Half-year Report
27/09/2021 06:59
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RNS Number : 9867M Instem plc 27 September 2021
Instem plc
("Instem", the "Company" or the "Group")
Half Year Report
Instem plc (AIM: INS.L), a leading provider of IT solutions to the global life
sciences market, announces its unaudited half year results for the six months
ended 30 June 2021.
Financial Highlights
· Total Group revenues were up 41% to £19.8m (H1 2020: £14.0m)
· Recurring revenue (annual support and SaaS) increased 18% to
£9.9m (H1 2020: £8.4m) with SaaS increasing 29% to £4.9m (H1 2020: £3.8m)
· Organic revenue growth of 8% to £15.2m (H1 2020: £14.0m),
excluding The Edge Software Consultancy ("The Edge") and d-Wise Technologies
Inc ("d-wise") acquisitions in March and April 2021, respectively
· Revenue figures stated after a £0.65m fair value reduction to
acquired deferred revenue associated with the d-wise acquisition
· Organic constant currency revenue growth was 16-%
· Profit performance
· Adjusted EBITDA* increased 39% to £4.2m (H1 2020: £3.0m),
representing an Adjusted EBITDA margin of 21.0% (H1 2020: 21.3%)
· Profit before tax of £1.2m (H1 2020: £1.9m)
· Adjusted profit before tax** of £2.9m (H1 2020: £2.1m)
· Basic and diluted earnings per share of 4.8p (H1 2020: 9.5p) and
4.6p (H1 2020: 9.0p)
· Adjusted basic and diluted earnings per share** of 12.8p (H1
2020: 10.7p) and 12.2p (H1 2020: 10.2p)
· Profit figures also stated after the £0.65m fair value reduction
· Net cash generated from operations of £4.1m (H1 2020 £2.8m)
· Net cash balance*** at 30 June 2021 of £10.1m (H1 2020: £7.3m)
*Earnings before interest, tax, depreciation, amortisation and non-recurring
items.
**After adjusting for the effect of foreign currency exchange on the
revaluation of inter-company balances included in finance income/(costs),
non-recurring items, amortisation of intangibles on acquisitions
Profit is adjusted in this way to provide a clearer measure of underlying
operating performance.
*** Gross cash of £17.9m less financial liabilities but pre-IFRS16
Operational Highlights
· Strong organic growth
· Continued transition to the SaaS model further increased earnings
visibility and underlying margins across the business
· The acquisitions of The Edge and d-wise, which transformed the
scale and reach of the business, are integrating well
o Increasing recurring revenues
o Strengthening relationships with clients
o Increasing routes to market and potential cross selling opportunities
Post-period end Highlights
· Acquisition of PDS Pathology Data Systems ("PDS") expected to be
immediately earnings enhancing
o Further extends Instem's Study Management and SEND market share and
deepening relationships with some of its largest clients
Analyst Presentation: 11:30 today
Management will be hosting a presentation via web conference today at 11:30.
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.
Phil Reason, CEO of Instem plc, commented: "As a company, we are focussed on
growing both organically and by acquisition. We are delighted with the
transactions completed during and post the period end as well as the
performance of our existing operations. We have a scalable platform in place
and a highly leverageable business model underpinning a number of growth
opportunities in existing and adjacent markets.
"We are delighted to have achieved strong organic growth, with the additions
of The Edge, d-wise and, most recently, PDS underpinning a step change in the
scale of the business. Market conditions remain buoyant and we have a strong
pipeline of opportunities, with a significantly increased target market. The
improvement in our trading profitability in the first half has been sustained
post the period end and, as a result, we now expect trading performance,
excluding any negative impact of the fair value adjustment to acquired
deferred revenue, for the current financial year to be slightly ahead of the
Board's previous expectations.
"My thanks go to our enlarged global team of over 480 staff, who have
continued to perform exceptionally well whilst working remotely. We expect
that an indefinite blend of home and hybrid working will provide permanent
operational efficiencies while enhancing staff work-life balance."
For further information, please contact:
Instem plc Via Walbrook PR
Phil Reason, CEO
Nigel Goldsmith, CFO
Singer Capital Markets (Nominated Adviser & Broker) +44 (0) 20 7496 3000
Peter Steel / Rachel Hayes / Alex Bond (Investment Banking)
Walbrook Financial PR +44 (0) 20 7933 8780
Nick Rome instem@walbrookpr.com (mailto:instem@walbrookpr.com)
Tom Cooper
Nicholas Johnson
About Instem
Instem is a leading provider of IT solutions & services to the life
sciences market delivering compelling solutions for Study Management and Data
Collection; Regulatory Solutions for Submissions and Compliance; and
Informatics-based Insight Generation.
Instem solutions are in use by over 700 customers worldwide, including all the
largest 25 pharmaceutical companies, enabling clients to bring life enhancing
products to market faster. Instem's portfolio of software solutions increases
client productivity by automating study-related processes while offering the
unique ability to generate new knowledge through the extraction and
harmonisation of actionable scientific information.
Instem products and services address aspects of the entire drug development
value chain, from discovery through to market launch. Management estimate that
over 50% of all drugs on the market have been through some part of Instem's
platform at some stage of their development.
To learn more about Instem solutions and its mission, please
visit www.instem.com (http://www.instem.com/)
CHAIRMAN'S STATEMENT
In the half year period from January to June, and in the immediate post-period
to September, the shape and scale of our operations has been transformed by
the successful acquisition of three businesses.
The acquisitions of The Edge and d-wise have significantly extended the reach
of our product and service portfolio, whilst the acquisition of PDS ensures
that our position in the preclinical space is unrivalled. We are delighted to
have added such strong businesses to our Company.
In July 2020 we specifically raised funds to acquire businesses that we
believed would be transformational to the company by extending our 'footprint'
in the life sciences R&D space and consequently provide a stronger
platform for long term growth. I believe that we can say this has been
achieved in terms of deploying those funds to increase our scale and provide a
platform for further growth.
We can already see the positive impact from the acquisitions of The Edge and
d-wise, which we are currently integrating into the business. While they only
contributed four and three months respectively for the period under review,
the resultant impact was significant.
Financial Performance.
Whilst the COVID-19 pandemic affected a number of sectors, Instem continued to
deliver solutions remotely and with minimal disruption. The Company's
performance during the period was underpinned by further strong organic growth
and supplemented by the contributions from The Edge and d-wise.
· Revenue increased 41%
· SaaS Revenue increased 29%
· Adjusted EBITDA increased 39%
· Net cash generated from operations of £4.1m
Growth in these financial metrics is stated after a £0.65m fair value
reduction to acquired deferred revenue associated with the d-wise acquisition
affecting revenue and profit reported in the period by this same amount. This
is discussed in further detail in the Financial Review section below.
Looking Forwards
We expect that, like The Edge and d-wise, PDS will be earnings enhancing with
all three having brought strong management teams and synergies to our existing
business and client base. These additions have extended the Company's reach
from discovery to clinical trials across the drug discovery and development
lifecycle. The Company is now even closer to becoming a one-stop shop for life
sciences companies looking for long term partnerships to assist them over the
drug discovery and development landscape.
In the short term, we will concentrate on the successful integration of the
recently acquired businesses to ensure that we take best advantage of the
opportunities that this platform will create.
