TIDMINS
RNS Number : 3368Z
Instem plc
15 May 2023
Instem plc
("Instem", the "Group" or the "Company")
Audited Results for the Year Ended 31 December 2022 &
Investor Presentation
Instem plc (AIM: INS), a leading provider of IT solutions to the
global life sciences market, announces its audited results for the
year ended 31 December 2022 (the "Period").
Financial Highlights:
-- Total Group revenues increased 28% to GBP58.9m (2021: GBP46.0m)
o Software as a Service (SaaS) revenues increased by 41% to
GBP13.7m (2021: GBP9.7m)
o Recurring revenues (annual support and SaaS) increased 43% to
GBP34.5m (2021: GBP24.1m), 59% of total revenue (2021: 52%)
o Constant currency revenue growth was 20%
-- Adjusted EBITDA* increased 32% to GBP10.9m (2021: GBP8.3m),
representing an adjusted EBITDA margin of 18.4% (2021: 17.9%)
-- Reported profit before tax of GBP5.5m (2021: GBP3.0m)
-- Adjusted profit before tax** of GBP8.2m (2021: GBP5.9m, as restated)
-- Fully diluted earnings per share of 19.8p (2021: 7.4p)
-- Adjusted fully diluted earnings per share** of 31.3p (2021: 20.4p, as restated)
-- Net cash generated from operations of GBP9.9m (2021: GBP10.3m)
-- Cash balance as at 31 December 2022 of GBP14.0m (2021:
GBP15.0m) - after making deferred and contingent payments of
GBP5.4m in 2022 in relation to the acquisitions made during
2021
*Earnings before interest, tax, depreciation, amortisation ,
impairment of goodwill plus non-recurring items.
**After adjusting for the effect of foreign currency exchange
and the unwinding of the finance liability included in finance
income/(costs), non-recurring items, impairment of goodwill plus
amortisation of intangibles on acquisitions.
Operational Highlights
-- First full-year contributions from the three acquisitions
completed during 2021, all successfully integrated and earn-out
targets met in full: The Edge Software Consultancy Ltd ("The
Edge"), d-Wise Technologies Inc ("d-Wise"), and PDS Pathology Data
Systems Ltd ("PDS") (the "Acquisitions")
-- Won largest ever contract with long-term client
o $12m five-year agreement with global CRO, lead client for new
Aspire software solution
o Significant future SaaS revenues
-- Contract extension with leading contract research organisation ("CRO") worth c.$1.4m
o For over 900 additional users of the Group's Provantis
non-clinical study management platform - reflects strong underlying
industry R&D activity
-- Sales price increases successfully fed through to customers
to mitigate inflationary cost pressures
-- New banking facility finalised with HSBC of up to GBP20m, GBP10m of which is committed
Post Period-End Highlights
-- ToxHub assets acquired and licensed from the eTRANSAFE
consortium and launched as part of new solution suite Centrus(R),
enhancing In Silico revenue streams and reach. Significant planned
investment and future growth potential - announced 15 May 2023.
-- Large contract renewal/expansion for the US National
Toxicology Program, including incremental long-term SaaS income and
In silico technology - announced 11 May 2023
-- Diversified the Board with the appointment of Mary Dolson as
an independent non-executive director and strengthened the
Executive team, with the appointment of Eve Leconte, Chief People
& Culture Officer and Mark Poggi, Executive Vice President
Global Sales.
Phil Reason, CEO of Instem, commented: "This was another strong
period for the Company with continued growth in routes to market
and higher future visibility SaaS revenues. The enlarged Group
added a number of contracts from existing and new clients,
benefiting from the Acquisitions made during 2021, while the core
product suite and strong market backdrop continued to underpin
organic growth.
"New contracts won during the Period provide further validation
of our market position while our software suite also provides a
firm foundation from which the Group can continue to evolve. The
long-term nature of our contracts, combined with our growing range
of solutions, underpin the Board's continued confidence in our
ability to deliver future success.
"Notwithstanding wider concerns around the funding environment
for drug discovery and development, we have seen no evidence of
slowdown to date and our focus remains on further broadening our
portfolio of products and solutions that are attractive across the
spectrum. This will continue to drive value while demonstrating the
strength of our proposition.
"Looking forward, we have a strong order book, and the Company
is well placed to benefit from industry consolidation as well as
continued loyalty from existing clients. We have rationalised the
non-core elements of our portfolio and positioned ourselves to
benefit from increased cross selling, to win and service customer
contracts of all sizes and we look forward to building on the
strong start to trading during the current year. The post
period-end launch of the Centrus product suite further enhances our
In Silico portfolio. This is an integral part of our long-term
growth strategy and a significant area of planned investment for us
over the next 12 months or so, reflecting broader market trends and
growing demand for data insight leveraging computational and
artificial intelligence based solutions. We will continue to focus
on organic and, where appropriate, acquisitive growth opportunities
as we build out high-margin revenue lines while delivering on our
commitment to help our clients bring their life enhancing products
to market faster."
Analyst Presentation: 09:30 Today
Management will be hosting a presentation via web conference
today at 09:30. Analysts wishing to join should register their
interest by emailing instem@walbrookpr.com or by telephoning 020
7933 8780.
Investor Presentation: 16:00 Today
Management will be providing a presentation and hosting an
Investor Q&A session on the results and future prospects today
at 16:00, through the digital platform Investor Meet Company.
Investors can sign up for free and add to attend the presentation
via the following link
https://www.investormeetcompany.com/instem-plc/register-investor
Questions can be submitted pre-event and at any time during the
live presentation via the Investor Meet Company Platform.
For further information, please contact:
Instem plc Via Walbrook
Phil Reason, CEO
Nigel Goldsmith, CFO
Singer Capital Markets (Nominated
Adviser & Broker) +44 (0) 20 7496 3000
Peter Steel
Alex Bond
Oliver Platts
Stifel Nicolaus Europe Limited (Joint
Broker) +44 (0) 20 7710 7600
Ben Maddison
Alex Price
Richard Short
Walbrook Financial PR +44 (0) 20 7933 8780
Tom Cooper instem@walbrookpr.com
Nick Rome
Joe Walker
About Instem
Instem is a leading provider of IT solutions & services to
the life sciences market delivering compelling solutions for Study
Management, Regulatory Submissions, Clinical Trial Acceleration,
and Informatics-based Insight Generation.
Instem solutions are in use by over 700 customers worldwide,
including all of 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 during their
development.
To learn more about Instem solutions and its mission, please visit www.instem.com
Chairman's Statement
This was a highly successful and strategically very important
year for the business, with concentration on two main activities:
to fully complete the integration of the three companies acquired
in 2021; then to ensure that the resultant consolidated business
was ideally positioned to commence the next phase of its
development in 2023 and beyond.
Being the first full year to benefit from the Acquisitions, as
expected, the results were positively impacted by the greater
solution suite and routes to market now in place. This
transformation of the business has not only increased the
scalability and reach of our operations but has improved the
Group's ability to win larger contracts and attract opportunities
that were not previously available.
Strategically, we aim to ensure that our solutions enable a
shortening of the time taken for drugs to come to market and that
we have an increasing number of touchpoints across the drug
discovery and development lifecycle.
Financial Performance
All parts of the business benefited from the extension of our
product range, which is becoming increasingly relevant to a wider
cross section of customers. Furthermore, our ability to provide a
growing number of solutions has enabled us to increase
cross-selling as well as to add new customers that were previously
outside of our reach.
During the Period we were able to pass on essential price
increases to customers, which helped to mitigate the global
inflationary pressures now being experienced by all businesses.
Importantly, we also benefited from a further change in our revenue
mix, with additional, higher margin and visibility SaaS revenue
streams from existing and new clients.
The performance during the Period was aligned with management
expectations post the completion of the Acquisitions with notable
progress on a number of key metrics. In particular, increasing
levels of SaaS-driven business and strong client retention rates
continue to be cornerstone objectives.
-- SaaS-based revenues grew 41% to GBP13.7m
-- Total recurring revenues grew 43% to GBP34.5m
-- Recurring revenue retention rate >98%
-- Total Group revenues increased 28% to GBP58.9m
-- Adjusted EBITDA grew 32% to GBP10.9m
-- Net cash generated from operations of GBP9.9m
Looking Forward
Following a strategic review of our operations and opportunities
the next phase of the development of the business will be based on
the achievement and maintenance of a growing portfolio of 'world
leading life science workflow and data solutions.' These are
grouped into three market focussed sectors.
Study Management
This sector has historically been the bedrock of the overall
business. The products and services of the PDS acquisition have now
been merged with the equivalent pre-existing Instem products and
services. Consequently, we are now the clear market leader in the
pre-clinical study management market. In addition, we have now
broadened our study management scope into the discovery phase of
pharma R&D through the acquisition of The Edge.
