Half-year Report
15/09/2023 11:15
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RNS Number : 6345M Instem plc 15 September 2023
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 2023 (or "the Period").
Financial Summary
· Overall performance for the Period broadly in line with the
Board's expectations
· Total Group revenues increased by 10.2% to £29.7m (H1 2022:
£27.0m*)
· Recurring revenue (annual support and SaaS) increased 27.3% to
£19.6m (H1 2022: £15.4m*) with SaaS revenues increasing 29.3% to £7.5m (H1
2022: £5.8m*), in total representing 66% (H1 2022: 57%*) of total revenues
· Constant currency revenue growth was 6.0%
· Annual Recurring Revenue ("ARR") increased 28.1%to £41.1m at 1
July 2023 (01 July 2022: £32.0m)
· Adjusted EBITDA** decreased 10.4% to £4.0m (H1 2022: £4.5m),
representing 13.6% of revenue (H1 2022: 16.7%) due to inflationary pressures
and investment
· Constant currency Adjusted EBITDA decline of 13%
· Excluding the impact of Toxhub, like-for-like underlying Adjusted
EBITDA of £4.7m
· Toxhub investment costs were less than expected at £0.7m
offsetting some of the impact of delayed revenues associated with the
opportunity
· Loss before tax of £0.07m (H1 2022: profit £2.0m*)
· Adjusted profit before tax*** of £2.9m (H1 2022: £3.2m*)
· Basic and diluted loss/earnings per share of (0.1)p (H1 2022:
5.9p*) and (0.1)p (H1 2022: 5.7p*)
· Adjusted basic and diluted earnings per share*** of 12.8p (H1
2022: 11.5p*) and 12.3p (H1 2022: 11.0p*)
· Net cash generated from operations of £2.1m (H1 2022: £1.8m)
· Gross cash balance as at 30 June 2023 of £8.4m (H1 2022:
£10.3m) - after £5.8m of deferred and contingent consideration paid in H1
2023 in relation to certain of the Company's previous acquisitions
*Restated for the disposal of Samarind Limited in March 2023 classified as a
discontinued operation in these results
**Earnings before interest, tax, depreciation, amortisation and non-recurring
items (non recurring items are acquisition/disposal costs, transitional
services, legal costs, increased settlement provision relating to an
historical contract dispute plus acquisition costs)
*** 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 summary
· Increased focus on in silico and Artificial Intelligence ("AI")
solutions as part of a blended growth strategy
· Transfer of the Toxhub Platform (the "Platform") and rebranding
of Centrus
o Received the first SaaS subscription order for the Platform from Bayer AG,
one of 13 international life science companies involved in the eTRANSAFE
consortium
o Two further SaaS subscription orders were received post-period end
o Ongoing dialogue to bring other consortium partners onto the Platform
· Renewal of long-standing agreement with the National Toxicology
Program ("NTP")
Post-period end summary
· Signed a three-year subscription order with Altasciences worth
$3.1m in total
· Recommended cash offer by Ichor Management Limited at 833p per
Instem share, announced 30 August 2023
Current trading and outlook
· Instem continues to perform well and is growing, with constant
currency revenue growth of 6% compared to the same period in the prior year
· ARR has grown strongly to £41.1m and continues to improve
visibility over future revenues
· Group transitioning to next phase of growth - with increased
focus and investment on AI opportunities which have an increased cost and
longer-term returns profile
· Rate of revenue growth and underlying operating performance
expected to be impacted by wider softening market in the near term
· Early Toxhub progress, with three clients having been converted
onto the platform, but customer wins are taking longer than initially expected
· Adjusted EBITDA for the current year is now expected to be no
greater than £11.1m*
*This statement constitutes a profit forecast for the purposes of Rule 28 of
the City Code on Takeovers and Mergers ("the Takeover Code"). Please see
further disclosures in note 16 to this announcement.
Recommended Cash Offer by Ichor Management Limited
On 30 August 2023 the Company announced that it had reached an agreement on
the terms of a recommended cash offer for the entire issued and to be issued
ordinary share capital of Instem (the "Acquisition"). It is intended that the
Acquisition will be implemented by way of a scheme of arrangement under Part
26 of the Companies Act. Under the terms of the Acquisition, each Instem
Shareholder will be entitled to receive 833 pence in cash per Instem
Share. The Acquisition values the entire issued and to be issued ordinary
share capital of Instem at approximately £203 million.
Phil Reason, CEO, commented: "We have achieved further progress during the
Period, reinforcing our position within the sector, growing our touchpoints
and deepening relationships with existing and new clients. However, revenue
growth has not been as robust as during previous periods due to a softening in
market conditions in the consulting as well as SEND and Target Safety
Assessment outsourced services segments of the business. With the added impact
of inflationary pressures, Adjusted EBITDA for the current year is now
expected to be no greater than £11.1m.
"While this market weakness has impacted the Company's performance for the
Period, and is expected to be reflected further in the full-year performance,
management believes that the long-term prospects remain strong - with the
Company's high levels of recurring revenues underpinning confidence as well as
the relatively untapped upside from the growing AI opportunities yet to be
factored in - especially as Toxhub is derisked."
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
Oliver Platts
Stifel Nicolaus Europe Limited (Joint Broker) +44 (0) 20 7710 7600
Ben Maddison
Richard Short
Rothschild & Co (Financial Adviser to Instem) +44 (0) 161 827 3800
Alistair Allen
Julian Hudson
Tom Palmer
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 IT solutions & services provider to the life sciences
market, radically reducing the cost and time taken for drugs to come to market
across the discovery and development lifecycle. Its workflow software and data
solutions are targeted at increasing life science R&D efficiency, and are
currently used by over 700 customers worldwide, including the largest 25
pharmaceutical companies.
Instem provides a compelling set of solutions - with more than 50% of global
preclinical drug safety data collected over the past 20 years using its
software. The Company is focused on increasing touchpoints across the drug
development lifecycle - from discovery and non-clinical testing through to
launch and post-marketing and is positioning itself at the forefront of
broader market trends - with the aim of monetising growing demand for data
insight that leverages artificial intelligence ("AI") and in silico-based
solutions.
Its AI solutions include predictive data analytics, simulation and modelling,
with a current total addressable market of over £600m, a serviceable
addressable market of c.£150m and multiple opportunities to grow. The Group's
broader portfolio helps clients collect, analyse, report and submit data to
regulatory agencies with confidence and to reveal new insights from public and
proprietary data with a total addressable market worth close to £2.0bn.