Then, building on this new platform, the Board believes there are three
distinct and deliverable opportunities to enable the continued and further
development of the business:
· Organic revenue growth from additional market penetration,
cross-selling and the introduction of new products and services;
· Margin improvement through conversion to SaaS deployment and
extensively leveraging global infrastructure; and
· Accretive M&A and strategic partnerships in existing markets,
as well as entry into related adjacent areas.
I would like to thank and congratulate our staff for their performance and
contribution during this period and look forward to updating the market with
further developments in due course.
We expect the momentum achieved during H1 and post period-end to be maintained
throughout the remainder of the financial year and we continue to be excited
by the significant potential of the business. As I said, we are focused on
fully integrating the acquisitions and benefiting from the scale and
opportunity they provide as we look to maximise the potential of the enlarged
Group.
David Gare
Non-Executive Chairman
27 September 2021
CHIEF EXECUTIVE'S REPORT
Strategic Developments
The Company grew strongly during the period, both organically and
acquisitively, supported by a buoyant life sciences R&D market.
The shift to SaaS continued, with SaaS subscription revenues growing
significantly faster than annual support fees for perpetual licenses,
benefitting from both first time SaaS revenue from new clients and established
clients switching from on-premise to SaaS deployments. An increasing
proportion of SaaS revenues has bolstered Instem's earnings visibility as well
as its underlying margin through operating leverage. Despite the focus on
SaaS, increased industry study volumes contributed to significant growth in
many contract research organizations ("CROs"), resulting in increased
perpetual licenses orders from long-standing clients. In the near-term, this
will increase future annual support fees and ultimately SaaS subscriptions as
these clients transition from on-premise deployment.
Significantly improved profitability contributed to the Company's cash balance
of £17.9m at the period end, highlighting strong operational cash generation.
This figure is post payment of the initial acquisition considerations for The
Edge and d-wise transactions and represents a c.£3.9m improvement on the
£14.0m balance disclosed subsequent to the two transactions.
The Company also benefited from the integration of The Edge, d-wise and post
period end PDS, expanding its reach and significantly enhancing its scale and
growth opportunities.
Once again revenue growth was particularly strong in North America and China,
where successful early-phase R&D is starting to deliver a healthy pipeline
of drug candidates requiring a significant increase in non-clinical
development capacity, where Instem solutions are particularly strong. Instem
remains a substantial market leader in China.
Market Review
The market backdrop remained favourable for the Group, with global population
growth and life expectancy underpinning increased demand for successful
innovation in life sciences. Growing levels of investment in the biotech
industry - with the pharmaceuticals sector spending heavily in drug
development - including the provision of therapies and vaccines to treat or
prevent COVID-19, meant that Instem had a strong and growing target market,
which was further enhanced by the acquisitions completed during the period.
In the pharmaceutical industry, which represents the largest proportion of
Instem's revenue, we refer again to the Pharma R&D Annual Review, the 2021
version of which was released by Pharma Intelligence in March 2021. This
report shows that the industry grew strongly in 2020 with a 4.8% increase
(2019: 9.6%) in the total number of drugs in the regulatory stages of global
R&D pipeline, continuing a multi-year growth trend that shows no sign of
abating. The vast majority of the growth in the pipeline was within the
preclinical market - which accounts for the majority of Instem's business,
with the number of drugs at this stage of development rising 6% to 10,223.
Importantly, the Company grew its reach into the clinical trial analysis and
submission market during the period via the acquisition of d-wise, further
enhancing its capabilities and potential to deepen relationships with existing
clients and attract new customers.
The modest negative COVID-19 related impact on revenue from the academic
market in FY2020, which was closed or remote for much of the year, has largely
normalized during 2021. However, site-based professional services delivery
for all of our customers remains restricted, creating a healthy and growing
backlog of business to work through as and when restrictions ease.
Business Performance
Study Management and Data Collection
Strong study demand from the non-clinical CROs has fuelled growth in licensed
users for Instem's Study Management and Data Collection solutions and
encouraged existing clients to take modules from our portfolio that they had
not yet licensed. Clients have also been upgrading to later versions of our
products to further increase their productivity. We have continued to
benefit from the transition towards SaaS with steady progress again being made
towards our goal of moving all existing on-premise enterprise software clients
to SaaS deployment by the end of 2023 (or having firm commitments from them to
do so).
The majority of the revenue associated with orders in excess of £2.7m,
announced for one of our largest clients on 15 December 2020 and in our 14
January 2021 Trading Update, was recognized in H1 2021 and we continue to
collaborate extensively with this customer as they look for competitive
advantage through technology investment. Most of this additional revenue is
study management related but also includes new SEND related capabilities, much
of which will benefit the wider SEND community.
In March 2021 the Company completed the £8.5m acquisition of Discovery
technology solutions provider The Edge - broadening Instem's reach into the
Discovery Study Management market - and helping it to meet growing interest
for the wider sharing of data. The acquisition also provides scope for
increased cross-selling opportunities as well as enhancing the Company's
product range and routes to market - particularly in the Drug Metabolism &
Pharmacokinetics (DMPK) field.
The Edge extends the Company's reach within existing and new clients and
enhances its technology offering. It is already the go-to partner for many of
Instem's clients looking to revolutionise their R&D processes, and the
combined operations will be able to provide a simplified service structure.
In Silico Solutions
Our computational toxicology business once again performed ahead of management
expectations as clients sought to leverage predictive models to complement, or
replace, laboratory-based studies. Collaborations with industry and regulatory
authorities continue to provide high profile Instem thought-leadership in this
area, helping to drive current product adoption and the expansion of the
solution portfolio to introduce new, or materially enhanced, predictive
models. Initial engagements have been successfully completed using the
Predict™ In Silico Tox service, launched in December 2020, and we see
further opportunity to expand our services in this area, some in combination
with our KnowledgeScan based, Target Safety Assessment ("TSA") services.
Growth of TSA Services moderated in H2 2020 and H1 2021 as a result of the
pandemic, but demand has picked up again during the initial months of H2
2021. This is an area where we have historically generated significant
market awareness and sales pipeline at scientific conferences, as both Instem
staff and reference clients present a new, "disruptive" approach to the
established method of assessing the potential safety issues of modulating a
biological target thought to offer therapeutic benefit. We are eagerly
awaiting the post COVID-19 return to in person conferences, which have been
further delayed by the Delta variant. Although we will actively participate
in the programme for the influential "American College of Toxicology" remote
annual meeting in November 2021, the largest event of this type is the
"Society of Toxicology" annual meeting, which is scheduled to be held in
person in San Diego in March 2022.
Regulatory Solutions
The Company's regulatory SEND solutions lead the FDA (Food and Drug
Administration) mandated market and our leadership position has been further
enhanced with the acquisition of PDS, ranked number two in the market. As
industry familiarity and expertise with SEND has improved, CROs in particular
are doing more of the SEND creation work in-house, the overwhelming majority
with Instem technology. Although this has moderated the volume of SEND
creation out-sourced services for submission purposes, business is growing for
conversion work for non-submission legacy studies, as clients look to leverage
harmonised data for insight generation. This is also leading to increased
opportunity for our advanced SEND analytics and warehousing software
solutions.
