TIDMINS
RNS Number : 3608J
Instem plc
26 April 2022
26 April 2022
Instem plc
("Instem" or "the Company")
Unaudited Results for the Year Ended 31 December 2021 &
Investor Presentation
Instem plc (AIM: INS), a leading provider of IT solutions to the
global life sciences market, announces its unaudited results for
the year ended 31 December 2021 (the "Period").
Financial Highlights:
-- Revenues increased 63% to GBP46.0m (2020: GBP28.2m)
o Recurring revenue (annual support and SaaS) increased 43% to
GBP24.1m (2020: GBP16.9m) with SaaS revenues increasing 21% to
GBP9.7m (2020: GBP8m)
o Organic revenue growth of 7% to GBP30.1m (2020: GBP28.2m)
o Organic constant currency revenue growth of 12-%
o SaaS Annual Recurring Revenue ("ARR") of GBP11.5m at 1 January
2022
-- Adjusted EBITDA* of GBP8.3m (2020: GBP5.9m)
-- Reported profit before tax of GBP3.0m (2020: profit of GBP2.5m)
-- Adjusted profit before tax** of GBP5.0m (2020: GBP4.0m)
-- Fully diluted earnings per share of 7.4p (2020: 11.6p earnings per share)
-- Adjusted fully diluted earnings per share** of 16.3p (2020: 19.1p)
-- Gross cash balance at 31 December 2021 of GBP15.0m (2020:
GBP26.7m, reflecting the equity raise in July 2020 to fund the 2021
acquisitions).
For an explanation of the alternative performance measures in
the report, please refer to page 12
*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.
Operational Highlights
-- Strong organic growth with little impact from COVID-19
-- New business revenue came from both new and existing clients
-- Further expansion of footprint in the Asia-Pacific region
-- Continued transition to the SaaS model further increased
recurring revenue and earnings visibility
-- Transformed the scale and reach of the business through acquisitions of:
o The Edge Software Consultancy ("The Edge")
o d-Wise Technologies Inc ("d-wise")
o PDS Pathology Data Systems Ltd ("PDS")
Post Period-End Highlights
-- New banking facility finalised with HSBC of up to GBP20m, GBP10m of which is committed
-- Earn outs met in full for d-wise and The Edge (PDS has no earn out provision)
-- No known exposure to Russia or Ukraine
Phil Reason, CEO, commented: "The performance during the year
highlighted our resilience - especially given the COVID-19
backdrop, and I would like to thank all of our staff for their
continued efforts and hard work. 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 R&D
process underpins our confidence in further leveraging our software
and service portfolio. As such, we now have the platform in place
to capitalise on the various opportunities ahead of us and we look
forward to reporting further progress as we continue to execute our
growth strategy.
In common with other businesses, we have seen wage inflation in
recent months and, accordingly, we are moderating our profit
expectations for the current year ahead of price rises on contract
renewals flowing through positively to revenue. Importantly, we
already have good visibility for the current year with growing
recurring SaaS and Annual Support revenues and a strong
pipeline.
The recent acquisitions of The Edge, d-wise and PDS highlight
our ability to add scale and leverage existing customer
relationships with a view to further enhancing earnings, while
providing a strong platform for continued growth. We look forward
to advancing further acquisition opportunities after consolidating
the 2021 additions."
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.
For further information, please contact:
Instem plc Via Walbrook
Phil Reason, CEO
Nigel Goldsmith, CFO
Singer Capital Markets (Nominated
Adviser & Joint Broker) +44 (0) 20 7496 3000
Peter Steel
Alex Bond Rachel Hayes
Joint Broker (Stifel Nicolaus
Europe Limited) +44 (0) 20 7710 7600
Ben Maddison
Alex Price
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 700 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 achievements of the Company in the year have been
outstanding. Not only has our operational performance been
exceptional but the business has also accomplished a fundamental
strategic shift in its scale and reach as a result of the
completion of three important acquisitions. As a consequence, our
standing within the wider industry has been significantly
enhanced.
In July 2020 we raised funds to acquire businesses that we
believed would be transformational to the company by extending our
'footprint' in the life sciences R&D space, providing a
stronger platform for long term growth. I believe that we can say
that this has been achieved. The acquisitions of d-wise and The
Edge have significantly extended our product and service portfolio,
whilst the acquisition of PDS ensures that our position in the
preclinical space is unrivalled.
Whilst the integration of the acquired businesses is ongoing, we
have already seen the benefits of their skillsets and teams
operating within the enlarged Group, providing a significant
contribution to our overall financial performance in the year.
Operations
The Company's strong infrastructure and ability to operate
remotely provided essential resilience in our business operations
as the pandemic continued. We are delighted with and thankful for
the team's efforts throughout this challenging period.
We have made notable progress on a number of key metrics during
the Period. In particular:
-- Continued growth in SaaS-based revenues (increased 21% to
GBP9.7m) both through new business wins and via the ongoing
conversion of existing clients
-- Total Group revenues increased 63% - including the partial
year impact of the acquisitions completed during the period
-- Adjusted EBITDA increased 39%
-- Net cash generated from operations of GBP10.3m
Corporate Enhancement
We were delighted to welcome Mr Riaz Bandali to the Board in
December 2021. Riaz has spent his entire career in the healthcare
and life sciences industries in a variety of strategic, commercial
and operational roles at senior level, also including exposure to
fundraising and M&A activity and, as such, brings a wealth of
relevant experience and contacts in the North American and wider
life sciences industry. We are also continuing with our efforts to
identify a further suitable Independent NED candidate and look
forward to updating shareholders in due course.
We were also delighted to appoint Stifel as Joint broker
alongside/with Singer Capital Markets to enhance our presence, both
in the North American and European investor markets.
Looking Forward
In the short term, we are confident that we can continue to
execute our growth plans for the Group. That said, labour cost
inflation, in particular, has significantly increased in recent
times. As a result, although anticipating material improvement over
2021, we are prudently moderating our profit expectations for the
current year, whilst planning to regain ground in the following
year, as justifiable price increases flow through to revenue.
The three acquisitions, completed in the year, have extended our
reach from discovery to clinical trials across the drug discovery
and development lifecycle. As a result, the Company is now closer
to becoming a one-stop shop for life sciences companies looking for
long term partnerships to assist them over the drug discovery and
development landscape.
Whilst our near-term focus remains on completing the successful
integration of the recently acquired businesses, the Board believes
that this new platform will create substantial opportunities for
further development of the business. These include:
- 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
leveraging our global infrastructure
- Accretive M&A and strategic partnerships in existing
markets, as well as entry into related adjacent areas.
In summary, we believe that the momentum and platform we now
have in place ensures that the Company is well positioned for
continued success over the longer term.
David Gare
Non-Executive Chairman 26 April 2022
Chief Executive's Report
Strategic Development
During 2021, the Group materially advanced its ability to pursue
its strategic thesis of providing data driven, "in silico"
alternatives to traditional client experimental processes with the
aim of radically reducing the cost and time of life sciences
R&D. The strategy is based on leveraging trusted client and
regulatory relationships and our intimate understanding of complex
scientific data, established by providing a broad portfolio of
market leading IT solutions that optimize today's life sciences
R&D processes, from early discovery to late-stage clinical
trials. The acquisition of The Edge has strengthened our position
in discovery and d-wise adds a well-respected market leader in the
analysis and de-identification of clinical trial data. Instem's
already strong market presence in non-clinical development was
enhanced by the acquisition of long-term competitor PDS and we are
now well positioned to provide innovative solutions across the
entire R&D continuum.
Organic growth remained strong, with retention of recurring SaaS
and Annual Support revenue once again ahead of our 98% key
performance indicator and new business win rates confirming our
market leadership across our broad portfolio. Although the
increasing rate of SaaS deployment, for existing and new clients,
moderated short term revenue growth, due to the switch from
perpetual license revenue recognition to longer term subscription
rentals, overall organic revenue growth remained strong.
Market Review
The market backdrop continues to be favourable for the Group
given 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 ongoing COVID-19 pandemic,
which presented a number of new opportunities as R&D increased
with all the major companies 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 2022 version of which was released by
Pharma Intelligence in March this year. This report shows that the
industry grew strongly in the last 12 months with an 8.2% increase
(2020: 4.8%) in the total number of drugs in the regulatory stages
of global R&D, continuing a multi-year growth trend that shows
no sign of abating. Most relevant to Instem are the increase in the
number of drugs at the preclinical (or non-clinical) phase of drug
development of 11.0% (2020: 6.0%) and clinical phases 1-3 where
there was an 8.3% increase (2020: 3.6%), as these areas account for
much of our business.