It has an established client based and is well positioned to grow revenues
from existing and new clients. Its blended growth strategy will build on
strong relationships and fundamentals with growing levels of high margin SaaS
revenues underpinning continued profitable growth.
To learn more about Instem solutions and its mission, please
visit www.instem.com (http://www.instem.com/)
About eTRANSAFE
The "Enhancing TRANslational SAFEty Assessment through Integrative Knowledge
Management (eTRANSAFE)" project developed an integrative data infrastructure
and innovative computational methods and tools that aimed to drastically
improve the feasibility and reliability of translational safety assessment
during the drug development process. This infrastructure was underpinned by
development of open standards and robust policies widely accepted by
stakeholders, including regulatory agencies and international organisations.
The eTRANSAFE was a 5.5-year project that started on 1st September of 2017,
and was funded by the Innovative Medicines Initiative 2 Joint Undertaking (IMI
2) together with the pharmaceutical industry, that aimed to develop an
advanced data integration infrastructure together with innovative
computational methods to improve the security in drug development process.
This announcement contains inside information for the purposes of the retained
UK version of the EU Market Abuse Regulation (EU) 596/2014 ("UK MAR").
Chairman's Statement
As I stated in the 2022 Annual Report, we have recently completed a strategic
review of our operations and opportunities with regard to positioning
ourselves for the next phase of the development of the business, focused on
growing our capabilities in modelling and simulation solutions. As a result
we decided that, building on our portfolio of 'world leading life science
workflow and data solutions', we would concentrate on the development of three
market focused groups, 'Study Management', In Silico & Translational
Science (ISTS) and Clinical Trial Analytics (CTA), with our product range
offering solutions across the drug discovery and development spectrum.
Clearly each of these groups is at a different point in their lifecycle, with
Study Management being the most mature and ISTS, which we believe provides the
most long-term upside, being at an early stage in its life cycle, development
and investment profile. We believe that this structure is the most appropriate
to continue the medium and long term development of our business.
During this last period this new and simplified structure has been implemented
by a number of organisational changes. Further we successfully divested the
Group of the Samarind, Regulatory Information Management ("RIM") business,
which no longer matched our long term vision.
A brief review of the activities of our three market focused groups during the
Period is set out below:
· Study Management, which provides a solid and dependable platform,
recorded 14% revenue growth (before adjusting for foreign exchange gains) in
the Period. We were pleased to announce the renewal of our long standing
agreement with the National Toxicology Platform (NTP) in the USA and, overall,
the business unit performed in line with our plan over the Period.
Nevertheless, the outlook deteriorated as the Period progressed, with some
softness in the market for SEND services. Whilst this presents some challenges
in the shorter-term, we have significant market share in this area and
increasing SaaS content will improve both the quality and visibility of future
revenues.
· CTA experienced a 4.3% revenue increase in the Period (before
adjusting for foreign exchange gains). The revenues associated with this
business tend to be sporadic and need to be viewed over the longer term, and
this revenue stream will continue to be significant. The development of the
new Aspire software solution is progressing well and the lead client is
expected to deploy the solution on schedule in Q4 2023.
· ISTS, which has grown by 1.2% in the period (before adjusting for
foreign exchange gains), is ideally placed to generate longer-term growth,
with the opportunity to take advantage of the growing importance of AI
developments in the pharma market. The transfer of eTRANSAFE's Toxhub
application during the period was a particularly important development and
enhances our in-silico suite, now rebranded Centrus. However, ISTS currently
represents our smallest proportion of revenues and some aspects of our
activities in this area share the characteristics of start-up / early stage
businesses, being unpredictable as to timing and costs. This is demonstrated
in the slower than anticipated conversion of clients onto the Toxhub platform
to date, albeit we continue to believe that this will provide the cornerstone
for the significant and sustainable longer-term future growth of this business
unit.
Financial Performance
All parts of the business continued to perform satisfactorily, albeit some of
our activities started to be impacted by a softening in market conditions
during the Period. We took steps to ensure that we are strongly positioned to
take advantage of growing demand for AI solutions.
Performance in the Period (against H1 2022) for some of our key financial
metrics is summarised below:
· Revenue increased 10% (6% on a constant currency basis)
· SaaS Revenue increased 29%
· Recurring Revenue increased 27%
· Adjusted EBITDA decreased 10% (13% decrease on a constant
currency basis)
We continued to invest in expanding our teams with average employee numbers
increasing by 6% during the Period. We were not immune to inflationary
pressure which continued during the Period, with average salary costs
increasing by 4.5%. This resulted in Adjusted EBITDA reducing by £0.4m over
the Period, slightly behind our internal expectations. Adjusted EBITDA in
these results also includes the release during the Period of a £0.2m bad debt
provision made in the prior year.
The decision to focus on data science opportunities was looking to the future,
with higher growth opportunities that will provide significant long term
upside. While the speed of the move to data sciences opportunities has been
impeded by the slower than expected transfer of Consortium members there is
significant scope for growth and to exploit the €40m investment made by the
eTRANSAFE consortium to date.
Looking Forward
We remain excited by the potential across our key markets and are strongly
positioned across Study Management, ISTS and Clinical Trial Analytics. We
continue to benefit from growing levels of SaaS-driven business, providing a
higher degree of visibility over forward revenues. Whilst there is execution
risk associated with some of our more recent initiatives, the fact that we
continue to demonstrate our ability to help clients across the drug discovery
and development landscape has positioned the Company to take advantage of
organic and acquisitive growth opportunities, underpinning management's
longer-term confidence in the overall business.
We recognise, however, the recent softening in market conditions. We expect
these tougher conditions to continue through the remainder of 2023 and into
2024 and have modified expectations for current year profitability
accordingly, reflecting the risks in transitioning the business for the next
stage of development.
David Gare
Non-Executive Chairman
15 September 2023
Chief Executive's Report
Strategic Development
The Group continued to focus on helping clients to radically reduce the cost
and to increase the effectiveness of life sciences research and development.
Growing trends and demand for in silico solutions form a solid backbone to our
strategy. We continue to transition from on-premise to SaaS contracts, which
are ultimately higher margin and provide increased levels of visibility.
Additionally, we have benefited from a proven acquisition strategy, which has
enabled us to scale and strengthen our portfolio of solutions.
Importantly, we have strengthened our market position and recurring revenue
base and have the foundations in place and ability to generate increasing
revenues from higher growth segments of the drug development cycle. With
growing numbers of touchpoints and cross selling opportunities, our
data-centric solutions will help a growing number of clients accelerate
development and reduce costs.
