Half-year Report
27/09/2022 07:01
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RNS Number : 7249A Instem plc 27 September 2022
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 2022.
Financial Highlights
· Total Group revenues increased by 39% to £27.6m (H1 2021: £19.8m)
· Recurring revenue (annual support and SaaS) increased 62% to
£16.0m (H1 2021: £9.9m) with SaaS increasing 29% to £6.3m (H1 2021: £4.9m)
· Constant currency revenue growth was 34%
· Annual Recurring Revenue ("ARR") of £32.0m at 1 July 2022
· Adjusted EBITDA* increased 8% to £4.5m (H1 2021: £4.2m),
representing 16.3% (H1 2021: 21.0%) of revenue
· Profit before tax of £1.9m (H1 2021: £1.2m)
· Adjusted profit before tax** of £3.2m (H1 2021: £3.2m, as
restated)
· Basic and diluted earnings per share of 5.7p (H1 2021: 4.8p) and
5.5p (H1 2021: 4.6p)
· Adjusted basic and diluted earnings per share** of 11.3p (H1 2021:
14.3p, as restated) and 10.8p (H1 2021: 13.6p, as restated)
· Net cash generated from operations of £1.8m (H1 2021 £4.1m)
· Gross cash balance as at 30 June 2022 of £10.3m (H1 2021: £17.9m)
*Earnings before interest, tax, depreciation, amortisation and non-recurring
items (non recurring items are legal costs and increased settlement provision
relating to an historical contract dispute plus acquisition costs, exceptional
share based payment charge and US government loan forgiveness)
** After adjusting for the effect of foreign currency exchange and the
unwinding of the finance liability included in finance income/(costs),
non-recurring items and amortisation of intangibles on acquisitions
Operational Highlights
· First reporting period with full contribution from The Edge
Software Consultancy Ltd ("The Edge"), d-Wise Technologies, Inc ("d-Wise") and
PDS Pathology Data Systems Ltd ("PDS") (the "Acquisitions"), with integration
almost finalised
o Increasing recurring revenues and visibility
o Strengthening relationships with clients
o Increasing routes to market and cross selling opportunities
· Earn-outs met in full for d-Wise and The Edge (PDS has no earn out
provision)
· New banking facility finalised with HSBC of up to £20m, £10m of
which is committed and none currently utilised
Post-period end Highlights
· Won largest ever contract
o $12m five-year agreement with global CRO, lead client for new Aspire
software solution
o Significant future SaaS revenues with long-term client
o Further expands the Group's global coverage and end-to-end solutions
· Full and final settlement of historical contractual licence dispute
o No impact on current operations; dispute arose in 2017
o Settled at €1.48m (£1.3m), offset by insurance contribution of €450k
(£400k), net £0.9m
o Settlement provision increased by £0.65m during H1 2022 to£0.9m as a
non-recurring charge
o Cash payment of £0.9m due in October 2022
Outlook
· Our ability to increase revenue per client, add new clients as well
as service larger contracts underpins management's growth expectations in the
current period and beyond
· The market backdrop remains favourable, and we continue to see high
demand for our products and solutions
Phil Reason, CEO, commented: "The combination of continued underlying growth
and the contribution of the Acquisitions meant that this was another strong
period for the Company.
"Our ability to increase revenues per client, add new clients as well as to
increase recurring revenues underpins management's growth expectations in the
current period and beyond. The market backdrop remains favourable and we
continue to see high demand for our products and solutions. While, as
previously flagged, essential salary inflation created a lag in H1 operating
profit growth, this will be less pronounced in H2 as the price rises we have
implemented take effect. Slower than expected consulting and service revenue
growth is expected to be offset by stronger growth in higher margin software
business, resulting in full year profit performance in line with market
expectations(1).
The Acquisitions are now substantially integrated and we expect to see further
benefit to the enlarged Group as we convert our order backlog. We will
continue to focus on organic and acquisitive growth opportunities with a view
to further leveraging our business model and strong industry standing."
1. The Board understands that consensus market expectation adjusted profit
before tax is £7.8m
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: 16:30 today
Management will be providing a presentation and hosting an Investor Q&A
session on the results and future prospects today at 16:30, 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 PR
Phil Reason, CEO
Nigel Goldsmith, CFO
Singer Capital Markets (Nominated Adviser & Joint Broker) +44 (0) 20 7496 3000
Peter Steel
Alex Bond
Rachel Hayes
Stifel Nicolaus Europe Limited (Joint Broker) +44 (0) 20 7710 7600
Richard Short
Ben Madison
Alex Price
Walbrook Financial PR +44 (0) 20 7933 8780
Nick Rome instem@walbrookpr.com (mailto:instem@walbrookpr.com)
Tom Cooper
Joseph Walker
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
This period has been of considerable strategic importance for the Company as
we substantially completed the integration of the three recent Acquisitions.
This is the first set of results to include their full contribution. The
strong performance of the significantly enlarged Group emphasises the benefits
of our acquisition strategy - with our increased scale and product range
strengthening our growth ambitions whilst helping to reduce susceptibility to
ongoing market fluctuations.
Having grown our reach, routes to market and ability to cross sell, our
combined operations are increasingly setting us apart from our competitors.
Earn-Outs
I am delighted to confirm that the earn-out periods for d-wise and The Edge
have now completed, with both earn-out targets met in full. PDS has no
earn-out arrangement.
Financial Performance
While, as previously reported, there was minimal disruption to revenue in the
challenging macro-economic environment, there were headwinds, mainly due to
inflationary pressures, which led to essential increases in remuneration for
staff across the Company. As stated earlier in the year, we successfully
instigated a number of price increases to mitigate the impact of these
additional costs.
We have seen a change in the revenue mix during the period with greater
increases in higher margin recurring SaaS and annual support fees and lower
growth in services. While service revenue is picking up again in the second
half, we anticipate that software-related revenues will be the primary driver
of growth in the full year.
Our performance during the period was largely in line with the Board's
expectations, despite the above short-term issues, while importantly we
established foundations for continued growth and margin improvement.
