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Instem plc - Half-year Report

RNS Number : 2155A
Instem plc
28 September 2020
 

 

 Instem plc

("Instem", the "Company" or the "Group")

 

Half Year Report

 

Instem plc (AIM: INS.L), a leading provider of IT solutions to the global life sciences market, announces its unaudited half year results for the six months ended 30 June 2020.

 

Financial Highlights

·      Total revenues were up 20% to £14.0m (H1 2019: £11.7m)

·      Recurring revenue (annual support and SaaS) increased 19% to £8.4m (H1 2019: £7.0m)

·      Organic revenue growth (excluding Leadscope acquisition in November 2019) of 12% to £13.1m (H1 2019: £11.7m)

·      Adjusted EBITDA* of £3.0 m (H1 2019: £1.7m)

·      Profit before tax of £1.9m (H1 2019: £0.4m)

·      Adjusted profit before tax** of £2.1m (H1 2019: £0.8m)

·      Basic and diluted earnings per share of 9.5p (H1 2019: 2.0p) and 9.0p (H1 2019: 1.9p)

·      Net operating cash inflow of £3.0m (H1 2019 inflow £3.2m)

·      Cash balance as at 30 June 2020 of £9.1m (H1 2019: £6.0m)

 

*Earnings before interest, tax, depreciation, amortisation and 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 and amortisation of intangibles on acquisitions. 

Profit is adjusted in this way to provide a clearer measure of underlying operating performance.

 

Operational Highlights

·   All parts of the business performed well, highlighting the resilience of the business model given the Covid-19 backdrop

·   Continued transition towards a SaaS based delivery and revenue model, in line with the strategic objective to increase earnings visibility

·    $1 million contract win with South Korea-based Biotoxtech

 

Post-period end Highlights

·    Oversubscribed £15.75m gross placing at 435p per share to accelerate the Group's acquisition strategy

·     £0.7m contract from a top 30 pharmaceutical company for conversion of historical studies to the SEND format

 

Phil Reason, CEO of Instem plc, commented:

"The performance in the first half of the year reflects the strength of the Company's growing suite of solutions and services, the underlying market fundamentals and the tremendous performance of the entire Instem team, who have performed admirably in the challenging Covid-19 environment.

 

"The organic growth achieved highlights the resilience of the Company's model, especially given the Covid-19 backdrop, while the positive impact from Leadscope provides a strong reference point for the range of acquisitions that management is currently progressing following the post-period end fundraise.

 

The Company continues to trade in line with the Board's expectations, with the Board anticipating that the momentum achieved during the first half and post period-end will continue over the rest of the year."

 

For further information, please contact:

Instem plc

Via Walbrook PR

Phil Reason, CEO

 

Nigel Goldsmith, CFO

 

 

 

N+1 Singer (Nominated Adviser & Broker)

+44 (0) 20 7496 3000

Peter Steel/Alex Bond (Corporate Finance)

 

Rachel Hayes (Corporate Broking)

 

 

 

  Walbrook Financial PR

+44 (0) 20 7933 8780

Nick Rome

[email protected]

Tom Cooper

 

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 500 customers worldwide, including all the largest 25 pharmaceutical companies, enabling clients to bring life enhancing products to market faster. Instem's portfolio of software solutions increases client productivity by automating study-related processes while offering the unique ability to generate new knowledge through the extraction and harmonisation of actionable scientific information.

 

Instem products and services 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 Company's business during the first half of 2020 was conducted against the dramatic backdrop of the rapidly developing Covid-19 global pandemic. I am delighted with our achievements throughout this difficult and continuing period. Our performance reflected the ongoing importance of our products and services and the resilience of our business and staff.  This was underpinned by strong cash generation, organic growth and a strong performance from our November 2019 acquisition of Leadscope.

 

All three areas of the business performed well with significant revenue and profit growth over the equivalent period in the prior year. The addition of new clients and the continued transition to SaaS based contracts improves the scale of repeat business and hence increases the visibility of future revenues.

 

The timing and success of our post period-end fundraise of £15m net of expenses is of great strategic importance to the Company. It both places Instem in a strong position to implement its acquisitive growth strategy and has significantly strengthened our institutional investor base.

 

Growth Strategy

As announced on completion of the fundraise in July 2020, the Board's strategy is to pursue expansion through both organic growth and targeted acquisitions. The market conditions created by the global Covid-19 pandemic, in particular for the life sciences sector, are generating opportunities in both areas. With a scalable platform in place, the Board believes there are three distinct and deliverable opportunities to enable continued development of the business:

 

·    Organic revenue growth from additional market penetration, cross-selling and the introduction of new products and services;

 

·    Margin improvement through conversion to SaaS deployment and extensively leveraging global infrastructure; and

 

·    Accretive M&A and strategic partnerships in existing markets, as well as entry into related adjacent markets.