Toxhub
As announced in May 2023, Instem expanded its ISTS business unit via the
transfer of the Toxhub Platform from the eTRANSAFE consortium, responding to a
growing trend for early product safety assessment and an increased demand for
in silico solutions. The Board believes that this will form a solid backbone
to our strategy and will provide a means of achieving further margin growth in
the longer term, following a period of start-up investment, leveraging machine
learning and AI technologies.
To date we have received the first three SaaS subscription orders for the
Platform from Bayer AG, a top 10 pharma company, and a mid-tier pharma, three
of 13 international life science companies involved in the eTRANSAFE
consortium. Although it has taken longer than previously anticipated to bring
potential clients onto the platform, the Company has good ongoing dialogue
with the other 10 companies within the consortium and hopes to secure
additional orders in the future in order to further demonstrate proof of
concept and de-risk execution of the longer-term opportunity.
We previously expected to incur ~£2.5 million of start-up costs in the first
12 months of the project and now expect this to reduce to ~£1.7m. To date, we
have expensed £0.7m. Following an initial period of investment and
incremental SaaS revenue growth, the Company believes there is potential for
meaningful momentum from 2025 onwards.
Market Review
In the pharmaceutical industry, which represents the largest proportion of
Instem's revenue, we refer again to the Pharma R&D Annual Review, the 2023
version of which was released by Pharma Intelligence in April 2023. This
report shows that the industry grew in 2022 with a 5.9% increase (2021: 8.2%)
in the total number of drugs in the regulatory stages of global R&D,
continuing a multi-year growth trend that shows no sign of abating.
Nevertheless, Instem has in recent months been impacted by a short-term market
slowdown that has affected demand for SEND and Target Safety Assessment
outsourced services, consistent with other services providers, in the markets
we serve. We expect the market to recover in the medium term, underpinned by
the strong fundamental growth drivers that exist in the industry.
The longer-term market outlook continues to be favourable for the Group, with
global population growth and life expectancy underpinning increased demand for
successful innovation in life sciences. Increasing amounts of money are being
invested in the biotech industry with the pharmaceuticals sector investing
heavily in drug development, which creates an attractive opportunity pipeline
for Instem.
Business Performance
Study Management
In line with the internal reorganisation of our activities announced in our
FY2022 results, Study Management now includes our SEND software and outsourced
services business.
Overall, Study Management performed well, with revenue up 14.3% in the
Period. This was despite an anticipated reduction in perpetual license
sales, with most new software business secured as SaaS subscriptions,
increasing future revenue visibility.
Study Management has the majority of clients yet to make the transition from
on-premise to SaaS deployment. Whilst the programme remains very active and
is welcomed by clients, there were no material transitions in the Period.
The Company renewed its long-standing agreement with the National Toxicology
Program ("NTP"), run by the US National Institute of Environmental Health
Sciences ("NIEHS") during the Period for a further five years. While Provantis
represents the majority of this contract, the renewal includes some additional
study management solutions. The size of this extension helps to underpin
increased revenue visibility.
Post period-end, the Company grew its Provantis footprint further, with
Altasciences signing a three-year subscription order worth $3.1m. This follows
the acquisitions of Calvert Labs and Sinclair Research by Altasciences and the
subsequent decision to standardise on Provantis and to transition from
on-premises deployment to Instem's cloud-based solutions, increasing its
Provantis user licences from 250 to more than 600.
While SEND outsourced services revenue grew strongly in the period, compared
to H1 2022, revenue was flat compared to H2 2022 as overall market demand in
this area has moderated. We are not expecting growth in this area over the
remainder of 2023.
In Silico and Translational Sciences
It was a busy and exciting period for our ISTS business as we absorbed the
clinical trial transparency software and outsourced services business,
previously in Clinical Trial Analytics, and integrated the Toxhub software
platform acquired from the eTRANSAFE Consortium.
Our transparency software and outsourced services revenue was stable in the
Period compared with H1 2022, but we are already seeing an increase in demand
following the European Medicine Agency decision to reinstate Policy 0070
regulation that requires pharma companies to submit anonymised clinical trial
data sets.
While there was slower demand for our Target Safety Assessment Services, our
computational toxicology business continues to deliver double digit growth
period after period. The team has been highly active in regulatory supported
initiatives to introduce further in silico models designed to improve the
science of drug and chemical development, while significantly reducing cost
and elapsed time in our clients' R&D programmes.
We are actively bringing our portfolio of In Silico solutions together under
the Centrus brand and will be leveraging multiple capabilities as we address
the recently adopted International Council for Harmonization, ICH S1B(R1)
guidelines for the replacement of two-year carcinogenicity studies in rats
with a far quicker and less expensive in silico "weight of evidence"
submission.
Clinical Trial Analytics
The development of our new SaaS-based statistical computing environment
product, Aspire, has progressed well and we expect that the lead client will
deploy the solution, as anticipated, during Q4 2023. The high-quality SaaS
subscription revenue generated from Aspire implementations is eagerly awaited
as we continue to see softness in the new project consultancy area of our
Clinical Trial Analytics business, while enjoying good retention and growth in
our recurring revenue business.
With the imminent Aspire release date, we are seeing opportunities to upgrade
some of the clients on our lower cost Accel solution to the Aspire platform.
Recommended Cash Offer
On 30 August 2023 the Company announced that it had reached an agreement on
the terms of a recommended cash offer for the entire issued and to be issued
ordinary share capital of Instem (the "Acquisition"). It is intended that the
Acquisition will be implemented by way of a scheme of arrangement under Part
26 of the Companies Act. Under the terms of the Acquisition, each Instem
Shareholder will be entitled to receive 833 pence in cash per Instem Share.
The Acquisition values the entire issued and to be issued ordinary share
capital of Instem at approximately £203 million.
Further details on the Acquisition, including the background to and reasons
for the recommendation and Archimed's strategic plans for Instem, are included
in the Rule 2.7 announcement released on 30 August 2023.
The Company expects to publish a scheme document together with a notice of
general meeting shortly.
Summary & Outlook
We have achieved further progress during the Period, reinforcing our position
within the sector, growing our touchpoints and deepening relationships with
existing and new clients. However, revenue growth has not been as robust as
during previous periods due to a softening in market conditions in the
consulting as well as SEND and Target Safety Assessment outsourced services
segments of the business. With the added impact of inflationary pressures,
Adjusted EBITDA for the current year is now expected to be no greater than
£11.1m.