Clinical Trial Acceleration
Solutions for clinical trial acceleration now provide an
important opportunity for the Company. This was the principle
market focus of the d-Wise business. We believe that this, combined
with the resources and market reach of Instem, will significantly
leverage the potential in this area.
We have already seen these benefits, with the Company, in
September 2022, winning its largest contract to date - worth $12m
over five years.
In Silico/Data Science
Artificial Intelligence ("AI") is now one of the most exciting
supporting technology areas in Pharma R&D, with its potential
to generate significant improvements both in cost and timescale for
new product development.
We separately announced today, 15 May 2023, that Instem is
taking on responsibility for the management and further enhancement
of the 'ToxHub' database and software platform. ToxHub was created
by eTRANSAFE (a consortium of global pharma companies, universities
and technology companies, supported by EU grant funding) and has
benefited from c.EUR41m investment to date.
ToxHub has become a component of recently launched solution
suite Centrus. Maximising the potential for this new solution suite
is strategically important and now a major focus of investment for
the Company. Initially Centrus will provide an exciting axis for
further growth of our existing In Silico solutions. However, it
also sets the stall for the next stage of the Company's
development, which will include an increased focus on In Silico
solutions.
Board Changes
Post-period end, we were delighted to welcome Mary Dolson as an
Independent Non-Executive Director to the Board and Chair of the
Audit Committee. Mary also joined as a member of the Remuneration
and Nomination Committees. Mary is an expert advisor on regulatory,
financial and accounting compliance issues, with extensive
experience advising businesses in the pharmaceutical, biotech and
life science sectors. She is an experienced specialist in taking
companies through periods of change, from start-up to venture
capital investments to public offerings. Upon Mary's appointment,
membership of the Company's audit, remuneration and nominations
committees was revised accordingly and the Company will continue to
review membership of the various committees periodically in line
with good governance practice.
Following Mary's appointment David Sherwin, Non-Executive
Director, stepped down from the Board effective 31 January 2023. We
would like to thank David for his support and guidance during
nearly 50 years at Instem.
In Summary
Increasing levels of SaaS-driven business and strong client
retention rates continue to the be cornerstone of our model. We
will continue to build on the fact that our solutions remain
critical in shortening the time taken for drugs to come to market,
resulting in significant revenue growth for our blue-chip client
base as they provide life changing new products for consumers
world-wide.
We remain focused on organic revenue growth, margin improvement
and accretive M&A and believe that the Company is extremely
well placed to deliver further success. The performance during the
Period is a strong reflection of the hard work across all parts of
the business and the foundations we now have in place are expected
to underpin material upside opportunities.
David Gare
Non-Executive Chairman
13 May 2023
Chief Executive's Report
Strategic Development
In 2022 we stated our clear intention to make material progress
in integrating the data from our broad portfolio of market leading
applications to deliver compelling new capabilities to the market
and are delighted that post-period end we completed the transfer of
eTRANSAFE's ToxHub application to Instem, announced 15 May
2023.
We are very excited about the potential of our expanded In
Silico and Translation Science ("ISTS") business unit, with our new
Centrus solution suite incorporating:
-- the acquired ToxHub technology
-- our previous In Silico solutions
-- the Clinical Trial Transparency solutions (previously within
our Clinical Trial Acceleration business unit
-- the emerging opportunities to leverage the S information
assets that are rapidly growing within pharmaceutical companies and
contract research organisations around the world.
The Group's focus remains on helping clients to radically reduce
the cost and time of life sciences research and development, with
In Silico alternatives to traditional client experimental processes
representing a significant opportunity. Instem offers a range of
solutions including predictive data analytics, simulation and
modelling that provide clients with services from early drug
discovery to late-stage clinical trials and, while already
leveraging machine learning and AI technologies, there is much more
we can do in these areas.
With our increased focus on ISTS and a clear objective to
optimize our clients R&D activities, we decided to dispose of
our Regulatory Information Management "RIM" software business and
this transaction completed post period end. Most of our RIM revenue
since the acquisition of Samarind in 2016 has been in support of
our clients' post-marketing activities, as they launched their
regulated products around the world. The opportunity that we
envisaged to build on our strength in the medical devices niche was
constrained by slower introduction of helpful regulatory changes
and a medical devices market that was one of few that Instem
targets that was negatively impacted by the Covid pandemic. We
believe that Ennov, a competitor in the RIM market and acquirer of
our RIM business, will be a good home for a small team of dedicated
former Instem staff and our RIM clients. RIM represented less than
2% of total revenue in 2022.
RIM was part of our Regulatory Solutions business unit,
alongside our much larger S related business. Having moved the
responsibility for solutions that leverage large volumes of S
studies for insight generation to ISTS, we have moved our S
creation software and services into our Study Management business
unit. The clients in these areas and the workflow technology
applications overlap significantly; together they provide greater
opportunity to optimize efficiency and effectiveness for Instem and
our clients.
As 2022 was the first year that incorporated full contributions
from the Acquisitions made during 2021, the results reflect the
benefits of scale. With an enhanced solution suite servicing a
growing number of touchpoints across the drug discovery and
development lifecycle the Company won multiple new contracts and
clients, which further enhanced SaaS revenue streams in
particular.
Organic growth remained strong, with retention of recurring SaaS
and Annual Support revenue once again ahead of the Company's 98%
key performance indicator and new business win rates confirming
market leadership across its broad portfolio.
The Company has created a strong market position and substantial
recurring revenues through helping our clients orchestrate and
automate their study workflows. We are building on this firm
foundation with an increasing focus on the higher growth areas in
our portfolio, particularly the ISTS solutions that contribute
across the entire R&D value chain from drug discovery to
late-stage clinical trials and beyond. The industry recognises and
is investing in advanced information technologies, such as AI and
other data-centric solutions, to both lower the cost and accelerate
its drug development activities. Our ISTS technology, plus our deep
understanding of the high volumes of complex data, collected
through our workflow solutions over several decades in this
industry, leave us well-positioned to drive forward both current
and innovative new solutions.
Market Review
The market backdrop continues to be favourable for the Group,
with global population growth and life expectancy underpinning
increased demand for successful innovation in life sciences.
Increasing amounts of money are being invested in the biotech
industry with the pharmaceuticals sector investing heavily in drug
development, underpinning a strong pipeline for Instem.
In the pharmaceutical industry, which represents the largest
proportion of Instem's revenue, we refer again to the Pharma
R&D Annual Review, the 2023 version of which was released by
Pharma Intelligence in April 2023. This report shows that the
industry grew strongly in the last 12 months with a 5.9% increase
(2021: 8.2%) 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.
Business Performance
Study Management
Performance here remained strong with revenue growth of 27%,
compared with prior period growth of 35%, with both of these years
benefiting from the Acquisitions in 2021 and reflecting the
continuing growth in non-clinical research and development, with
the number of drugs in this stage of development up 4.9% (2021:
11%). In December 2022 the Company announced that it had entered
into a contract extension worth c.$1.4m for over 900 additional
users of the Provantis non-clinical study management platform with
an existing leading publicly traded global CRO, highlighting the
continued strength of its offering, client relationships and
underlying market.
The continual functional and technological evolution of the
study management portfolio, which has been a mainstay of the
business for many years, resulted in a number of new business wins.
New product versions helped to maintain high levels of client
retention and to support the ongoing transition of client
deployments from on-premise to Instem's SaaS solution. With CRO
consolidation a significant feature over the last few years, it is
very encouraging that clients have invariably chosen to consolidate
on Instem's Provantis software when companies combining, through
merger or acquisition, look to harmonize on a single solution,
rather than retain competing study management products. In total,
over 3,000 additional Provantis users were licensed in 2022.
In Silico and Translational Science
Instem's In Silico and Translational Science solutions enable
organizations around the world to unlock critical biomedical
intelligence contained in both public and proprietary data
resources. Insights, generated from information produced across the
R&D continuum, are used to support operational efficiencies and
scientific advances throughout discovery, development and clinical
practice.
In November 2022 the Company announced the release of the latest
edition of its Leadscope Model Applier Computational Toxicology
software solution, and significant improvements were also made
during 2022 to the KnowledgeScan Target Safety Assessment (TSA)
platform. Enhancements to these AI-enabled solutions, used for the
assessment of chemical and biological mechanisms, support client
demand for the combined benefits of both tools. Clients license the
technology on a project or enterprise basis, or access it through
Instem's innovative, technology enabled services. Our
'translational science' capability has also been recently enhanced
by the addition of products and services in clinical trial
transparency, where clients are provided access to anonymised
clinical trial data for regulatory submission and secondary
use.