 

H1 Performance

All areas of the business performed well with a particularly strong performance (albeit from a low base) from Informatics - driven by growing demand for AI-based solutions.

 

The integration of Leadscope helped to significantly broaden this offering and enhance our reputation in this area. Importantly, this enables the Company to focus on growing the longevity of relationships with existing and new clients by offering services that span the drug development lifecycle. Our Regulatory Solutions business, based on the US Food & Drug Administration mandated Standard for the Exchange of Nonclinical Data ("SEND"), also continued to provide strong growth as the Company took advantage of a record number of new drug submissions. Additionally, the contract for Biotoxtech, the largest contract research facility in South Korea, demonstrated the global reputation of the Company. It was particularly impressive that we were able to successfully install this large system remotely.

 

I am pleased with the Company's performance - especially given the Covid-19 backdrop. Not only was our response extremely well handled with the transition to working from home but our ability to grow and take advantage of the pipeline of opportunities highlights the resilient nature of our operations. Added to this, the post period end fundraise now provides us with the ability to drive a step change in the size and scale of the business through acquisitions.

 

We expect the momentum achieved during H1 and post period-end to be maintained throughout the remainder of the financial year and we continue to be excited by the significant potential of the business.

 

David Gare

Non-Executive Chairman

28 September 2020
 

CHIEF EXECUTIVE'S REPORT

 

Strategic Developments

The Company continued to show its resilience during the period with growth across all parts of the business despite the backdrop of Covid-19. Importantly, cash balances grew whilst high levels of recurring revenues provide enhanced visibility going forward.

 

The shift to SaaS continued, with SaaS revenues growing from both new clients and established clients switching from on-premise to SaaS deployments. The Company also benefited from the integration of Leadscope enabling it to cross sell and upsell to existing clients in addition to adding new customers.

 

Given the continued organic growth trajectory, the success of the Leadscope acquisition and the potential to materially advance its acquisition strategy, the Company took the opportunity to raise £15.75m via an oversubscribed placing post-period end. The Board is currently progressing a range of acquisition opportunities having already identified a number of targets.

 

 

Market Review

The general market backdrop remained buoyant with the Company benefiting from strong demand as the well-funded biotech industry continued to focus on growing its development pipeline - as highlighted by growing client demand for Covid-19 related R&D activities during the period.

 

Research from Pharma Intelligence highlighted that the number of drugs in the global pharmaceutical R&D pipeline grew almost 10% year-on-year to an all-time high, providing a strong foundation for the Company to build on the momentum it has already achieved.

 

The number of drugs in the preclinical (non-clinical) phase of development, where much of Instem's business arises, grew particularly strongly (over 13% through March 2020) creating strong study demand for the non-clinical contract research organisations ("CROs"), who represent an important segment of the Instem market.

 

There are also increasing regulatory-backed growth opportunities that highlight the strength of the Group's product and services suite. The volume of studies required to be submitted to the US Food and Drug Administration using the Standard for the Exchange of Non-clinical Data ("SEND") has continued to grow, underpinning demand for Instem's SEND technology and outsourced services. In addition, the Company's AI-based in-silico R&D business Leadscope remains especially well-placed, having worked extensively through research collaboration agreements ("RCAs") with the FDA, and in collaboration with other agencies, to develop both predictive and expert review solutions to satisfy regulatory guideline ICH M7 (R1), for the assessment and control of DNA reactive (mutagenic) impurities in pharmaceuticals to limit potential carcinogenic risk.

 

 

Business Performance

 

Study Management and Data Collection

Strong study demand for the non-clinical CROs has fuelled growth in licensed users for Instem's Study Management and Data Collection solutions and encouraged existing clients to take modules from our portfolio that they had not yet licensed.  Clients have also been upgrading to later versions of our products to further increase their productivity.  We have continued to benefit from the transition towards SaaS with steady progress again being made towards our goal of moving all existing on-premise enterprise software clients to SaaS deployment by the end of 2023. The largest new study management contract in H1 2020 was for Biotoxtech, a prominent South Korean non-clinical CRO. The contract is worth approximately $1 million, the majority of which will be recognised as revenue in H2 2020 and the balance in 2021.

 

 

Informatics

Informatics performed particularly well in the period with strong organic growth in Target Safety Assessment ("TSA") services and a first full half-year period contribution from Leadscope.  Our TSA work brings the Company into contact with customers at an early stage in the therapeutic discovery process, providing a service that aims to avoid very expensive later stage drug programme failures.

 

TSA capacity has expanded through team growth (doubling since H1 2019, with staff now in Cambridge, UK and Pune, India), further development of our underlying KnowledgeScan technology platform and optimization of the workflow processes.

 

In addition to strong organic growth, the performance of the Leadscope acquisition has been especially pleasing, helping the Company grow existing customer revenues while also attracting new clients.