While this market weakness has impacted the Company's performance for the
Period, and is expected to be reflected further in the full-year performance,
management believes that the long-term prospects remain strong - with the
Company's high levels of recurring revenues underpinning confidence as well as
the relatively untapped upside from the growing AI opportunities yet to be
factored in - especially as Toxhub is derisked.
Phil Reason
Chief Executive Officer
15 September 2023
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 2023 were:
6 months to 6 months to % Change 12 months to
30 June 2023 30 June 2022 (H1 2022 to H1 2023) 31 Dec
£000 £000 2022
£000
Total revenue 29,742 26,994 10.2% 57,626
Recurring revenue 19,600 15,428 27.3% 33,407
Recurring revenue as a percentage of total revenue 66% 57% - 58%
Annual recurring revenue 41,080 32,124 27.9% 34,967
Adjusted EBITDA 4,038 4,508 -10.4% 10,784
Adjusted EBITDA margin % 13.6% 16.7% -310bps 18.7%
Cash and cash equivalents (gross) 8,442* 10,280 -17.9% 13,964
Net cash balance 7,414 10,280 -27.9% 13,964
Operating profit before non-recurring items 2,153 2,372 -9.2% 6,497
Operating profit after non-recurring items 1,876 1,603 17% 5,690
Adjusted profit before tax 2,894 3,211 -9.9% 8,179
*Cash and cash equivalents stated after £5.8m of deferred and contingent
consideration paid in H1 2023 in relation to certain of the Company's previous
acquisitions
In addition, certain non-financial KPIs are periodically reviewed and
assessed, including customer and staff retention rates.
Profit and loss account
Revenues
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 10.2% to £29.7m (H1 2022: £27.0m,
as restated for the disposal of Samarind during the Period classified as a
discontinued operation). Constant currency revenue growth was 6.0%. Recurring
revenue, derived from support & maintenance contracts and SaaS
subscriptions, increased in the period by 27.3% to £19.6m (H2 2022: £15.4m,
as restated). Recurring revenue as a percentage of total revenue was 66% (H1
2022: 57%, as restated). In absolute terms, recurring revenue increased over
the prior year by £4.2m. Revenue from technology enabled outsourced services
increased by 27% to £4.7m (H2 2022: £3.7m, as restated).
The Company now reports revenues on a segmental basis with further commentary
set out in the Chairman and Chief Executive Officer statements. In summary,
Study Management revenues increased by 14.3% to £19.3m (H1 2022: £16.9m),
ISTS revenues increased by 1.2% to £3.1m (H1 2022: £3.1m) and CTA revenues
increased by 4.3% to £7.3m (H1 2022: £7.0m). Further narrative on segmental
performance is also outlined in note 3 to this announcement.
Operating expenses
Operating expenses increased by 14.3% in the Period to £25.7m (H1 2022:
£22.5m). The increase was driven by two main factors:
· A 6% increase in the average number of employees, with the Group
continuing to invest in the expansion of its operational and development
teams; and
· Continued inflationary pressure, with salaries increasing during
the Period on average by 4.75%.
Particularly notable was £0.7m of salary costs incurred during the Period in
relation to Toxhub. The Board previously notified its expectation that the
Group would incur £2.5m of start-up costs in the first 12 months of the
project, however, it is now reducing its estimate to £1.7m.
Adjusted EBITDA
Primarily as a result of the Group's increased cost base during the Period,
adjusted earnings before interest, tax, depreciation, amortisation, and
non-recurring items (Adjusted EBITDA) decreased by 10.4% to £4.0m (H1 2022:
£4.5m, as restated). For this measure of earnings, the margin as a percentage
of revenue decreased in the Period to 13.6% from 16.7% in H1 2022. Adjusted
EBITDA for the Period also includes the release of a £0.2m doubtful debt
provision made in the prior year.
Other income and expenses and net profit
Non-recurring costs in the period were £1.0m (H1 2022: £0.8m), comprising
disposal costs and the associated cost that Instem incurred for providing the
transitional services relating to the Samarind sale, and a provision for US
Sales Tax pending the outcome of a nexus study being conducted with the
assistance of US Tax advisors to determine where sales tax filing
responsibilities and potential exposures exist. Non-recurring costs also
include acquisition costs and administrative expenses in relation to the final
instalments of deferred consideration paid in H1 2023 for the 2021 corporate
acquisitions. Non-recurring income of £0.1m during the period relates to the
charges for transitional services that the Company has agreed to provide under
the Share Purchase Agreement to the acquirer of Samarind Limited.
The reported loss before tax for the period was £0.07m (H1 2022: £2.0m, as
restated). Adjusted profit before tax (i.e. 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) was £2.9m (H1 2022: £3.2m, as 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 2023 was primarily from realised US dollars
transactions. In 2023, the revenue growth and Adjusted EBITDA decline on a
constant currency basis, excluding the foreign exchange exposure was 6-% and
-13% respectively. The foreign exchange loss recorded during H1 2023 was
£0.96m (H1 2022: £0.94m gain, as restated), which comprises unrealised
gains/losses from translation of intercompany balances. Intercompany balances
are settled between the Group's entities whenever possible.
The Group continues to invest in its product portfolio. Development costs
incurred in the period were £4.4m (H1 2022: £3.7m), of which £1.9m (H1
2022: £1.4m) was capitalised. No development costs associated with Toxhub
were capitalised in the period. The Group has a development process in place
and is committed to ensuring that its own technology continues to evolve to
meet client needs.
Basic and diluted earnings per share calculated on an adjusted basis were
12.8p and 12.3p respectively (H1 2022: 11.5p basic and 11.0p diluted, as
restated). The reported basic and diluted loss/earnings per share were (0.1)p
and (0.1)p respectively (H1 2022: 5.9p basic and 5.7p diluted, as restated).
Cash flows
The Group generated cash from operations during the period of £2.1m (H1 2022:
£1.8m), an increase from the prior year primarily due to working capital
movements. Deferred and contingent consideration payments of £5.8m (H1 2022:
£4.5m) which related to the 2021 corporate acquisitions accounted for the
majority of the net cash used in financing activities. To part-fund the final
deferred and contingent consideration payment for d-Wise of £3.6m, the
Company drew down £1.0m against its HSBC revolving credit facility. £2.2m
of contingent consideration was also paid during the period in relation to the
acquisition of The Edge. These were the final deferred and contingent
consideration payments due. The net cash used in investing activities included
£1.9m (H1 2022: £1.4m) of capitalised software development costs, mainly
on Aspire, Provantis and SEND. As a result of the above, the Group's gross
cash balance decreased from £14.0m at 31 December 2022 to £8.4m at 30 June
2023.