SEND continues to expand and evolve, with Instem actively involved in the
standards consortium and taking a lead role during 2021 in areas such as the
"fit for use" pilot of the Developmental and Reproductive Toxicology version
of the standard. The FDA has announced, after a long period tolerating
variable SEND submission quality (never a problem with Instem SEND
conversions) while the industry became more SEND-literate, that it will more
strictly enforce the SEND Technical Rejection Criteria, that commenced 15
September 2021. We expect that this can only enhance existing customer and
wider market demand for our industry-leading technology and consulting
services.
Clinical Trial Acceleration Solutions
In April 2021 the Company acquired d-wise for up to $31m and established the
Clinical Trial Acceleration Solutions division. d-wise adds a market leading
position to the Group in an attractive adjacent area of clinical trial
analysis and submission, with good future visibility through recurring revenue
streams and already contracted, high value consultancy projects. The combined
strength of Instem and d-wise positions the enlarged Group as the foremost
authority and driving force in generating, analysing and leveraging data from
Discovery through late-stage Clinical Trials.
Initial integration of d-wise is largely complete, with a second phase of
integration scheduled for H1 2022 when the transaction earn-out period has
completed. In addition to the established provision of productised
statistical computing environments ("SCEs") for small-midsized pharma
companies and CROs; and the large, customised SCE solutions typically sought
by the top 30-40 pharma and CROs, we have been advancing our next generation
solution Aspire™, which blends deployment of standardized, next generation
SCE components within custom configurations. We expect this approach to
accelerate the time to client deployment, reducing client "cost of ownership",
while increasing recurring revenue and project profitability.
Strengthened Team
Carlos Frade recently joined Instem as VP of business development. Carlos was
formerly the VP of Non-clinical R&D at Xybion and was one of the original
architects of the competing Pristima study management software solution. A
highly respected figure in the life sciences community, Carlos brings with him
decades of experience and success, working closely with customers and
regulators to help streamline their R&D processes.
Post-Period Acquisition
Earlier this month the Company completed the acquisition of life sciences
software company PDS for a total enterprise value of CHF 14.25m
(c.£11.4m). PDS has been a direct competitor of Instem for over 25 years,
providing software for non-clinical study management, and software and
outsourced services for regulatory submissions using SEND. The acquisition
further extends Instem's Study Management and SEND market share and deepens
its relationships with some of its largest clients with product
rationalisation expected to enhance clients' experience and increase operating
margin.
Outlook
As a company, we are focussed on growing both organically and by acquisition.
We are delighted with the transactions completed during and post the period
end as well as the performance of our existing operations. We have a scalable
platform in place and a highly leverageable business model underpinning a
number of growth opportunities in existing and adjacent markets.
We are delighted to have achieved strong organic growth, with the additions of
The Edge, d-wise and, most recently, PDS underpinning a step change in the
scale of the business. Market conditions remain buoyant and we have a strong
pipeline of opportunities, with a significantly increased target market. The
improvement in our trading profitability in the first half has been sustained
post the period end and, as a result, we now expect trading performance,
excluding any negative impact of the fair value adjustment to acquired
deferred revenue, for the current financial year to be slightly ahead of the
Board's previous expectations.
My thanks go to our enlarged global team of over 480 staff, who have continued
to perform exceptionally well whilst working remotely. We expect that an
indefinite blend of home and hybrid working will provide permanent operational
efficiencies while enhancing staff work-life balance.
Phil Reason
Chief Executive Officer
27 September 2021
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.
The primary KPIs at 30 June 2021 were:
6 months to 6 months to 12 months to % Change
30 June 2021 30 June 2020 31 Dec (H1 2020 to H1 2021)
£000 £000 2020
£000
Total revenue 19,826 14,047 28,217 41%
Recurring revenue 9,889 8,357 16,941 18%
Recurring revenue as a percentage of total revenue 50% 59% 60% -900bps
Adjusted EBITDA 4,161 2,995 5,919 39%
Adjusted EBITDA margin % 21.0% 21.3% 21.0% -30bps
Cash and cash equivalents 17,850 9,132 26,724 95%
In addition, certain non-financial KPIs are periodically reviewed and
assessed, including customer and staff retention rates.
Instem's revenue model consists of perpetual licence income with annual
support and maintenance contracts, professional fees, technology enabled
outsourced services fees, SaaS subscriptions and consulting services fees.
There was fair value adjustment on the acquired deferred revenue from d-wise
of £0.65m (H1 2020: £nil). A provisional fair value adjustment of £1.1m has
been made to the opening balance for d-wise acquired deferred revenue at the
acquisition date, which is being amortised on a straight-line basis during the
remaining period of the relevant customer contracts. The sum of £1.0m is
expected to be charged to the 2021 Income Statement, of which £0.65m has been
charged in H1. The calculation of the full year adjustment is ongoing and will
be completed during H2 2021. This is a non-cash item and does not materially
impact any period other than 2021.
Total revenues in the period increased by 41% to £19.8m (H1 2020: £14.0m).
Like-for-like revenues, excluding the impact of The Edge and d-wise, which
were acquired in March 2021 and April 2021 respectively, increased by 8%.
Recurring revenue, derived from support & maintenance contracts and SaaS
subscriptions, increased in the period by 18% to £9.9m (H1 2020: £8.4m).
Recurring revenue as a percentage of total revenue was 50% (H1 2020: 59%). In
absolute terms, recurring revenue increased over the prior year by £1.5m but
its percentage of the total decreased due primarily to the addition of d-wise
consulting revenue, which is shown as non-recurring.
Total operating expenses increased by 41% in the period reflecting the ongoing
investment in operational teams and the inclusion of The Edge and d-wise
costs. Like-for-like operating costs increased by 3%.
Earnings before interest, tax, depreciation, amortisation, impairment of
goodwill and capitalised development and non-recurring items (Adjusted EBITDA)
increased by 39% to £4.2m (H1 2020: £3.0m). For this measure of earnings,
the margin as a percentage of revenue decreased in the period to 21.0% from
21.3% in H1 2020. Excluding The Edge and d-wise, like-for like Adjusted EBITDA
increased by 27.2% to £3.8m in the period.
Non-recurring costs in the period were £0.8m (H1 2020: £0.05m), consisting
of £0.06m for legal expenses associated with historical contract disputes,
£0.17m for share based payments and £1.39m for acquisition costs, partially
offset by income of £0.8m ($1.1m) for US federal government COVID-19 support
loans, which were forgiven during 2021.
The reported profit before tax for the period was £1.2m (H1 2020: £1.9m).
Adjusted profit before tax (i.e. adjusting for the effect of foreign currency
exchange on the revaluation of inter-company balances included in finance
income/(costs), non-recurring items, impairment of goodwill and capitalised
development plus amortisation of intangibles on acquisitions) was £2.9m (H1
2020: £2.1m).
The Group continues to invest in its product portfolio. Development costs
incurred in the period were £2.3m (H1 2020: £1.6m), of which £1.0m (H1
2020: £0.6m) was capitalised.
Basic and diluted earnings per share calculated on an adjusted basis were
12.8p and 12.2p respectively (H1 2020: 10.7p basic and 10.2p diluted). The
reported basic and diluted earnings per share were 4.8p and 4.6p respectively
(H1 2020: 9.5p basic and 9.0p diluted).