Performance in the Period for some of our key financial metrics is summarised
below:
· Revenue increased 39%
· SaaS Revenue increased 29%
· Recurring Revenue increased 62%
· Adjusted EBITDA increased 8%
Looking Forwards
As I noted earlier, our acquisition strategy is expected to extend the reach
of the Company, enabling us to take advantage of additional growth
opportunities as they arise. In this regard, we are extremely encouraged by
the recently announced post-period end, $12m contract win - our largest ever
contract. In this we will be supporting a large contract research organisation
("CRO"), with over 2,000 users worldwide, in its clinical trial analysis as it
adopts our new Aspire software solution. This is being supplied by Company's
Clinical Trial Acceleration business unit, formed following the acquisition of
d-Wise. We believe that over the next 3-5 years we can achieve compound
annual organic growth of 10% and, with further acquisitions, have the
potential to more than double our 2022 revenue (i.e. reaching total revenue of
£120m+).
Our customers are continuing to experience increased demand for their services
and, as a result, we continue to see strong demand for our solutions across
the drug development lifecycle. We have a healthy and growing order book,
increased scale of operations and increased levels of visibility resulting
from our SaaS conversion program. We remain confident about the future
performance of the business.
David Gare
Non-Executive Chairman
27 September 2022
Chief Executive's Report
Strategic Development
The Group has continued to pursue its mission to help our clients radically
reduce the cost and time of life sciences research and development through
data driven optimisation of traditional non-clinical and clinical study
processes, ultimately replacing many of those studies with "in silico"
alternatives such as predictive analytics, simulation and modelling. The
strategy is based on leveraging trusted client and regulatory relationships
and our intimate understanding of complex scientific data, established by
providing a broad portfolio of market leading IT solutions that optimise
today's life sciences R&D processes, from early discovery to late-stage
clinical trials.
The increasing SaaS deployment of an expanded suite of solutions ensures that
we are in a stronger position to help our clients aggregate and leverage a
broader and deeper set of information while increasing recurring revenue and
visibility.
Group growth was supported by a robust underlying life sciences research and
development market as we experienced demand for our solutions across the
entire drug development life cycle. We further embedded operations from the
Acquisitions, positioning the enlarged Group to take advantage of the positive
prevailing market conditions.
Our larger suite of solutions and broader market reach provides further
cross-selling opportunities to increase revenues from existing and new
clients. This is further enhanced by our capacity to service larger contracts
and provide a one-stop shop for clients seeking to reduce and simplify their
supplier network.
Having previously integrated areas such as Finance, People & Culture,
Information Systems and Marketing from the Acquisitions, we have been able to
complete the more comprehensive integration of larger teams, such as those in
Software Development, Out-Sourced Services, SaaS Delivery and Customer
Implementations / Support. This is already starting to generate economies of
scale, the ability to standardise on best practice processes and opportunities
to target highly skilled resources at the most compelling business
opportunities.
A combined Governance, Risk and Compliance team is now in place, overseeing
global implementation and compliance with standards such as ISO 9001 Quality
Management, ISO 27001 Information Security Management, industry regulation
such as Good Laboratory / Clinical Practice ("GLP" and "GCP") and the
increasing importance of Environmental, Social and Governance ("ESG")
practices, standards and regulation, which is increasingly important to all of
our stakeholders.
Most recently, we have been able to liberate senior management bandwidth from
the enlarged team to make three new US-based appointments:
· VP Investor Relations, to support increased investor engagement
following the appointment of Stifel as joint broker and an active programme
intended to broaden institutional shareholding in North America and mainland
Europe
· VP Corporate Development, to support our ability to target a growing
landscape of acquisition targets, many of which are based in North America
· VP Strategic Partnerships, to ensure we maximise the benefits to
Instem and a growing list of existing partners while ensuring we optimise our
ability to evaluate, consummate and manage future additions. These
relationships help differentiate Instem in the market and have previously led
to acquisition opportunities.
Market Review
The market backdrop continues to be favourable for the Group given global
population growth and life expectancy underpinning increased demand for
successful innovation in life sciences. Increasing amounts of money are being
invested in the biotech industry with the pharmaceuticals sector investing
heavily in drug development, underpinning a strong pipeline for Instem.
In the pharmaceutical industry, which represents the largest proportion of
Instem's revenue, we refer again to the Pharma R&D Annual Review, the 2022
version of which was released by Pharma Intelligence in March this year. This
report shows that the industry grew strongly in 2021 with an 8.2% increase
(2020: 4.8%) in the total number of drugs in the regulatory stages of global
R&D, continuing a multi-year growth trend that shows no sign of abating.
Most relevant to Instem are the increase in the number of drugs at the
preclinical (or non-clinical) phase of drug development of 11.0% (2020: 6.0%)
and clinical phases 1-3 where there was an 8.3% increase (2020: 3.6%), as
these areas account for much of our business.
The Company works with most of the world's leading public and private CROs and
tracks their business performance as this provides additional insight into the
health of the underlying market and almost all of those companies have
recently reported strong underlying growth and very limited impact of wider
macro-economic headwinds.
Business Performance
Study Management
Most of our study management solutions address areas where technology adoption
is mature and Instem enjoys significant market penetration. However, with
global R&D study volume steadily increasing, existing clients have
continued to expand numbers of users for most of our study management
solutions, while adding further products from our solution portfolio. This
is the area with the greatest opportunity to transition existing clients from
on-premise to SaaS deployment. While this transition has slowed over the last
two years, as clients concentrated on advancing Covid vaccines and therapies,
we are now seeing clients refocussing on SaaS conversion projects.
This area generates a significant proportion of our recurring revenue, so
client retention is critical and once again this has been exceptionally
strong. Clients have generally been understanding of the inflationary
pressures that are impacting Instem, particularly salary costs, in what
remains a very competitive labour market, and have been accepting of material
price increases as recurring contracts renew. As such, the Board remains
confident that margins can be protected through this phase.