Balance sheet
Goodwill, customer relationship and development costs included in intangibles
assets reduced by £0.9m from June 2022 to June 2023 due to the derecognition
of Samarind intangible assets, following the sale of the company. Intangible
assets increased following the Company being granted the exclusive rights for
the transition of the Toxhub platform from the eTRANSAFE consortium. The
carrying value of the Toxhub asset in intangible assets is the inherent
liability of €0.18m which the Group would be liable to pay if it decided to
cancel its 3 year contract with the platform developer.
The deficit on the Group's legacy defined benefit pension scheme was £1.4m at
30 June 2023 (H1 2022: £1.3m) having improved from a deficit of £2.1m at 31
December 2022. Liabilities decreased from £10.5m at 31 December 2022 to
£10.0m at 30 June 2023 and Plan Assets increased from £8.4m at 31 December
2022 to £8.6m at 30 June 2023. 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, in addition to the contributions paid by the
Group.
The impact of the above has been offset to some extent by lower than assumed
investment returns, a small increase in long-term inflation expectations and
inflation experience since the valuation date being higher than assumed.
Movements in share capital and the share premium, merger and share based
payment reserves reflect the exercise of share options during the period, the
fair value of share options granted being charged to the Statement of
Comprehensive Income and the issue of shares paid in lieu of cash as deferred
consideration for d-Wise. The share capital of Instem at 30 June 2023 was
22,889,433 ordinary shares of 10p each (note 13).
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.
Current trading and outlook
Following a decline in H1 23 Adjusted EBITDA against the same period in 2022
and against the Board's expectations, as in 2022, it is expected that revenue
growth will be second half weighted benefitting from increased software
recurring revenue, predominantly from new business already secured and the
reliable renewal of contracts with current clients. As referred to elsewhere
we saw a softening in market conditions during the Period and this has
continued post period-end. The Board has therefore modified its expectations
for the Group's full year profitability accordingly, with FY23 Adjusted EBITDA
now expected to be no greater than £11.1m. The Board also notes that,
excluding £1.7m of costs associated with ToxHub now expected to be incurred
in FY23, the implied FY23 Adjusted EBITDA would be no greater than £12.8m,
materially below the Board's expectations at the beginning of the year.*
*This statement constitutes a profit forecast for the purposes of the Takeover
Code. Please see further disclosures in note 16 to this announcement.
Principal risks and uncertainties
The principal risk and uncertainties that management have made for the six
months ended 30 June 2023 remained unchanged with those reported in the annual
statutory financial statements for the year ended 31 December 2022.
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.
Whilst the directors are confident as to the long term prospects of Toxhub, it
will require funding in the short to medium term with no guarantees of
material revenues generated.
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 is 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 66% 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 2023 reporting date and
the date of approval of this Interim Report.
On 30 August 2023 the board of directors of Ichor Management Limited ("Bidco")
and the board of directors of Instem plc ("Instem") announced that they had
reached agreement on the terms of a recommended cash offer to be made by Bidco
for the entire issued and to be issued ordinary share capital of Instem plc
(the "Acquisition"). It is intended that the Acquisition will be implemented
by way of a scheme of arrangement under Part 26 of the Companies Act.
Under the terms of the Acquisition, each Instem Shareholder will be entitled
to receive 833 pence in cash per Instem share. The Acquisition values the
entire issued and to be issued ordinary share capital of Instem at
approximately £203 million.
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 2023 30 Jun 2022 30 Jun 2022 31 Dec 2022 31 Dec 2022
£000 £000 £000 £000 £000
(as restated) (as initially reported) (as restated) (as initially reported)
Annual support fees 12,090 9,600 9,716 20,576 20,815
SaaS subscription and support fees 7,510 5,828 6,257 12,831 13,658
Recurring revenue 19,600 15,428 15,973 33,407 34,473
Licence fees 1,640 2,789 2,803 6,012 6,049
Professional services 1,456 1,435 1,486 3,078 3,229
Technology enabled outsourced services 4,681 3,738 3,738 8,496 8,496
Consultancy services 2,365 3,604 3,604 6,633 6,633
Total revenue 29,742 26,994 27,604 57,626 58,880
As Samarind Limited was sold on 31 March 2023 and was reported in the
financial statements for the half-year ended 30 June 2023 as a discontinued
operation, the 2022 comparatives have been restated in line with the
requirements of IFRS 5 (note 5).
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 2023 30 Jun 2022 30 Jun 2022 31 Dec 2022 31 Dec 2022
£000 £000 £000 £000 £000
(as restated) (as initially reported) (as restated) (as initially reported)
Annual Recurring Revenue 41,080 - 32,124 - 34,967
Annual Recurring Revenue is the revenue that the Group is currently contracted
to recognise, for the next 12 months, for software Annual Support fees and
SaaS Subscription fees. The revenue is also adjusted with new or terminated
contracts that have taken place in the period.