The constant development of the drug discovery pipeline
continues to drive demand for Instem's solutions - which enable
companies to provide faster and cheaper routes to market for their
life changing products. Importantly, the regulatory-backed Standard
for the Exchange of Non-clinical Data ("S") continues to underpin
longer term opportunity and visibility in the non-clinical segment.
Similar regulatory standards help with demand for our clinical
trial analysis solutions and mandatory provision of de-identified
clinical trial data for European and Canadian regulatory authority
approved drugs enhances demand for our clinical trial transparency
software and services.
Business Performance
Study Management
Performance here was very pleasing, with revenue growth compared
with the prior period of 35%, with 17% organic growth and 17% from
acquisitions, including 10 months contribution from The Edge and 4
months from PDS.
The 11% increase in the number of drugs in the non-clinical
stage of development has supported significant growth for the
contract research organizations (CROs) specializing in this area
and they in turn have been purchasing additional users for our
products, additional product modules that they had not yet licensed
and services to support their successful deployment and use of our
solutions.
The majority of the revenue associated with orders in excess of
GBP2.7m, announced for one of our largest
CRO clients on 15 December 2020 and in our 14 January 2021
Trading Update, was recognized in 2021 and
we continue to collaborate extensively with this customer as
they look for competitive advantage through
technology investment. Most of this additional revenue was study
management related but also included
new S related capabilities, much of which will benefit the wider
S community.
The acquisition of The Edge has broadened Instem's reach into
the Discovery Study Management market, providing scope for
increased cross-selling particularly in the Drug Metabolism &
Pharmacokinetics (DMPK) field. The Edge extends the Company's reach
within existing and new clients and enhances our technology
offering. Provided predominantly on a subscription basis, The
Edge has helped to expand our recurring revenue.
In Silico Solutions
Following a slow H1 2021, as a result of the pandemic, demand
picked up during H2. This is an area where we have historically
generated significant market awareness and sales pipeline at
scientific conferences, as both Instem staff and reference clients
presented a new, "disruptive" approach to the established method of
assessing the potential safety issues of modulating a biological
target thought to offer therapeutic benefit. We were eagerly
awaiting the post COVID-19 return to in person conferences, which
were further delayed by the Delta and Omicron variants. Post period
end, in late March 2022 we attended the largest event of this type,
the "Society of Toxicology" annual meeting, and were extremely
encouraged by the strong interest in our In Silico solutions.
In November 2021 the Company announced the release of the latest
edition of its Leadscope Model Applier computational toxicology
software solution. This release included a comprehensive package of
new and updated models to meet the growing market demand for in
silico solutions, which are often heavily encouraged and supported
by the global regulatory authorities.
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 continuing
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, and
subsequently the data warehouse and exploration technology platform
to house this data, both won during the Period.
The acquisition of competitor PDS allows for greater industry
standardization on Instem's S technology platform and has brought a
further 17 US-based S consultants to an outsourced services team of
72 people, 38 of whom are based in India. Instem's expertise,
capacity, and business in this area is unrivalled.
Clinical Trial Acceleration
The acquisition of d-wise on 1 April 2021 led to the creation of
a fourth business unit, Clinical Trial Acceleration, which
pleasingly met its EBITDA-based earn out target for the financial
year ending 31 December 2021.
Solid progress was made in all areas of the business, with
material contribution during the period from two statistical
computing environment (SCE) solution lines of business:
-- the productised integration of leading technology tools,
hosted by Instem for small to mid-sized pharmaceutical companies
and CROs
-- large custom projects for bigger clients
Focus and investment increased during the year on Aspire, a next
generation clinical analytics framework of flexible components that
can be leveraged in both the productised or custom approaches to
building and deploying SCE solutions. Aspire is expected to
significantly speed up the time to deployment of a new SCE
solution, to provide recurring SaaS revenue and, ultimately, to
result in higher project margins.
With some Covid-related relaxation by the European and Canadian
regulatory authorities of the requirement for submission of
anonymised clinical trial data for each approved new drug, we
experienced lower than expected demand for our clinical trial
transparency products and outsourced services, however this remains
a promising regulatory mandated growth opportunity.
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:
2021 2020
GBP000 GBP000 % Change
Total revenue 46,017 28,217 63%
Organic revenue(1) * 30,052 28,217 7%
Recurring revenue (1) ** 24,082 16,941 42%
Annual Recurring Revenue (1) 28,741 - -
Recurring revenue as a percentage
of total revenue 52% 60% -800bps
Adjusted EBITDA (1) *** 8,250 5,919 39%
Adjusted EBITDA Margin % 17.9% 21.0% -310bps
Cash and cash equivalents 15,021 26,724 (44%)
Organic customer retention rate
for recurring SaaS and Annual Support
revenue 98% - -
(1) For an explanation of the alternative performance measures
in the report, please refer to page 12
* Excluding revenue from the new acquired businesses
** Recurring revenue includes Annual support fees and SaaS
subscription fees.
*** Earnings before interest, tax, depreciation, amortisation
and non-recurring items.
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, SaaS subscriptions and
consultancy services.
Total revenues increased by 63% to GBP46.0m (2020: GBP28.2m)
including The Edge, d-wise and PDS revenue, which were acquired in
March, April and September 2021. Total organic revenue increased by
7% to GBP30.1m (2020: GBP28.2m). Recurring revenue, comprising
Support & Maintenance contracts and SaaS subscriptions,
increased during the year by 42% to GBP24.1m (2020: GBP16.9m).
Recurring revenue as a percentage of total revenue was 52% (2020:
60%). In absolute terms, recurring revenue increased over the year
by GBP7.2m but its percentage of the total decreased due primarily
to the addition of d-wise consulting revenue, which is shown as
non-recurring.
Revenue from technology enabled outsourced services remained
stable at GBP6.4m (2020: GBP6.2m). Operating expenses increased by
69% in the period reflecting the ongoing investment in operational
teams and mainly the inclusion of The Edge, d-wise and PDS costs.
Like-for-like operating costs increased by 7%.
Earnings before interest, tax, depreciation, amortisation and
non-recurring items (Adjusted EBITDA) increased by 41% to GBP8.3m
(2020: GBP5.9m). For this measure of earnings, the margin as a
percentage of revenue decreased in the period to 17.9% from 21% in
2020, entirely due to the impact of the lower than Instem average
margins of d-wise and PDS.
Non-recurring costs in the period were GBP1.29m (2020:
GBP0.06m), consisting of GBP0.1m for legal expenses associated with
historical contract disputes, GBP0.17m for share based payments and
GBP1.02m of acquisition costs. Non-recurring income of GBP0.8m
($1.1m) relates to US federal government COVID-19 support loans,
which were forgiven during 2021, refer to note 3 for non-recurring
items.
The reported profit before tax for the year was GBP3.0m (2020:
profit of GBP2.5m). 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 and amortisation of intangibles on
acquisitions) was GBP5.0m (2020: GBP4.0m).
The total income tax charge in the year of GBP1.3m (2020:
GBP0.3m) is an effective tax rate of 43.8% (2020: 10.8%). The
increase in the tax charge is mainly due to higher foreign tax
payables and the impact on deferred tax of the UK corporation tax
rate increase to 25% from April 2023. In the UK, the Group
continues to receive additional tax relief on its research and
development expenditure, which 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 GBP4.9m (2020: GBP3.4m), of which GBP2.2m (2020: GBP1.2m) 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 2021 was primarily from realised US dollars transactions. In
2021, the organic revenue growth excluding the foreign exchange
exposure was 12-%. The foreign exchange loss recorded during 2021
was GBP0.04m (2020: GBP0.5m) which is composed of realised and
unrealised gains/losses.
Basic and diluted earnings per share calculated on an adjusted
basis were 17.2p and 16.3p respectively (2020: 20.4p basic and
19.1p diluted). The reported basic and diluted earnings per share
were 7.8p and 7.4p respectively (2020: 12.3p basic and 11.6p
diluted).