 

We continue to see tremendous growth potential in our augmented intelligence, machine learning and predictive analytics solutions in informatics, with considerable appetite from clients to leverage huge volumes of historic data to radically reduce the time and cost to bring new drugs to market.

 

 

Regulatory Solutions

The Company's regulatory SEND solutions lead the FDA (Food and Drug Administration) mandated market, with the industry continuing to try to address a backlog of SEND conversion work, while keeping up with the growing current study volumes. FDA driven demand remains the cornerstone of growth, although pharma clients are increasingly turning to SEND as their preferred approach to securing all study data in a format that facilitates cross compound analysis and insight generation.  Instem aims to maintain approximately 70% share of the accessible SEND outsourced services market.

 

With industry expertise in SEND expanding, many CROs, who had previously outsourced SEND conversion work, are choosing to license Instem's SEND conversion technology and to bring the conversion work in-house.

 

The more SEND data sets that are created (by Instem or others) and the more pharma companies that have access to them, the greater the demand for our technology solutions that explore and exploit SEND data, an area that is showing good software growth in 2020.  We continue to explore the potential to expand our technology into the closely associated clinical submission standard SDTM.

 

 

Post-Period Fund Raise

The Company successfully completed an oversubscribed £15.75m fundraise (pre-expenses) in July 2020, providing funds to advance existing acquisition targets in line with its M&A strategy. A number of bolt-on acquisitions and more substantial targets have already been identified and are now being progressed - aided by the impact of Covid-19 on certain business valuations.

 

 

Covid-19

The Company remains well placed and has seen minimal impact from Covid-19, with working from home practices implemented and the majority of business relatively unaffected. The transition to remote operations was seamless, ensuring business continuity, reflected by the Company's performance during the period. As highlighted in the results announcement for the year ended 31 December 2019, while some new business opportunities have been delayed, principally those in the early phase clinical and academic sectors, most 2020 opportunities remain within the year and, to date, no pipeline opportunities have been cancelled altogether by clients.  About 10% of Instem's professional services associated with software deployment are performed on client premises, with some consequential revenue slippage as travel and client site access are not expected to materially improve until 2021.

 

 

Outlook

The performance in the first half of the year reflects the strength of the Company's growing suite of solutions and services, the underlying market fundamentals and the tremendous performance of the entire Instem team, who have performed admirably in the challenging Covid-19 environment. Furthermore, the Company is reaping the benefits of the transition to SaaS at the same time as strengthening its relationships with existing customers while also growing its client base.

 

The organic growth achieved highlights the resilience of the Company's model while the positive impact from Leadscope provides a strong reference point for the range of acquisitions that management is currently progressing following the post-period end fundraise.

 

The Company continues to trade in line with the Board's expectations, with the Board anticipating that the momentum achieved during the first half and post-period end will continue over the rest of the year.

 

Phil Reason

Chief Executive Officer

28 September 2020

 

 

Financial Review

 

Key Performance Indicators

The directors review monthly revenue and operating costs to ensure that sufficient cash resources are available for the working capital requirements of the Group. The primary KPIs at 30 June 2020 were:

 

 

 

6 months to

30 June 2020

£000

6 months to

30 June 2019

£000

12 months to

31 Dec

2019

£000

 

 

 

 

Total revenue

14,047

11,669

25,717

 

 

 

 

Recurring revenue

8,357

7,041

14,862

 

 

 

 

Recurring revenue as a percentage of total revenue

59%

60%

58%

 

 

 

 

*Adjusted EBITDA

2,995

1,662

4,864

 

 

 

 

Cash and cash equivalents

9,132

6,039

5,957

 

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 in the period increased by 20% to £14.0m (H1 2019: £11.7m). Like-for like revenues, excluding the impact of Leadscope Inc, which was acquired in November 2019, increased by 12%. Recurring revenue, derived from support & maintenance contracts and SaaS subscriptions, increased in the period by 19% to £8.4m (H1 2019: £7.0m). Recurring revenue as a percentage of total revenue was 59% (H1 2019: 60%). In absolute terms, recurring revenue increased over the prior year by £1.4m but its percentage of the total decreased due to the growth in technology enabled outsourced services, which is currently all shown as non-recurring. Revenue from technology enabled outsourced services increased to £3.4m (H1 2019: £2.3m).

 

Total operating expenses increased by 10% in the period reflecting the ongoing investment in operational teams and the inclusion of Leadscope Inc costs. Lower travel and associated costs due to Covid-19 were offset by a higher holiday pay accrual, as employee holidays were deferred, again due to Covid-19.

 

Earnings before interest, tax, depreciation, amortisation, impairment of goodwill and capitalised development and non-recurring items (*Adjusted EBITDA) increased by 76% to £3.0m (H1 2019: £1.7m). For this measure of earnings, the margin as a percentage of revenue increased in the period to 21.3% from 14.2% in H1 2019. Excluding Leadscope Inc, like-for like adjusted EBITDA increased by 53% to £2.6m in the period.