On 1 March 2021, Instem announced the acquisition of The Edge, a study
management software provider based in the UK. The Edge is focused on improving
the efficiency of early-stage drug R&D, improving productivity and
ensuring high-quality data capture. The consideration payable is up to £8.5m,
payable as £6.0m initially, satisfied by £4.0m in cash from existing
reserves and £2.0m via the issuance of 391,920 new ordinary shares in Instem
plc, £0.5m of deferred consideration and up to a further £2.0m payable
contingent on The Edge's future trading performance, both amounts payable in
cash. In addition, the amount of £1.5m was paid as a net cash adjustment
after deducting the estimated debt at the point of the acquisition.
On 20 March 2021, Instem exchanged contracts to acquire US-based clinical
trial technology & consulting leader d-wise Technologies, Inc. (d-wise).
The acquisition was completed on 1 April 2021. d-wise adds a market leading
position to the Group in an attractive adjacent area of clinical trial
analysis and submission, with good future visibility through recurring revenue
streams and already contracted, high value consultancy projects. The combined
strength of Instem & d-wise positions the enlarged Group as the foremost
authority and driving force in generating, analysing and leveraging data from
Discovery through late-stage Clinical Trials. The total consideration is up to
$31m comprising $20m on completion, $8m of deferred consideration and up to a
further $3m which is payable contingent upon the future financial performance
of d-wise. The initial consideration on completion was satisfied by $13m in
cash and $7m via the issuance of 868,203 new ordinary shares of 10p each in
Instem plc. The initial cash payment was funded from the Group's existing
financial resources.
The period saw again strong net cash generated from operations of £4.1m (H1
2020: £3.0m), largely due to cash inflows from the newly acquired businesses,
key contracts, outsourced services and effective working capital management.
The Group's cash resources were used to accelerate the Group's acquisition
strategy with the acquisition of the Edge and d-wise. The net cash used in
investing activities includes the net cash payment of £10.6m for purchasing
those subsidiaries (net of cash acquired). The proceeds of £0.8m ($1.1m)
which were part of the US federal government support for businesses during the
COVID-19 pandemic have been fully forgiven during 2021. As a result of the
above and the positive organic cash generation achieved in the period, the
cash balance decreased from £26.7m to £17.9m .
The deficit on the Group's legacy defined benefit pension scheme was £2.7m at
30 June 2021 (H1 2020: £4.0m) having improved from a deficit of £3.9m at 31
December 2020. Liabilities decreased from £16.4m at 31 December 2020 to
£15.9m at 30 June 2021 and Plan Assets have increased from £12.5m at 31
December 2020 to £13.2m at 30 June 2021. The liabilities have fallen in value
due to the rise in corporate bond yields over the period, albeit offset to
some extent by an increase in expected future price inflation and a modest
increase in assumed life expectancy. Positive asset returns combined with
the deficit contributions paid over the period led to a rise in the value of
the Scheme's assets. The latest triennial actuarial valuation of the Group's
defined benefit pension arrangement as at 5 April 2020, was completed in July
2021, with the results to be reflected in the Group's Annual Report and
Accounts for the year ending 31 December 2021
Movements in share capital, share premium, merger reserve and share based
payment reserve 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 connected to the acquisition of
The Edge and d-wise.
In line with previous periods and given our policy of retaining cash within
the business to capitalise on available growth opportunities, the Board has
not recommended the payment of a dividend.
Principal risks and uncertainties
The principal risks and uncertainties remain unchanged from those described in
our 2020 Annual Report.
Post balance sheet events
On 1 September 2021, Instem announced the acquisition of PDS Pathology Data
Systems Ltd ("PDS"), a life sciences software company with headquarters in
Switzerland and offices in the United States and Japan. PDS provides software
for non-clinical study management and software and outsourced services for
regulatory submissions using SEND (the Standard for the Exchange of
Non-clinical Data). The acquisition will enable Instem to concentrate
investment on a single line of SEND and preclinical study management products,
removing unnecessary duplication in the market. The combination of
technologies and highly experienced teams will enable the Company to enhance
the development and delivery of existing and new solutions that provide higher
value to our clients. The consideration comprises CHF 8.2m payable to the
sellers of PDS on completion of the acquisition (the "Initial Consideration"),
CHF 3.0m of seller loan repayments, CHF 2.0m to satisfy other net PDS
liabilities and CHF 1.0m of deferred consideration (the "Deferred
Consideration"). The Initial Consideration was satisfied by CHF 4.7m in cash
(c. £3.8m) and CHF 3.5m (c. £2.8m) in new ordinary shares of 10 pence each
in the Company (the "Consideration Shares").
The enlarged share capital of Instem is now 22,189,856 ordinary shares of 10p
each.
Nigel Goldsmith
Chief Financial Officer
27 September 2021
Instem plc
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the six months ended 30 June 2021
Unaudited Unaudited Audited
Six months ended Six months ended Year
30 June 30 June ended 31 December 2020
2021 2020 £000
£000 £000
Note
REVENUE 3 19,826 14,047 28,217
Employee benefits expense (11,504) (8,009) (16,508)
Other expenses (4,161) (3,043) (5,790)
EARNINGS BEFORE INTEREST, TAXATION, DEPRECIATION, AMORTISATION AND
NON-RECURRING COSTS (ADJUSTED EBITDA)
4,161 2,995 5,919
Depreciation (123) (76) (138)
Amortisation of intangibles arising on acquisition (599) (332) (664)
Amortisation of internally generated intangibles (397) (310) (736)
Amortisation of right of use assets (304) (272) (572)
OPERATING PROFIT BEFORE NON-RECURRING COSTS 2,738 2,005 3,809
Non-recurring costs 6 (817) (49) (606)
OPERATING PROFIT AFTER NON-RECURRING COSTS 1,921 1,956 3,203
Finance income 7 22 67 38
Finance costs 8 (766) (124) (692)
PROFIT BEFORE TAXATION 1,177 1,899 2,549
Taxation (154) (308) (275)
PROFIT FOR THE PERIOD -1,023 1,591 2,274
OTHER COMPREHENSIVE (EXPENSE)/INCOME
Items that will not be reclassified to profit and loss account
Actuarial (loss)/gain on retirement benefit obligations 785 (2,525) (2,537)
Deferred tax on actuarial gain & loss (149) 480 518
Deferred tax on share options - - 322
636 (2,045) (1,697)
Items that may be reclassified to profit and loss account:
Exchange differences on translating foreign operations 24 77 10