On 1 March 2021, Instem announced the acquisition of The Edge, a
study management 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. 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. In addition, the amount of GBP1.5m was
paid as a net cash adjustment after deducting the estimated debt at
the point of the acquisition.
On 1 April 2021, Instem acquired US-based clinical trial
technology & consulting leader d-wise Technologies, Inc.
(d-wise). D-wise adds another 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 & 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 $31.5m comprising
$20m (c. GBP14,5m) on completion, $8.5m (c. GBP6,2m) of deferred
consideration and up to a further $3m (c. GBP2,2m) which is payable
contingent upon the future financial performance of d-wise. The
initial consideration on completion was satisfied by $13m (c.
GBP9,4m) in cash and $7m (c. GBP9,8m) via the issuance of 868,203
new ordinary shares of 10p each in Instem plc. The initial cash
payment was funded from the Group's existing financial
resources.
Finally on 1 September 2021, Instem announced the acquisition of
PDS Pathology Data Systems Ltd ("PDS"), a direct competitor in the
life sciences space with headquarters in Switzerland and offices in
the United States and Japan. The Initial Consideration was
satisfied by CHF 4.7m in cash (c. GBP3.7m) and CHF 3.5m (c.
GBP2.8m) via the issuance of 359,157 new ordinary shares of 10p
each in Instem plc. The cash payment, loan repayments and other net
liabilities payments are being funded from the Group's existing
financial resources. PDS acquisition enables Instem to concentrate
investment on a single line of S and preclinical study management
products, removing unnecessary duplication in the market. The
combination of technologies and highly experienced teams will
enable the Group to enhance the development and delivery of
existing and new solutions that provide higher value to its
clients.
The financial obligations associated with these acquisitions
during 2022 and 2023 are deferred and contingent consideration
payments of GBP6.5m and GBP5.3m respectively, in a combination of
cash and shares. The contingent consideration reflects management's
estimate that the entities will achieve the profitability target.
The amount of GBP1.1m payable to d-wise in relation to its
contingent consideration could be settled in a combination of cash
and shares of Instem plc at the discretion of the Group. However,
the amount of GBP0.8m which is part of the d-wise deferred
consideration will be payable in shares.
The period saw again strong net cash generated from operations
of GBP10.3m (2020: GBP7.4m), largely due to cash inflows from the
newly acquired businesses, key contracts, outsourced services and
effective working capital management. The Group's cash resources
were used to accelerate the Group's acquisition strategy with the
acquisition of the Edge, d-wise and PDS. The net cash payment for
purchasing those subsidiaries was GBP17.2m (net of cash acquired).
The proceeds of GBP0.8m ($1.1m) which were part of the US federal
government support for businesses during the COVID-19 pandemic have
been fully forgiven during 2021. As a result of the above and the
positive organic cash generation achieved in the period, the cash
balance decreased from GBP26.7m to GBP15.0m.
The latest triennial actuarial valuation of the Group's legacy
defined benefit pension scheme as at 5 April 2020, was completed in
July 2021. As part of the process, the Group has agreed a revised
Schedule of Contributions with the Trustees of the Scheme, which
are intended to clear the Scheme deficit by 30 September 2026.
At 31 December 2021, the IAS19 accounting pension deficit
decreased by GBP1.9m to GBP2.0m (2020: GBP3.9m). The agreed Group
cash contributions currently approximate to GBP0.6m per annum,
payable through to September 2026. The deficit at the 2021 year-end
of GBP2.0m (2020: GBP3.9m) is represented by the fair value of
assets of GBP14.0m (2020: GBP12.5m) and the present value of funded
obligations of GBP16.0m (2020: GBP16.4m), after applying a discount
rate of 1.90% (2020: 1.40%).
Alternative performance measures
This Annual Report and Accounts contains certain financial
alternative performance measures ("APMs") that are not defined or
recognised under IFRS but are presented to provide readers with
additional financial information that is evaluated by management
and investors in assessing the performance of the Group. This
additional information presented is not uniformly defined by all
companies and may not be comparable with similarly titled measures
and disclosures by other companies.
The table below provides the data for certain performance
measures mentioned above:
2021 2020
GBP000 GBP000
Annual support fees 14,378 8,917
SaaS subscription and support fees 9,704 8,024
Recurring revenue 24,082 16,941
Licence fees 4,597 3,477
Professional services 3,651 1,603
Technology enabled outsourced services 6,378 6,196
Consultancy services 7,309 -
Total revenue 46,017 28,217
Recurring revenue is the revenue that annually repeats under contractual arrangement. It highlights
how much of the Group's total revenue is secured and anticipated to repeat in future periods,
providing a measure of the financial strength of the business.
2021 2020
GBP000 GBP000
Total revenue 46,017 28,217
Revenue from the acquisitions (15,965) -
Organic revenue 30,052 28,217
Organic revenue is the revenue excluding the impact of acquisition which highlights the Group's
income generated from the primary operations.
2021 2020
GBP000 GBP000
Recurring Revenue 24,082 -
Annual recurring revenue adjustment 4,659 -
Annual Recurring Revenue 28,741 -
Annual recurring revenue is the revenue that is annually repeats under contractual arrangement
considering also the acquisitions were part of the group for 12 months. The revenue has also
been adjusted for new and lost contracts.
2021 2020
GBP000 GBP000
EBITDA 7,769 5,313
Nonrecurring cost 1,286 606
Nonrecurring income (805) -
Adjusted EBITDA 8,250 5,919
Adjusted EBITDA is EBITDA plus non-recurring items (as set out in note 3). The same adjustments
are also made in determining the adjusted EBITDA margin. Items are only classified as exceptional
due to their nature or size, and the Board considers that this metric provides the best measure
of assessing underlying trading performance.
2021 2020
GBP000 GBP000
Profit before tax 2,984 2,549
Amortisation of intangibles arising on acquisition 1,563 664
Nonrecurring cost 1,286 606
Nonrecurring income (805) -
Intercompany foreign exchange (gain)/loss (18) 208
Adjusted profit before tax 5,010 4,027
Adjusted profit before tax is 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.
The same adjustments are also made in determining adjusted earnings per share ("EPS"). The
Board considers this adjusted measure of operating profit provides the best metric of assessing
underlying performance.
2021 2020
GBP000 GBP000
Weighted average number of shares (000's) 22,719 19,652
Adjusted diluted earnings per share 16.3p 19.1p
Cash at bank 24,019 35,722
Bank overdraft (8,998) (8,998)
Cash balance 15,021 26,724
Post Period-End
An historical contractual licence dispute, which does not affect
the ongoing operations of the Group, was heard by a German court on
17 March 2022 and the official outcome is awaited. The Group has
been defending the action and strongly believes that the claim
should be dismissed.
Notwithstanding this, the cost provision of GBP0.25m made in
2017 has been maintained in the 2021 financial statements. As the
potential financial outcome cannot yet be determined with any
certainty the Board has concluded that the GBP0.25m provision was
appropriate at 31 December 2021. To date all legal expenses have
been expensed.
On 8 April 2022, the Group signed a new financing arrangement
which consists of a committed facility of GBP10.0m with HSBC UK
Bank plc to support the Group's working capital needs and its
acquisition strategy, which can be extended up to GBP20.0m if
needed, subject to further bank approval. The financial covenants
have been considered in the forecast to ensure compliance.
Outlook
The performance during the year highlighted our resilience -
especially given the COVID-19 backdrop, and I would like to thank
all of our staff for their continued efforts and hard work. 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 R&D process underpins our confidence in
further leveraging our software and service portfolio. As such, we
now have the platform in place to capitalise on the various
opportunities ahead of us and we look forward to reporting further
progress as we continue to execute our growth strategy.
In common with other businesses, we have seen wage inflation in
recent months and, accordingly, we are moderating our profit
expectations for the current year ahead of price rises on contract
renewals flowing through positively to revenue. Importantly, we
already have good visibility for the current year with growing
recurring SaaS and Annual Support revenues and a strong
pipeline.
The recent acquisitions of The Edge, d-wise and PDS highlight
our ability to add scale and leverage existing customer
relationships with a view to further enhancing earnings, while
providing a strong platform for continued growth. We look forward
to advancing further acquisition opportunities after consolidating
the 2021 additions.