 

Non-recurring costs in the period consist of £0.05m for legal expenses associated with historical contract disputes (H1 2019: £0.08m).

 

The reported profit before tax for the period was £1.9m (H1 2019: £0.4m). 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 and amortisation of intangibles on acquisitions) was £2.1m (H1 2019: £0.8m). 

 

The Group continues to invest in its product portfolio. Development costs incurred in the period were £1.6m (H1 2019: £1.5m), of which £0.6m (H1 2019: £0.7m) was capitalised.

 

Basic and diluted earnings per share calculated on an adjusted basis were 10.7p and 10.2p respectively (H1 2019: 4.6p basic and 4.4p diluted). The reported basic and diluted earnings per share were 9.5p and 9.0p respectively (H1 2019: 2.0p basic and 1.9p diluted).

 

The period saw strong net cash generated from operating activities of £3.0m (H1 2019: £3.2m), largely due to cash inflows from key contracts, outsourced services, working capital management and a £0.6m R&D tax credit claimed in respect of 2018. H1 2019 cash benefitted from a number of customer payments which were delayed from 2018 and paid in early 2019. Net cash generated from financing activities includes the proceeds from loans of £0.9m from the US government. The loans are part of the US federal government support for businesses during the Covid-19 pandemic, having a maturity of two years and potentially being partly or fully forgiven. Cash balances increased to £9.1m at 30 June 2020 (H1 2019: £6.0m).

 

The deficit on the Group's legacy defined benefit pension scheme was £4.0m at 30 June 2020 (H1 2019: £2.2m) having worsened from a deficit of £1.8m at 31 December 2019. Liabilities have increased from £13.8m at 31 December 2019 to £15.5m at 30 June 2020 due to a significant fall in corporate bond yields over the period.  This was compounded by a combination of negative asset returns and a modest increase in assumed life expectancy but offset by deficit contributions paid over the period and a slight fall in assumed price inflation.

 

Movements in share capital, share premium and share based payment reserve reflect the exercise of share options during the period and the fair value of share options granted being charged to the statement of comprehensive income.

 

In line with previous periods and given our policy of retaining cash within the business to capitalise on available growth opportunities, the Board has not recommended the payment of a dividend.

 

Principal risks and uncertainties

The principal risks and uncertainties remain unchanged from those described in our 2019 Annual Report.

 

Post balance sheet events

On 26 June 2020, the Company announced that it had successfully raised gross proceeds of £15.75 million (£15.0 million net of expenses) through a placing of 3,620,690 new shares at a price of 435p per share.

At the same date, the Company also announced that following an exercise of options, 187,427 shares were issued to Phil Reason, the Company's Chief Executive Officer, of which 142,000 were sold. Admission of the shares on AIM became effective on 17 July 2020. The enlarged share capital of Instem is now 20,481,909 ordinary shares.

 

Brexit

Trade negotiations with the European Union ("EU") are continuing during 2020 with the transition period planned to end on 31 December 2020. Whilst the outcome remains uncertain, there is always the associated risk of adverse implications for the business, including the impact on exchange rate fluctuations. However, the Group has to its knowledge experienced no negative impact on its business to date and does not expect to do so in the future. Instem operates in a global market with a multinational customer base and its revenues and costs spread around the globe without over reliance on Europe or exposure to it. The 2016 acquisition of Notocord in France provides the Group with a presence in the EU that we expect to help mitigate any impact that might arise from the Brexit outcome.  The Group will continue to monitor the progress of the UK/EU trade negotiations and any potential implications for the business.

 

 

Nigel Goldsmith

Chief Financial Officer

 

28 September 2020

 

 

Instem plc

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the six months ended 30 June 2020

 

 

Unaudited

Unaudited

Audited

 

 

 

 

 

 

Note

Six months ended

30 June

2020

£000

 Six months ended

30 June

2019

£000

Year

     ended 31 December 2019

£000

 

 

 

 

 

REVENUE

 

14,047

11,669

25,717

Employee benefits expense

 

(8,009)

(6,860)

(13,609)

Other expenses

 

(3,043)

(3,147)

(7,244)

 

 

 

 

 

EARNINGS BEFORE INTEREST, TAXATION, DEPRECIATION, AMORTISATION AND NON-RECURRING COSTS (ADJUSTED EBITDA)

 

 

2,995

 

1,662

 

4,864

 

 

 

 

 

Depreciation

 

(76)

(77)

(155)

Amortisation of intangibles arising on acquisition

 

(332)

(262)

(523)

Amortisation of internally generated intangibles

 

(310)

(374)

(755)

Amortisation of right of use assets

 

(272)

(272)

(607)

Impairment of goodwill and capitalised development

 

-

-

(3,175)

 

 

 

 

 

PROFIT/(LOSS) BEFORE NON-RECURRING COSTS

 

2,005

677

(351)