Regulatory Solutions
The majority of our clients and revenue in this area are associated with our
software and out-sourced services to create, visualise and share information
using Food & Drug Administration ("FDA") mandated format SEND (Standard
for the Exchange of Non-clinical Data). The acquisition of PDS in September
2021, number two in the market behind Instem in SEND out-sourced services, has
led to Instem taking substantial market share of new and repeat business, with
good growth in new business bookings. However, revenue conversion
(particularly in Q1 2022) was at a slower rate than in recent periods as
client studies failed to deliver as many data sets ready for SEND conversion
as they had anticipated. We are now seeing an improving flow of data for
conversion and expect a stronger revenue performance in Q4 2022 and beyond.
Our out-sourced services productivity was also negatively impacted by a
significant change in the commercial terms to use a widely adopted third-party
product that helps check SEND packages for conformance against the standard.
Along with many other organisations, Instem stopped using the third-party
product and has performed the equivalent checks manually. In parallel we
have been developing our own automated checking software, which will be
implemented by our out-sourced services team in Q4 2022. This will be timely
as we work through a growing order book for SEND conversions.
In Silico Solutions
Our Leadscope predictive analytics solutions which provide an in silico
assessment of the potential safety liabilities associated with a specific
chemical structure have continued to grow strongly in the period. New
predictive assays, developed in collaboration with industry and regulatory
partners, have been licensed and deployed, and work continues to add new in
silico models, some of which will replace animal-based studies.
Our introduction of an out-sourced alternative to clients licensing our
software is starting to build revenue momentum, and work is progressing well
on a collaborative European Medicine Agency funded research project to
investigate the mutagenicity of different classes of N-nitrosamines ("NAs").
Nitrosamines have become a focus of significant concern for the global
pharmaceutical industry, and we are anticipating that a new NA-related in
silico model will be created as we contribute to this important research
project.
Our KnowledgeScan target safety assessment business, having slowed through the
height of the Covid crisis, has picked up well in Q2 2022 and continues to
grow strongly in Q3 as client scientists have returned to their laboratories
and have once again outsourced this work.
Clinical Trial Acceleration
The highlight in this area is undoubtedly the post period end award of
Instem's largest ever contract, a $12 million multi-year SaaS project for a
large CRO. As detailed in the 2 September 2022 RNS, this project will create
an early adopter and key reference client for our new Aspire™ statistical
computing environment ("SCE"). Our Clinical Trial Acceleration team are
global leaders in this market, providing many small to medium sized CROs and
pharma companies with a productised SCE and the largest companies with custom
SCE solutions. Aspire is expected to provide a transformational
product-based alternative for the larger clients and to replace large,
resource intensive consulting projects with a standardised SaaS solution.
With several large consulting projects completing in the period and other
large opportunities taking longer through the sales cycle, growth in
consulting revenue will be modest in 2022; a scenario that will diminish in
frequency and impact as a consequence of the growing annuity revenue stream
arising from Aspire.
Outlook
The combination of continued underlying growth and the contribution of the
Acquisitions meant that this was another strong period for the Company.
Our ability to increase revenue per client, add new clients as well as service
larger contracts underpins the Board's growth expectations in the current
period and beyond. The market backdrop remains favourable, and we continue to
see high demand for our products and solutions. While, as previously flagged,
essential salary inflation created a lag in H1 operating profit growth, this
will be less pronounced in H2 as the price rises we have implemented take
effect. Slower than expected consulting and service revenue growth is
expected to be offset by stronger growth in higher margin software business
resulting in full year profit performance in line with market expectations(1).
The Acquisitions are now substantially integrated, and we expect to see
further benefit to the enlarged Group as we convert our order backlog. We will
continue to focus on organic and acquisitive growth opportunities with a view
to further leveraging our business model and strong industry standing.
Phil Reason
Chief Executive Officer
27 September 2022
1. The Board understands that consensus market expectation adjusted profit
before tax is £7.8m.
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 2022 were:
6 months to 6 months to % Change 12 months to
30 June 2022 30 June 2021 (H1 2021 to H1 2022) 31 Dec
£000 £000 2021
£000
Total revenue 27,604 19,826 39% 46,017
Recurring revenue 15,973 9,889 62% 24,083
Recurring revenue as a percentage of total revenue 58% 50% - 52%
Annual recurring revenue 32,124 n/a - 28,741
Adjusted EBITDA 4,500 4,161 8% 8,250
Adjusted EBITDA margin % 16.3% 21% -470bps 17.9%
Cash and cash equivalents 10,280 17,850 -42% 15,021
Operating profit after non-recurring items 1,568 1,921 -18% 4,098
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.
Total revenues in the period increased by 39% to £27.6m (H1 2021: £19.8m)
with constant currency revenue growth at 34%. Recurring revenue, derived from
support & maintenance contracts and SaaS subscriptions, increased in the
period by 62% to £16.0m (H1 2021: £9.9m). Recurring revenue as a percentage
of total revenue was 58% (H1 2021: 50%). In absolute terms, recurring revenue
increased over the prior year by £6.1m. Revenue from technology enabled
outsourced services increased by 42% to £3.7m (H1 2021: £2.6m).
Operating expenses increased by 47% in the period 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, and
non-recurring items (Adjusted EBITDA) increased by 4% to £4.5m (H1 2021:
£4.2m). For this measure of earnings, the margin as a percentage of revenue
decreased in the period to 16.3% from 21% in H1 2021, due to the impact of the
lower than Instem average margins of d-Wise and PDS and abnormally high salary
cost inflation across the Group from January 2022. The average number of
employees (including non-executive directors) for the period was 485 globally,
an increase of 49 since December 2021.
Non-recurring costs in the period were £0.8m (H1 2021: £1.6m), consisting of
an £0.7m increase of the provision associated with an historical contract
dispute (see Subsequent Events section below for more detail) and £0.1m for
integration costs relating to the 2021 acquisitions of The Edge, d-Wise and
PDS.
The reported profit before tax for the period was £1.9m (H1 2021: £1.2m).
The calculation for 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. after
adjusting for the effect of foreign currency exchange and the unwind of the
finance liability included in finance income/(costs), non-recurring items and
amortisation of intangibles on acquisitions) was £3.2m (H1 2021: £3.2m,
restated).
