Interim Results

   18 July 2016

MICROGEN plc ('Microgen' or 'Group')

INTERIM RESULTS

FOR THE SIX MONTHS ENDED 30 JUNE 2016

Microgen plc (LSE: MCGN), a leading provider of business critical software and services, reports its unaudited results for the six months ended 30 June 2016.

Group Highlights:

·     The Group continues to make good progress towards its strategic objectives

·     Revenue growth of 23% to £19.5 million (H1, 2015: £15.8 million)

·     Group adjusted operating profit increased by 16% to £4.6 million (H1, 2015: £3.9 million)*. Group operating profit on a statutory basis of £4.0 million (H1, 2015: £3.9 million)

·     Adjusted basic earnings per share increased to 5.9 pence (H1, 2015: 4.3 pence). Basic earnings per share increased to 5.1 pence (H1, 2015: 4.2 pence)

·     Interim dividend increased to 1.5 pence per share (2015: 1.4 pence per share)

·     Strong balance sheet with cash of £12.7 million (H1, 2015: £15.6 million) and net funds of £1.0 million (H1, 2015: £0.9 million) following net corporate cash outflows of £4.4 million in the past 12 months (dividends, net acquisition consideration and property disposal)

Aptitude Software:

·     Two material new US-based telecom customers contracted for the Aptitude Revenue Recognition Engine in H1 2016 demonstrating Aptitude's ability to succeed in new markets

·     Revenue growth of 34% to £11.4 million (H1, 2015: £8.5 million)

·     On-going recurring revenue base at 30 June 2016 increased to £10.6 million (H1, 2015: £7.9 million)

·     Operating profit increase of 67% to £1.7 million (H1, 2015: £1.0 million)

·     Continued strong organic growth with good visibility for the future

Microgen Financial Systems:

·     Strengthening position in the Trust & Fund Administration (T&FA) market with the acquisition of Infoscreen (Cyprus) Limited in May 2016 representing the fourth acquisition in the sector since December 2014

·     Revenue increased by 11% to £8.1 million (H1, 2015: £7.3 million)

·     T&FA revenue growth of 52% to £4.1 million (H1, 2015: £2.7 million) representing 51% of Microgen Financial Systems' revenue

·     Adjusted operating profit of £3.6 million (H1, 2015: £3.6 million)*. Operating profit on a statutory basis of £3.2 million (H1, 2015: £3.4 million)

Commenting on the results, Ivan Martin, Chairman, said:

The Group has made good, clear progress in 2016 both in respect of the continuing organic growth in Aptitude Software and the transition of Microgen Financial Systems to a business clearly focused on driving revenues from one specific sector, Trust & Fund Administration. With the Group's high level of recurring revenue and clarity of strategic focus, Microgen is well placed as it enters the second half of the year.

Contacts

Ivan Martin, Chairman                                                     020-7496-8100

Philip Wood, Group Finance Director

James Melville-Ross / Darius Alexander                           020-3727-1000

FTI Consulting

* Throughout this statement adjusted operating profit, margin and EPS excludes non-underlying items, unless stated to the contrary. Non-underlying items include intangible amortisation, certain share-based payments and acquisition-related costs.

Overview:

Microgen plc has made good strategic progress in both of its operating businesses. Our Aptitude Software business has maintained momentum securing further material contracts for the Aptitude Revenue Recognition Engine. Winning new customers within the telecom sector is further deepening our penetration in this key market as well as opening up new addressable market sectors on which the Group is well positioned to capitalise.

We have also demonstrated strong performance in the Microgen Financial Systems business focusing on the Trust & Fund Administration ('T&FA') market within the wealth management sector. The acquisition of Infoscreen (Cyprus) Limited in May 2016, a competitor in the T&FA market, represented the fourth acquisition in 18 months further strengthening our position in the marketplace.

The above progress has led to overall revenue for the six months ending 30 June 2016 increasing by 23% to £19.5 million (H1, 2015: £15.8 million) with adjusted operating profit increasing by 16% to £4.6 million (H1, 2015: £3.9 million).

The interim dividend will be increased by 0.1 pence to 1.5 pence per share (2014: 1.4 pence) which will be payable on 26 August 2016 to shareholders on the register at the close of business on 5 August 2016.

Aptitude Software Report:

The Aptitude Software business provides an enterprise level Application Platform to deliver solutions, typically where customers require very rapid processing of transactions, calculations or complex detailed accounting. The breadth of capabilities of our Aptitude technology platform has stimulated the development of a number of specialised finance applications including the Aptitude Accounting Hub, Aptitude Allocation Engine and Aptitude Revenue Recognition Engine.

