              share 
                                           shares                                            shares 
 
                           GBP000            '000            Pence           GBP000            '000              Pence 
 Earnings per 
  share - Basic             3,752          18,421             20.4            3,138          16,254               19.3 
 Potentially 
  dilutive 
  shares                        -           1,231                -                -             799                  - 
                          _______         _______          _______          _______         _______            _______ 
 Earnings per 
  share - 
  Diluted                   3,752          19,652             19.1            3,138          17,053               18.4 
                          _______         _______          _______          _______         _______            _______ 
 
                                                                                               2020               2019 
                                                                                             GBP000             GBP000 
 Reconciliation of adjusted profit before tax: 
 Reported profit/(loss) before tax                                                            2,549              (901) 
 Non-recurring costs                                                                            606                302 
 Amortisation of acquired intangibles                                                           664                523 
 Impairment of goodwill and capitalised development                                               -              3,175 
 Foreign exchange differences on revaluation of inter-group 
  balances                                                                                      208                 61 
                                                                                             ______             ______ 
 Adjusted profit before tax                                                                   4,027              3,160 
 Tax                                                                                          (275)               (22) 
                                                                                             ______             ______ 
 Adjusted profit after tax                                                                    3,752              3,138 
                                                                                              _____              _____ 
 Profit/(loss) after tax                                                                      2,274              (923) 
                                                                                            ___ ___            ___ ___ 
 
 
   9          Subsequent events 

No adjusting events have occurred between the 31 December reporting date and the date of approval of these financial statements.

On 25 January 2021, Instem Information Systems (Shanghai) Limited signed a new 2-year office lease in Pudong New Area, Shanghai.

On 1 March 2021, Instem announced the acquisition of The Edge Software Consultancy Ltd ("The Edge"), a safety assessment software provider based in the UK. The Edge is focused on improving the efficiency of early-stage drug R&D, improving productivity and ensuring high-quality data capture. In the year ended 31 July 2020, The Edge had unaudited, normalised profits before tax of GBP1.7m on sales of GBP2.7m, of which GBP0.8m was recurring revenue. Its 2020 sales benefitted from high levels of professional services revenue, expected to be replaced by significant future growth in recurring software revenue. The consideration payable is up to GBP8.5m, payable as GBP6.0m initially, satisfied by GBP4.0m in cash from existing reserves and GBP2.0m via the issuance of 391,920 new ordinary shares in Instem plc, GBP0.5m of deferred consideration and up to a further GBP2.0m payable contingent on The Edge's future trading performance, both amounts payable in cash.

On 20 March 2021, Instem exchanged contracts to acquire US-based clinical trial technology & consulting leader d-Wise Technologies, Inc ("d-wise"). The acquisition was completed on 1 April 2021. d-wise adds a market leading position to the Group in an attractive adjacent area of clinical trial analysis and submission, with good future visibility through recurring revenue streams and already contracted, high value consultancy projects. In the year ended 31 December 2020 d-wise had unaudited adjusted profit before tax of $3.1m and adjusted EBITDA of $3.6m on sales of $24.1m. Approximately 30% of revenue was recurring SaaS, hosting services and software support and maintenance. As at 31 December 2020, d-wise had net assets of $4.8m. The combined strength of Instem & d-wise positions the enlarged Group as the foremost authority and driving force in generating, analysing and leveraging data from Discovery through late-stage Clinical Trials. The total consideration is up to $31m comprising $20m on completion, $8m of deferred consideration and up to a further $3m which is payable contingent upon the future financial performance of d-wise. The initial consideration on completion is being satisfied by $13m in cash and $7m via the issuance of 868,203 new ordinary shares of 10p each in Instem plc. The cash is being funded from the Group's existing financial resources.

The results of both acquisitions will be incorporated from the date of acquisition and will be disclosed in the half year results to 30 June 2021.

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April 12, 2021 02:00 ET (06:00 GMT)

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