Phil Reason Chief Executive 26 April 2022
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2021
Note Year ended Year ended
31 December 2021 31 December 2020
GBP000 GBP000
REVENUE 2 46,017 28,217
Employee benefits expense (26,918) (16,508)
Other expenses (10,491) (5,790)
Net impairment (losses)/gains on financial assets (358) -
EARNINGS BEFORE INTEREST, TAXATION, DEPRECIATION, AMORTISATION AND
NON-RECURRING COSTS (ADJUSTED
EBITDA) 8,250 5,919
Depreciation (312) (138)
Amortisation of intangibles arising on acquisitions (1,563) (664)
Amortisation of internally generated intangibles (851) (736)
Depreciation of right of use assets 7 (945) (572)
OPERATING PROFIT BEFORE NON-RECURRING COSTS 4,579 3,809
Non-recurring costs 3 (1,286) (606)
Non-recurring income 3 805 -
OPERATING PROFIT AFTER NON-RECURRING COSTS 4,098 3,203
Finance income 4 30 38
Finance costs 5 (1,144) (692)
PROFIT BEFORE TAXATION 2,984 2,549
Taxation 6 (1,306) (275)
PROFIT FOR THE YEAR 1,678 2,274
OTHER COMPREHENSIVE INCOME/ (EXPENSE)
Items that will not be reclassified to profit and loss account:
Actuarial gain/(loss) on net defined benefit liability 1,375 (2,537)
Deferred tax on actuarial loss/ gain (140) 518
Deferred tax on share options - 322
1,235 (1,697)
Items that may be reclassified to profit and loss account:
Exchange differences on translating foreign operations (294) 10
_______ _______
OTHER COMPREHENSIVE INCOME/(EXPENSE) FOR THE YEAR 941 (1,687)
_______ _______
TOTAL COMPREHENSIVE INCOME FOR THE YEAR 2,619 587
PROFIT ATTRIBUTABLE TO OWNERS OF THE PARENT COMPANY 1,678 2,274
TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO OWNERS OF THE PARENT COMPANY 2,619 587
Earnings per share
Basic 8 7.8 12.3
Diluted 8 7.4 11.6
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
At 31 December 2021
2021 2020
GBP000 GBP000 GBP000 GBP000
ASSETS
NON-CURRENT ASSETS
Intangible assets 58,311 18,023
Property, plant and equipment 592 238
Right of use assets 2,077 1,742
Finance lease receivables 85 128
TOTAL NON-CURRENT ASSETS 61,065 20,131
CURRENT ASSETS
Inventories 64 50
Trade and other receivables 14,852 6,093
Finance lease receivables 44 41
Tax receivable 130 724
Cash and cash equivalents 15,021 26,724
TOTAL CURRENT ASSETS 30,111 33,632
TOTAL ASSETS 91,176 53,763
LIABILITIES
CURRENT LIABILITIES
Trade and other payables 5,723 2,958
Deferred income 18,935 9,878
Financial liabilities 6,612 268
Lease liabilities 1,077 608
TOTAL CURRENT LIABILITIES 32,347 13,712
NON-CURRENT LIABILITIES
Financial liabilities 4,728 1,131
Pension obligations 2,014 3,868
Provision for liabilities 291 250
Lease liabilities 1,248 1,476
Deferred tax liabilities 3,247 90
TOTAL NON-CURRENT LIABILITIES 11,528 6,815
TOTAL LIABILITIES 43,875 20,527
EQUITY
Share capital 2,219 2,048
Share premium 28,191 28,172
Merger reserve 12,104 2,432
Share based payment reserve 2,294 930
Translation reserve (202) 92
Retained earnings 2,695 (438)
TOTAL EQUITY ATTRIBUTABLE 33,236
TO OWNERS OF THE PARENT 47,301
TOTAL EQUITY AND LIABILITIES 91,176 53,763
CONSOLIDATED STATEMENT OF CASH FLOW
For the year ended 31 December 2021
Note 2021 2020
GBP000 GBP000 GBP000 GBP000
CASH FLOWS FROM OPERATING ACTIVITIES
Profit before taxation 2,984 2,549
Adjustments for:
Depreciation 312 138
Amortisation of intangibles 2,414 1,400
Depreciation of right of use assets 945 572
Share based payment charge 1,061 427
Contributions to defined benefit pension scheme (530) (512)
Government support loan forgiveness (805) -
Finance income 4 (30) (38)
Finance costs 5 1,144 692
Loss on disposal of fixed assets 3 2
CASH FLOWS FROM OPERATIONS BEFORE
MOVEMENTS IN WORKING CAPITAL 7,498 5,230
Movements in working capital:
Increase in inventories (14) (14)
(Increase)/ decrease in trade and other receivables (1,573) 742
Increase in trade, other payables and deferred income 4,432 1,410
NET CASH GENERATED FROM OPERATIONS 10,343 7,368
Finance income 4 6 38
Finance costs (276) (648)
Income taxes (873) 183
NET CASH GENERATED FROM OPERATING ACTIVITIES 9,200 6,941
CASH FLOWS FROM INVESTING ACTIVITIES
Capitalisation of development costs and software (2,238) (1,272)
Purchase of property, plant and equipment (144) (141)
Payment of deferred consideration (277) (277)
Purchase of subsidiary undertakings (net of cash acquired) 9,10,11 (14,840) -
NET CASH USED IN INVESTING ACTIVITIES (17,499) (1,690)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issue of share capital 22 16,167
Issue costs - (744)
Proceeds from government support loan - 810
Repayment of lease liabilities 8 (963) (621)
Receipts from sublease of asset 8 40 40
Repayment of lease capital - (15)
Repayment of former PDS's shareholder loan 11 (2,387) -
NET CASH GENERATED (USED IN)/ FROM FINANCING ACTIVITIES (3,288) 15,637
NET (DECREASE)/ INCREASE IN CASH AND CASH EQUIVALENTS (11,587) 20,888
Cash and cash equivalents at start of year 26,724 5,957
Effects of exchange rate changes on the balance of cash held in
foreign currencies (116) (121)
CASH AND CASH EQUIVALENTS AT OF YEAR 19 15,021 26,724
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 2020 1,662 13,135 2,432 654 82 (1,166) 16,799
Profit for the
year - - - - - 2,274 2,274
Other comprehensive
(expense)/income
for the year - - - - 10 (1,697) (1,687)
_______ _______ _______ _______ _______ _______ _______
Total comprehensive
income - - - - 10 577 587
Shares issued 386 15,037 - - - - 15,423
Share based
payment
Reserve transfer
on lapse of share - - - 427 - - 427
options
Reserve transfer - - - (65) - 65 -
on exercise of
share options - - - (86) - 86 -
Balance as at
31 December 2020 2,048 28,172 2,432 930 92 (438) 33,236
Profit for the
year - - - - - 1,678 1,678
Other comprehensive
income/(expense)
for the year - - - - (294) 1,235 941
Total comprehensive
(expense)/income - - - - (294) 2,913 2,619
Shares issued 171 19 9,672 - - - 9,862
Share based payment - - - 1,061 - - 1,061
Deferred tax
on share options - - - 528 - - 528
Nil cost option
charge - - - (5) - - (5)
Reserve transfer
on lapse of share
options - - - (25) - 25 -
Reserve transfer
on exercise of
share options - - - (195) - 195 -
Balance as at
31 December 2021 2,219 28,191 12,104 2,294 (202) 2,695 47,301
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.
BASIS OF PREPARATION
The financial information set out in this preliminary
announcement does not constitute the Group's statutory financial
statements for the years ended 31 December 2021 or 2020 as defined
in section 435 of the Companies Act 2006 (CA 2006). The financial
information for the year ended 31 December 2021 has been extracted
from the Group's unaudited financial statements. Statutory
financial statements for 2020 have been delivered to the Registrar
of Companies. The auditors reported on those accounts; their report
was unqualified and did not contain a statement under either
Section 498(2) or Section 498(3) of the Companies Act 2006.
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.
FORWARD-LOOKING STATEMENTS
These results were approved by the Board of Directors and
authorised for issue on 26 April 2022. 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 prepared in accordance with UK-adopted
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 UK-adopted
international accounting standards.
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
2021. 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 2021. The most significant of these are as
follows:
-- Interest Rate Benchmark Reform Phase 2 (Amendments to IFRS 9,
IAS 39, IFRS 7, IFRS 4 and IFRS 16)
Those standards, amendments to standards, and interpretations
have been adopted and did not have a material impact on the
accounting policies of the Group.