A growing demand for reliable alternatives to traditional
testing methods and particularly animal-based studies in
pharmaceutical development was a key factor in the Company adding
the ToxHub suite of products post period end, which has been
combined with our existing In Silico solutions as part of a new
Centrus solution suite. Instem's highly successful, long-term
collaborations with the US Food & Drug Administration and our
role orchestrating large scale industry initiatives, such as the In
Silico Protocols project, create an excellent framework for ongoing
collaboration with the eTRANSAFE Consortium members, who jointly
specified and invested in the creation of ToxHub. Centrus is
expected to provide a spring board for accelerated ISTS revenue
growth.
Regulatory Solutions
The Regulatory Solutions business unit comprised our S related
software and technology enabled outsourced services, together with
the Samarind RMS RIM software suite. In the highly competitive and
challenging RIM market revenue declined 7% to c.GBP1.2m.
Conversely, our S business grew by 24% to GBP10.8m. Every drug
company is required to submit non-clinical data in S format to the
FDA (Food and Drug Administration), as part of the process for
testing and getting approval for each new drug. The combination of
increased numbers of drugs in development and S being extended to
cover a broader range of study types, provided a solid platform for
continued growth.
Having acquired PDS in September 2021, a competitor in the S
software and services market, we were able to reallocate some of
our industry experts to further investigate the opportunity to
generate insight from our clients' rapidly growing S information
repositories. Post period end this work has now transitioned to our
ISTS business unit and our technology and services for S creation
have become part of Study Management. As a consequence of these
changes, Regulatory Solutions will no longer be reported
independently.
Clinical Trial Acceleration Solutions
Instem plays a key role in the acceleration of analysis and
tabulation activities for late-stage clinical trials through its
Statistical Computing Environment (SCE) consultancy and solutions.
Instem is acknowledged as an authority in the design,
implementation and optimisation of SCEs for the biggest clinical
trials organisations to the new entrants and innovative biotechs
advancing novel drugs. The Company's solutions for late-stage
clinical trials are designed to expand as customer needs grow and
mature, providing essential scalability to these organisations. At
the same time, Instem's SCE operating platforms provide sponsors
and CROs an essential transformational bridge to cloud computing
and the benefits of automation through AI and a wide array of open
source and cloud-native technologies. SCE solutions from Instem
open a gateway for organisations to access a new value space in
computing technology that can be leveraged to advance data science
and accelerate drug development programs.
Significant new business wins included the largest ever contract
win for the Company - worth in excess of $12m over five years. This
contract provides over 2,000 users worldwide at an existing CRO
client, access to Instem's new Aspire(TM) SCE software solution.
Aspire is a cloud-based SaaS solution targeting the largest pharma
and CROs in the world and is another example of the company's SaaS
growth strategy. For this client, Aspire will be deployed on the
Amazon Web Services cloud platform. With the focus on Aspire
product sales and this key customer launch in Q4 2023, the volume
of custom SCE development consulting projects has predictably
dropped. Aspire is anticipated to drive value for clients by
accelerating SCE deployment timelines, reducing client
modernization costs, while increasing recurring revenue and
profitability of this business area.
Instem continued to provide productised statistical computing
environments for small to mid-sized pharma companies and CROs with
a steady growth in new clients and annual recurring revenue.
Strengthened Executive Management Team
In addition to the various Board changes, we welcomed Mark Poggi
to the Executive Team, joining as Executive Vice President Global
Sales. Mark previously worked at CAS, a 1,200 employee subsidiary
of the American Chemical Society, where he had an international
team of around 85 people, over 3x the number he will initially lead
at Instem, and responsibility for approximately $190m in annual
sales. Additionally, Eve Leconte has been promoted to join the
Executive Team as Chief People & Culture Officer.
Finally, John Alarcon was appointed Vice President of Strategic
Partnerships and Vice President of US Finance. John joined Instem
on a contract basis in 2019 and led the buy-side due diligence,
modelling, and integration efforts on the d-Wise acquisition, and
supported on those of The Edge and PDS. John was also Interim
Controller for Instem's Clinical Trial Acceleration business
unit.
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:
Year ended Year ended
31 December 2022 31 December 2021
GBP000 GBP000
Change
Total revenue 58,880 46,017 28%
Recurring revenue (1) * 34,473 24,082 43%
Annual Recurring revenue (1) 34,967 28,741 22%
Recurring revenue as a percentage of total revenue 59% 52% 700bps
Adjusted EBITDA (1) ** 10,863 8,250 32%
Adjusted EBITDA Margin % 18.4% 17.9% 50bps
Cash and cash equivalents 13,964 15,021 (7%)
Revenue retention rate for recurring SaaS and Annual Support >98% 98% -
contracts
Operating profit after non-recurring items 5,593 4,098 36%
1. For an explanation of the alternative performance measure in
the report, please refer below
* Recurring revenue includes Annual Support fees and SaaS subscription fees.
** Earnings before interest, tax, depreciation, amortization,
impairment of goodwill and non-recurring items.
In addition, non-financial KPIs are periodically reviewed and
assessed, including customer and staff satisfaction.
Instem's revenue model consists of perpetual licence income with
annual support and maintenance contracts, professional services,
technology enabled outsourced services fees, SaaS subscriptions and
consultancy services.
Total revenues increased by 28% to GBP58.9m (2021: GBP46.0m)
with constant currency revenue growth at 20%. This includes full
year revenue contributions from The Edge, d-Wise and PDS, which
were acquired in March, April and September 2021 respectively.
Recurring revenue, comprising Support & Maintenance contracts
and SaaS subscriptions, increased during the year by 43% to
GBP34.5m (2021: GBP24.1m). Recurring revenue as a percentage of
total revenue was 59% (2021: 52%). The recurring revenue as a
percentage of total revenue has increased over the year primarily
due to the change of d-Wise revenue mix moving towards recurring
revenue instead of consulting services. Revenue from technology
enabled outsourced services increased to GBP8.5m (2021:
GBP6.4m).
Operating expenses excluding the non-recurring items increased
by 27% in line with revenue reflecting the full year cost of the
2021 acquisitions, ongoing investment in operational teams and the
increase in the rate of inflation, primarily in salaries.
Adjusted earnings before interest, tax, depreciation,
amortisation, impairment of goodwill and non-recurring items
(Adjusted EBITDA) increased by 32% to GBP10.9m (2021: GBP8.3m). For
this measure of earnings, the margin as a percentage of revenue
increased in the period to 18.4% from 17.9% in 2021, as the Group
managed to increase the revenue in line with the salary
inflation.
Non-recurring costs in the period were GBP1.2m (2021: GBP1.3m),
consisting of GBP0.1m for legal expenses associated with an
historical contract dispute and an additional provision of EUR1.2m
(GBP1.0m) which relates to the full and final settlement of the
dispute that originally arose in 2017. The historical contract
dispute was settled in 2022 for EUR1.5m (GBP1.3m). The
non-recurring costs also include acquisition costs of GBP0.08m
(2021: GBP1.0m) in respect of the earn out consideration of the
Edge and d-Wise.
Non-recurring income of EUR0.5m (GBP0.4m) relates to an
insurance payment in relation to the historical contract
dispute.
The reported profit before tax for the year was GBP5.5m (2021:
profit of GBP3.0m). The calculation of the adjusted profit before
tax was changed in 2022 to include two additional components; the
effect of foreign currency exchange and the unwinding of the
financial liability included in finance income/(costs). Those two
components have been included to better reflect the normalised,
ongoing operations of the Group. Adjusted profit before tax (i.e.
adjusting for the effect of foreign currency exchange and the
unwinding of the finance liability included in finance
income/(costs), non-recurring items, impairment of goodwill and
amortisation of intangibles arising on acquisitions) was GBP8.2m
(2021: GBP5.9m, as restated).
The total income tax charge in the year of GBP0.78m (2021:
GBP1.3m) is an effective tax rate of 14.2% (2021: 43.8%). The
decrease in the tax charge is mainly due to the benefit from
deferred tax of the UK corporation tax losses together with a US
tax benefit available on the d-Wise acquisition. In the UK, the
Group continues to receive additional tax relief on its research
and development expenditure.
The Group continues to maintain its investment in its product
portfolio. Research and development costs incurred during the year
were GBP7.5m (2021: GBP4.9m), of which GBP3.0m (2021: GBP2.2m) was
capitalised. The Group has a development process in place and is
committed to ensure its own technology continues to evolve to meet
client needs.
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 primary currency that exposed the
Group to foreign currency risk in 2022 was the US dollar In 2022,
the revenue and Adjusted EBITDA growth on a constant currency
basis, excluding the foreign exchange exposure, was 20% and 19%
respectively. The foreign exchange gain recorded during 2022 was
GBP0.93m (2021: loss GBP0.04m), which is composed of realised and
unrealised gains/losses.