The Group operates internationally and is exposed to foreign currency risk on
transactions denominated in a currency other than the functional currency and
on the translation of the statement of financial position and statement of
comprehensive income of foreign operations into sterling. The currency that
gave rise to this risk in 2022 was primarily from realised US dollars
transactions. In 2022, the revenue and Adjusted EBITDA growth on a constant
currency basis, excluding the foreign exchange exposure was 34-% and 3%
respectively. The foreign exchange gain recorded during H1 2022 was £0.94m
(H1 2021: £0.26m loss), which is composed of unrealised gains/losses from
translation of intercompany balances. The Group seeks to settle those
intercompany balances whenever possible.
The Group continues to invest in its product portfolio. Development costs
incurred in the period were £3.7m (H1 2021: £2.3m), of which £1.4m (H1
2021: £1.0m) 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.
Basic and diluted earnings per share calculated on an adjusted basis were
11.3p and 10.8p respectively (H1 2021: 14.3p basic and 13.6p diluted, as
restated). The reported basic and diluted earnings per share were 5.7p and
5.5p respectively (H1 2021: 4.8p basic and 4.6p diluted).
The Group cash generated from operations for the period was £1.8m (H1 2021:
£4.1m), a reduction from prior year primarily due to more cash tied up in
working capital. The deferred and contingent consideration payments of £4.5m
which related to the 2021 acquisitions were part of the net cash used in
financing activities. The net cash used in investing activities includes
£1.4m (H1 2021: £1.0m) 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 £10.3m at 30 June 2022.
The remaining financial obligations associated with The Edge, d-Wise and PDS
acquisitions for H2 2022 and 2023 are deferred and contingent consideration
payments of £4.2m 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 was confirmed in the period.
Intangible assets increased from the 30 June 2021 to the 30 June 2022 interim
results due to the PDS acquisition completed on 1 September 2021 and an
element of deferred consideration £3.2m (US$ 4.3m) relating to the d-Wise
acquisition, which was originally recognised in H1 2021 as employee
remuneration through the Statement of Comprehensive Income. As part of the
procedures performed at the 31 December 2021 year end the accounting treatment
was reassessed and it was concluded that no substantive employment link
existed. Appropriate adjustments were made to the results in the year ended 31
December 2021 to include the deferred consideration as part of the cost of
business combination. Any employment remuneration expense recognised in the
interim 2021 results was reversed in H2 2021. Additionally, in 2022 the
Goodwill in d-wise has increased by £0.05m (US$0.06m) due to a change in the
contingent consideration paid.
The deficit on the Group's legacy defined benefit pension scheme was £1.3m at
30 June 2022 (H1 2021: £2.7m) having improved from a deficit of £2.0m at 31
December 2021. Liabilities decreased from £16.0m at 31 December 2021 to
£12.5m at 30 June 2022 and Plan Assets have decreased from £14.0m at 31
December 2021 to £11.2m at 30 June 2022. The scheme liabilities fell in value
due to significantly higher discount rates, which reflect the rise in the
yields on corporate bonds over the period and contributions paid by the Group
during the period have caused the deficit to reduce.
These reductions in the scheme deficit were offset by investment returns that
were materially lower than expected, as well as higher inflation assumptions
over the period that led to a decrease in the value of the Scheme's assets.
Movements in share capital and the share premium, merger rand 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 at 30 June 2022 was
22,676,808 ordinary shares of 10p each (note 12).
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 risk and uncertainties that management have made for the six
months ended 30 June 2022 remained unchanged with those reported in the annual
statutory financial statement for the year ended 31 December 2021.
The current weak economic conditions, spiralling cost inflation, the Ukrainian
conflict and the threat of a global recession, compounded by the UK's
departure from the European Union ("EU"), may disrupt or negatively impact the
Group's operations and associated revenues. The Group has no clients or
operations located in either Ukraine or Russia. The Board is actively
monitoring the developing situation and is mindful of the potential for
escalation. The impact of Covid-19 remains a challenge, particularly in China
where the zero-tolerance approach by the Chinese government and consequent
widespread lockdowns has impacted the Group's ability to implement its
solutions on site for some clients in a timely way. However, it is not
apparent that this has caused any material revenue or client loss and the
Group continues to work closely with its clients to service their needs.
The Group operates internationally and is exposed to foreign currency risks on
transactions denominated in a currency other than the functional currency. The
main currency giving rise to this risk is the US dollar. Whilst weak
sterling against the US dollar is beneficial to revenue, our substantial US
cost base provides a natural hedge so that a strengthening USD is only
modestly beneficial to profit.
Finally, any significant inflationary increases would quickly impact the
Group's cost base as experienced during the period with salary increases
across the Group. The Group has taken steps to mitigate these increases with
corresponding increases in sales prices wherever possible but there will be a
time lag before the full impact of these increases is reflected in the Group's
results.
The Group seeks to mitigate exposure to all forms of risk through a
combination of regular performance review and a comprehensive insurance
programme. Additionally, the Group has a significant proportion of recurring
revenue (circa 58% of total) from annual support & maintenance and SaaS
contracts from a well-established global customer base. Consequently, the
Group ensures that it maintains a diversified portfolio in terms of customers,
revenue mix, geography and markets.
Subsequent events
No adjusting events have occurred between the 30 June 2022 reporting date and
the date of approval of this Interim Report.
A full and final settlement has been negotiated and agreed with a former
customer regarding an historical contractual licence dispute that arose in
2017. Instem has agreed to pay €1.48m (approx. £1.3m), of which its
insurer has agreed to contribute €0.45m (approx. £0.4m) resulting in a net
payment due of approx. €1.0m (£0.9m). This will be made in October 2022.
As previously announced, the Company had created a provision of £0.25m in
respect of the dispute and this was increased in the period by £0.64m,
resulting in a provision at 30 June 2022 of approx. £0.9m. The increase in
the provision was treated as a non-recurring, exceptional charge in the half
year ended 30 June 2022.
The issue involved does not affect the ongoing operations of the Group.
Alternative performance measures
This report 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:
30 Jun 2022 30 Jun 2021 31 Dec 2021
£000 £000 £000
Annual support fees 9,716 4,988 14,378
SaaS subscription and support fees 6,257 4,901 9,704
Recurring revenue 15,973 9,889 24,082
Licence fees 2,803 3,086 4,597
Professional services 1,486 1,509 3,651
Technology enabled outsourced services 3,738 2,594 6,378
Consultancy services 3,604 2,748 7,309
Total revenue 27,604 19,826 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.