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 are as follows,
which are all effective for the period beginning 1 January
2022:
-- Amendments to IAS 1, 'Presentation of financial statements',
on classification of liabilities
-- Amendments to IAS12 'Deferred tax' on deferred tax related to
assets and liabilities arising from a single transaction
-- IFRS 3 'Business combination', reference to the Conceptual
Framework and IAS 37, 'Provisions', on onerous contracts
-- A number of narrow-scope amendments to IFRS1, IAS 8, IAS16 and IAS17
-- A number of annual improvements on IFRS 1, IFRS 9, IAS 41 and IFRS 16
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.
The d-wise deferred consideration which was contingent on the
continued employment of certain of the former management was
initially excluded from the total purchase consideration. However,
the acquisition accounting on d-wise has been adjusted for the year
end which has resulted in the removal of the element treated at
half year as employment remuneration. As a result, the full
deferred consideration is now capitalisable and is included in the
cost of business combination.
Contingent consideration that is classified as an asset or a
liability is re-measured at subsequent reporting dates with the
corresponding gain or loss being recognised in statement of
comprehensive income.
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 30 April 2023, 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
2021 has been strong with Revenues of GBP46.0m and Adjusted EBITDA
of GBP8.3m. 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 signed a new financing arrangement on 8 April 2022,
which consists of a committed facility of GBP10m with HSBC UK Bank
plc to support the Group's working capital needs and its
acquisition strategy, which can be extended up to GBP20.0m if
needed, subject to further bank approval. The financial covenants
have been considered in the forecast to ensure compliance. However,
as of 31 December 2021, the Group had a net overdraft facility of
GBP0.5m and a gross facility of GBP9.0m with NatWest Bank plc. As
of 31 December 2021, the net overdraft facility with NatWest Bank
plc was undrawn (2020: undrawn).
Instem undertook an oversubscribed equity fund raise in July
2020, raising GBP15.0m net of expenses. The fund raise placed the
Group in a very strong cash position which helped to accelerate the
Group's acquisition strategy with the acquisitions of the Edge,
d-wise and PDS. The net cash used in investing activities includes
the net cash payment of GBP17.2m for purchasing those subsidiaries
(net of cash acquired).
The period 2021 saw again strong net cash generated from
operations of GBP10.3m (2020: GBP7.4m), largely due to operating
cash inflows from the newly acquired businesses, key contracts,
outsourced services and effective working capital management.
The proceeds of GBP0.8m ($1.1m) which were part of the US
federal government support for businesses during the COVID-19
pandemic have been fully forgiven in 2021. As a result of the above
and the positive organic cash generation achieved in the period,
the cash balance decreased from GBP26.7m to GBP15m.
The Group acquired the earnings enhancing, cash generative
business of Leadscope Inc, the Edge, d-wise, and PDS between
November 2019 and September 2021, which have been steadily
integrated within the Group during 2021.
The financial cash obligations associated with these
acquisitions during 2022 are deferred and contingent consideration
payments of GBP3.6m and GBP2.5m respectively. The contingent
consideration reflects management's estimate of a 100% probability
that the entities target profitability will be achieved. The amount
of GBP1.1m payable to d-wise in relation to its contingent
consideration could be a combination of cash and shares of Instem
plc at the discretion of the Group.
Sensitivity Analysis
The Company has considered two 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 three acquisitions occurred in 2023.
(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 30 April 2023 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
ongoing conflict between Russia and Ukraine has been considered as
part of the sensitivity analysis and as part of Group's adoption of
the going concern basis. We have no customers, suppliers or staff
in either territory. 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 52% 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 of staff and
offices.
(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 30 April 2023. In preparing this analysis the
following key risks were included causing a 35% 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 however, the cash balance was
reduced over the going concern period to April 2023.
In a worse scenario where many of the identified risks occurred,
the Group would take remedial action to counter the reduction in
profit and cash through a cost cutting and fund-raising exercise
that would include staff redundancies, general cost control
measures. These further downside scenarios are considered
unlikely.
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, technology enabled outsourced
services and consultancy 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.
Even though, the promise to transfer services to the customer
are separately identifiable, the nature of the promise, within the
context of the contract, is to transfer combined promised services.
The goods or services are highly interdependent, interrelated and
the Group would not be able to fulfil its promise by transferring
each of the goods or services independently.
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,
subscription and support and annual 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
In 2021, the 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 2021 was GBP34.6m
(2020: GBP10.2m).
Management estimates discount rates using pre-tax rates that
reflect current market assessments of the time value of money and
any risks specific to the CGUs. The rates used to discount the
future cashflows are based on the Business Unit pre-tax weighted
average cost of capital. Where a CGU operates in multiple operating
segments an average of the relevant WACCs has been used.
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 budget, adjusted as necessary to
exclude the effects of future reorganisations and asset
enhancements.
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 2021, the Group has a
provision of GBP0.25m (2020: 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.
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 2021 is
GBP2.0m (2020: GBP3.9m).
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.
The Group's Chief Operating Decision Maker (CODM) is its chief
executive and he monitors the performance of these operating
segments as well as deciding on the allocation of resources to them
alongside with the executive management team.
Historically the Group's finance systems have recorded costs
centrally and have managed costs in this way. Over recent years the
Group has expanded both organically and through acquisition,
increasing the number of products and services offered and in 2020
the Group reported through three operating segments, Study
Management, Regulatory Solutions and In Silico Solutions. During
2021 the fourth segment, Clinical Trial Acceleration (CTA), was
established after following the acquisition of d-wise.
During 2020 this system enabled more centrally recorded costs to
be allocated to the individual segments and that process was
further developed during 2021. The operations of the Group are
managed centrally with group-wide functions including sales,
marketing, software development, information technology, customer
support, human resources and finance & administration. The CTA
segment already bears the majority of its costs directly and as
such reports a lower direct contribution margin to central
overheads than the other three segments. The expectation in future
years is to be able to allocate more centrally held operational
costs to the individual segments as internal reporting systems
evolve, thereby assisting the Board to use the segmental cost
information for meaningful decision making.
The operations of the Group are managed centrally with
group-wide functions including sales, marketing, software
development, IT, customer support, human resources and finance
& administration.
The analysis provided below reflects costs directly attributable
to the respective segments in 2021 and 2020, 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 Clinical
2021 Solutions Solutions Trial Acceleration Total
GBP000 GBP000 GBP000 GBP000 GBP000
Total revenue 20,259 10,010 3,042 12,706 46,017
Direct attributable
costs (10,388) (6,016) (1,681) (11,308) (29,393)
______ ______ ______ ______ ______
Contribution to indirect
overheads 9,871 3,994 1,361 1,398 16,624
Contribution to indirect
overheads % 49% 40% 45% 11%
Central unallocated
indirect costs (8,374)
______
Adjusted EBITDA 8,250
Depreciation (312)
Amortisation of intangibles
arising on acquisitions (1,563)
Amortisation of internally
generated intangibles (851)
Depreciation of right
of use assets (945)
______
OPERATING PROFIT
BEFORE NON-RECURRING
COSTS 4,579
Non-recurring costs (1,286)
Non-recurring income 805
______
OPERATING PROFIT
AFTER NON-RECURRING
COSTS 4,098
Finance income 30
Finance costs (1,144)
______
PROFIT BEFORE TAXATION 2,984
SEGMENTAL REPORTING Study Management Regulatory In Silico Clinical
2020 Solutions Solutions Trial Acceleration Total
GBP000 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
Contribution to indirect
overheads % 77% 79% 51%
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)
Depreciation of right
of use assets (572)
______
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
REVENUE BY PRODUCT TYPE 2021 2020
GBP000 GBP000
Licence fees 4,597 3,477
Annual support fees 14,378 8,917
SaaS subscription and support fees 9,704 8,024
Professional services 3,651 1,603
Technology enabled outsourced services 6,378 6,196
Consultancy services 7,309 -
______ ______
46,017 28,217
REVENUE BY GEOGRAPHICAL LOCATION 2021 2020
GBP000 GBP000
UK 3,540 2,740
Europe 7,477 5,656
USA 26,831 13,050
Rest of World 8,169 6,771
______ ______
46,017 28,217
NON-CURRENT ASSETS EXCLUDING DEFERRED TAXATION 2021 2020
BY GEOGRAPHICAL LOCATION GBP000 GBP000
UK 56,925 17,549
Europe 1,895 1,436
USA 1,812 524
Rest of World 433 622
______ ______
61,065 20,131
There were no customers that represented more than 10% of the
Group's revenue in 2021 (2020: none).