 

 

 

 

 

Non-recurring costs

5

(49)

(84)

(302)

PROFIT/LOSS) AFTER NON-RECURRING COSTS

 

1,956

593

(653)

 

 

 

 

 

Finance income

6

67

11

7

Finance costs

7

(124)

(185)

(255)

PROFIT/(LOSS) BEFORE TAXATION

 

1,899

419

(901)

 

 

 

 

 

Taxation

 

(308)

(90)

(22)

PROFIT/(LOSS) FOR THE PERIOD

 

1,591

329

(923)

 

 

 

 

 

OTHER COMPREHENSIVE (EXPENSE)/INCOME

Items that will not be reclassified to profit and loss account

 

 

 

 

Actuarial (loss)/gain on retirement benefit obligations

 

(2,525)

(275)

30

Deferred tax on actuarial gain & loss

 

480

47

(6)

 

 

(2,045)

(228)

24

Items that may be reclassified to profit and loss account:

 

 

 

 

Exchange differences on translating foreign operations

 

77

16

(208)

OTHER COMPREHENSIVE EXPENSE FOR THE PERIOD

 

(1,968)

(212)

(184)

TOTAL COMPREHENSIVE (EXPENSE)/INCOME FOR THE PERIOD

 

(377)

117

(1,107)

 

 

 

 

 

PROFIT/(LOSS) ATTRIBUTABLE TO OWNERS OF THE PARENT COMPANY

 

1,591

329

(923)

 

TOTAL COMPREHENSIVE (EXPENSE)/INCOME ATTRIBUTABLE TO OWNERS OF THE PARENT COMPANY

 

 

(377)

 

117

 

(1,107)

 

 

 

 

 

Earnings per share from continuing operations

 

-      Basic

 

 

4

 

 

9.5p

 

 

2.0p

 

 

(5.7p)

-      Diluted

4

9.0p

1.9p

  (5.7p)

 

 

 

Instem plc

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 30 June 2020

 

 

Unaudited

Unaudited

Audited

 

 

30 June

2020

30 June

2019

31 December

2019

 

Note

£000

£000

£000

ASSETS

 

 

 

 

NON-CURRENT ASSETS

 

 

 

 

Intangible assets

 

18,122

17,506

18,108

Property, plant and equipment

 

252

290

237

Right of use assets

 

1,982

2,848

2,165

Finance lease receivables

 

165

-

175

Deferred tax assets

 

34

-

TOTAL NON-CURRENT ASSETS

 

20,521

20,678

20,685

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

Inventories

 

39

39

36

Trade and other receivables

 

8,621

7,187

6,921

Finance lease receivables

 

19

-

39

Tax receivable

 

579

532

1,158

Cash and cash equivalents

8

9,132

6,039

5,972

TOTAL CURRENT ASSETS

 

18,390

13,797

14,111

TOTAL ASSETS

 

38,911

34,475

34,796

 

 

 

 

 

LIABILITIES

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

Trade and other payables

 

2,315

2,566

2,662

Deferred income

 

11,048

9,323

8,942

Tax payable

 

425

176

404

Financial liabilities

 

749

35

301

Lease liabilities

 

461

682

565

Deferred tax liabilities

 

31

-

506

TOTAL CURRENT LIABILITIES

 

15,029

12,782

13,380

 

 

 

 

 

NON-CURRENT LIABILITIES

 

 

 

 

Financial liabilities

 

1,079

-

559

Retirement benefit obligations

 

3,985

2,231

1,804

Provision for liabilities and charges

9

250

250

250

Lease liabilities

 

1,927

2,256

2,004

TOTAL NON-CURRENT LIABILITIES

 

7,241

4,737

4,617

TOTAL LIABILITIES

 

22,270

17,519

17,997

 

 

 

 

 

EQUITY

 

 

 

 

Share capital

 

1,667

1,630

1,662

Share premium

 

13,219

12,937

13,135

Merger reserve

 

2,432

1,598

2,432

Share based payment reserve

 

784

1,082

654

Translation reserve

 

159

306

82

Retained earnings

 

(1,620)

(621)

(1,166)

TOTAL EQUITY ATTRIBUTABLE TO OWNERS OF THE PARENT

 

16,641

16,932

16,799

TOTAL EQUITY AND LIABILITIES

 

38,911

34,475

34,746

 

 Instem plc

 CONSOLIDATED STATEMENT OF CASH FLOWS

 For the six months ended 30 June 2020

 

 

Unaudited

Unaudited

Audited

 

 

Six months ended 30 June

Six months ended 30 June

Year ended 31 December

 

 

2020

2019

2019

 

 

£000

£000

£000

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

Profit before taxation

 

1,899

419

(901)

Adjustments for:

 

 

 

 

Depreciation

 

76

77

155

Amortisation of intangibles

 

642

636

1,278

Amortisation of right of use assets

 