OTHER COMPREHENSIVE INCOME/(EXPENSE) FOR THE PERIOD 660 (1,968) (1,687)
TOTAL COMPREHENSIVE INCOME/(EXPENSE) FOR THE PERIOD 1,683 (377) 587
PROFIT ATTRIBUTABLE TO OWNERS OF THE PARENT COMPANY 1,023 1,591 2,274
TOTAL COMPREHENSIVE INCOME/(EXPENSE) ATTRIBUTABLE TO OWNERS OF THE PARENT 1,683 (377) 587
COMPANY
Earnings per share from continuing operations
- Basic 5 4.8p 9.5p 12.3
- Diluted 5 4.6p 9.0p 11.6
Instem plc
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 30 June 2021
Unaudited Unaudited Audited
30 June 30 June 31 December
2021 2020 2020
Note £000 £000 £000
ASSETS
NON-CURRENT ASSETS
Intangible assets 43,098 18,122 18,023
Property, plant and equipment 637 252 238
Right of use assets 2,110 1,982 1,742
Finance lease receivables 105 165 128
TOTAL NON-CURRENT ASSETS 45,950 20,521 20,131
CURRENT ASSETS
Inventories 54 39 50
Trade and other receivables 12,250 8,621 6,093
Finance lease receivables 42 19 41
Tax receivable 648 579 724
Cash and cash equivalents 9 17,850 9,132 26,724
TOTAL CURRENT ASSETS 30,844 18,390 33,632
TOTAL ASSETS 76,794 38,911 53,763
LIABILITIES
CURRENT LIABILITIES
Trade and other payables 4,055 2,315 2,958
Deferred income 14,243 11,048 9,878
Tax payable - 425 -
Financial liabilities 4,515 749 268
Lease liabilities 1,079 461 608
Deferred tax liabilities 2,855 31 90
TOTAL CURRENT LIABILITIES 26,747 15,029 13,802
NON-CURRENT LIABILITIES
Financial liabilities 3,244 1,079 1,131
Retirement benefit obligations 2,729 3,985 3,868
Provision for liabilities and charges 10 250 250 250
Lease liabilities 1,312 1,927 1,476
TOTAL NON-CURRENT LIABILITIES 7,535 7,241 6,725
TOTAL LIABILITIES 34,282 22,270 20,527
EQUITY
Share capital 2,178 1,667 2,048
Share premium 28,191 13,219 28,172
Merger reserve 9,359 2,432 2,432
Share based payment reserve 1,447 784 930
Translation reserve 116 159 92
Retained earnings 1,221 (1,620) (438)
TOTAL EQUITY ATTRIBUTABLE TO OWNERS OF THE PARENT 42,512 16,641 33,326
TOTAL EQUITY AND LIABILITIES 76,794 38,911 53,763
Instem plc
CONSOLIDATED STATEMENT OF CASH FLOWS
For the six months ended 30 June 2021 Unaudited Unaudited Audited
Six months ended 30 June Six months ended 30 June Year ended 31 December
Note 2021 2020 2020
£000 £000 £000
CASH FLOWS FROM OPERATING ACTIVITIES
Profit before taxation 1,177 1,899 2,549
Adjustments for:
Depreciation 123 76 138
Amortisation of intangibles 996 642 1,400
Amortisation of right of use assets 304 272 572
Share based payment charge 517 130 427
Retirement benefit obligations (380) (362) (512)
Finance income 7 (22) (67) (38)
US government loans forgiven 6 (805) - -
Finance costs 8 766 124 692
d-wise acquisition cost 12 809 - -
Loss on disposal of fixed assets 6 - 2
CASH FLOWS FROM OPERATIONS BEFORE MOVEMENTS IN WORKING CAPITAL 3,491 2,714 5,230
Movements in working capital:
(Increase) in inventories (4) (3) (14)
(Increase)/decrease in trade and other receivables (151) (1,705) 742
Increase in trade, other payables and deferred income 746 1,759 1,410
NET CASH GENERATED FROM OPERATIONS 4,082 2,765 7,368
Finance income 3 67 38
Finance costs (482) (124) (648)
Income taxes (485) 315 183
NET CASH GENERATED FROM OPERATING ACTIVITIES 3,118 3,023 6,941
CASH FLOWS FROM INVESTING ACTIVITIES
Capitalisation of development costs (922) (600) (1,272)
Purchase of property, plant and equipment (37) (85) (141)
Payment of deferred consideration - - (277)
Purchase of subsidiary undertaking (net of cash acquired) 11, 12 (10,567) (73) -
NET CASH USED IN INVESTING ACTIVITIES (11,526) (758) (1,690)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issue of share capital 22 89 15,423
Proceeds from US government loan - 901 810
Repayment of lease liabilities (367) (327) (621)
Receipts from sublease of asset 22 25 40
Repayment of lease capital - (15) (15)
NET CASH (USED)/GENERATED FROM FINANCING ACTIVITIES (323) 673 15,637
NET (DECREASE) /INCREASE IN CASH AND CASH EQUIVALENTS (8,731) 2,938
20,888
Cash and cash equivalents at start of period 26,724 5,957 5,957
Effect of exchange rate changes on the balance of cash held in foreign (143) 237
currencies
(121)
CASH AND CASH EQUIVALENTS AT END OF PERIOD 17,850 9,132 26,724
Instem plc
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the six months ended 30 June 2021
Share based payment reserve
Share capital Share premium Merger reserve Translation Retained earnings Total
reserve equity
£000 £000 £000 £000 £000 £000 £000
Balance as at 1 January 2020 - (Audited) 1,662 13,135 2,432 654 82 (1,166) 16,799
Profit for the period - - - - - 1,591 1,591
Other comprehensive income/(expense)
- - - - 77 (2,045) (1,968)
Total comprehensive income - - - - 77 (454) (377)
Shares issued 5 84 - - - - 89
Share based payment - - - 130 - - 130
Balance as at 30 June 2020 (Unaudited)
1,667 13,219 2,432 784 159 (1,620) 16,641
Profit for the period - - - - - 683 683
Other comprehensive (expense)/income - - - - (67) 348 281
Total comprehensive expense - - - - (67) 1,031 964
Shares issued 381 14,953 - - - - 15,334
Share based payment - - - 297 - - 297
Reserve transfer on lapse of share options - - - (65) - 65 -
Reserve transfer on exercise of share options - - - (86) - 86 -
Balance as at 31 December 2020 (Audited) 2,048 28,172 2,432 930 92 (438) 33,236
1,023 1,023
Profit for the period
Other comprehensive income 24 636 660
Total comprehensive income - - - - 24 1,659 1,683
Shares issued 130 19 6,927 - - - 7,076
Share based payment - - - 517 - - 517
Balance as at 30 June 2021 (Unaudited) 2,178 28,191 9,359 1,447 116 1,221 42,512
NOTES TO THE FINANCIAL INFORMATION
For the six months ended 30 June 2021
1. General information
The principal activity and nature of operations of the Group is the provision
of world class IT solutions and services to the life sciences research and
development market. Instem's solutions for data collection, management and
analysis are used by customers worldwide to meet the needs of life science
organisations for data-driven decision making leading to safer, more effective
products. Instem plc is a public limited company, listed on AIM,
incorporated in England and Wales under the Companies Act 2006 and domiciled
in England. The registered office is Diamond Way, Stone Business Park, Stone,
Staffordshire ST15 0SD, UK.
2. Basis of preparation and accounting policies
Basis of preparation
The Group's half-yearly financial information, which is unaudited,
consolidates the results of Instem plc and its subsidiary undertakings made up
to 30 June 2021. The Group's accounting reference date is 31 December.
The consolidated financial information is presented in Pounds Sterling (£)
which is also the functional currency of the parent.
The financial information contained in this half year financial report does
not constitute statutory accounts as defined in section 434 of the Companies
Act 2006. It does not therefore include all of the information and
disclosures required in the annual financial statements.
The financial information for the six months ended 30 June 2021 and 30 June
2020 is unaudited.