3 Non recurring items
2021 2020
Non recurring cost GBP000 GBP000
Guaranteed Minimum Pension (GMP) equalisation provision - 5
Legal costs relating to historical contract disputes 95 149
Acquisition costs 1,019 452
Share based payments 172 -
1,286 606
2021 2020
Non recurring income GBP000 GBP000
US government loans forgiven 805 -
805 -
Non recurring costs in the year include acquisition costs of
GBP1.0m relating to the acquisitions of The Edge, d-wise and PDS.
The share based payments charge of GBP0.2m relate to options that
were re-issued in 2021 and vested immediately.
The non recurring income of GBP0.8m ($1.1m) relates to US
federal government COVID-19 support loans which were forgiven
during 2021 and there are no unfulfilled conditions or
contingencies related to this income.
4 Finance income
2021 2020
GBP000 GBP000
Right of use asset interest income 6 7
Other interest 24 31
30 38
5 Finance costs
2021 2020
GBP000 GBP000
Loans and overdrafts 85 38
Unwinding discount on deferred consideration 867 70
Net interest charge on pension scheme 51 34
Right of use asset interest cost 97 96
Foreign exchange losses 44 454
1,144 692
6 Taxation
2021 2020
Income taxes recognised in profit or loss: GBP000 GBP000
Current tax:
UK corporation tax in respect of previous
years (269) (4)
Adjustments in respect of R&D tax credit 351 250
Foreign tax (1,111) (146)
Foreign tax in respect of previous years (54) 39
_______ _______
Total current tax (charge)/credit (1,083) 139
_______ _______
Deferred tax:
Current year charge (147) (165)
Adjustment in respect of previous years 575 (57)
Defined benefit liability (91) (90)
Impact of rate change (560) (102)
_______ _______
Total deferred tax credit/(charge) (223) (414)
_______ _______
Total income tax charge recognised in the
current year (1,306) (275)
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 one vehicle and certain equipment.
Leases of vehicle and equipment 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 2021, 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. Two leases that came with the acquisitions could
be terminated in a subject of notice. 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 leases No of
No of right Average leases leases with payments leases
of use remaining with extension with options linked with
Right of assets lease options to purchase to an index termination
use assets leased term options
Office buildings 14 2.3 years 10 0 1 2
Vehicles 1 1.9 years 0 0 0 0
Equipment 1 0.5 years 0 0 0 0
Land & Motor
Right of use assets buildings vehicles Equipment Total
GBP000 GBP000 GBP000 GBP000
As at 1 January 2020 2,158 7 - 2,165
Additions 123 31 - 154
Lease modification and
remeasurement 32 - - 32
Depreciation (564) (8) - (572)
Exchange adjustment (38) - - (38)
As at 31 December 2020 1,711 30 - 1,741
Additions 261 - - 261
Acquisitions 539 - 410 949
Restoration costs 70 - - 70
Depreciation (686) (10) (249) (945)
Exchange adjustment (5) - 6 1
As at 31 December 2021 1,890 20 167 2,077
Land & Motor
Lease liabilities buildings vehicles Equipment Total
GBP000 GBP000 GBP000 GBP000
As at 1 January 2020 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
Additions 261 - - 261
Acquisitions 539 - 410 949
Interest expense 84 1 11 96
Lease payments (795) (11) (253) (1,059)
Exchange adjustment (9) - 3 (6)
___ _ _ ___
As at 31 December
2021 2,133 21 171 2,325
Reconciliation of movements of lease liabilities to cash flows
arising from financing activities.
Land & Motor Equipment Total
buildings vehicles
Changes from financing
cash
flows
GBP000 GBP000 GBP000 GBP000
Interest expenses 95 - - 95
Payment of lease liabilities 615 6 - 621
At 31 December 2020 710 6 - 716
Interest expenses 83 1 12 96
Payment of lease liabilities 712 10 241 963
At 31 December 2021 795 11 253 1,059
Lease liability maturity analysis:
As at 31 December 2020
1 year or After five
less 2 to 5 years years Total
GBP000 GBP000 GBP000 GBP000
Lease liabilities 488 1,538 58 2,084
As at 31 December 2021
1 year or After five
less 2 to 5 years years Total
GBP000 GBP000 GBP000 GBP000
Lease liabilities 1,077 1,229 19 2,325
The Group has elected not to recognise a lease liability for
short term leases (leases with an expected term of 12 months or
less) or for leases of low value assets. Payments made under such
leases are expensed on a straight-line basis.
The following amounts in respect of leases, where the company is
a lessee, have been recognised in consolidated statement of
comprehensive income:
2021 2020
GBP000 GBP000
Expenses relating to short-term leases 159 45
Low value lease expense 81 95
Interest expense 96 95
Amortisation of right of use assets 945 572
The total cash outflow for leases in 2021 was GBP1.0m (2020:
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 deferred and contingently issuable shares in relation to
d-wise acquisition which could potentially dilute the basic EPS in
the future were not included in the calculation of diluted EPS
because they are antidilutive for the period of 2021.
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) minus the issue price. The number of the ordinary
shares that could have been acquired at their average market price
during the period are ignored. However, the shares that would
generate no proceeds and would not have effect on profit or loss
attributable to ordinary shares outstanding are included.
2021 2020
Profit after Weighted Profit per Profit after Weighted Profit per
tax average number share tax average number share
of shares of shares
'000 '000
GBP000 Pence GBP000 Pence
Earnings per
share - Basic 1,678 21,591 7.8 2,274 18,421 12.3
Potentially
dilutive shares - 1,128 - - 1,231 -
_______ _______ _______ _______ _______ _______
Earnings per
share - Diluted 1,678 22,719 7.4 2,274 19,652 11.6
_______ _______ _______ _______ _______ _______
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.
2021 2020
Adjusted Weighted Adjusted Adjusted Profit Weighted Adjusted
Profit after average number Earnings per after tax average number Earnings per
tax of shares share of shares share
'000 GBP000 '000
GBP000 Pence Pence
Earnings per
share - Basic 3,704 21,591 17.2 3,752 18,421 20.4
Potentially
dilutive
shares - 1,128 - 1,231 -
_______ _______ _______ _______ _______ _______
Earnings per
share -
Diluted 3,704 22,719 16.3 3,752 19,652 19.1
_______ _______ _______ _______ _______ _______
2021 2020
GBP000 GBP000
Reconciliation of adjusted
profit before tax:
Reported profit before tax 2,984 2,549
Non-recurring costs 1,286 606
Non-recurring income (805) -
Amortisation of acquired intangibles 1,563 664
Impairment of goodwill and - -
capitalised development costs
Foreign exchange differences
on revaluation of inter-group
balances (18) 208
_______ _______
Adjusted profit before tax 5,010 4,027
Tax (1,306) (275)
_______ _______
Adjusted profit after tax 3,704 3,752
_______ _______
Profit after tax 1,678 2,274
___ ___ ___
___
9 Acquisition of The Edge Software Consultancy Ltd ('The Edge')
On 1 March 2021, Instem acquired 100% of the issued share
capital of The Edge. The acquisition has increased the group's
market share in the global Life Science Sector and complements the
group in continuing its expansion and development in this
industry.
Proportion
of voting
equity interests
Date acquired Consideration
Company Principal activity of acquisition % GBP000
Provider of Discovery
Technology Solutions
software and services
to Life Science 1 March
The Edge sector 2021 100 9,221
Details of the purchase consideration, the net assets acquired
and goodwill are as follows:
Consideration
GBP000
Initial cash paid 5,500
Initial share consideration 2,000
Deferred consideration - cash payable March
2022 500
Contingent consideration - cash payable by
June 2022 1,000
Contingent consideration - cash payable March
2023 1,000
Working capital and cash adjustment - cash
receivable March 2022 (67)
Total consideration 9,933
Discounting of estimated future cashflows (712)
Present value of consideration 9,221
The initial share consideration was satisfied by the issue of
391,920 new Instem plc ordinary shares at a value of GBP2.0m which
was based on the published share price. The premium arising on the
share issue of GBP2.0m has been credited to the merger relief
reserve.