During the first half of 2016 the Aptitude Software business secured two material contracts with new US-based customers which, together with strong 2015 sales, have resulted in revenue increasing by 34% to £11.4 million (H1, 2015: £8.5 million). Particularly pleasing is the increase in software revenue by 22% to £5.6 million (H1, 2015: £4.6 million) of which £0.4 million is in respect of initial licence fees (H1, 2015: £0.5 million). Implementation revenue has increased to £5.8 million (H1, 2015: £3.9 million) pursuant to the recent sales successes.

The key highlight for the business has been the continued progress within the telecoms sector with the Aptitude Revenue Recognition Engine leading to three of the four largest telecoms companies in North America now being contracted. Benefitting from the new contracts the on-going recurring revenue base has increased to £10.6 million (30 June 2015: £7.9 million). In addition to the new telecoms customers already secured this year, good progress has been made on a number of other new business opportunities, strengthening the quality of our pipeline of key targets.

Margins have increased to 15% (H1, 2015: 12%), with operating profits up by 67% to £1.7 million (H1, 2015: £1.0 million). This growth in margin is despite investment being made in the first half of 2016, both in personnel to deliver successfully our newly secured projects, and in other areas of the business. The full cost of these investments will be incurred in the second half of 2016. The investment we have made in new personnel means we are equipped with the resource and operational support to execute on delivering the projects we have worked hard to win, further demonstrating our capabilities to operate at scale and deliver high level projects for top tier customers.

We are continuing to invest in product development of the platform as improvements to the technology will benefit the Aptitude-based specialised finance applications by allowing both rapid development of the applications and very high processing performance and integrity in the applications themselves. This, in turn, will further broaden Aptitude's addressable market, for which we are continuing to assess a number of possible markets/opportunities for growth.

In summary, the business is progressing well. By focussing and leveraging its expertise in high volume transaction sectors Aptitude-based specialised finance applications will continue to address the business critical needs of organisations required to meet new accounting standards and regulations, as well as serving those business areas poorly served by ERP systems. The strong sales performance in 2015 has continued into 2016 providing the Aptitude Software business with good visibility and confidence for the future.

Microgen Financial Systems Report:

The Microgen Financial Systems business is continuing to make strong progress in achieving its strategic objective to increase the proportion of its revenues from the Trust & Fund Administration ("T&FA") sector through organic growth and add-on acquisitions. Microgen Financial Systems' key product in this sector is Microgen 5Series which addresses the core operational requirements of a number of organisations including Trust Administrators, Fiduciary Companies and Corporate Services Providers.

The key highlights for the business are the acquisition in May 2016 of Infoscreen (Cyprus) Limited ("Infoscreen"), the fourth add-on acquisition within the T&FA sector since December 2014, and the continued sales progress being made by Microgen 5Series.  The recent acquisitions, together with the underlying organic growth due to success with Microgen 5Series, has resulted in T&FA revenue growing by 52% to £4.1 million (H1, 2015: £2.7 million) representing 51% of Microgen Financial Systems' revenue (H1, 2015: 37%).

Within the T&FA revenue of £4.1 million (H1, 2015: £2.7 million), Microgen 5Series (and 4Series) revenues have increased to £3.1 million (H1, 2015: £2.4 million), benefitting from both new name customer wins and conversions to Microgen 5Series from the T&FA acquisitions completed since December 2014. A key element of the acquisition strategy is the ability to secure both services and licence uplift fees if customers choose to migrate to Microgen 5Series from the acquired T&FA products in order to benefit from its enhanced functionality and modern technology. In H1 2016 such incremental services and licence uplift fees contributed 63% of the £0.4 million revenue (H1, 2015: £nil) generated from customers converting from the acquired products. The remaining £1.0 million of T&FA revenue (H1, 2015: £0.3m) was generated from customers that to date remain on acquired products. The combination of organic growth and strategic, bolt-on acquisitions is further enhancing our already strong market positioning in T&FA.

Infoscreen's software is used by approximately 200 customers in the T&FA Administration sector providing the business with a strong recurring revenue base. The consideration for the Infoscreen acquisition was £1.4 million, in addition to a commitment to settle vendor debt following acquisition of £0.3 million. Infoscreen and its subsidiary's revenue in the year ending 31 December 2015 was €1.0 million with operating profit for the year of €0.1 million. The net liabilities at 31 December 2015 were €0.2 million including net bank and vendor debt of €0.4 million. Integration is progressing in line with expectations.

Further acquisitions and add-on opportunities continue to be evaluated within T&FA where there is the potential to leverage Microgen 5Series within the acquired base.

A number of contracts have been entered into since the start of the year with both new customers and existing clients upgrading to Microgen 5Series from our acquired products. A key highlight for the first half of 2016 is the new business contract signed with a multi-office T&FA organisation to roll out Microgen 5Series throughout its global network.