30 Jun 2022 30 Jun 2021 31 Dec 2021
£000 £000 £000
Annual Recurring Revenue 32,124 - 28,741
Annual recurring revenue is revenue that annually repeats under contractual
arrangements and consists of Software as a Service (SaaS) revenue together
with annual support and maintenance fees.
30 Jun 2022 30 Jun 2021 31 Dec 2021
£000 £000 £000
EBITDA (before non recurring items) 3,731 3,344 7,769
Non recurring cost (see note 6) 769 1,622 1,286
Non recurring income (see note 6) - (805) (805)
Adjusted EBITDA 4,500 4,161 8,250
Adjusted EBITDA is EBITDA plus non-recurring items (as set out in note 6). The
same adjustments are also made in determining the adjusted EBITDA margin.
Items are only classified as non-recurring or exceptional due to their nature
or size and the Board considers that this metric provides the best measure of
assessing underlying trading performance.
30 Jun 2022 30 Jun 2021 30 Jun 2021 31 Dec 2021 31 Dec 2021
(as restated) (as originally reported) (as restated) (as originally reported)
£000 £000
£000 £000 £000
Profit before tax 1,918 1,177 1,177 2,984 2,984
Amortisation of intangibles arising on acquisition 977 599 599 1,563 1,563
Non recurring cost (see note 6) 769 1,622 1,622 1,286 1,286
Non recurring income (see note 6) - (805) (805) (805) (805)
Intercompany foreign exchange (gain)/loss - - 268 - (18)
Foreign currency exchange (gain)/ loss (944) 258 - 44 -
Unwinding discount on deferred consideration 455 318 - 867 -
Adjusted profit before tax 3,175 3,169 2,861 5,939 5,010
The calculation for the adjusted profit before tax was changed in H1 2022
compared with prior periods by including two additional components, the effect
of the 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 and amortisation of intangibles on
acquisitions. The same adjustments are also made in determining adjusted
earnings per share ("EPS"). The Board considers this adjusted measure of
operating profit provides the best metric of assessing underlying performance.
30 Jun 2022 30 Jun 2021 30 Jun 2021 31 Dec 2021 31 Dec 2021
(as restated) (as originally reported) (as restated) (as originally reported)
£000 £000
£000 £000 £000
Weighted average number of shares (000's) 23,547 22,168 22,168 22,719 22,719
Adjusted diluted earnings per share 10.8p 13.6p 12.2p 20.4p 16.3p
30 Jun 2022 30 Jun 2021 31 Dec 2021
£000 £000 £000
Cash at bank 10,280 26,848 24,019
Bank overdraft - (8,998) (8,998)
Cash balance 10,280 17,850 15,021
Nigel Goldsmith
Chief Financial Officer
27 September 2022
Instem plc
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the six months ended 30 June 2022
Unaudited Unaudited Audited
Six months ended Six months ended Year
30 June 30 June ended 31 December 2021
2022 2021 £000
£000 £000
Note
REVENUE 4 27,604 19,826 46,017
Employee benefits expense (14,676) (11,504) (26,918)
Other expenses (8,428) (4,161) (10,491)
Net impairment loss on financial assets - - (358)
EARNINGS BEFORE INTEREST, TAXATION, DEPRECIATION, AMORTISATION AND
NON-RECURRING COSTS (ADJUSTED EBITDA)
4,500 4,161 8,250
Depreciation (168) (123) (312)
Amortisation of intangibles arising on acquisition (977) (599) (1,563)
Amortisation of internally generated intangibles (469) (397) (851)
Amortisation of right of use assets (549) (304) (945)
OPERATING PROFIT BEFORE NON-RECURRING COSTS 2,337 2,738 4,579
Non-recurring income 6 - 805 805
Non-recurring costs 6 (769) (1,622) (1,286)
OPERATING PROFIT AFTER NON-RECURRING COSTS 1,568 1,921 4,098
Finance income 7 1,030 22 30
Finance costs 8 (680) (766) (1,144)
PROFIT BEFORE TAXATION 1,918 1,177 2,984
Taxation (631) (154) (1,306)
PROFIT FOR THE PERIOD 1,287 -1,023 1,678
OTHER COMPREHENSIVE INCOME
Items that will not be reclassified to profit and loss account
Actuarial gain on retirement benefit obligations 382 785 1,375
Deferred tax on actuarial gain & loss (96) (149) (140)
Deferred tax on share options - - -
286 636 1,235
Items that may be reclassified to profit and loss account:
Exchange differences on translating foreign operations (1,216) 24 (294)
OTHER COMPREHENSIVE (EXPENSE)/ INCOME FOR THE PERIOD (930) 660 941
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD 354 1,683 2,619
PROFIT ATTRIBUTABLE TO OWNERS OF THE PARENT COMPANY 1,287 1,023 1,678
TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO OWNERS OF THE PARENT COMPANY 354 1,683 2,619
Earnings per share from continuing operations
- Basic 5 5.7p 4.8p 7.8p
- Diluted 5 5.5p 4.6p 7.4p
Instem plc
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 30 June 2022 Unaudited Unaudited Audited
30 June 30 June 31 December
2022 2021 2021
Note £000 £000 £000
ASSETS
NON-CURRENT ASSETS
Intangible assets 58,381 43,098 58,311
Property, plant and equipment 552 637 592
Right of use assets 1,542 2,110 2,077
Finance lease receivables 69 105 85
TOTAL NON-CURRENT ASSETS 60,544 45,950 61,065
CURRENT ASSETS
Inventories 99 54 64
Trade and other receivables 15,224 12,250 14,852
Finance lease receivables 51 42 44
Tax receivable 15 648 130
Cash and cash equivalents 9 10,280 17,850 15,021
TOTAL CURRENT ASSETS 25,669 30,844 30,111
TOTAL ASSETS 86,213 76,794 91,176
LIABILITIES
CURRENT LIABILITIES
Trade and other payables 4,905 4,055 5,723
Deferred income 17,672 14,243 18,935
Provision for liabilities and charges 10 885 - -
Financial liabilities 11 6,235 4,515 6,612
Lease liabilities 935 1,079 1,077
TOTAL CURRENT LIABILITIES 30,632 23,892 32,347
NON-CURRENT LIABILITIES
Financial liabilities 11 - 3,244 4,728
Retirement benefit obligations 1,303 2,729 2,014