The appropriate discounting has been applied to the debt
instruments.
The deferred consideration is not based on any performance
related conditions and is payable in March 2022. The contingent
consideration is based on certain performance related conditions in
the twelve- month period post-completion. The contingent
consideration in the table above is based on the forecast estimate
that the performance related conditions will be fully met and the
full consideration will be payable. The contingent consideration
was re-measured at the reporting date. The deferred consideration
had been discounted using Instem's estimated cost of borrowing and
the contingent consideration has been discounted using the
company's Internal Rate of Return ('IRR').
Acquisition related costs amounting to GBP0.2m have been
recognised as an expense within non-recurring items in the
Consolidated Statement of Comprehensive Income.
Fair value of assets acquired and liabilities recognised at the
date of acquisition
Fair Value
GBP000
Non-Current Assets
Customer relationships 2,550
Intellectual property 1,342
Brand 105
Right of use assets 37
Current Assets
Cash and cash equivalents 2,570
Trade and other receivables 407
Deferred tax asset 64
Current Liabilities
Trade and other payables (430)
Deferred income (555)
Lease liabilities (36)
Non-Current Liabilities
Deferred tax on acquisition (759)
Fair value of identifiable net assets
acquired 5,295
Goodwill arising on acquisition
GBP000
Consideration transferred 9,221
Less: fair value of identifiable
net assets (5,295)
Goodwill arising on acquisition 3,926
Goodwill
Goodwill of GBP3.9m primarily relates to the ability to generate
growth from new customers, synergies provided by the Group and the
skill and expertise of The Edge's staff.
Identifiable net assets
A provisional fair value exercise to determine the fair value of
assets and liabilities acquired has been carried out. Fair values
are provisional as they are within the twelve month hindsight
period to adjust fair values. No fair value adjustments have been
made to the assets and labilities acquired.
The fair value of intangible assets are:
-- Customer relationships of GBP2.6m calculated using the income
approach - excess earnings. Acquired customer relationships
consisting of ongoing relationships with companies to which The
Edge provides annual licenses, maintenance assistance and bespoke
services.
-- Intellectual property of GBP1.3m calculated using the income
approach - relief from royalty. Two proprietary software packages
were acquired, namely BioRails and Morphit.
-- Brands of GBP0.1m calculated using the income approach -
relief from royalty. 'The Edge' brand and sub-brands (principally
BioRails and Morphit) are considered in aggregate a separable
intangible asset and a driver of the overall business model.
Acquired receivables
The fair value of acquired trade receivables is GBP0.079m as no
loss allowance was required to be recognised on acquisition.
Impact of acquisition on the results of the Group
The acquired business contributed revenues of GBP1.9m and net
profit of GBP1.2m to the group for the period from 1 March to 31
December 2021.
If this business combination had been in effect at 1 January
2021, the revenue of The Edge would have been GBP2.3m and the
profit for the year would have been GBP1.4m. These values do not
represent a measure of the performance of The Edge as the company's
accounting policy have been changed at the acquisition date to
comply with the policies of the Group.
Purchase consideration - cash outflow
GBP000
Outflow of cash to acquire subsidiary,
net of cash acquired
Initial cash consideration 4,000
Net cash adjustment (after deduction
of estimated debt) 1,500
Less: Balance acquired
Cash (2,570)
Net outflow of cash - investing
activities 2,930
10 Acquisition of d-wise Technologies, Inc
On 20 March 2021, Instem exchanged contracts to acquire the 100%
of the issued share capital of US-based clinical trial technology
& consulting leader d-Wise Technologies, Inc ("d-wise"). The
acquisition was completed on 1 April 2021. The acquisition has
increased the group's market share in the global Life Science
Sector and complements the group by entering an attractive adjacent
area of clinical trial analysis and submission.
Proportion
of voting
equity interests
Date of acquired Consideration
Company Principal activity acquisition % GBP000
Provider of clinical
trial acceleration
solutions to
Life Science 1 April
d-wise sector 2021 100 22,022
Details of the purchase consideration excluding conditional
deferred consideration, the net assets acquired and goodwill are as
follows:
Consideration
$000 GBP000
Initial cash consideration 13,000 9,437
Initial share consideration 7,000 5,044
Deferred consideration (1 April 2022) - To
be settled in cash 3,128 2,271
Deferred consideration (1 April 2022) - To
be settled in shares 1,042 756
Deferred consideration (1 April 2023) - To
be settled in cash 4,347 3,156
Contingent consideration (1 March 2022) -
To be settled in cash or shares 1,500 1,089
Contingent consideration (1 March 2023) -
To be settled in cash 1,500 1,089
Working capital adjustment - (Q3 2021) - Settled
in cash 5 4
Total consideration 31,522 22,846
Discounting of estimated future cashflows (824)
Present value of consideration 22,022
The initial share consideration was satisfied by the issue of
868,203 new Instem plc ordinary shares at a value of $7.0m
(GBP5.0m) which was based on the published share price. The premium
arising on the share issue of GBP5.0m has been credited to the
merger relief reserve.
The appropriate discounting has been applied to the debt
instruments.
The deferred consideration is not based on any performance
related conditions and is payable in two instalments in April 2022
and 2023. The contingent consideration is based on certain
performance related conditions in the twelve-month period
post-completion. The deferred consideration has been discounted
using the interest rate as defined in the share purchase agreement
and the contingent consideration has been discounted using the
company's IRR.
The deferred and contingent consideration to be settled in
shares should be equal the nominal value of the deferred and
contingent promissory note, divided by the average closing price of
Instem Stock.
The contingent consideration in the table above is based on the
forecast estimate that the performance related conditions will be
fully met and the full consideration will be payable. The
contingent consideration was re-measured at the reporting date.
Acquisition related costs amounting to GBP1.2m have been
recognised as an expense within non-recurring items in the
Consolidated Statement of Comprehensive Income.
Fair value of assets acquired and liabilities recognised at the
date of acquisition
Fair Value
GBP000
3 Non-Current Assets
Customer relationships 6,094
Intellectual property 1,061
Brand names 1,134
Property, plant and equipment 491
Right of use assets 662
Current Assets
Trade and other receivables 5,765
Cash and cash equivalents 1,800
Accrued Income 551
Current Liabilities
Trade and other payables (1,634)
Deferred income (4,230)
Financial Liabilities (48)
Lease liability (662)
Non-Current Liabilities
Deferred tax on acquisition (2,072)
Fair value of identifiable net liabilities
acquired 8,912
Goodwill arising on acquisition
GBP000
Consideration transferred 22,022
Less: fair value of identifiable
net assets (8,912)
Goodwill arising on acquisition 13,110
Goodwill
Goodwill of GBP13.1m primarily relates to the ability to enter
an attractive adjacent area of clinical trial analysis and
submission, generating growth from new customers, synergies
provided by the Group and the skill and expertise of the d-wise
staff.
Identifiable net assets
A provisional fair value exercise to determine the fair value of
assets and liabilities acquired has been carried out. Fair values
are provisional as they are within the twelve month hindsight
period to adjust fair values. Except for the Deferred revenue no
other fair value adjustments have been made to the assets and
liabilities acquired.
The fair value of intangible assets are:
-- Customer relationships of GBP6.1m calculated using the income
approach - excess earnings. Acquired customer relationships
consisting of ongoing relationships with companies to which d-wise
provides hosting and consultancy services, support and maintenance
and product licences.
-- Intellectual property of GBP1.1m calculated using the income
approach - relief from royalty. Two proprietary software products
were acquired, namely Blur and Reveal.
-- Brands of GBP1.1m calculated using the income approach -
relief from royalty. The 'd-wise' brand is a separable intangible
asset and a driver of the overall business model in the fair value
measurement and the proportion of overall enterprise value
attributed to the brand. The brand has been trading since 2003 and
is well established within the pharmaceutical industry.
Acquired receivables
The fair value of acquired trade receivables is GBP5.1m as no
loss allowance was required to be recognised on acquisition.
Impact of acquisition on the results of the Group
Profit for the year end includes a profit of GBP0.5m
attributable to the additional business generated by d-wise from 1
April to 31 December 2021. Revenue for the year includes GBP12.7m
in respect of d-wise.