30 Jun 2023 30 Jun 2022 30 Jun 2022 31 Dec 2022 31 Dec 2022
£000 £000 £000 £000 £000
(as restated) (as initially reported) (as restated) (as initially reported)
EBITDA (before non-recurring items) 3,106 3,739 3,731 9,977 10,056
Non-recurring cost (see note 7) 1,042 769 769 1,208 1,208
Non-recurring income (see note 7) (110) - - (401) (401)
Adjusted EBITDA 4,038 4,508 4,500 10,784 4,500
Adjusted EBITDA is EBITDA plus non-recurring items (as set out in note 7). 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 2023 30 Jun 2022 30 Jun 2022 31 Dec 2022 31 Dec 2022
£000 £000 £000 £000 £000
(as restated) (as initially reported) (as restated) (as initially reported)
(Loss)/Profit before tax (66) 1,961 1,918 5,571 5,473
Amortisation of intangibles arising on acquisition 917 977 977 1,953 1,953
Non-recurring cost (see note 7) 1,042 769 769 1,208 1,208
Non-recurring income (see note 7) (110) - - (401) (401)
Impairment of goodwill - - - - 107
Foreign currency exchange (gain)/ loss 962 (951) (944) (932) (932)
Unwinding discount on deferred consideration 149 455 455 771 771
Adjusted profit before tax 2,894 3,211 3,175 8,170 8,179
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 2023 30 Jun 2022 30 Jun 2022 31 Dec 2022 31 Dec 2022
£000 £000 £000 £000 £000
(as restated) (as initially reported) (as restated) (as initially reported)
Weighted average number of shares (000's) 23,839 23,537 23,547 23,676 23,686
Adjusted diluted earnings per share 12.3p 11.0p 10.8 31.0p 31.3p
30 Jun 2023 30 Jun 2022 31 Dec 2022
£000 £000 £000
Cash at bank 8,442 10,280 13,738
Banking facility (1,028) - -
Net cash balance 7,414 10,280 13,738
Nigel Goldsmith
Chief Financial Officer
15 September 2023
Instem plc
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the six months ended 30 June 2023
Unaudited Unaudited Audited
Six months ended Six months ended Year
30 June 30 June ended 31 December 2022
2023 2022 £000
£000 £000 (as restated)
Note (as restated)
REVENUE 4 29,742 26,994 57,626
Employee benefits expense (18,196) (14,414) (33,934)
Other expenses (7,716) (8,072) (13,104)
Net impairment gain on financial assets 208 - 196
EARNINGS BEFORE INTEREST, TAXATION, DEPRECIATION, AMORTISATION AND
NON-RECURRING COSTS (ADJUSTED EBITDA)
4,038 4,508 10,784
Depreciation (124) (167) (338)
Amortisation of intangibles arising on acquisition (917) (977) (1,953)
Amortisation of internally generated intangibles (464) (456) (1,055)
Amortisation of right of use assets (380) (536) (941)
OPERATING PROFIT BEFORE NON-RECURRING COSTS 2,153 2,372 6,497
Non-recurring income 7 110 - 401
Non-recurring costs 7 (1,042) (769) (1,208)
OPERATING PROFIT AFTER NON-RECURRING ITEMS 1,221 1,603 5,690
Finance income 8 2 1,030 1,023
Finance costs 9 (1,289) (672) (1,142)
(LOSS)/ PROFIT BEFORE TAXATION (66) 1,961 5,571
Taxation 35 (631) (821)
(LOSS)/ PROFIT FOR THE PERIOD FROM CONTINUING OPERATIONS (31) -1,330 4,750
Profit / (Loss) from discontinued operations 5 10 (43) (53)
(LOSS)/ PROFIT FOR THE PERIOD (21) 1,287 4,697
OTHER COMPREHENSIVE INCOME
Items that will not be reclassified to profit and loss account
Actuarial gain on retirement benefit obligations 234 382 (561)
Deferred tax on actuarial gain & loss (59) (96) 140
175 286 (421)
Items that may be reclassified to profit and loss account:
Exchange differences on translating foreign operations 573 (1,216) (1,596)
OTHER COMPREHENSIVE INCOME/(EXPENSE) FOR THE PERIOD 748 (930) (2,017)
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD 727 357 2,680
(LOSS)/ PROFIT ATTRIBUTABLE TO OWNERS OF THE PARENT COMPANY
(21) 1,287 4,697
TOTAL COMPREHENSIVE (LOSS)/ INCOME ATTRIBUTABLE TO OWNERS OF THE PARENT
COMPANY
727 357 2,680
Unaudited Unaudited Audited
Six months ended Six months ended Year
30 June 30 June ended 31 December 2022
2023 2022 £000
£000 £000
Note
EARNINGS PER SHARE FOR PROFIT FROM CONTINUING OPERATIONS ATTRIBUTABLE TO THE
ORDINARY EQUITY HOLDERS OF THE COMPANY
- Basic
6 (0.1)p 5.9p 21.0p
- Diluted 6 (0.1)p 5.7p 20.1p
EARNINGS PER SHARE FOR PROFIT ATTRIBUTABLE TO THE ORDINARY EQUITY HOLDERS OF
THE COMPANY
- Basic
6 (0.1)p 5.7p 20.8p
- Diluted 6 (0.1)p 5.5p 19.8p
Instem plc
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 30 June 2023 Unaudited Unaudited Audited
30 June 30 June 31 December
2023 2022 2022
Note £000 £000 £000
ASSETS
NON-CURRENT ASSETS
Intangible assets 58,017 58,381 58,341
Property, plant and equipment 702 552 768
Right of use assets 749 1,542 1,120
Finance lease receivables 14 69 42
TOTAL NON-CURRENT ASSETS 59,482 60,544 60,271
CURRENT ASSETS
Inventories 91 99 76
Trade and other receivables 15,353 15,224 18,345
Finance lease receivables 53 51 53
Financial asset at fair value through profit or loss 5 231 - -
Tax receivable - 15 -
Cash and cash equivalents 10 8,442 10,280 13,964
TOTAL CURRENT ASSETS 24,170 25,669 32,438
TOTAL ASSETS 83,652 86,213 92,709
LIABILITIES
CURRENT LIABILITIES
Trade and other payables 4,591 4,905 5,327
Deferred income 18,861 17,672 22,745
Current tax payable 474 - 251
Provision for liabilities and charges - 885 -
Financial liabilities 12 - 6,235 5,765
Banking facility 11 1,028 - -
Lease liabilities 547 935 814
TOTAL CURRENT LIABILITIES 25,501 30,632 34,902
NON-CURRENT LIABILITIES
Financial liabilities 12 155 - -
Retirement benefit obligations 1,375 1,303 2,013
Provision for liabilities and charges 44 43 45
Lease liabilities 322 858 491
Deferred tax liabilities 1,614 2,977 1,901
TOTAL NON-CURRENT LIABILITIES 3,510 5,181 4,450
TOTAL LIABILITIES 29,011 35,813 39,352
EQUITY
Share capital 13 2,289 2,268 2,270
Share premium 28,273 28,224 28,224
Merger reserve 14,013 14,013 14,013
Share based payment reserve 3,430 3,045 3,570
Translation reserve (1,225) (1,418) (1,798)
Retained earnings 7,861 4,268 7,078
TOTAL EQUITY ATTRIBUTABLE TO OWNERS OF THE PARENT 54,641 50,400 53,357
TOTAL EQUITY AND LIABILITIES 83,652 86,213 92,709
Instem plc
CONSOLIDATED STATEMENT OF CASH FLOWS
For the six months ended 30 June 2023 Unaudited Unaudited Audited
Six months ended 30 June Six months ended 30 June Year ended 31 December
Note 2023 2022 2022
CASH FLOWS FROM OPERATING ACTIVITIES £000 £000 £000
(Loss)/Profit before taxation on continuing operations (66) 1,961 5,571
Loss before tax on discontinued operations (58) (43) (98)
Adjustments for:
Depreciation 124 168 340
Amortisation of intangibles 1,381 1,446 3,049
Amortisation of right of use assets 380 549 967
Share based payment charge 725 751 1,377