Instem plc's consolidated statutory accounts for the year ended 31 December
2020, prepared under IFRS, have been delivered to the Registrar of
Companies. The report of the auditors on these accounts was unqualified and
did not contain a statement under Section 498 (2) or (3) of the Companies Act
2006.
Significant accounting policies
The accounting policies used in the preparation of the financial information
for the six months ended 30 June 2021 are in accordance with the recognition
and measurement criteria of international accounting standards and are
consistent with those which will be adopted in the annual statutory financial
statements for the year ending 31 December 2021.
While the financial information included has been prepared in accordance with
the recognition and measurement criteria of International Financial Reporting
Standards (IFRS), these financial statements do not contain sufficient
information to comply with IFRS's.
Instem plc and its subsidiaries have not applied IAS 34, Interim Financial
Reporting, which is not mandatory for UK AIM listed groups, in the preparation
of this half-yearly financial report.
Significant judgement and estimates
The judgements and estimations that management have made for the six months
ended 30 June 2021 are consistent with those reported in the annual statutory
financial statements for the year ended 31 December 2020.
2. Basis of preparation and accounting policies
(continued)
Going concern
The Directors continue to adopt the going concern basis of accounting in
preparing these financial statements, which the Directors believe is
appropriate given the Group's trading performance and financial liquidity. At
30 June 2021, the Group had cash balances of £17.9m together with £0.5m of
unused banking facilities.
The uncertainty regarding the impact on the Group of COVID-19 has been
considered as part of the Group's adoption of the going concern basis. In the
period to 30 June 2021, we have not observed any material detriment to our
overall existing business or in the level of new business opportunities that
are being presented to us in the markets in which we operate and we do not
anticipate any during the next 12 months.
Cash and cash equivalents
Cash and cash equivalents for the purposes of the Statement of Cash Flows
comprise the net of cash and overdraft balances that are shown in the
Statement of Financial Position in Cash and Cash Equivalents.
3. Segmental Reporting
The business is organised into four operating segments to better manage and
report revenues; Study Management, Regulatory Solutions, In Silico Solutions
and Clinical Trials Acceleration. The fourth segment was established after the
d-wise acquisition on 01 April 2021.
Certain direct costs are allocated to the revenue streams whilst the majority
of costs are recorded and reported centrally, primarily supporting Study
Management and Regulatory Solutions. Whilst the expectation in future years is
to allocate more centrally held operational costs to the individual segments,
it will take time for the allocations to be sufficiently accurate for the
Board to use segmental cost information for meaningful decision making. A
higher proportion of central costs were allocated to the operating segments
during H1 2021 compared with 2020.
The operations of the Group are managed centrally with group-wide functions
including sales, marketing, software development, customer support, IT, human
resources and finance & administration.
Unaudited six months ended Study Management Regulatory Solutions In Silico Solutions Clinical Trials Acceleration
30 June 2021 Total
£000 £000 £000 £000 £000
Total revenue 9,798 4,686 1,487 3,855 19,826
Direct attributable costs (2,024) (1,113) (771) (2,477) (6,385)
Contribution to indirect overheads 7,774 3,573 716 1,378 13,441
Contribution to indirect overheads % 79.3% 76.2% 48.2% 35.7% 67.7%
Central unallocated indirect costs (9,280)
______
Adjusted EBITDA 4,161
Unaudited six months ended Study Management Regulatory Solutions In Silico Solutions Clinical Trials Acceleration
30 June 2020 Total
£000 £000 £000 £000 £000
Total revenue 7,057 5,278 1,712 - 14,047
Direct attributable costs (1,765) (980) (788) - (3,533)
Contribution to indirect overheads 5,292 4,298 924 - 10,514
Contribution to indirect overheads % 75.0% 81.4% 54.0% - 74.9%
Central unallocated indirect costs (7,519)
______
Adjusted EBITDA 2,995
Audited year ended Study Management Regulatory Solutions In Silico Solutions Clinical Trials Acceleration
31 December 2020 Total
£000 £000 £000 £000 £000
Total revenue 15,054 9,839 3,324 - 28,217
Direct attributable costs (3,516) (2,046) (1,630) - (7,192)
Contribution to indirect overheads 11,538 7,793 1,694 - 21,025
Contribution to indirect overheads % 76.6% 79.2% 51.0% - 74.5%
Central unallocated indirect costs (15,106)
______
Adjusted EBITDA 5,919
4. Key performance measures
Unaudited Unaudited Audited
Six months ended Six months ended Year ended
30 June 2021 30 June 2020 31 December 2020
£000 £000 £000
a) Recurring revenue
Support fees 4,988 4,588 8,917
SaaS subscriptions 4,901 3,769 8,024
Recurring revenue 9,889 8,357 16,941
Licence fees 3,086 1,510 3,477
Product services 1,509 739 1,603
Outsourced services 2,594 3,441 6,196
Consulting 2,748 - -
Total revenue 19,826 14,047 28,217
b) Adjusted EBITDA
EBITDA 3,344 2,946 5,313
Non-recurring costs (see note 6) 817 49 606
Adjusted EBITDA 4,161 2,995 5,919
Adjusted profit after tax and bank balance performance measures are detailed
in notes 5 and 9.
5. 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 period. Diluted earnings per share is calculated by
adjusting the weighted number of ordinary shares outstanding to assume
conversion of all dilutive potential shares arising from the share option
scheme. The dilutive impact of the share options is calculated by
determining the number of shares that could have been acquired at fair value
(determined as the average market share price of the Company's shares) based
on the monetary value of the subscription rights attached to the outstanding
share options.
a) Basic earnings per share
Unaudited Unaudited Audited
Six months ended Six months ended Year ended
30 June 2021 30 June 2020 31 December 2020
Profit after tax (£000) 1,023 1,591 2,274
Weighted average number of shares (000's) 21,145 16,662 18,421
Basic earnings per share 4.8p 9.5p 12.3
b) Diluted earnings per share
Unaudited Unaudited Audited
Six months ended Six months Year ended
30 June 2021 ended 31 December 2020
30 June 2020
Profit after tax (£000) 1,023 1,591 2,274
Weighted average number of shares (000's) 21,145 16,662 18,421
Potentially dilutive shares (000's) 1,023 948 1,231
Adjusted weighted average number of shares (000's) 22,168 17,610 19,652
Diluted earnings per share 4.6p 9.0p 11.6
c) Adjusted earnings per share
Adjusted earnings per share is calculated after adjusting for the effect of
foreign currency exchange on the revaluation of inter-company balances
included in finance income/(costs), non-recurring items and amortisation of
intangibles on acquisitions. Diluted adjusted earnings per share is calculated
by adjusting the weighted number of ordinary shares outstanding to assume
conversion of all dilutive potential shares arising from the share option
scheme. The dilutive impact of the share options is calculated by determining
the number of shares that could have been acquired at fair value (determined
as the average market share price of the Company's shares) based on the
monetary value of the subscription rights attached to the outstanding share
options.