272

272

607

Impairment of goodwill and capitalised development

 

-

-

3,175

Share based payment charge

 

130

72

75

Retirement benefit obligations

 

(362)

(325)

(475)

Finance income

 

(67)

(11)

(7)

Finance costs

 

124

185

255

CASH FLOWS FROM OPERATIONS BEFORE MOVEMENTS IN WORKING CAPITAL

 

2,714

1,325

4,162

Movements in working capital:

 

 

 

 

(Increase)/Decrease in inventories

 

(3)

(2)

1

(Increase)/Decrease in trade and other receivables

 

(1,705)

590

790

Increase in trade, other payables and deferred income

 

1,759

1,063

693

NET CASH GENERATED FROM OPERATIONS

 

2,765

2,976

5,646

Finance income

 

67

11

7

Finance costs

 

(124)

(17)

(255)

Income taxes

 

315

256

25

NET CASH GENERATED FROM OPERATING ACTIVITIES

 

3,023

3,226

5,423

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

Capitalisation of development costs

 

(600)

(731)

(1,344)

Purchase of property, plant and equipment

 

(85)

(67)

(91)

Purchase of subsidiary undertaking (net of cash acquired)

 

(73)

-

(1,268)

NET CASH USED IN INVESTING ACTIVITIES

 

(758)

(798)

(2,703)

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

Proceeds from issue of share capital

 

89

440

648

Proceeds from US government loan

 

901

-

-

Lease interest payment

 

-

(1)

(2)

Repayment of lease liabilities

 

(327)

(306)

(693)

Receipts from sublease of asset

 

25

-

7

Repayment of lease capital

 

(15)

(17)

(34)

NET CASH GENERATED FROM FINANCING ACTIVITIES

 

673

116

(74)

NET INCREASE IN CASH AND CASH EQUIVALENTS

 

2,938

2,544

2,646

Cash and cash equivalents at start of period

 

5,957

3,572

3,572

Effect of exchange rate changes on the balance of cash held in foreign currencies

 

237

(77)

 

(261)

CASH AND CASH EQUIVALENTS AT END OF PERIOD

 

9,132

6,039

5,957

 

Instem plc

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the six months ended 30 June 2020

 

 

 

 

 

Share capital

 

 

 

Share premium

 

 

 

Merger reserve

 

Share based payment reserve

 

 

 

Translation

reserve

 

 

 

Retained earnings

 

 

 

Total

 equity

 

 

£000

£000

£000

£000

£000

£000

£000

 

 

 

 

 

 

 

 

 

 

Balance as at 31 December 2018 (Audited)

 

 

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 - Audited

 

1,592

 

12,535

 

1,598

 

1,010

 

290

 

(698)

 

16,327

 

 

 

 

 

 

 

 

 

 

Profit for the period

-

-

-

-

-

329

329

 

Other comprehensive income/(expense)

-

-

-

-

16

(228)

(212)

 

Total comprehensive income

-

-

-

-

16

101

117

 

 

 

 

 

 

 

 

 

 

Shares issued

38

402

-

-

-

-

440

 

Share based payment

-

-

-

72

-

-

72

 

Balance as at 30 June 2019 (Unaudited)

 

1,630

 

12,937

 

1,598

 

1,082

 

306

 

(597)

 

16,956

 

Loss for the period

-

-

-

-

-

(1,252)

(1,252)

 

Other comprehensive (expense)/income

-

-

-

-

(224)

252

28

 

Total comprehensive expense

-

-

-

-

(224)

(1,000)

(1,224)

 

 

 

 

 

 

 

 

 

 

Shares issued

32

198

834

-

-

-

1,064

 

Share based payment

-

-

-

3

-

-

3

 

Reserve transfer on lapse of share options

-

-

-

(431)

-

431

-

 

Balance as at 31 December 2019 (Audited)

1,662

13,135

2,432

654

82

(1,166)

16,799

 

 

Profit for the period

-

-

-

-

-

1,591

1,591

 

Other comprehensive income/(expense)

-

-

-

-

77

(2,045)

(1,968)

 

Total comprehensive income/(expense)

-

-

-

-

77

(454)

(377)

 

 

 

 

 

 

 

 

 

 

Shares issued

5

84

-

-

-

-

89

 

Share based payment

-

-

-

130

-

-

130

 

Balance as at 30 June 2020 (Unaudited)

1,667

13,219

2,432

784

159

(1,620)

16,641

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                               

 

 

 

NOTES TO THE FINANCIAL INFORMATION

For the six months ended 30 June 2020

 

GENERAL INFORMATION

The principal activity and nature of operations of the Group is the provision of world class IT solutions to the early development healthcare 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, incorporated in England and Wales under the Companies Act 2006 and domiciled in England. The registered office is Diamond Way, Stone Business Park, Stone, Staffordshire ST15 0SD, UK.