If this business combination had been effected at 1 January
2021, the revenue of d-wise would have been GBP17.3m and the profit
for the year would have been GBP1m. The directors consider these
values represent an approximate measure of the performance of
d-wise on a yearly basis as the fair value adjustment on the
acquired deferred revenue needed to be considered for the future
periods.
Purchase consideration - cash outflow
GBP000
Outflow of cash to acquire subsidiary,
net of cash acquired
Initial cash consideration 9,437
Working capital adjustment - (Q3
2021) - Settled in cash 4
Less: Balance acquired
Cash (1,800)
Net outflow of cash - investing
activities 7,641
11 Acquisition of PDS Pathology Data Systems Ltd
On 1 September 2021, Instem acquired the 100% of the issued
share capital of PDS Pathology Data Systems Ltd ("PDS"), a life
sciences software company with headquarters in Switzerland and
offices in the United States and Japan. The acquisition has
increased the group's market share in the global Life Science
Sector and complements the group in continuing its expansion and
development in this industry.
Proportion
of voting
equity
interests
Date of acquired Consideration
Company Principal activity acquisition % GBP000
Provider of Discovery
Technology Solutions
for non-clinical study
management and regulatory 1 September
PDS software and services 2021 100 9,309
Details of the purchase consideration excluding the benefit of
their former PDS's shareholders, the net assets acquired and
goodwill are as follows:
Consideration
CHF000 GBP000
Initial cash paid 7,131 5,665
Initial share consideration 3,500 2,790
Deferred consideration (1 September 2022)
- To be settled in cash 1,000 794
Working capital adjustment - (Q3 2021) - Settled
in cash 99 79
Total consideration 11,730 9,328
Discounting of estimated future cashflows (19)
Present value of consideration 9,309
The initial share consideration was satisfied by the issue of
359,157 new Instem plc ordinary shares at a value of CHF3.5m
(GBP2.8m) which was based on the published share price. The premium
arising on the share issue of GBP2.75m has been credited to the
merger relief reserve.
The appropriate discounting has been applied to the debt
instruments.
The deferred consideration is not based on any performance
related conditions and is payable in in September 2022. The
deferred consideration has been discounted using the PDS'S weighted
average cost of capital (WACC).
Instem plc acquired also the benefit of the former PDS's
shareholder loan for a consideration of CHF3m (GBP2.4m) which was
excluded from the total purchase consideration and is recorded as
intercompany balance between Instem plc and PDS. The above
treatment will not affect the Group's cash position as the total
consideration payable remains at CHF14,7m.
Acquisition related costs amounting to GBP0.3m have been
recognised as an expense within non-recurring items in the
Consolidated Statement of Comprehensive Income.
Fair value of assets acquired and liabilities recognised at the
date of acquisition
Fair Value
GBP000
3 Non-Current Assets
Customer relationships 2,047
Intellectual property 1,607
Brand names 153
Property, plant and equipment 34
Right of use assets 251
Current Assets
Trade and other receivables 528
Cash and cash equivalents 1,475
Accrued Income 9
Current Liabilities
Trade and other payables (249)
Deferred income (708)
Loan from former PDS's shareholders (2,387)
Lease liability (251)
Non-Current Liabilities
Deferred tax on acquisition (568)
Provisions (40)
Fair value of identifiable net liabilities
acquired 1,901
Goodwill arising on acquisition
GBP000
Consideration transferred 9,309
Less: fair value of identifiable
net assets (1,901)
Goodwill arising on acquisition 7,408
Goodwill
Goodwill of GBP7.4m primarily relates to the ability to enter an
attractive adjacent area of clinical trial analysis and submission,
generating growth from new customers, synergies provided by the
Group and the skill and expertise of the d-wise staff.
Identifiable net assets
A provisional fair value exercise to determine the fair value of
assets and liabilities acquired has been carried out. Fair values
are provisional as they are within the twelve month hindsight
period to adjust fair values. Except for the Deferred revenue no
other fair value adjustments have been made to the assets and
liabilities acquired.
The fair value of intangible assets are:
-- Customer relationships of GBP2.1m calculated using the income
approach - excess earnings. Acquired customer relationships
consisting of ongoing relationships with companies to which PDS
provides licenses, hosting services, support and maintenance, and
other services.
-- Intellectual property of GBP1.6m calculated using the income
approach - relief from royalty. Two proprietary software products
were acquired, namely LIMS and TRANS.
-- Brands of GBP0.2m calculated using the income approach -
relief from royalty. The 'PDS' brand is a separable intangible
asset and a driver of the overall business model in the fair value
measurement and the proportion of overall enterprise value
attributed to the brand. The brand has been trading since 1981 and
is well established n the life-science industry.
Acquired receivables
The fair value of acquired trade receivables is GBP0.4m as no
loss allowance was required to be recognised on acquisition.
Impact of acquisition on the results of the Group
Profit for the year includes a loss of GBP0.1m attributable to
the additional business generated by PDS from 1 September to 31
December 2021. The loss was incurred due to fair value adjustment
on the acquired deferred revenue of GBP0.1m. Revenue for the year
includes GBP1.4m in respect of PDS.
If this business combination had been effected at 1 January
2021, the revenue of PDS would have been GBP4.3m and the loss for
the year would have been GBP0.05m. The directors consider these
values represent an approximate measure of the performance of PDS
on a year basis as the fair value adjustment on the acquired
deferred revenue needed to be considered for the future
periods.
Purchase consideration - cash outflow
GBP000
Outflow of cash to acquire subsidiary,
net of cash acquired
Initial cash consideration 3,701
Management participation, commission
and bonus - Settled in cash 1,964
Former PDS's shareholder loan 2,387
Working capital adjustment - (Q3 2021)
- Settled in cash 79
Less: Balance acquired
Cash (1,475)
Net outflow of cash - financing and
investing activities 6,656
The benefit of the former PDS's shareholder loan has been
presented as a financing cash flow as does not form part of the
consideration transferred
12 Provision for liabilities
2021 2020
GBP000 GBP000
At 1 January 250 250
Acquisition 41 -
Increase in provision during the year - -
At 31 December 291 250
The Group holds a provision of GBP0.25m (2020: GBP0.25m) in
respect of historical contract disputes against a maximum exposure
of approximately GBP3.8m (2020: GBP4.0m). The maximum exposure
includes additional claims for consequential losses. There are
uncertainties around the outcome of contract disputes and any
settlements may be higher or lower than the amount provided. The
directors believe the provision represents the best estimate of the
risks and considers all information and legal input received by the
Group. The assumptions made in relation to the current period are
consistent with those in the prior year. The utilisation of this
provision is still expected to happen within two years due to the
legal process taking longer than originally anticipated.
The amount of GBP0.04m relates to the general provision that PDS
provided for warranty and remained unchanged as of 31 December 2021
based on management estimates.
13 Subsequent events
No adjusting events have occurred between the 31 December
reporting date and the date of approval of these financial
statements.
An historical contractual licence dispute, which does not affect
the ongoing operations of the Group, was heard by a German court on
17 March 2022 and the official outcome is awaited. The Group has
been defending the action and strongly believes that the claim
should be dismissed.
Notwithstanding this, the cost provision of GBP0.25m made in
2017 has been maintained in the 2021 financial statements. As the
potential financial outcome cannot yet be determined with any
certainty the Board has concluded that the GBP0.25m provision was
appropriate at 31 December 2021. To date all legal expenses have
been expensed.
On 8 April 2022, the Group signed a new financing arrangement
which consists of a committed facility of GBP10.m with HSBC UK Bank
plc to support the Group's working capital needs and its
acquisition strategy, which can be extended up to GBP20.0m if
needed, subject to further bank approval. The financial covenants
have been considered in the forecast to ensure compliance.
14 Approval
The Preliminary Announcement was approved by the Board of
Directors on 26 April 2022.
15 Preliminary Announcement
A copy of this Preliminary Announcement is available on request
to all Shareholders by post from the Company Secretary, (2 Diamond
Way, Stone Business Park, Stone, Staffordshire, ST15 0SD). The
announcement can also be accessed on the Internet at
https://investors.instem.com. The 2021 Annual Report will be made
available on the Group's website ( www.instem.com ) on or before 16
May 2022.
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END
FR SEWSAMEESELL
(END) Dow Jones Newswires
April 26, 2022 12:59 ET (16:59 GMT)
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