Basic and diluted earnings per share calculated on an adjusted
basis were 32.8p and 31.3p respectively (2021: 21.5p basic and
20.4p diluted, as restated). The reported basic and diluted
earnings per share were 20.8p and 19.8p respectively (2021: 7.8p
basic and 7.4p diluted).
The Group cash generated from operations for the year was
GBP9.9m (2021: GBP10.3m), a small reduction from prior year
primarily due to working capital movement and the settlement of the
historical contract dispute. The deferred and contingent
consideration payments of GBP5.4m which related to the 2021
acquisitions were part of the net cash used in financing
activities. The net cash used in investing activities includes
GBP3.0m (2021: GBP2.2m) from the capitalisation of software
development. As a result of the above, the gross cash balance
decreased from GBP15.0m at 31 December 2021 to GBP14.0m at 31
December 2022. In addition to its organic cash reserves the Group
has access to an HSBC debt facility of up to GBP20m, which was
unutilised at the year end.
The remaining financial obligations associated with The Edge and
d-Wise acquisitions for 2023 are deferred and contingent
consideration payments of GBP3.6m and GBP2.2m respectively in cash.
The contingent consideration provision reflected management's
estimate that the entities would achieve their profitability
targets and that the full amount of contingent consideration would
be paid. This profitability target was confirmed in the period.
Goodwill included in intangible assets reduced from 31 December
2021 to 31 December 2022 due to an impairment loss of GBP0.11m on
Samarind's goodwill realised on disposal. Offsetting this there was
an increase in d-Wise goodwill of GBP0.05m (US$0.06m) due to a
change in the contingent consideration paid.
The latest triennial actuarial valuation of the Group's legacy
defined benefit pension scheme as of 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.
On 31 December 2022, the IAS19 accounting pension deficit was
unchanged at GBP2.0m (2021: GBP2.0m). The agreed Group cash
contributions currently approximate to GBP0.6m per annum, payable
through to September 2026. The deficit at the 2022 year-end of
GBP2.0m (2021: GBP2.0m) is represented by the fair value of assets
of GBP8.4m (2021: GBP14.0m) and the present value of funded
obligations of GBP10.4m (2021: GBP16.0m), after applying a discount
rate of 4.8% (2021: 1.9%).
Movements in share capital and the share premium, merger and
share based payment reserves reflect the exercise of share options
during the period, the fair value of share options granted being
charged to the Statement of Comprehensive Income and the issue of
shares paid in lieu of cash as deferred consideration for d-Wise.
The share capital of Instem on 31 December 2022 was 22,704,308
ordinary shares of 10p each.
In line with previous periods and given our policy of retaining
cash within the business to capitalise on available growth
opportunities, the Board has not recommended the payment of a
dividend.
Alternative performance measure
The 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:
2022 2021
GBP000 GBP000
Annual support fees 20,815 14,378
SaaS subscription and support fees 13,658 9,704
Recurring revenue 34,473 24,082
Licence fees 6,049 4,597
Professional services 3,229 3,651
Technology enabled outsourced services 8,496 6,378
Consultancy services 6,633 7,309
Total revenue 58,880 46,017
Recurring revenue is the revenue that repeats annually under contractual arrangements. 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.
2022 2021
GBP000 GBP000
Annual Recurring Revenue 34,967 28,741
Annual Recurring Revenue is the revenue that the Group is currently contracted to provide,
for the next 12 months, for software Annual Support fees and SaaS Subscription fees. The revenue
is also adjusted with new or terminated contracts that took place in the year.
2022 2021
GBP000 GBP000
EBITDA 10,056 7,769
Non-recurring cost 1,208 1,286
Non-recurring income (401) (805)
Adjusted EBITDA 10,863 8,250
Adjusted EBITDA is EBITDA plus non-recurring items (as set out in note 4). 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.
2022 2021 2021
GBP000 as re-stated as originally reported
GBP000 GBP000
Profit before tax 5,473 2,984 2,984
Amortisation of intangibles arising on acquisition 1,953 1,563 1,563
Nonrecurring cost 1,208 1,286 1,286
Nonrecurring income (401) (805) (805)
Impairment of goodwill 107 - -
Intercompany foreign exchange (gain)/loss - - (18)
Foreign currency exchange (gain)/ loss (932) 44 -
Unwinding discount on deferred consideration 771 867 -
Adjusted profit before tax 8,179 5,939 5,010
The calculation for the adjusted profit before tax was changed in 2022 compared with prior
periods by including two additional components, the effect of foreign currency exchange and
the unwinding of the finance liability included in finance income/(costs). Those two components
have been included as adjustments as they do not affect the ongoing operations of the Group.
Adjusted profit before tax is after adjusting for the effect of foreign currency exchange
and the unwinding of the finance liability included in finance income/(costs), non-recurring
items, impairment of goodwill and amortisation of intangibles arising 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.
2022 2021
GBP000 GBP000
Weighted average dilutive number of shares (000's) 23,686 22,719
Adjusted diluted earnings per share 31.3p 20.4p
Cash at bank 13,964 24,019
Bank overdraft - (8,998)
Cash balance 13,964 15,021
Post Period-End
For the material subsequent events refer to note 12, as these
have a bearing on the understanding of the financial information
set out in this announcement.
Summary and Outlook
This was another strong period for the Company with continued
growth in routes to market and higher future visibility SaaS
revenues. The enlarged Group added a number of contracts from
existing and new clients, benefiting from the Acquisitions made
during 2021, while the core product suite and strong market
backdrop continued to underpin organic growth.
New contracts won during the Period provide further validation
of our market position while our software suite also provides a
firm foundation from which the Group can continue to evolve. The
long-term nature of our relationships, combined with our growing
range of solutions, underpin the Board's continued confidence in
our ability to deliver future success.
Notwithstanding wider concerns around the funding environment
for drug discovery and development, we have seen no evidence of
slowdown to date and our focus remains on further broadening our
portfolio of products and solutions that are attractive across the
spectrum. This will continue to drive value while demonstrating the
strength of our proposition.
Looking forward, we have a strong order book, and the Company is
well placed to benefit from industry consolidation as well as
continued loyalty from existing clients. We have rationalised the
non-core elements of our portfolio and positioned ourselves to
benefit from increased cross selling, to win and service customer
contracts of all sizes and we look forward to building on the
strong start to trading during the current year. The post
period-end launch of the Centrus product suite further enhances our
In Silico portfolio. This is an integral part of our long-term
growth strategy and a significant area of planned investment for us
over the next 12 months or so, reflecting broader market trends and
growing demand for data insight leveraging computational and
artificial intelligence based solutions. We will continue to focus
on organic and, where appropriate, acquisitive growth opportunities
as we build out high-margin revenue lines while delivering on our
commitment to help our clients bring their life enhancing products
to market faster.