Revenue from the payment software product line remains stable at £0.8 million (H1, 2015: £0.7 million) while the Application Management business reports revenue in line with Board expectations at £3.2 million (H1, 2015: £3.9 million). The Application Management business comprises a number of software solutions focussed principally on financial services. Consistent with the maturity of the solutions provided by this business it is the Board's expectations that revenues will continue to reduce in line with recent periods, but continue to contribute for an extended future period due to the high levels of recurring revenue and strong margins.

The Microgen Financial Systems business reported an 11% increase in total revenues to £8.1 million (H1, 2015: £7.3 million) with adjusted operating profits of £3.6 million (H1, 2015: £3.6 million) representing an adjusted operating margin of 45% (H1, 2015: 49%). The benefits from the add-on acquisitions are being progressively received as integration continues and mitigate the full impact of lost margin from those elements of Application Management that have discontinued in the period.

In summary, the Microgen Financial Systems business is successfully progressing its strategy to increase the proportion of its higher value T&FA revenues through both organic growth and add-on acquisitions. With recurring revenue accounting for 81% (H1, 2015: 84%) of total revenue the business has excellent future visibility.

Group Financial Performance:

Overall revenue for the six months ending 30 June 2016 has increased by 23% to £19.5 million (H1, 2015: £15.8 million) with adjusted operating profit increasing by 16% to £4.6 million (H1, 2015: £3.9 million).

Operating profit on a statutory basis was £4.0 million (H1, 2015: £3.9 million) after non-underlying items of £0.6 million (H1, 2015: £0.1 million) comprised principally of intangible amortisation. The Group reported a profit for the period attributable to equity shareholders of £3.0 million (H1, 2015: £2.9 million). The Board has continued to determine that all internal research and development costs are expensed as incurred and therefore the Group has no capitalisation of development expenditure.

The total tax charge of £0.8 million (H1, 2015: £0.7 million) represents 20.0% of the Group's profit before tax (H1, 2015: 20.0%).

The Group continues to have a strong balance sheet with net assets at 30 June 2016 of £40.7 million (H1, 2015: £37.7 million), including cash at 30 June 2016 of £12.7 million (H1, 2015: £15.6 million), and net funds at 30 June 2016 of £1.0 million (H1, 2015: £0.9 million) following net corporate cash outflows of £4.4 million in the past 12 months (comprising dividends of £2.5 million and £4.2 million net acquisition consideration less £2.3 million property disposal proceeds). Trade and other receivables have increased to £7.7 million (H1 2015: £4.6 million) pursuant to both the growth in the Group's revenue and the requirement, on occasion, to accept payment terms with certain international customers in excess of past experience. Trade and other payables have increased to £17.3 million (H1, 2015: £14.7 million) due principally to the Group's increased recurring revenue base. Pursuant to the above movements cash used in operations in the first half of the year was £2.4 million (H1, 2015: £1.5 million) which is consistent with the seasonal cash flow of the Group in which a significant proportion of its recurring revenue base is invoiced, and cash collected, in the second half of the financial year.

The volatility in exchange rates pursuant to the EU referendum has had minimal financial impact on the Group's H1 2016 revenues and profits. The Group benefits from a geographically diverse customer base with 23% of revenue generated from customers located in the United Kingdom, 13% from other European Union countries and 64% from the rest of the world (H1, 2015: 29%, 21% and 50%). Of the Group's H1 2016 revenue, 32% (H1, 2015: 22%) was invoiced in a currency other than sterling. The Board continues to monitor developments arising from the EU referendum and the impact upon the Group.

Employees

Microgen's employees are the principal contributors to the growth reported in the first half of 2016 and the ability to continue to attract, motivate and retain talented individuals is key to ensuring the continued development of the Group. In addition to a number of other investments being made within the business, Microgen intends to introduce a share save scheme which will be open to the majority of the Group's employees.

Board Succession

Pursuant to earlier announcements Ms Vanda Murray OBE, Non-Executive Director, has today retired from the Board with the chairmanship of the Remuneration Committee having earlier passed to Peter Whiting who has also assumed the role of Senior Independent Director in the period.

Statement on Principal Risks and Uncertainties

Pursuant to the requirements of the Disclosure and Transparency Rules the Group provides the following information on its principal risks and uncertainties.  The Group considers strategic, operational and financial risks and identifies actions to mitigate those risks.  These risk profiles are updated at least annually.  The principal risks and uncertainties detailed within the Group's 2015 Annual Report remain applicable for the first six months of the financial year.  The Group's 2015 Annual Report is available from the Microgen website: www.microgen.com.

Related party transactions during the period are disclosed in Note 15.