 

Notes to the accounts

 

1.            Basis of preparation and accounting policies

 

Basis of preparation

The Group's half-yearly financial information, which is unaudited, consolidates the results of Instem plc and its subsidiary undertakings made up to 30 June 2020. The Group's accounting reference date is 31 December.

 

The consolidated financial information is presented in Pounds Sterling (£) which is also the functional currency of the parent.

 

The financial information contained in this half year financial report does not constitute statutory accounts as defined in section 434 of the Companies Act 2006.  It does not therefore include all of the information and disclosures required in the annual financial statements.

 

The financial information for the six months ended 30 June 2020 and 30 June 2019 is unaudited.

 

Instem plc's consolidated statutory accounts for the year ended 31 December 2019, prepared under IFRS, have been delivered to the Registrar of Companies.  The report of the auditors on these accounts was unqualified and did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006. 

 

Significant accounting policies

The accounting policies used in the preparation of the financial information for the six months ended 30 June 2020 are in accordance with the recognition and measurement criteria of International Financial Reporting Standards ('IFRS') as adopted by the European Union and are consistent with those which will be adopted in the annual statutory financial statements for the year ending 31 December 2020.

 

While the financial information included has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRS), as adopted by the European Union (EU), these financial statements do not contain sufficient information to comply with IFRS's.  

 

Instem plc and its subsidiaries have not applied IAS 34, Interim Financial Reporting, which is not mandatory for UK AIM listed groups, in the preparation of this half-yearly financial report.

 

Going concern

 

The Directors continue to adopt the going concern basis of accounting in preparing these financial statements, which the Directors believe is appropriate given the Group's financial liquidity. In addition to the 30 June 2020 cash balances of £9.1m plus £0.5m of unused banking facilities, the Group raised a further £15.0m in equity funds in July 2020, which remains unused.

 

The uncertainty regarding the impact on the Group of Covid-19 has been considered as part of the Group's adoption of the going concern basis. In the period to 30 June 2020, we have not observed any material detriment to 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 and we do not anticipate any during the next 12 months. 

 

Cash and cash equivalents

Cash and cash equivalents for the purposes of the Statement of Cash Flows comprise the net of cash and overdraft balances that are shown on the Statement of Financial Position in Cash and Cash Equivalents.

 

2.            Segmental Reporting

 

The business is organised in three operating segments to better manage and report revenues; Study Management, Regulatory Solutions and Informatics. Certain direct costs are allocated to the revenue streams whilst the majority of costs are recorded and reported centrally. Whilst the expectation in future years is to allocate more centrally held operational costs to the individual segments, 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.

 

 

Unaudited six months ended

30 June 2020

Study Management

Regulatory Solutions

 

Informatics

 

Total

 

£000

£000

£000

£000

 

 

 

 

 

Total revenue

7,057

5,278

1,712

14,047

Direct attributable costs

(1,765)

(980)

(788)

(3,533)

Contribution to indirect overheads

5,292

4,298

924

10,514

 

 

 

 

 

Central unallocated indirect costs

 

 

 

(7,519)

 

Adjusted EBITDA

 

 

 

______

2,995

 

 

Unaudited six months ended

30 June 2019

Study Management

Regulatory Solutions

 

Informatics

 

Total

 

£000

£000

£000

£000

 

 

 

 

 

Total revenue

7,270

4,008

391

11,669

Direct attributable costs

(2,047)

(1,219)

(221)

(3,487)

Contribution to indirect overheads

5,223

2,789

170

8,182

 

 

 

 

 

Central unallocated indirect costs

 

 

 

(6,520)

 

Adjusted EBITDA

 

 

 

______

1,662

 

Audited year ended

31 December 2019

Study Management

Regulatory Solutions

 

Informatics

 

Total

 

£000

£000

£000

£000

 

 

 

 

 

Total revenue

15,188

9,037

1,492

25,717

Direct attributable costs

(4,370)

(2,111)

(660)

(7,141)

Contribution to indirect overheads

10,818

6,926

832

18,576

 

 

 

 

 

Central unallocated indirect costs

 

 

 

(13,712)

 

Adjusted EBITDA

 

 

 

 

 

 

______

4,864

 

3.            Key performance measures

 

a)      Recurring revenue

 

 

Unaudited

Six months ended

30 June 2020

£000

 

Unaudited

Six months ended

30 June 2019

£000

 

Audited

Year ended

 31 December 2019

£000

 

 

 

 

Annual support fees

4,588

4,107

8,418

SaaS subscription and support fees

3,796

2,934

6,444

Recurring revenue

8,357

7,041

         14,862     

 

 

 

 

Licence fees

1,510

1,385

3,501

Professional services

739

947

1,773

Technology enabled outsourced services

3,441

2,296

5,581

Total revenue

14,047

11,669

25,717

 

 

 

 

b)      Adjusted EBITDA   

 

 

 

 

 

 

 

EBITDA

2,946

1,578

4,562

Non-recurring costs (see note 5)

49

84

302

Adjusted EBITDA

2,995

1,662

4,864

 

 

 

 

 

 

Adjusted profit after tax and bank balance performance measures are detailed in notes 4 and 8.