Phil Reason
Chief Executive
13 May 2023
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2022
Year ended Year ended
Note 31 December 2022 31 December 2021
GBP000 GBP000
REVENUE 2 58,880 46,017
Employee benefits expense (34,437) (26,918)
Other expenses (13,776) (10,491)
Net impairment gain/ (loss) on financial assets 196 (358)
EARNINGS BEFORE INTEREST, TAXATION, DEPRECIATION, AMORTISATION AND
NON-RECURRING ITEMS (ADJUSTED
EBITDA) 10,863 8,250
Depreciation (340) (312)
Amortisation of intangibles arising on acquisitions (1,953) (1,563)
Amortisation of internally generated intangibles (1,096) (851)
Depreciation of right of use assets 8 (967) (945)
Impairment of goodwill (107) -
OPERATING PROFIT BEFORE NON-RECURRING ITEMS 6,400 4,579
Non-recurring costs 4 (1,208) (1,286)
Non-recurring income 4 401 805
OPERATING PROFIT AFTER NON-RECURRING ITEMS 5,593 4,098
Finance income 5 1,023 30
Finance costs 6 (1,143) (1,144)
PROFIT BEFORE TAXATION 5,473 2,984
Taxation 7 (776) (1,306)
PROFIT FOR THE YEAR 4,697 1,678
OTHER COMPREHENSIVE (EXPENSE)/ INCOME
Items that will not be reclassified to profit and loss account:
Actuarial (loss)/ gain on net defined benefit liability (561) 1,375
Deferred tax on actuarial gain/ (loss) 140 (140)
(421) 1,235
Items that may be reclassified to profit and loss account:
Exchange differences on translating foreign operations (1,596) (294)
_______ _______
OTHER COMPREHENSIVE (EXPENSE)/ INCOME FOR THE YEAR (2,017) 941
_______ _______
TOTAL COMPREHENSIVE INCOME FOR THE YEAR 2,680 2,619
PROFIT ATTRIBUTABLE TO OWNERS OF THE PARENT COMPANY 4,697 1,678
TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO OWNERS OF THE PARENT
COMPANY 2,680 2,619
Earnings per share
Basic 10 20.8 7.8
Diluted 10 19.8 7.4
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
At 31 December 2022
Note 2022 2021
GBP000 GBP000 GBP000 GBP000
ASSETS
NON-CURRENT ASSETS
Intangible assets 58,341 58,311
Property, plant and equipment 768 592
Right of use assets 8 1,120 2,077
Finance lease receivables 8 42 85
TOTAL NON-CURRENT ASSETS 60,271 61,065
CURRENT ASSETS
Inventories 76 64
Trade and other receivables 18,345 14,852
Finance lease receivables 8 53 44
Tax receivable - 130
Cash and cash equivalents 13,964 15,021
TOTAL CURRENT ASSETS 32,438 30,111
TOTAL ASSETS 92,709 91,176
LIABILITIES
CURRENT LIABILITIES
Trade and other payables 5,327 5,723
Deferred income 22,745 18,935
Tax payable 251 -
Financial liabilities 5,765 6,612
Lease liabilities 814 1,077
TOTAL CURRENT LIABILITIES 34,902 32,347
NON-CURRENT LIABILITIES
Financial liabilities - 4,728
Pension obligations 2,013 2,014
Provision for liabilities 11 45 291
Lease liabilities 491 1,248
Deferred tax liabilities 1,901 3,247
TOTAL NON-CURRENT LIABILITIES 4,450 11,528
TOTAL LIABILITIES 39,352 43,875
EQUITY
Share capital 2,270 2,219
Share premium 28,224 28,191
Merger reserve 14,013 12,104
Share based payment reserve 3,570 2,294
Translation reserve (1,798) (202)
Retained earnings 7,078 2,695
TOTAL EQUITY ATTRIBUTABLE
TO OWNERS OF THE PARENT 53,357 47,301
TOTAL EQUITY AND LIABILITIES 92,709 91,176
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 December 2022
---------------------------------------------------------------------------------------
Note 2022 2021
GBP000 GBP000 GBP000 GBP000
CASH FLOWS FROM OPERATING ACTIVITIES
Profit before taxation 5,473 2,984
Adjustments for:
Depreciation 340 312
Amortisation of intangibles 3,049 2,414
Depreciation of right of use assets 8 967 945
Share based payment charge 9 1,377 1,061
Contributions to defined benefit pension scheme (598) (530)
Government support loan forgiveness - (805)
Finance income 5 (1,023) (30)
Finance costs 6 1,143 1,144
Impairment on goodwill 107 -
Loss on disposal of fixed assets (4) 3
CASH FLOWS FROM OPERATIONS BEFORE
MOVEMENTS IN WORKING CAPITAL 10,831 7,498
Movements in working capital:
Increase in inventories (12) (14)
Increase in trade and other receivables (2,866) (1,573)
Increase in trade, other payables and deferred income 2,185 4,432
Decrease in provision (281) -
NET CASH GENERATED FROM OPERATIONS 9,857 10,343
Finance income 91 6
Finance costs (266) (276)
Income taxes (1,810) (873)
NET CASH GENERATED FROM OPERATING ACTIVITIES 7,872 9,200
CASH FLOWS FROM INVESTING ACTIVITIES
Capitalisation of development costs and software (3,036) (2,238)
Purchase of property, plant and equipment (478) (144)
Payment of deferred consideration - (277)
Purchase of subsidiary undertakings (net of cash acquired) - (14,840)
NET CASH USED IN INVESTING ACTIVITIES (3,514) (17,499)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issue of share capital 36 22
Repayment of lease liabilities 8 (1,096) (963)
Receipts from sublease of asset 53 40
Repayment of former PDS's shareholder loan - (2,387)
Payment of deferred consideration (3,891) -
Payment of contingent consideration (1,463) -
NET CASH GENERATED (USED IN) FROM FINANCING ACTIVITIES (6,361) (3,288)
NET (DECREASE) IN CASH AND CASH EQUIVALENTS (2,003) (11,587)
Cash and cash equivalents at start of year 15,021 26,724
Effects of exchange rate changes on the balance of cash held
in foreign currencies 946 (116)
CASH AND CASH EQUIVALENTS AT OF YEAR 13,964 15,021
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share
based
Share Share Merger payment Translation Retained Total
Note capital premium reserve reserve reserve earnings equity
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Balance as at
1 January 2021 2,048 28,172 2,432 930 92 (438) 33,236
Profit for the
year - - - - - 1,678 1,678
Other comprehensive
(expense)/income
for the year - - - - (294) 1,235 941
_______ _______ _______ _______ _______ _______ _______
Total comprehensive
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) - 25 (5)
Reserve transfer
on lapse of share
options (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
Profit for the
year - - - - - 4,697 4,697
Other comprehensive
income/(expense)
for the year - - - - (1,596) (421) (2,017)
Total comprehensive
(expense)/income - - - - (1,596) 4,276 2,680
Shares issued 51 33 1,909 - - - 1,993
Share based payment 9 - - - 1,377 - - 1,377
Deferred tax on
share options - - - 20 - - 20
Nil cost option
charge - - - - - (14)
Reserve transfer - - - - - - -
on lapse of share
options
Reserve transfer
on exercise of
share options - - - (107) - 107 -
Balance as at
31 December 2022 2,270 28,224 14,013 3,570 (1,798) 7,078 53,357
NOTES TO THE FINANCIAL STATEMENTS
1. GENERAL INFORMATION
The principal activity and nature of operations of the Group is
the provision of 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 announcement does not
constitute the Group's statutory financial statements for the years
ended 31 December 2022 or 2021 as defined in section 435 of the
Companies Act 2006 (CA 2006). The financial information for the
year ended 31 December 2022 has been extracted from the Group's
audited financial statements. Statutory financial statements for
2021 have been delivered to the Registrar of Companies and those
for 2022 will be delivered in due course. 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, amounts
are rounded to the nearest thousand unless otherwise stated.
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 13 May 2023. 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 announcement
has prepared in accordance with UK-adopted international accounting
standards in conformity with the requirements of the Companies Act
2006 and the AIM listed rules. 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 UK-adopted international accounting standards and
International Financial Reporting Interpretations Committee
(IFRICs) effective as at 31 December 2022. 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 2022. The most significant of these are as
follows:
-- Reference to the Conceptual Framework (Amendments to IFRS 3)
-- COVID-19 - Related Rent Concessions beyond 30 June 2021 (Amendments to IFRS 16)
-- Property, Plant and Equipment: Proceeds Before Intended Use (Amendments to IAS 16)
-- Onerous Contracts - Cost of Fulfilling a Contract (Amendments to IAS 37)
-- Annual Improvements (2018-2020 Cycle):
- Subsidiary as a First-time Adopter (Amendments to IFRS 1)
- Fees in the '10 per cent' Test for Derecognition of
Liabilities (Amendments to IFRS 9)
- Lease Incentives (Amendments to IFRS 16)
- Taxation in Fair Value Measurements (Amendments to IAS
41).
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
2023:
-- IFRS 17 'Insurance Contracts'
-- Amendments to IFRS 17 'Insurance Contracts' (Amendments to IFRS 17 and IFRS 4)
-- Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2)
-- Deferred Tax Related to Assets and Liabilities Arising from a
Single Transaction (Amendments
-- to IAS 12)
-- Disclosure of Accounting Policies (Amendments to IAS 1)
-- Definition of Accounting Estimates (Amendments to IAS 8)
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
The Group applies the acquisition method in accounting for
business combinations. 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.
Contingent consideration that is classified as a liability is
re-measured at subsequent reporting dates with the corresponding
gain or loss being recognised in the 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 31 December 2024, 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
2022 has been strong with Revenues of GBP58.9m and Adjusted EBITDA
of GBP10.9m. For this measure of earnings, the margin as a
percentage of revenue increased in the period to 18.4% compared
with 17.9% in 2021. The Group managed to increase its revenue in
line with the salary inflation through sales price increases.
The Group signed a new financing arrangement on 8 April 2022,
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.
Instem undertook an oversubscribed equity fund raise in July
2020, raising GBP15.0m net of expenses. The fund raise placed the
Group in a strong cash position which helped to accelerate the
Group's acquisition strategy with the acquisitions of the Edge,
d-Wise and PDS. Even though the Group spent GBP17.2m initially
funding the acquisition of The Edge, d-Wise and PDS in 2021
followed by GBP5.4m in 2022 on deferred and contingent
consideration, the Group has a strong cash position with GBP14.0m
in the bank as of 31 December 2022.