Unaudited Unaudited Audited
Six months ended Six months ended Year ended
30 June 2021 30 June 2020 31 December 2020
Profit after tax (£000) 1,023 1,591 2,274
Non-recurring costs 817 49 606
Amortisation of acquired intangibles (£000) 599 332 664
Foreign exchange loss/(gain) on revaluation of intergroup balances (£000) 268 (181) 208
Adjusted profit after tax (£000) 2,707 1,791 3,752
Weighted average number of shares (000's) 21,145 16,662 18,421
Potentially dilutive shares (000's) 1,023 948 1,231
Adjusted weighted average number of shares (000's) 22,168 17,610 19,652
Adjusted basic earnings per share 12.8p 10.7p 20.4p
Adjusted diluted earnings per share 12.2p 10.2p 19.1p
6. Non-recurring costs
Unaudited Unaudited Audited
Six months ended Six months Year ended
30 June 2021 ended 31 December 2020
£000 30 June 2020 £000
£000
Guaranteed Minimum Pension (GMP) equalisation provision
- - 5
Legal cost relating to historical contract disputes 62 49 149
Share based payment 170 - -
US government loans forgiven (805) - -
Acquisition costs 1,390 - 452
817 49 606
7. Finance income
Unaudited Unaudited Audited
Six months ended Six months ended Year ended
30 June 2021 30 June 2020 31 December 2020
£000 £000 £000
Foreign exchange gains - 62 -
Right of use interest income 3 - 7
Other interest 19 5 31
22 67 38
8. Finance costs
Unaudited Unaudited Audited
Six months ended Six months ended Year ended
30 June 2021 30 June 2020 31 December 2020
£000 £000 £000
Bank loans and overdrafts 43 19 38
Unwinding discount on deferred consideration 318 40 70
Net interest charge on pension scheme 26 18 34
Right of use asset interest cost 121 47 96
Foreign exchange losses 258 - 454
766 124 692
9. Cash and cash equivalents
Audited
Unaudited Unaudited 31 December 2020
30 June 2021 30 June 2020 £000
£000 £000
Cash at bank 26,848 18,130 35,722
Bank overdraft (8,998) (8,998) (8,998)
Bank balance 17,850 9,132 26,724
10. Provision for liabilities and charges
Unaudited Audited
Unaudited 30 June 2020 31 December 2020
30 June 2021 £000 £000
£000
At beginning of the period 250 250 250
Movement in provision - - -
At end of period 250 250 250
The provision relates to potential costs arising from historical contract
disputes (see note 6 for associated legal fees).
11. Acquisition of The Edge Software Consultancy Ltd
('The Edge')
On 1 March 2021, Instem acquired 100% of the issued share capital of The Edge.
The acquisition has increased the group's market share in the global Life
Science Sector and complements the group in continuing its expansion and
development in this industry.
Proportion of voting equity interests acquired
%
Date of acquisition Consideration
Company Principal activity £000
The Edge Provider of Discovery Technology Solutions software and services to Life
Science sector
1 March 2021 100 9,230
Details of the purchase consideration, the net assets acquired and goodwill
are as follows:
Consideration
£000
Initial cash consideration 4,000
Initial share consideration 2,009
Deferred consideration - cash payable March 2022 500
Contingent consideration - cash payable by June 2022 1,000
Contingent consideration - cash payable March 2023 1,000
Net cash adjustment (after deduction of estimated debt) 1,500
Working capital and cash adjustment - cash receivable March 2022 (67)
Total consideration 9,942
Discounting of estimated future cashflows (712)
Present value of consideration 9,230
The initial share consideration was satisfied by the issue of 391,920 new
Instem plc ordinary shares at a value of £2.0m which was based on the
published share price. The premium arising on the share issue of £2.0m has
been credited to the merger relief reserve.
The deferred consideration is not based on any performance related conditions
and is payable in March 2022. The contingent consideration is based on certain
performance related conditions in the twelve- month period post-completion.
The contingent consideration in the table above is based on the forecast
estimate that the performance related conditions will be fully met and the
full consideration will be payable. The contingent consideration was
re-measured at the reporting date. The deferred consideration had been
discounted using Instem's estimated cost of borrowing and the contingent
consideration has been discounted using the Internal Rate of Return ('IRR').
Acquisition related costs amounting to £0.2m have been recognised as an
expense within non-recurring items in the Consolidated Statement of
Comprehensive Income.
Fair value of assets acquired and liabilities recognised at the date of
acquisition
Fair Value
£000
Non-Current Assets
Customer relationships 2,550
Intellectual property 1,342
Brand 105
Right of use assets 37
Current Assets
Cash and cash equivalents 2,570
Trade and other receivables 407
Deferred tax asset 64
Current Liabilities
Trade and other payables (430)
Deferred income (555)
Lease liabilities (36)
Non-Current Liabilities
Deferred tax on acquisition (759)
Fair value of identifiable net assets acquired 5,295
Goodwill arising on acquisition
£000
Consideration transferred 9,230
Less: fair value of identifiable net assets (5,295)
Goodwill arising on acquisition 3,935
Goodwill
Goodwill of £3.9m primarily relates to the ability to generate growth from
new customers, synergies provided by the Group and the skill and expertise of
The Edge's staff.
Identifiable net assets
A provisional fair value exercise to determine the fair value of assets and
liabilities acquired has been carried out. Fair values are provisional as they
are within the twelve month hindsight period to adjust fair values. No fair
value adjustments have been made to the assets and labilities acquired.
The fair value of intangible assets are:
· Customer relationships of £2.6m calculated using the income
approach - excess earnings. Acquired customer relationships consisting of
ongoing relationships with companies to which The Edge provides annual
licenses, maintenance assistance and bespoke services.
· Intellectual property of £1.3m calculated using the income
approach - relief from royalty. Two proprietary software packages were
acquired, namely BioRails and Morphit.
· Brands of £0.1m calculated using the income approach -
relief from royalty. 'The Edge' brand and sub-brands (principally BioRails and
Morphit) are considered in aggregate a separable intangible asset and a driver
of the overall business model.
Acquired receivables
The fair value of acquired trade receivables is £0.079m as no loss allowance
was required to be recognised on acquisition.
Impact of acquisition on the results of the Group
Profit for the half year includes a profit of £0.5m attributable to the
additional business generated by The Edge from the date of acquisition.
Revenue for the half year includes £0.8m in respect of The Edge.
If this business combination had been effected at 1 January 2021, the revenue
of The Edge would have been £1.0m and the profit for the half year would have
been £0.5m. These values do not represent a measure of the performance of The
Edge as the company's accounting policy have been changed at the acquisition
date to comply with the policies of the Group.
Purchase consideration - cash outflow
£000
Outflow of cash to acquire subsidiary, net of cash acquired
Initial cash consideration 4,000
Net cash adjustment (after deduction of estimated debt) 1,500
Less: Balance acquired
Cash (2,570)
Net outflow of cash - investing activities 2,930
12. Acquisition of d-wiseTechnologies, Inc
On 20 March 2021, Instem exchanged contracts to acquire the 100% of the issued
share capital of US-based clinical trial technology & consulting leader
d-wise Technologies, Inc ("d-wise"). The acquisition was completed on 1 April
2021. The acquisition has increased the group's market share in the global
Life Science Sector and complements the group by entering an attractive
adjacent area of clinical trial analysis and submission.