Provision for liabilities and charges 10 43 250 291
Lease liabilities 858 1,312 1,248
Deferred tax liabilities 2,977 2,855 3,247
TOTAL NON-CURRENT LIABILITIES 5,181 10,390 11,528
TOTAL LIABILITIES 35,813 34,482 43,875
EQUITY
Share capital 2,268 2,178 2,219
Share premium 28,224 28,191 28,191
Merger reserve 14,013 9,359 12,104
Share based payment reserve 3,045 1,447 2,294
Translation reserve (1,418) 66 (202)
Retained earnings 4,268 1,221 2,695
TOTAL EQUITY ATTRIBUTABLE TO OWNERS OF THE PARENT 50,400 42,512 47,301
TOTAL EQUITY AND LIABILITIES 86,213 76,794 91,176
Instem plc
CONSOLIDATED STATEMENT OF CASH FLOWS
For the six months ended 30 June 2022 Unaudited Unaudited Audited
Six months ended 30 June Six months ended 30 June Year ended 31 December
Note 2022 2021 2021
£000 £000 £000
CASH FLOWS FROM OPERATING ACTIVITIES
Profit before taxation 1,918 1,177 2,984
Adjustments for:
Depreciation 168 123 312
Amortisation of intangibles 1,446 996 2,414
Amortisation of right of use assets 549 304 945
Share based payment charge 751 517 1,061
Retirement benefit obligations (398) (380) (530)
Finance income 7 (1,030) (22) (30)
US government loans forgiven 6 - (805) (805)
Finance costs 8 680 766 1,144
d-Wise acquisition cost 6 - 809 -
Loss on disposal of fixed assets - 6 3
CASH FLOWS FROM OPERATIONS BEFORE MOVEMENTS IN WORKING CAPITAL 4,084 3,491 7,498
Movements in working capital:
(Increase) in inventories (35) (4) (14)
Decrease/ (Increase) in trade and other receivables 140 (151) (1,573)
(Decrease)/ Increase in trade, other payables and deferred income (2,995) 746 4,432
Increase in provisions 637 - -
NET CASH GENERATED FROM OPERATIONS 1,831 4,082 10,343
Finance income 86 3 6
Finance costs (116) (482) (276)
Income taxes (936) (485) (873)
NET CASH GENERATED FROM OPERATING ACTIVITIES 865 3,118 9,200
CASH FLOWS FROM INVESTING ACTIVITIES
Capitalisation of development costs (1,465) (922) (2,238)
Purchase of property, plant and equipment (122) (37) (144)
Purchase of subsidiary undertaking (net of cash acquired) - (10,567) (14,840)
NET CASH USED IN INVESTING ACTIVITIES (1,587) (11,526) (17,222)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issue of share capital 35 22 22
Payment of deferred consideration (3,061) - (277)
Payment of contingent consideration (1,412) - -
Repayment of lease liabilities (587) (367) (963)
Receipts from sublease of asset 16 22 40
Repayment of former PDS shareholder loan - - (2,387)
NET CASH (USED)/GENERATED FROM FINANCING ACTIVITIES (5,009) (323) (3,565)
NET (DECREASE) /INCREASE IN CASH AND CASH EQUIVALENTS (5,731) (8,731)
(11,587)
Cash and cash equivalents at start of period 15,021 26,724 26,724
Effect of exchange rate changes on the balance of cash held in foreign 990 (143)
currencies
(116)
CASH AND CASH EQUIVALENTS AT END OF PERIOD 10,280 17,850 15,021
Instem plc
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the six months ended 30 June 2022
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 2021 - (Audited) 2,048 28,172 2,432 930 92 (438) 33,236
Profit for the period - - - - - 1,023 1,023
Other comprehensive income 636 660
- - - - 24
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
Profit for the period - - - - - 655 655
Other comprehensive (expense)/income - - - - (318) 599 281
Total comprehensive expense - - - - (318) 1,254 936
Shares issued 41 - 2,745 - - - 2,786
Share based payment - - - 544 - - 544
Deferred tax on share options - - - 528 - - 528
Nil cost option charge - - - (5) - - (5)
Reserve transfer on lapse of share options - - - (25) - 25 -
Reserve transfer on exercise of share options - - - (195) - 195 -
Balance as at 31 December 2021 (Audited) 2,219 28,191 12,104 2,294 (202) 2,695 47,301
- - - - - 1,287 1,287
Profit for the period
Other comprehensive income (1,216) 286 (930)
Total comprehensive income - - - - (1,216) 1,573 357
Shares issued 49 33 1,909 - - - 1,991
Share based payment - - - 751 - - 751
Balance as at 30 June 2022 (Unaudited) 2,268 28,224 14,013 3,045 (1,418) 4,505 50,400
NOTES TO THE FINANCIAL INFORMATION
For the six months ended 30 June 2022
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 2022. 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 presented for the six months ended 30 June 2022 and
30 June 2021 is unaudited.
Instem plc's consolidated statutory accounts for the year ended 31 December
2021, 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 2022 are in accordance with the recognition
and measurement criteria of international accounting standards and are
consistent with those that will be adopted in the annual statutory financial
statements for the year ending 31 December 2022.
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 2022 are consistent with those reported in the annual statutory
financial statements for the year ended 31 December 2021.
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 2022, the Group had cash balances of £10.3m together with a £10.0m
committed banking facility.
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 Group cash forecast to ensure
compliance. During 2022, the Group settled the bank overdraft facility of
£9.0m with NatWest Bank plc.
The Group has considered a downside scenario which is also linked to the
company's risks when modelling the forecast results and cash flow. The
downside scenario showed that there is sufficient liquidity headroom for at
least 12 months from the date of approval of these financial statements.