The Group cash generated from operations for the year was
GBP9.9m (2021: GBP10.3m), a small reduction from prior year
primarily due to working capital movement and the settlement of an
historical contract dispute. The dispute, which did not affect the
ongoing operations of the Group, was settled in October 2022. As
previously announced the Group had already created provision of
GBP0.25m in 2017, which was maintained in the 2021 financial
statements. In 2022, the Group increased the provision equal to the
amount that the legal dispute was settled at EUR1.48m (GBP1.3m),
towards which its insurer contributed EUR0.45m (GBP0.4m) resulting
in a net payment due of approx. EUR1.0m (GBP0.9m).
The remaining financial obligations associated with The Edge and
d-Wise acquisitions for 2023 are deferred and contingent
consideration payments of GBP3.6m and GBP2.2m respectively in cash.
The contingent consideration provision reflected management's
estimate that the entities would achieve their profitability
targets and that the full amount of contingent consideration would
be paid. This profitability target was confirmed as achieved in the
period.
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 Centrus, our new solution suite incorporating the
acquired ToxHub technology (note 12).
(a) Base Case Scenario
The Group's detailed forecasts and projections, taking account
of potential risks and uncertainties in the business, market and
liquidity through sensitivity analysis, show that the Group has
adequate resources to enable it to continue in operation through
the forecast period ending 31 December 2024 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
current inflation outlook has been considered as part of the
sensitivity analysis and as part of Group's adoption of the going
concern basis. Thus far we have not observed any material impact on
our overall existing business or in the level of new business
opportunities that are being presented to us in the markets in
which we operate.
The Group has a significant proportion of recurring revenue
(circa 59% of total) from annual support & maintenance and SaaS
contracts from a well-established global customer base. Revenue is
supported by a largely fixed cost base comprising staff and
offices.
(b) Sensitised Scenario
Further stress testing has been carried out to ensure that the
Group has sufficient cash resources to continue its operations
until at least 31 December 2024. In preparing this analysis the
following key risks were included - 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 profitable and cash generative over the going
concern period to December 2024.
In a worst-case 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 and
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 and as a minimum until 31 December 2024. 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
obligations.
The promises to provide services to the customer may be
separately identifiable. However, the services are highly
interdependent, interrelated. The Group would not be able to fulfil
its promise by transferring each service 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. 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. The subscription
and support are highly interdependent; customers are required to
take both the software and support services 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 2022, 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. In
2023, we expect that the CGU composition will move in line with the
operating segments as the operations of the Group will become even
more integrated due to the current year's reorganizational changes.
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 cash flows and the use of an appropriate
discount rate to discount those cash flows to their present value.
The carrying value of goodwill as of 31 December 2022 was GBP34.6m
(2021: GBP34.6m).
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 weighted average based on 2022 revenue 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. The budgeted unallocated departmental costs are
assigned to each CGU applying a standard methodology approved by
the Board.
Development Costs
The Group invests on a continual basis in the development of
software for sale to third parties. There is a continual process of
enhancements to and expansion of the software with judgement
required in assessing whether the development costs meet the
criteria for capitalisation. These judgements have been applied
consistently year on year. In making this judgement, the Group
evaluates, amongst other factors, whether there are future economic
benefits beyond the current period, the stage at which technical
feasibility has been achieved, management's intention to complete
and use or sell the product, the likelihood of success,
availability of technical and financial resources to complete the
development phase and management's ability to measure reliably the
expenditure attributable to the project. Judgement is therefore
required in determining the practice for capitalising development
costs.
Asset held for sale (AHFS) and discontinued operation
On 1 April 2023, Instem completed the disposal of Samarind
Limited with consideration receivable up to GBP1.0m, of which
GBP0.8m was satisfied by cash receipt on completion, plus or minus
estimated net cash, and the remaining balance of GBP0.2m payable
contingent on Samarind's future performance that would be payable
in cash.
The Group did not classify Samarind Limited as AHFS as
Management concluded that the disposal was not highly probable to
be completed under the IFRS 5 requirement and based on the
available information as of 31 December 2022.
Samarind Limited was acquired 27 May 2016 without the view of
resale but the decision to sell this unit was concluded when the
Group reviewed and assessed their future strategic plans.
As the IFRS 5 criteria were not met as of 31 December 2022,
Samarind Limited's disposal is disclosed as a non-adjusting
subsequent event. Additionally, the Consolidated Financial
Statements and related notes represent results from continuing
operations, there being no discontinued operations in the years
presented. However, the offer price from the buyer was used on the
impairment testing.
Estimation uncertainty
Information about estimations and assumptions that may have the
most significant effect on recognition and measurement of assets,
liabilities, income and expenses is provided below. Actual results
may be substantially different.
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 on 31 December 2022 was
GBP2.0m (2021: GBP2.0m).
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. SEGMENTAL REPORTING
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) has been
identified as the Board of Directors. The Board is responsible for
monitoring the performance of these operating segments as well as
deciding on the allocation of resources to them.
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 following the acquisition of
d-Wise.
There has been an internal project to enhance the quality of
management information following the implementation of a new
finance system in 2019. During 2020 this system enabled more
centrally recorded costs to be allocated to the individual segments
and that process was further developed during recent years. 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. However, during 2022 CTA has benefited from
synergies which result in an overall improvement on the direct
contribution margin.
The analysis provided below reflects costs directly attributable
to the respective segments in 2022 and 2021, 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.
Additionally, the Group CODM is managing and monitoring the
assets and liabilities as a whole since the finance system records
the assets and liabilities by legal entity. The CODM consider that
any such allocation of assets and liabilities to the operating
segments would be arbitrary and sensitive.
SEGMENTAL REPORTING Study Management Regulatory In Silico Clinical
2022 Solutions Solutions Trial Acceleration Total
GBP000 GBP000 GBP000 GBP000 GBP000
Licence fees 4,756 492 666 135 6,049
Annual support fees 8,977 1,222 1,898 8,718 20,815
SaaS subscription and support
fees 9,219 3,545 - 894 13,658
Professional services 2,694 407 121 7 3,229
Technology enabled outsourced
services - 6,368 1,100 1,028 8,496
Consultancy services - - - 6,633 6,633
______ ______ ______ ______ ______
Total revenue 25,646 12,034 3,785 17,415 58,880
Direct attributable costs (12,563) (8,516) (1,783) (13,017) (35,879)
______ ______ ______ ______ ______
Contribution to indirect
overheads 13,083 3,518 2,002 4,398 23,001
Contribution to indirect
overheads % 51% 29% 53% 25%
Central unallocated indirect
costs (12,138)
______
Adjusted EBITDA 10,863
Depreciation (340)
Amortisation of intangibles
arising on acquisitions (1,953)
Amortisation of internally
generated intangibles (1,096)
Depreciation of right of
use assets (967)
Impairment of goodwill (107)
______
OPERATING PROFIT BEFORE
NON-RECURRING ITEMS 6,400
Non-recurring costs (1,208)
Non-recurring income 401
______
OPERATING PROFIT AFTER
NON-RECURRING ITEMS 5,593
Finance income 1,023
Finance costs (1,143)
______
PROFIT BEFORE TAXATION 5,473
SEGMENTAL REPORTING Study Regulatory In Silico Clinical
2021 Management Solutions Solutions Trial Acceleration Total
GBP000 GBP000 GBP000 GBP000 GBP000
Licence fees 3,560 273 639 125 4,597
Annual support fees 7,630 1,170 1,573 4,004 14,378
SaaS subscription and support
fees 6,069 3,124 - 511 9,704
Professional services 3,000 579 18 54 3,651
Technology enabled outsourced
services - 4,864 812 702 6,378
Consultancy services - - - 7,309 7,309
______ ______ ______ ______ ______
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 ITEMS 4,579
Non-recurring costs (1,286)
Non-recurring income 805
______
OPERATING PROFIT AFTER
NON-RECURRING ITEMS 4,098
Finance income 30
Finance costs (1,144)
______
PROFIT BEFORE TAXATION 2,984
______
3. REVENUE FROM CONTRACTS WITH CUSTOMERS
REVENUE BY PRODUCT TYPE 2022 2021
GBP000 GBP000
Licence fees 6,049 4,597
Annual support fees 20,815 14,378
SaaS subscription and support fees 13,658 9,704
Professional services 3,229 3,651
Technology enabled outsourced services 8,496 6,378
Consultancy services 6,633 7,309
______ ______
58,880 46,017
REVENUE BY GEOGRAPHICAL LOCATION 2022 2021
GBP000 GBP000
UK 3,295 3,540
Europe 8,848 7,477
USA 35,186 26,831
Rest of World 11,551 8,169
______ ______
58,880 46,017
United Kingdom and USA have been identified as the major markets
where the revenue from the customers in the Group is domiciled.
