Final Results & Investor Presentation
15/05/2023 07:01
For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20230515:nRSO3368Za&default-theme=true
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 £58.9m (2021: £46.0m)
o Software as a Service (SaaS) revenues increased by 41% to £13.7m (2021:
£9.7m)
o Recurring revenues (annual support and SaaS) increased 43% to £34.5m
(2021: £24.1m), 59% of total revenue (2021: 52%)
o Constant currency revenue growth was 20%
· Adjusted EBITDA* increased 32% to £10.9m (2021: £8.3m),
representing an adjusted EBITDA margin of 18.4% (2021: 17.9%)
· Reported profit before tax of £5.5m (2021: £3.0m)
· Adjusted profit before tax** of £8.2m (2021: £5.9m, 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 £9.9m (2021: £10.3m)
· Cash balance as at 31 December 2022 of £14.0m (2021: £15.0m) -
after making deferred and contingent payments of £5.4m 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 £20m, £10m 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®, 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 (mailto: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
(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 (http://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 £13.7m
· Total recurring revenues grew 43% to £34.5m
· Recurring revenue retention rate >98%
· Total Group revenues increased 28% to £58.9m
· Adjusted EBITDA grew 32% to £10.9m
· Net cash generated from operations of £9.9m
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.€41m 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 SEND 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 SEND related business. Having moved the responsibility for solutions
that leverage large volumes of SEND studies for insight generation to ISTS, we
have moved our SEND 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 SEND 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.£1.2m. Conversely, our SEND business grew by 24% to
£10.8m. Every drug company is required to submit non-clinical data in SEND
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 SEND 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 SEND 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 SEND information repositories. Post period end this work has
now transitioned to our ISTS business unit and our technology and services for
SEND 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™ 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
£000 £000
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 contracts >98% 98% -
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 £58.9m (2021: £46.0m) 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 £34.5m (2021: £24.1m). 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 £8.5m (2021: £6.4m).
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
£10.9m (2021: £8.3m). 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 £1.2m (2021: £1.3m), consisting of
£0.1m for legal expenses associated with an historical contract dispute and
an additional provision of €1.2m (£1.0m) 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 €1.5m (£1.3m). The non-recurring
costs also include acquisition costs of £0.08m (2021: £1.0m) in respect of
the earn out consideration of the Edge and d-Wise.
Non-recurring income of €0.5m (£0.4m) relates to an insurance payment in
relation to the historical contract dispute.
The reported profit before tax for the year was £5.5m (2021: profit of
£3.0m). 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 £8.2m (2021: £5.9m, as restated).
The total income tax charge in the year of £0.78m (2021: £1.3m) 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 £7.5m (2021:
£4.9m), of which £3.0m (2021: £2.2m) 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 £0.93m (2021: loss
£0.04m), 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 £9.9m (2021:
£10.3m), 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 £5.4m which related to the 2021
acquisitions were part of the net cash used in financing activities. The net
cash used in investing activities includes £3.0m (2021: £2.2m) from the
capitalisation of software development. As a result of the above, the gross
cash balance decreased from £15.0m at 31 December 2021 to £14.0m at 31
December 2022. In addition to its organic cash reserves the Group has access
to an HSBC debt facility of up to £20m, 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
£3.6m and £2.2m 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 £0.11m on Samarind's goodwill
realised on disposal. Offsetting this there was an increase in d-Wise goodwill
of £0.05m (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
£2.0m (2021: £2.0m). The agreed Group cash contributions currently
approximate to £0.6m per annum, payable through to September 2026. The
deficit at the 2022 year-end of £2.0m (2021: £2.0m) is represented by the
fair value of assets of £8.4m (2021: £14.0m) and the present value of funded
obligations of £10.4m (2021: £16.0m), 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
£000 £000
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
£000 £000
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
£000 £000
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
£000 as re-stated as originally reported
£000 £000
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
£000 £000
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
£000 £000
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
£000 £000 £000 £000
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
2022 2021
Note
£000 £000 £000 £000
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 END OF YEAR 13,964 15,021
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share based payment reserve
Share capital Share premium Merger Translation Retained earnings Total
Note reserve reserve equity
£000 £000 £000 £000 £000 £000 £000
Balance as at 2,048 28,172 2,432 930 92 (438) 33,236
1 January 2021
- - - - - 1,678 1,678
Profit for the year
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 2,219 28,191 12,104 2,294 (202) 2,695 47,301
31 December 2021
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 2,270 28,224 14,013 3,570 (1,798) 7,078 53,357
31 December 2022
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 £58.9m and Adjusted EBITDA of £10.9m. 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 £10.0m with HSBC UK Bank plc to support the
Group's working capital needs and its acquisition strategy, which can be
extended up to £20.0m 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
£15.0m 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 £17.2m
initially funding the acquisition of The Edge, d-Wise and PDS in 2021 followed
by £5.4m in 2022 on deferred and contingent consideration, the Group has a
strong cash position with £14.0m in the bank as of 31 December 2022.