Proportion of voting equity interests acquired
%
Date of acquisition Consideration
Company Principal activity £000
d-wise Inc Provider of clinical trial acceleration solutions to Life Science sector
1 April 2021 100 18,904
Details of the purchase consideration, the net assets acquired and goodwill
are as follows:
Consideration
$000 £000
Initial cash consideration 13,000 9,437
Initial share consideration 7,000 5,044
Deferred consideration (1 April 2022) - To be settled in cash 1,480 1,074
Deferred consideration (1 April 2022) - To be settled in shares 408 296
Deferred consideration (1 April 20233) - To be settled in cash 2,058 1,494
Contingent consideration (1 March 2022) - To be settled in cash or shares 1,500 1,089
Contingent consideration (1 March 2023) - To be settled in cash 1,500 1,089
Working capital adjustment - (Q3 2021) - To be settled in cash 5 4
Total consideration
26,951 19,527
Discounting of estimated future cashflows (623)
Present value of consideration 18,904
The initial share consideration was satisfied by the issue of 868,203 new
Instem plc ordinary shares at a value of $7.0m (£5.0m) which was based on the
published share price. The premium arising on the share issue of £5.0m has
been credited to the merger relief reserve.
The deferred consideration is not based on any performance related conditions
and is payable in two instalments in April 2022 and 2023. The contingent
consideration is based on certain performance related conditions in the
twelve-month period post-completion. The deferred consideration has been
discounted using the interest rate as defined in the share purchase agreement
and the contingent consideration has been discounted using the IRR.
The contingent consideration in the table above is based on the forecast
estimate that the performance related conditions will be fully met and the
full consideration will be payable. The contingent consideration was
re-measured at the reporting date.
An amount of $4.3m (£3.1m) which is contingent on the continued employment of
certain of the former d-wise management has been excluded from the total
purchase consideration and is instead treated as an expense in non-recurring
costs as it incurred. The above treatment will not affect the Group's cash
position as the total consideration payable remains at $31m.
Acquisition related costs amounting to £1.2m have been recognised as an
expense within non-recurring items in the Consolidated Statement of
Comprehensive Income.
Fair value of assets acquired and liabilities recognised at the date of
acquisition
Fair Value
£000
3 Non-Current Assets
Customer relationships 5,770
Intellectual property 1,061
Brand names 1,134
Property, plant and equipment 491
Right of use assets 662
Current Assets
Trade and other receivables 5,766
Cash and cash equivalents 1,800
Current Liabilities
Trade and other payables (1,633)
Deferred income (2,693)
Financial Liabilities (48)
Lease liability (662)
Non-Current Liabilities
Deferred tax on acquisition (1,991)
Fair value of identifiable net liabilities acquired 9,655
Goodwill arising on acquisition
£000
Consideration transferred 18,904
Less: fair value of identifiable net assets (9,655)
Goodwill arising on acquisition 9,249
Goodwill
Goodwill of £9.2m primarily relates to the ability to enter an attractive
adjacent area of clinical trial analysis and submission, generating growth
from new customers, synergies provided by the Group and the skill and
expertise of the d-wise staff.
Identifiable net assets
A provisional fair value exercise to determine the fair value of assets and
liabilities acquired has been carried out. Fair values are provisional as they
are within the twelve month hindsight period to adjust fair values. Except for
the Deferred revenue no other fair value adjustments have been made to the
assets and liabilities acquired.
The fair value of intangible assets are:
· Customer relationships of £5.8m calculated using the income
approach - excess earnings. Acquired customer relationships consisting of
ongoing relationships with companies to which d-wise provides hosting and
consultancy services, support and maintenance and product licences.
· Intellectual property of £1.1m calculated using the income
approach - relief from royalty. Two proprietary software products were
acquired, namely Blur and Reveal.
· Brands of £1.1m calculated using the income approach -
relief from royalty. The 'd-wise' brand is a separable intangible asset and a
driver of the overall business model in the fair value measurement and the
proportion of overall enterprise value attributed to the brand. The brand has
been trading since 2003 and is well established within the pharmaceutical
industry.
Acquired receivables
The fair value of acquired trade receivables is £5.1m as no loss allowance
was required to be recognised on acquisition.
Impact of acquisition on the results of the Group
Profit for the half year includes a loss of £0.3m attributable to the
additional business generated by d-wise from the date of acquisition. The loss
was incurred due to the fair value adjustment on the acquired deferred revenue
of £0.6m. Revenue for the half year includes £3.9m in respect of d-wise.
If this business combination had been effected at 1 January 2021, the revenue
of d-wise would have been £9.2m and the profit for the half year would have
been £0.4m. The directors consider these values represent an approximate
measure of the performance of d-wise on a half year basis as the fair value
adjustment on the acquired deferred revenue was not determined to provide a
reference point for comparison in future years.
Purchase consideration - cash outflow
£000
Outflow of cash to acquire subsidiary, net of cash acquired
Initial cash consideration 9,437
Less: Balance acquired
Cash (1,800)
Net outflow of cash - investing activities 7,637
13. Subsequent Events
No adjusting events have occurred between the 30 June 2021 reporting date and
the date of approval of this Interim Report.
The latest triennial actuarial valuation of the Group's defined benefit
pension arrangement as at 5 April 2020 was completed in July 2021. The outcome
of the valuation will be disclosed in the Group's full year results for 2021.
The next valuation of the Scheme is due as at 5 April 2023.
On 1 September 2021, Instem announced the acquisition of PDS Pathology Data
Systems Ltd ("PDS"), a life sciences software company with headquarters in
Switzerland and offices in the United States and Japan. PDS has been a direct
competitor of Instem for over 25 years. PDS provides software for non-clinical
study management and software and outsourced services for regulatory
submissions using SEND (the Standard for the Exchange of Non-clinical Data).
In the year ended December 2020, PDS had unaudited, normalised profits before
tax of CHF 0.75m (c. £0.6m) on sales of CHF 6.5m (c. £5.1m), of which CHF
2.3m (c. £1.8m) was recurring SaaS and software maintenance revenue. As at
31 December 2020, PDS had net liabilities of CHF 1.5m (c. £1.2m), including
loans from its shareholders of approximately CHF 3.0m (c. £2.4m). These loans
were settled in full out of the proceeds received by PDS shareholders. The
Acquisition will enable Instem to concentrate investment on a single line of
SEND and preclinical study management products, removing unnecessary
duplication in the market. The combination of technologies and highly
experienced teams will enable the Company to enhance the development and
delivery of existing and new solutions that provide higher value to its
clients. The consideration comprises CHF 8.2m paid to the sellers of PDS on
completion of the Acquisition (the "Initial Consideration"), CHF 3.0m of
seller loan repayments, CHF 2.0m to satisfy other net PDS liabilities and CHF
1.0m of deferred consideration (the "Deferred Consideration"). The Initial
Consideration was satisfied by CHF 4.7m in cash (c. £3.8m) and CHF 3.5m (c.
£2.8m) in new ordinary shares of 10 pence each in the Company (the
"Consideration Shares"), equating to the issue of 359,157 shares at a deemed
price of a 777 pence per share. The cash payment, loan repayments and other
net liabilities payments are being funded from the Group's existing financial
resources.
14. Availability of this Interim Announcement
Copies of the 2021 Interim Report for Instem plc will be available from the
Group's website at www.instem.com.
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