NON-CURRENT ASSETS EXCLUDING DEFERRED TAXATION 2022 2021
BY GEOGRAPHICAL LOCATION GBP000 GBP000
UK 55,076 56,925
Europe 2,218 1,895
USA 2,767 1,812
Rest of World 210 433
______ ______
60,271 61,065
There were no customers that represented more than 10% of the
Group's revenue in 2022 (2021: none).
4. NON-RECURRING ITEMS
2022 2021
Nonrecurring cost GBP000 GBP000
Legal costs and increase in provision for the final settlement relating to historical
contract
dispute 1,129 95
Acquisition costs 79 1,019
Share based payments - 172
1,208 1,286
2022 2021
Nonrecurring income GBP000 GBP000
US government loans forgiven - 805
Insurance proceeds relating to historical contract dispute 401 -
401 805
Non-recurring costs in the year include acquisition costs of
GBP0.08m (2021: GBP1.0m) relating to the additional costs in regard
to the earn out consideration of the Edge and d-Wise.
The non-recurring items includes the additional provision of
EUR1.2m (GBP1.02m) for full and final settlement regarding a
historical contractual licence dispute that arose in 2017. As
previously announced Instem had already created provision of
GBP0.25m in respect of this dispute in the previous years. In
October 2022, Instem paid EUR1.48m (GBP1.3m), of which its insurer
agreed to contribute EUR0.45m (GBP0.4m) resulting in a net payment
due of approx. EUR1.0m (GBP0.9m ). The insurance contribution of
EUR0.45m (GBP0.4m) was included in the non-recurring income.
5. FINANCE INCOME
2022 2021
GBP000 GBP000
Right of use asset interest income 5 6
Other interest 86 24
Foreign exchange gains 932 -
1,023 30
6. FINANCE COSTS
2022 2021
GBP000 GBP000
Loans and overdrafts 266 85
Unwinding discount on deferred and contingent consideration 771 867
Net interest charge on pension scheme 36 51
Right of use asset interest cost 70 97
Foreign exchange losses - 44
1,143 1,144
7. TAXATION
2022 2021
Income taxes recognised in profit or loss: GBP000 GBP000
Current tax:
UK corporation tax in respect of previous
years (614) (268)
Adjustments in respect of R&D tax credit 42 351
Foreign tax (1,793) (1,111)
Foreign tax in respect of previous years 428 (54)
_______ _______
Total current tax charge (1,937) (1,082)
_______ _______
Deferred tax:
Current year charge 419 (147)
Adjustment in respect of previous years 883 575
Defined benefit liability (141) (91)
Impact of rate change - (560)
_______ _______
Total deferred tax credit/(charge) 1,161 (223)
_______ _______
Total income tax charge recognised in the
current year (776) (1,306)
The UK corporation tax is calculated at the prevailing rate of
19%. Foreign tax liabilities are calculated at the prevailing tax
rates applying in the overseas tax jurisdictions.
In the Spring Budget 2021, the UK Government announced that from
1 April 2023 the corporation tax rate will increase to 25%. As the
proposal to increase the rate to 25% had been substantively enacted
at the balance sheet date, its effects are included in the
financial statements as a change from 19% to 25% on deferred
tax.
8. LEASES
Nature of leasing activities in the capacity of lessee
The Group leases several 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. The vehicle lease comprises only
fixed payments over the lease term. Except for short-term leases
and leases of low value underlying assets, each lease is reflected
on the balance sheet as a right of use asset and a lease
liability.
In 2022, the lease equipment expired, and the Group has opted to
continue leasing the equipment under the current terms, but the
contract can be terminated by either party with a 2 month notice
period. Therefore, the lease equipment qualifies as a short-term
lease after the expiration of the lease agreement and all the cost
has been recorded in the consolidated statement of comprehensive
income.
Land Motor
Right of use assets & buildings vehicles Equipment Total
GBP000 GBP000 GBP000 GBP000
As at 1 January 2021 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
Additions - - - -
Lease modification and
remeasurement (20) - (61) (81)
Depreciation (843) (10) (113) (967)
Exchange adjustment 84 - 7 91
As at 31 December 2022 1,111 10 - 1,120
Land & Motor
Lease liabilities buildings vehicles Equipment Total
GBP000 GBP000 GBP000 GBP000
As at 1 January
2021 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
Lease modifications (20) - (63) (83)
Interest expense 67 1 2 70
Lease payments (998) (11) (87) (1,096)
Exchange adjustment 112 - (23) 89
___ _ _ ___
As at 31 December
2022 1,294 11 - 1,305
Reconciliation of movements of lease liabilities to cash
flow:
Land & Motor
Cash flow changes buildings vehicles Equipment Total
GBP000 GBP000 GBP000 GBP000
Interest expenses 83 1 12 96
Payment of lease liabilities 712 10 241 963
At 31 December 2021 795 11 253 1,059
Interest expenses 67 1 2 70
Payment of lease liabilities 931 10 85 1,026
At 31 December 2022 998 11 87 1,096
The following amounts in respect of leases, where the Group is a
lessee, have been recognised in the consolidated statement of
comprehensive income:
2022 2021
GBP000 GBP000
Expenses relating to short-term
leases 126 159
Low value lease expense 35 81
Interest expense 70 96
Amortisation of right of use assets 967 945
On 31 December 2022, the Group was committed to short term
leases and the total commitment at that date was GBP0.07m.
The total cash outflow for leases in 2022 was GBP1.0m (2021:
GBP1.0m).
Movement in net investment in leases in relation to sub leases
during the year ended 31 December 2022 and 31 December 2021 are as
follows:
GBP000
As at 1 January 2021 169
Interest earned 6
Less: Rental income received (46)
Exchange adjustment -
As at 31 December 2021 129
Interest earned 5
Less: Rental income received (53)
Exchange adjustment 14
______
At 31 December 2022 95
Minimum undiscounted lease payments receivable are as
follows:
2022 2021
GBP000 GBP000
Within 1 year 56 49
Between 1 and 2 years 43 50
Between 2 and 3 years - 34
Between 3 and 4 years - -
Later than 5 years - -
99 133
Reconciliation of minimum undiscounted lease payments to net
investment in the lease:
2022 2021
GBP000 GBP000
Total minimum undiscounted lease
payments receivable 99 133
Unearned finance income (4) (4)
Net investment in the lease 95 129
Finance lease receivable maturity analysis:
As at 31 December 2021
1 year or 2 to 5 After 5
less years years Total
GBP000 GBP000 GBP000 GBP000
Finance lease
receivable 44 85 - 129
As at 31 December 2022
1 year or 2 to 5 After 5
less years years Total
GBP000 GBP000 GBP000 GBP000
Finance lease
receivable 53 42 - 95
9. SHARE BASED PAYMENTS
Equity-Settled Share Option Plan
The Remuneration Committee can grant options to employees of the
Group. Options are granted with a fixed exercise price at the date
of grant and the contractual life is generally ten years from the
grant date. Options generally vest and become exercisable after
three years if certain performance criteria have been met.
There are two types of share option awards:
-- Share options awarded to all employees as part of their
annual bonus, providing they have met certain annual bonus targets,
subject to continued employment (normally three years) and with no
further performance conditions.
-- Share options awarded to directors and senior employees
generally carry profitability (EBITDA) or market-based performance
conditions.
Share options awarded to all employees
In 2020, the Group introduced the share options to all employees
as part of the annual bonus award. If the employees meet certain
annual bonus targets, they are then subject to continued employment
and passage of time (normally three years) with no further
performance conditions. This share option has been awarded to all
employees in 2020, 2021 and 2022.
In 2022, the Group granted 64,511 of nil-cost share options to
all employees subject to continued employment, passage of time and
no other performance conditions.
Share options awarded to directors and senior employees
Share options issued to directors and senior employees generally
carry profitability (EBITDA) or market-based performance
conditions. During 2022, the Group did not issue performance
related share option awards to directors and senior employees.
The following share awards issued to directors and senior
employees that have not lapsed as of 31 December 2022 relate
to:
-- LTIP awards prior to 2018
The share options awarded prior to 2018 have vested but not
lapsed as of 31 December 2022.
-- 2018 LTIP awards
An award under the Instem Long Term Incentive Plan ("LTIP") was
made in 2018 which entitles participants to shares at the end of a
three year performance period based on achievement against an
absolute share price performance condition. Awards are in the form
of nil-cost share options.
The award is in the form of 3 tranches, with performance testing
at the end of each financial year over the 3 year performance
period. A maximum of 25% of the total award vests for each of the
first two tranches and a maximum of 50% vests under the third
tranche. Performance is measured at the end of each financial year
and if the relevant target is not met the portion under that
tranche lapses with no retesting.