The Group cash generated from operations for the year was £9.9m (2021:
£10.3m), 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 £0.25m 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 €1.48m (£1.3m), towards which its insurer
contributed €0.45m (£0.4m) resulting in a net payment due of approx.
€1.0m (£0.9m).
The remaining financial obligations associated with The Edge and d-Wise
acquisitions for 2023 are deferred and contingent consideration payments of
£3.6m and £2.2m 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 £34.6m (2021: £34.6m).
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 £1.0m, of which £0.8m was satisfied by cash
receipt on completion, plus or minus estimated net cash, and the remaining
balance of £0.2m 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
£2.0m (2021: £2.0m).
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 Solutions In Silico Solutions Clinical Trial Acceleration
2022 Total
£000 £000 £000 £000 £000
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 Management Regulatory Solutions In Silico Solutions Clinical Trial Acceleration
2021 Total
£000 £000 £000 £000 £000
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
£000 £000
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
£000 £000
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 BY GEOGRAPHICAL LOCATION 2022 2021
£000 £000
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 £000 £000
Legal costs and increase in provision for the final settlement relating to 1,129 95
historical contract dispute
Acquisition costs 79 1,019
Share based payments - 172
1,208 1,286
2022 2021
Nonrecurring income £000 £000
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 £0.08m (2021:
£1.0m) 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 €1.2m (£1.02m)
for full and final settlement regarding a historical contractual licence
dispute that arose in 2017. As previously announced Instem had already created
provision of £0.25m in respect of this dispute in the previous years. In
October 2022, Instem paid €1.48m (£1.3m), of which its insurer agreed to
contribute €0.45m (£0.4m) resulting in a net payment due of approx. €1.0m
(£0.9m). The insurance contribution of €0.45m (£0.4m) was included in the
non-recurring income.
5. FINANCE INCOME
2022 2021
£000 £000
Right of use asset interest income 5 6
Other interest 86 24
Foreign exchange gains 932 -
1,023 30
6. FINANCE COSTS
2022 2021
£000 £000
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: £000 £000
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 & buildings Motor
Right of use assets vehicles Equipment Total
£000 £000 £000 £000
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
£000 £000 £000 £000
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
£000 £000 £000 £000
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
£000 £000
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 £0.07m.
The total cash outflow for leases in 2022 was £1.0m (2021: £1.0m).
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:
£000
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
£000 £000
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
£000 £000
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 less 2 to 5 years After 5 years Total
£000 £000 £000 £000
Finance lease receivable 44 85 - 129
As at 31 December 2022
1 year or less 2 to 5 years After 5 years Total
£000 £000 £000 £000
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 average exercise price £ Weighted average exercise price
£
Number Number
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 £nil,
£0.10 and £0.90 (2021: £nil, £0.10, £0.90, £1.76 and £2.22) and a
weighted average remaining contractual life of 5 years 11 months (2021: 7
years 1 month).
A charge of £1.377m (2021: £1.061m) arose in respect of share based
payments.
The fair value of options granted in the year was £0.4m (2021: £2.6m).
During the year, the average share price in respect of share options exercised
was £6.51 (2021: £7.90)
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 date £5.78 £6.63 £8.38 £9.00
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 tax Weighted average number of shares Profit per share Profit after tax Weighted average number of shares Profit per share
'000 '000
£000 Pence £000 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 Profit after tax Weighted average number of shares Adjusted Earnings per share
'000
£000 Pence
Earnings per share - Basic
7,403 22,577 32.8
Potentially dilutive shares (share options)
- 1,109 -
_______ _______ _______
Earnings per share - Diluted
7,403 23,686 31.3
_______ _______ _______
-
2021 2021
(as restated) (as initially reported)
Adjusted Profit after tax Weighted average number of shares Adjusted Earnings per share Adjusted Profit after tax Weighted average number of shares Adjusted Earnings per share
'000 '000
£000 Pence £000 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
£000 £000 £000
(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 of goodwill 107 - -
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 average number of shares Weighted average number of 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
£000 £000
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 £0.25m in respect of
historical contract disputes that arose in 2017 with a a maximum exposure of
approximately €4.5m. The maximum exposure includes additional claims for
consequential losses. During the year an additional provision of €1.2m
(£1m) was provided for full and final settlement of this contract dispute.
In October 2022, the Group paid €1.48m (£1.3m), of which its insurer agreed
to contribute €0.45m (£0.4m) resulting in a net payment due of approx.
€1.0m (£0.9m).
The balance of £0.04m 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 £1.0m, of which £0.8m was satisfied by cash received on
completion plus or minus estimated net cash. The remaining balance of £0.2m
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.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
or visit
www.rns.com (http://www.rns.com/)
.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
. END FR GZGMKNDRGFZM