Retirement benefit obligations (448) (398) (598)
Profit from discontinued operations (10) - -
Finance income 8 (2) (1,030) (1,023)
Finance costs 9 1,289 680 1,143
Impairment on goodwill - - 107
Provision for US sales tax 7 655 - -
(Gain)/Loss on disposal 3 - (4)
CASH FLOWS FROM OPERATIONS BEFORE MOVEMENTS IN WORKING CAPITAL 3,973 4,084 10,831
Movements in working capital:
(Increase) in inventories (15) (35) (12)
Decrease/ (Increase) in trade and other receivables 1,445 140 (2,866)
(Decrease)/ Increase in trade, other payables and deferred income (3,260) (2,995)
2,185
Increase/ (decrease) in provisions - 637 (281)
NET CASH GENERATED FROM OPERATIONS 2,143 1,831 9,857
Finance income 2 86 91
Finance costs (84) (116) (266)
Income taxes (643) (936) (1,810)
NET CASH GENERATED FROM OPERATING ACTIVITIES 1,418 865 7,872
CASH FLOWS FROM INVESTING ACTIVITIES
Capitalisation of development costs (1,888) (1,465) (3,036)
Purchase of property, plant and equipment (59) (122) (478)
Net proceeds from Samarind disposal 710 - -
NET CASH USED IN INVESTING ACTIVITIES (1,237) (1,587) (3,514)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issue of share capital 56 35 36
Payment of deferred consideration (3,596) (3,061) (3,891)
Payment of contingent consideration (2,213) (1,412) (1,463)
Payment of lease liabilities (469) (587) (1,096)
Receipts from sublease of asset 27 16 53
Utilisation of banking facility 1,000 - -
NET CASH (USED) FROM FINANCING ACTIVITIES (5,195) (5,009) (6,361)
NET (DECREASE) /INCREASE IN CASH AND CASH EQUIVALENTS (5,014) (5,731)
(2,003)
Cash and cash equivalents at start of period 13,964 15,021 15,021
Effect of exchange rate changes on the balance of cash held in foreign (508) 990
currencies
946
CASH AND CASH EQUIVALENTS AT END OF PERIOD 8,442 10,280 13,964
Instem plc
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the six months ended 30 June 2023
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 31 December 2021 - (Audited) 2,219 28,191 12,104 2,294 (202) 2,695 47,301
Profit for the period - - - - - 1,287 1,287
Other comprehensive income 286 (930)
- - - - (1,216)
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) 4,268 50,400
Profit for the period - - - - - 3,410 3,410
Other comprehensive (expense)/income - - - - (380) (707) (1,087)
Total comprehensive expense - - - - (380) 2,703 2,323
Shares issued 2 - - - - - 2
Share based payment - - - 626 - - 626
Deferred tax on share options - - - 20 - - 20
Nil cost option charge - - - (14) - - (14)
Reserve transfer on lapse of share options - - - - - - -
Reserve transfer on exercise of share options - - - (107) - 107 -
Balance as at 31 December 2022 (Audited) 2,270 28,224 14,013 3,570 (1,798) 7,078 53,357
- - - - - (21) (21)
Loss for the period
Other comprehensive income 573 175 748
Total comprehensive income - - - - 573 154 727
Shares issued 7 49 - - - - 56
Share based payment - - - 725 - - 725
Deferred tax on share options - - - (231) - - (231)
Deferred tax on share options on exercise - - - (5) - 5 -
Nil cost option charge 12 - - (12) - - -
Reserve transfer on lapse of share options - - - - - - -
Reserve transfer on exercise of share options - - - (617) - 624 7
Balance as at 30 June 2023 (Unaudited) 2,289 28,273 14,013 3,430 (1,225) 7,861 54,641
NOTES TO THE FINANCIAL INFORMATION
For the six months ended 30 June 2023
1. General information
The principal activity and nature of operations of the Group is the provision
of world class IT solutions to the life sciences market. Instem's solutions
for data collection, management and analysis are used by customers worldwide
to meet the needs of life science and healthcare organisations for data-driven
decision making leading to safer, more effective products. Instem plc is a
public limited company, listed on AIM, and incorporated in England and Wales
under the Companies Act 2006 and domiciled in England and Wales. The
registered office is Diamond Way, Stone Business Park, Stone, Staffordshire,
ST15 0SD, 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 2023. 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 2023 and
30 June 2022 is unaudited.
Instem plc's consolidated statutory accounts for the year ended 31 December
2022, 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 2023 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 2023.
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 2023 are consistent with those reported in the annual statutory
financial statements for the year ended 31 December 2022.
· Discontinued operation
On 31 March 2023, Instem completed the disposal of Samarind Limited with
consideration receivable up to £1.0m, of which £0.8m was satisfied by cash
receipt on completion, plus or minus estimated net cash, and the remaining
balance of £0.2m payable contingent on Samarind's future performance that
will be payable in cash.
The Samarind Limited disposal was reported in the financial statements for the
half-year ended 30 June 2023 as a discontinued operation. The comparatives
have been restated in line with IFRS 5 requirements (note 5).
· Potential indicator of impairment of goodwill
The carrying value of goodwill must be assessed for impairment annually and
whenever there is an indicator of impairment. The Group did not achieve the
Board's expected forecast cash flow for the period ended 30 June 2023 which is
an indicator of potential impairment. However, the current cash offer,
recommended by the directors, supports a fair value of the Group that is a
multiple of the carrying amount of net assets, thus there is no impairment.
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 2023, the Group had cash balances of £8.4m together with a £10.0m
committed revolving credit banking facility, of which £1.0m was drawn during
H1 2023.
The Group signed a new financing arrangement on 8 April 2022, which consisted
of a committed facility of £10.0m with HSBC UK Bank plc to support the
Group's working capital needs and its acquisition strategy, that 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 the first half of 2023, the Group drew down £1.0m to
support the d-Wise final consideration pay out.
The Group has considered a downside scenario which is also linked to the
company's risks when modelling the forecast results and cash flow. However, in
considering the downside scenario there is uncertainty how the Group's cash
flow could be impacted from the wage inflation in the sector and slowing
collection of receivables.