In the period to 30 June 2022, 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 Trial Acceleration. During 2021 the fourth segment, Clinical
Trial Acceleration (CTA), was established following the acquisition of d-Wise.
The Group's Chief Operating Decision Maker (CODM) is its Chief Executive who
monitors the performance of these operating segments as well as deciding on
the allocation of resources to them alongside the executive management team.
Historically the Group's finance systems have recorded costs centrally and
have managed costs in this way. Over recent years the Group has expanded both
organically and through acquisition, increasing the number of products and
services offered.
During 2021 the financial system enabled more centrally recorded costs to be
allocated to the individual segments and that process was further developed
during 2022. The operations of the Group are managed centrally along with
group-wide functions including sales, marketing, software development,
information technology, customer support, human resources. The CTA and In
Silico segments already bear the majority of their costs directly and as such
report a lower direct contribution margin to central overheads than the other
two segments. However, for the Study Management and Regulatory Solutions
segments most of their operational costs are centrally managed. Consequently,
these bear a higher proportion of allocated central costs resulting in a
reduction in profit contribution compared with prior periods.
The expectation in future periods is to be able to allocate a higher
proportion of centrally held operational costs to the individual segments as
internal reporting systems evolve, thereby enabling the Board to use the
segmental cost information for meaningful decision making. A higher proportion
of central costs were allocated to the operating segments during H1 2022 (79%
of total costs) compared with H1 2021 (40%).
The analysis provided below reflects costs directly attributable to the
respective segments in H1 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.
Unaudited six months ended Study Management Regulatory Solutions In Silico Solutions Clinical Trial Acceleration
30 June 2022 Total
£000 £000 £000 £000 £000
Total revenue 11,908 5,594 1,651 8,451 27,604
Direct attributable costs (6,072) (4,262) (907) (6,900) (18,141)
Contribution to indirect overheads 5,836 1,332 744 1,551 9,463
Contribution to indirect overheads % 49% 24% 45% 18% 34%
Central unallocated indirect costs (4,963)
Adjusted EBITDA 4,500
Unaudited six months ended Study Management Regulatory Solutions In Silico Solutions Clinical Trial 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% 76% 48% 36% 68%
Central unallocated indirect costs (9,280)
______
Adjusted EBITDA 4,161
Audited year ended Study Management Regulatory Solutions In Silico Solutions Clinical Trials Acceleration
31 December 2021 Total
£000 £000 £000 £000 £000
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% 36%
Central unallocated indirect costs (8,374)
______
Adjusted EBITDA 8,250
4. Key performance measures
Unaudited Unaudited Audited
Six months ended Six months ended Year ended
30 June 2022 30 June 2021 31 December 2021
£000 £000 £000
a) Recurring revenue
Annual support fees 9,716 4,988 14,378
SaaS subscriptions and support fees 6,257 4,901 9,704
Recurring revenue 15,973 9,889 24,082
Licence fees 2,803 3,086 4,597
Professional services 1,486 1,509 3,651
Technology enabled outsourced services 3,738 2,594 6,378
Consulting services 3,604 2,748 7,309
Total revenue 27,604 19,826 46,017
b) Adjusted EBITDA
c)
d)
EBITDA 3,731 3,344 7,769
Non-recurring items (see note 6) 769 817 481
Adjusted EBITDA 4,500 4,161 8,250
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 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 the d-Wise
acquisition, which could potentially dilute basic EPS in the future, were not
included in the calculation of diluted EPS as they are antidilutive for the
half year and the year ended in 2021.
The dilutive impact of the share options is calculated by determining the
number of shares that could have been acquired at fair value (determined as
the average market share price of the Company's shares) minus the issue price.
The number of ordinary shares that could have been acquired at their average
market price during the period is ignored. However, the shares that would
generate no proceeds and would not have any effect on profit or loss
attributable to ordinary shares outstanding are included.
a) Basic earnings per share
Unaudited Unaudited Audited
Six months ended Six months ended Year ended
30 June 2022 30 June 2021 31 December 2021
Profit after tax (£000) 1,287 1,023 1,678
Weighted average number of shares (000's) 22,464 21,145 21,591
Basic earnings per share 5.7p 4.8p 7.8p
b) Diluted earnings per share
Unaudited Unaudited Audited
Six months ended Six months Year ended
30 June 2022 ended 31 December 2021
30 June 2021
Profit after tax (£000) 1,287 1,023 1,678
Weighted average number of shares (000's) 22,464 21,145 21,591
Potentially dilutive shares (000's) 1,083 1,023 1,128
Adjusted weighted average number of shares (000's) 23,547 22,168 22,719
Diluted earnings per share 5.5p 4.6p 7.4p
c) 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 and amortisation of intangibles
on acquisitions.
The adjusted profit after tax has been amended in 2022 to ensure that the
foreign exchange movements and exceptional business expenses 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.
Unaudited Audited
Six months ended Unaudited Unaudited Audited Year ended
30 June 2022 Six months ended Six months ended Year ended 31 December 2021
30 June 2021 30 June 2021 31 December 2021 (initially reported)
(as restated) (initially reported) (as restated)
Profit after tax (£000) 1,287 1,023 1,023 1,678 1,678
Non-recurring costs 769 1,622 1,622 1,286 1,286
Non- recurring income - (805) (805) (805) (805)
Amortisation of acquired intangibles (£000) 977 599 599 1,563 1,563
Foreign exchange loss/(gain) on revaluation of intergroup balances (£000) - - 268 - (18)
Foreign currency exchange (gain)/loss (944) 258 - 44 -
Finance cost on deferred and contingent consideration (£000) 455 - -
318 867
Adjusted profit after tax (£000) 2,544 3,169 2,707 5,939 3,704
Weighted average number of shares (000's) 22,464 21,145 21,145 21,591 21,591
Potentially dilutive shares (000's) 1,083 1,023 1,023 1,128 1,128
Adjusted weighted average number of shares (000's) 23,547 22,168 22,168 22,719 22,719
Adjusted basic earnings per share 11.3p 14.3p 12.8p 21.5p 17.2p
Adjusted diluted earnings per share 10.8p 13.6p 12.2p 20.4p 16.3p
6. Non-recurring items
Unaudited Unaudited Audited
Six months ended Six months Year ended
30 June 2022 ended 31 December 2020
30 June 2021
£000 £000
Non-recurring cost £000
Legal cost relating to historical contract dispute 698 62 95
Share based payment - 170 175
Acquisition costs 71 1,390 1,019
769 1,622 1,286
Unaudited Unaudited Audited
Six months ended Six months Year ended
30 June 2022 ended 31 December 2020
30 June 2021
£000 £000
Non-recurring income £000
US government loans forgiven - (805) (805)
- (805) (805)
Non-recurring costs include a cost provision relating to an historical
contractual licence dispute, which does not affect the ongoing operations of
the Group. The provision was increased by £0.64m in the period to 30 June
2022.