The share options awarded in 2018 have vested but not lapsed as
of 31 December 2022.
-- 2020 LTIP awards
In addition to the share options awarded to all employees as
part of the annual bonus in 2020, the Group awarded directors and
senior employees with LTIP awards linked to performance
targets.
The performance awards vest when certain share price conditions
are met. The award is in the form of 3 tranches, with performance
tested at the end of each financial year over a 3 year performance
period. A maximum of 30% of the total award vests for each of the
first two tranches and a maximum of 40% vests under the third
tranche. The performance criteria for this share options award were
met.
-- 2021 LTIP award with performance target
On 1 September 2021 and 27 September 2021, the Group granted
awards of nil-cost options to participating employees which vest
after three years subject to the performance conditions of either
end share value or EBITDA.
The award is in the form of 3 tranches, with performance testing
at the end of each financial year over the 3 year performance
period. A maximum of 30% of the total award vests for each of the
first two tranches and a maximum of 40% vests under the third
tranche.
2022 2021
Weighted Weighted
average average
exercise exercise
Number price GBP Number price
GBP
Outstanding at the
beginning of the year 1,548,501 0.07 1,259,102 0.11
Granted 64,511 0.00 431,479 0.01
Lapsed (54,132) 0.00 (53,413) 0.03
Exercised (217,500) 0.17 (88,667) 0.25
Outstanding at end
of the year 1,341,380 0.06 1,548,501 0.07
Exercisable at end
of year 434,351 0.18 651,851 0.17
The options outstanding at 31 December 2022 had exercise prices
of GBPnil, GBP0.10 and GBP0.90 (2021: GBPnil, GBP0.10, GBP0.90,
GBP1.76 and GBP2.22) and a weighted average remaining contractual
life of 5 years 11 months (2021: 7 years 1 month).
A charge of GBP1.377m (2021: GBP1.061m) arose in respect of
share based payments.
The fair value of options granted in the year was GBP0.4m (2021:
GBP2.6m).
During the year, the average share price in respect of share
options exercised was GBP6.51 (2021: GBP7.90)
In 2022, the Group granted 64,511 of nil-cost share options to
all employees subject to continued employment, passage of time and
no other performance conditions. The fair market values of the
share options have been estimated using the market price of
Instem's shares at the grant date.
In 2021, the Group granted new options for 431,479 shares. The
Monte-Carlo option-pricing model has been used where option
conditions are market related and Black-Scholes where option
conditions are EBITDA related The fair market value has been
estimated using the following key assumptions:
Grant date (2021) 22 March 16 April 1 September 27 September
Expected life (years) 1.8 2.7 3.0 3.0
Share price at grant GBP5.78 GBP6.63 GBP8.38 GBP9.00
date
Exercise price Nil Nil Nil Nil
Dividend yield 0.00% 0.00% 0.00% 0.00%
Risk free rate NA NA 0.2% 0.4%
Volatility NA NA 29% 29%
Fair value of options
(average) 5.70 6.63 5.86 6.92
SIC 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 deferred
and contingently issuable shares in relation to the d-Wise
acquisition were settled in April 2022.
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.
2022 2021
Profit after Weighted Profit per Profit after Weighted Profit per
tax average share tax average number share
number of of shares
shares
'000
GBP000 '000 Pence GBP000 Pence
Earnings per
share - Basic 4,697 22,577 20.8 1,678 21,591 7.8
Potentially
dilutive shares
(share options) 1,109 - 1,128 -
_______ _______ _______ _______ _______ _______
Earnings per
share - Diluted 4,697 23,686 19.8 1,678 22,719 7.4
_______ _______ _______ _______ _______ _______
Adjusted earnings per share
Adjusted earnings per share is calculated after adjusting for
the effect of foreign currency exchange and the unwinding of the
finance liability included in finance income/(costs), non-recurring
items, amortisation of intangibles on acquisitions and impairment
of goodwill. The adjusted profit after tax has been amended in 2022
to ensure that the foreign exchange movements and the unwinding of
the finance liability do not impact and distort the earnings per
share calculation.
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.
2022
Adjusted Weighted Adjusted
Profit average number Earnings
after of shares per
tax share
'000
GBP000 Pence
Earnings per
share - Basic 7,403 22,577 32.8
Potentially
dilutive shares - 1,109 -
(share options)
_______ _______ _______
Earnings per
share - Diluted 7,403 23,686 31.3
_______ _______ _______
-
2021 2021
(as restated) (as initially reported)
Adjusted Weighted Adjusted Adjusted Weighted Adjusted Earnings per
Profit average number Earnings Profit average share
after of shares per after tax number of
tax share shares
'000 Pence
GBP000 '000
GBP000 Pence
Earnings per
share - Basic 4,633 21,591 21.5 3,704 21,591 17.2
Potentially
dilutive shares
(share options) - 1,128 - - 1,128 -
_______ _______ _______ _______ _______ _______
Earnings per
share - Diluted 4,633 22,719 20.4 3,704 22,719 16.3
_______ _______ _______ _______ _______ _______
2022 2021 2021
GBP000 GBP000 GBP000
(as restated) (initially
reported)
Reconciliation
of adjusted
profit before
tax:
Reported profit
before tax 5,473 2,984 2,984
Non-recurring
costs 1,208 1,286 1,286
Non-recurring
income (401) (805) (805)
Amortisation
of acquired
intangibles 1,953 1,563 1,563
Impairment 107 - -
of goodwill
Foreign currency
exchange (gain)/loss (932) 44 -
Finance cost
on deferred
and contingent
consideration 771 867 -
Foreign exchange
differences
on revaluation
of inter-group
balances - - (18)
_______ _______ _______
Adjusted profit
before tax 8,179 5,939 5,010
Tax (776) (1,306) (1,306)
_______ _______ _______
Adjusted profit
after tax 7,403 4,633 3,704
_______ _______ _______
Profit after
tax 4,697 1,678 1,678
___ ___ ___ ___ ___
___
2022 2021
Weighted Weighted
average average number
number of of shares
shares
'000 '000
Weighted average number of shares used as
the denominator
Weighted average number of ordinary shares
used as the denominator in calculating basic
earnings per share 22,577 21,591
Adjustments for calculation of diluted earnings
per share:
Share options 1,109 1,128
_______ _______
Weighted average number of ordinary shares
and potential ordinary shares used as the
denominator in calculating diluted earnings
per share 23,686 22,719
_______ _______
11. PROVISION FOR LIABILITIES
2022 2021
GBP000 GBP000
At 1 January 291 250
Acquisition - 41
Increase in provision during the year 1,019 -
Amount used during the year (1,300) -
Exchange adjustment 35 -
At 31 December 45 291
As previously announced the Group created a provision of
GBP0.25m in respect of historical contract disputes that arose in
2017 with a a maximum exposure of approximately EUR4.5m. The
maximum exposure includes additional claims for consequential
losses. During the year an additional provision of EUR1.2m (GBP1m)
was provided for full and final settlement of this contract
dispute.
In October 2022, the Group paid EUR1.48m (GBP1.3m), of which its
insurer agreed to contribute EUR0.45m (GBP0.4m) resulting in a net
payment due of approx. EUR1.0m (GBP0.9m).
The balance of GBP0.04m relates to the general provision that
PDS provided for warranty and remained unchanged as of 31 December
2022 based on management estimates.
12. SUBSEQUENT EVENTS
No adjusting events have occurred between the 31 December
reporting date and the date of approval of these financial
statements.
The organisational changes, described at the beginning of the
Chief Executive's Report reduce the number of business units from
four to three and will impact future segmental disclosures.
On 24 February 2023, the Group established an employee benefit
trust (EBT) to subscribe for new issue shares or acquire shares in
Instem plc in the market as required, in the future, in order to
satisfy awards made upon the vesting of employee share schemes.
On 1 April 2023, Instem completed the disposal of Samarind
Limited, which was part of the Regulatory Solutions business
operating segment. The consideration receivable is up to GBP1.0m,
of which GBP0.8m was satisfied by cash received on completion plus
or minus estimated net cash. The remaining balance of GBP0.2m is
payable contingent on Samarind Limited's future performance and
would be payable in cash. The Consolidated financial statements and
related notes represent results from continuing operations, there
being no discontinued operations in the years presented.
On 15 May 2023, the Group launched Centrus, incorporating all of
our existing in silico solutions and the ToxHub assets acquired or
licensed from the eTRANSAFE consortium, as previously
described.
13. APPROVAL
The Announcement was approved by the Board of Directors on 13
May 2023.
14. ANNOUNCEMENT
A copy of this 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 2022 Annual Report will be made
available on the Group's website (www.instem.com) in due
course.
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END
FR GZGMKNDRGFZM
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May 15, 2023 02:01 ET (06:01 GMT)
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