 

4.            Earnings per share

 

Basic earnings per share are calculated by dividing the (loss)/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.

 

a) Basic earnings per share

 

 

Unaudited

Six months ended

30 June 2020

 

Unaudited

Six months ended

30 June 2019

 

Audited

Year ended

 31 December 2019

 

Profit/(loss) after tax (£000)

1,591

329

(923)

 

 

 

 

Weighted average number of shares (000's)

16,662

16,163

16,254

 

 

 

 

Basic earnings per share

9.5p

2.0p

(5.7p)

 

 

                               

b)    Diluted earnings per share

 

 

Unaudited

Six months ended

30 June 2020

 

Unaudited

Six months

 ended

30 June 2019

 

Audited

Year ended

31 December 2019

 

Profit/(loss) after tax (£000)

1,591

329

(923)

 

 

 

 

Weighted average number of shares (000's)

16,662

16,163

16,254

Potentially dilutive shares (000's)

948

820

799

Adjusted weighted average number of shares (000's)

17,610

16,983

17,053

 

 

 

 

Diluted earnings per share

9.0p

1.9p

(5.7p)

 

 

c)     Adjusted earnings per share

 

Adjusted earnings per share is calculated after adjusting for the effect of foreign currency exchange on the revaluation of inter-company balances included in finance income/(costs), non-recurring items and amortisation of intangibles on acquisitions. Diluted adjusted earnings per share is calculated by adjusting the weighted number of ordinary shares outstanding to assume conversion of all dilutive potential shares arising from the share option 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.

 

 

Unaudited

Six months ended

30 June 2020

Unaudited

Six months ended

30 June 2019

Audited

Year ended

31 December 2019

 

Profit/(loss) after tax (£000)

1,591

329

(923)

 

 

 

 

Non-recurring costs

49

84

302

Amortisation of acquired intangibles

332

262

523

Impairment of goodwill and capitalised development

-

-

3,175

Foreign exchange (gain)/loss on revaluation of intergroup balances

(181)

69

61

Adjusted profit after tax (£000)

1,791

744

3,138

 

 

 

 

Weighted average number of shares (000's)

16,662

16,163

16,254

Potentially dilutive shares (000's)

948

820

799

Adjusted weighted average number of shares (000's)

17,610

16,983

17,053

 

 

 

 

Adjusted basic earnings per share

10.7p

4.6p

19.3p

Adjusted diluted earnings per share

10.2p

4.4p

18.4p

           

 

 

 

 

5.               Non-recurring costs

 

Unaudited

Six months ended

30 June 2020

£000

Unaudited

Six months

 ended

30 June 2019

               £000

Audited

Year ended

31 December 2019

£000

 

 

 

 

Legal cost relating to historical contract disputes

49

49

106

Professional fees

-

35

-

Acquisition costs

-

-

196

 

49

84

302

               

6.               Finance income

 

 

Unaudited

Six months ended

30 June 2020

£000

Unaudited

Six months ended

30 June 2019

               £000

Audited

Year ended

31 December 2019

£000

 

 

 

 

Foreign exchange gains

62

-

-

Other interest

5

11

7

 

67

11

7

 

7.               Finance costs

 

 

Unaudited

Six months ended

30 June 2020

£000

Unaudited

 Six months ended

30 June 2019

               £000

Audited

Year ended

31 December 2019

£000

 

 

 

 

Bank loans and overdrafts

19

17

34

Unwinding discount on deferred consideration

40

-

-

Net interest charge on pension scheme

18

32

60

Lease interest cost

-

1

2

Right of use asset interest cost

47

53

118

Foreign exchange losses

-

82

41

 

124

129

255

               

 

8.               Cash and cash equivalents

 

 

 

Unaudited

30 June 2020

£000

 

Unaudited

30 June 2019

               £000

Audited

31 December 2019

£000

 

 

 

 

Cash at bank

18,130

15,037

14,955

Bank overdraft

(8,998)

(8,998)

(8,998)

Bank balance

9,132

6,039

5,957

 

  

 

9.               Provision for liabilities and charges

 

 

 

Unaudited

30 June 2020

£000

Unaudited

30 June 2019

               £000

Audited

31 December 2019

£000

 

 

 

 

At beginning of the period

250

250

250

Movement in provision

-

-

-

At end of period

250

250

250

 

The provision relates to potential costs arising from historical contract disputes (see note 5).

 

 

 

10.             Availability of this Interim Announcement

               

Copies of the 2020 Interim Report for Instem plc will be available from the Group's website at www.instem.com.

 

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact [email protected] or visit www.rns.com.

RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our Privacy Policy.
 
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