Non-recurring costs also include acquisition costs relating to the 2021
acquisitions of The Edge, d-Wise and PDS.
The non-recurring income of £0.8m ($1.1m) included in 2021 relates to US
federal government COVID-19 support loans which were forgiven during 2021 and
there are no remaining unfulfilled conditions or contingencies related to this
income
7. Finance income
Unaudited Unaudited Audited
Six months ended Six months ended Year ended
30 June 2022 30 June 2021 31 December 2021
£000 £000 £000
Foreign exchange gains 945 - -
Right of use interest income 2 3 6
Other interest 83 19 24
1,030 22 30
8. Finance costs
Unaudited Unaudited Audited
Six months ended Six months ended Year ended
30 June 2022 30 June 2021 31 December 2021
£000 £000 £000
Bank loans and overdrafts 116 43 85
Unwinding discount on deferred consideration 455 318 867
Net charge on pension scheme 69 26 51
Right of use asset interest cost 40 121 97
Foreign exchange losses - 258 44
680 766 1,144
9. Cash and cash equivalents
Audited
Unaudited Unaudited 31 December 2021
30 June 2022 30 June 2021 £000
£000 £000
Cash at bank 10,280 26,848 24,019
Bank overdraft - (8,998) (8,998)
Bank balance 10,280 17,850 15,021
The Group signed a new financing arrangement with HSBC UK Bank plc in April
2022, which consists of a committed facility of £10.0m for general corporate
purposes, 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. During 2022, the Group settled its bank overdraft of £9.0m
with former bankers NatWest Bank plc.
10. Provision for liabilities and charges
Unaudited Audited
Unaudited 30 June 2021 31 December 2021
30 June 2022 £000 £000
Current liability £000
Historical legal dispute provision 885 - -
At end of period Current liability 885 - -
Unaudited Audited
Unaudited 30 June 2021 31 December 2021
30 June 2022 £000 £000
£000
Non-current liability
Historical legal dispute provision - 250 250
PDS warranty provision 43 - 41
At end of period Non current liability 43 250 291
At the period end the Group held a provision of £0.9m (2021: £0.25m) in
respect of an historical contract dispute against a maximum exposure of
approximately £3.8m. The maximum exposure included an additional claim for
consequential loss. Since the period end a settlement has been agreed with the
plaintiff (see note 13).
11. Financial liabilities
An analysis of financial liabilities as presented in the statement of
financial position is as follows:
Unaudited Audited
Unaudited 30 June 2021 31 December 2021
30 June 2022 £000 £000
Current liability £000
Deferred consideration 4,271 2,435 4,276
Contingent consideration 1,964 2,080 2,336
At end of period Current liability 6,235 4,515 6,612
Unaudited Audited
Unaudited 30 June 2021 31 December 2021
30 June 2022 £000 £000
Non-current liability £000
Deferred consideration - 1,780 3,060
Contingent consideration - 1,464 1,668
At end of period Non current liability - 3,244 4,728
The contingent consideration is in respect of The Edge and d-Wise. The
conditions to pay both sums have been met in full.
The deferred consideration above is in respect of the acquisitions of d-Wise
and PDS.
12. Share Capital
The share capital of Instem plc consists of fully
paid ordinary shares with a nominal value of 10p per share.
30 June 2022 30 June 2021 31 December 2021
No. of shares No. of shares No. of shares
Shares issued:
Beginning of the period 22,189,856 20,481,909 20,481,909
Issued on exercise of employee share options 190,000 38,667 88,667
Share issue on acquisition of The Edge - 391,920 391,920
Share issue on acquisition of d-Wise 296,952 868,203 868,203
Share issue on acquisition of PDS - - 359,157
Total shares issued and fully paid at end of period 22,676,808 21,780,699 22,189,856
Share premium
Proceeds received in addition to the nominal value of the shares issued during
the year have been included in share premium, less fees, commissions and
disbursements. Costs of new shares charged to equity amounted to £nil.
Share premium has also been recorded in respect of the issue of share capital
related to employee share-based payment.
Merger reserve
The merger reserve represents
· the difference between the consideration payable at the
date of acquisition, net of merger relief, and the share capital and share
premium of Instem Life Science Systems Limited and
· the difference between the nominal value and share
issue price of shares issued as consideration in the purchase of Leadscope
Inc, The Edge Software Consultancy Ltd, d-Wise Technologies, Inc and PDS
Pathology Data Systems
13. Subsequent Events
No adjusting events have occurred between the 30 June 2022 reporting date and
the date of approval of this Interim Report.
A full and final settlement has been negotiated and agreed with a former
customer regarding an historical contractual licence dispute that arose in
2017. Instem has agreed to pay €1.48m (approx. £1.3m), of which its
insurer has agreed to contribute €0.45m (approx. £0.4m) resulting in a net
payment due of approx. €1.0m (£0.9m). This will be made in October 2022.
As previously announced, the Company had created a provision of £0.25m in
respect of the dispute and this was increased in the period by £0.64m,
resulting in a provision at 30 June 2022 of approx. £0.9m. The increase in
the provision was treated as a non-recurring, exceptional charge in the half
year ended 30 June 2022.
The issue involved does not affect the ongoing operations of the Group.
14. Availability of this Interim Announcement
Copies of the 2022 Interim Report for Instem plc will be available from the
Group's website at www.instem.com.
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