In the period to 30 June 2023, 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 as such
the Group continues to operate as a going concern.
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 Group has disaggregated revenue into various categories in the following
tables which are intended to depict how the nature, amount, timing and
uncertainty of revenue and cash flows are affected by economic factors.
The Group's Chief Operating Decision Maker (CODM) has been identified as the
Board of Directors. The Board is responsible for monitoring the performance of
these operating segments as well as deciding on the allocation of resources to
them.
Over recent years the Group has expanded both organically and through
acquisition, increasing the number of products and services offered and in
2020 the Group reported through three operating segments, Study Management,
Regulatory Solutions and In Silico Solutions. During 2021 the fourth segment,
Clinical Trial Acceleration (CTA), was established following the acquisition
of d-Wise.
However, as part of integration process and our ongoing development of the One
Instem, the group announced further organisational changes at the end of 2022
to integrate our enlarged business.
In 2023, the CODM managed the Group by monitoring its revenue streams and
considered the cost base as a whole. After the announcement of the
organisational changes and the Samarind Limited disposal on 31 March 2023,
which was part of the Regulatory Solutions segment, the Group is now operating
and reporting as one business segment but sharing revenue breakdown by our
each of our three business units; Study Management, In Silico and
Translational Services (ISTS) and Clinical Trial Analytics (CTA).
The Group's finance system records all costs centrally as the CODM considers
any allocation would be arbitrary and sensitive. Therefore, the CODM concluded
that the Group should report as one operating segment.
Comparative figures will also be updated to conform with changes in the
presentation for the current year. This information is provided to aid
comparability and not as a restatement of prior year disclosures therefore we
do not need to comply with IAS8 criteria.
Samarind's RIM product is disclosed as a discontinued operation as it was sold
with effect from 31 March 2023. The comparative figures have been restated in
compliance with IFRS 5. Information about this discontinued operation is
provided in Note 5.
SEGMENTAL REPORTING Jun-23 Jun-22 Dec-22
Total Total Total
(as restated) (as restated)
£000 £000 £000
Study Management 19,296 16,888 36,426
ISTS 3,135 3,098 6,373
CTA 7,311 7,008 14,827
Total revenue 29,742 26,994 57,626
Central unallocated costs (25,704) (22,486) (46,842)
Adjusted EBITDA 4,038 4,508 10,784
Depreciation (124) (167) (338)
Amortisation of intangibles arising on acquisitions (917) (977) (1,953)
Amortisation of internally generated intangibles (464) (456) (1,055)
Depreciation of right of use assets (380) (536) (941)
OPERATING PROFIT BEFORE NON-RECURRING ITEMS ON CONTINUNG OPERATIONS 2,153 2,372 6,497
Non-recurring costs (1,042) (769) (1,208)
Non-recurring income 110 - 401
OPERATING PROFIT AFTER NON-RECURRING ITEMS FROM CONTINUING OPERATIONS 1,221 1,603 5,690
Finance income 2 1,030 1,023
Finance costs (1,289) (672) (1,142)
(LOSS)/ PROFIT BEFORE TAXATION FROM CONTINUING OPERATIONS (66) 1,961 5,571
Profit/(Loss) from discontinued Operations 10 (43) (53)
Sales between business units and Group legal entities are carried out at arm's
length and eliminated on consolidation. The business unit revenues reported to
the Board of Directors are measured in a manner consistent with that of the
financial statements.
4. Key performance measures
Unaudited Unaudited Audited
Six months ended Six months ended Year ended
30 June 2023 30 June 2022 31 December 2022
£000 £000 £000
(as restated) (as restated)
a) Recurring revenue
Annual support fees 12,090 9,600 20,576
SaaS subscriptions and support fees 7,510 5,828 12,831
Recurring revenue 19,600 15,428 33,407
Licence fees 1,640 2,789 6,012
Professional services 1,456 1,435 3,078
Technology enabled outsourced services 4,681 3,738 8,496
Consulting services 2,365 3,604 6,633
Total revenue from continuing operations 29,742 26,994 57,626
b) Adjusted EBITDA
c)
d)
EBITDA 3,106 3,739 9,977
Non-recurring items (see note 7) 932 769 807
Adjusted EBITDA 4,038 4,508 10,784
Adjusted profit after tax and bank balance performance measures are detailed
in notes 6 and 10.
5. Discontinued operations
On 31 March 2023, Instem plc completed the disposal of Samarind limited which
was the provider of Regulatory Information Management software "RIM" and
services to the Life Science sector. Samarind Limited is an active business
incorporated in England and Wales under the Companies Act 2006 and domiciled
in England and Wales.
As of 31 December 2022, the Group did not classify Samarind Limited as an
Asset Held For Sale (AHFS) as management concluded that completion of the
disposal was not highly probable in accordance with the requirements of IFRS 5
and based on the available information as of 31 December 2022.
Samarind Limited was acquired in May 2016 without the view of resale but the
decision to sell this unit was concluded when the Group reviewed and assessed
their future strategic plans. As the IFRS 5 criteria were not met as of 31
December 2022, Samarind's Limited disposal is disclosed as a non-adjusting
subsequent event in 2023.
Samarind Limited was sold on 31 March 2023 and was reported in the financial
statements for the half-year ended 30 June 2023 as a discontinued operation.
The comparatives have been restated in line with the IFRS 5 requirements.
Financial information relating to the discontinued operation for the period to
the date of disposal is set out below.
Financial performance and cash flow information
The financial performance and cash flow information presented reflects the
operations of Samarind Limited for the three months ended 31 March 2023.
Three months ended Six months ended Year ended
31 March 2023 30 June 2022 31 December 2022
£000 £000 £000
REVENUE 243 610 1,254
Intercompany revenue 165 491 967
Expenses (304) (645) (1,244)
Intercompany cost (165) (491) (967)
Other gains/(losses) 3 (8) (1)
Impairment of goodwill - - (107)
Profit before tax (58) (43) (98)
Tax (4) - 45
Profit after tax on discontinued operation (62) (43) (53)
Gain on sale of subsidiary after tax 72 - -
Profit/(Loss) from discontinued operation 10 (43) (53)
Net cash inflow/ (outflow) from operating activities 199 (102) 75
Net cash (outflow) from investing activities (1) - (3)
Net cash (outflow) from financing activities (4) (7) (14)
Net increase in cash generated by subsidiary 194 (109) 58
Basic earnings per share from discontinued operations 0.0p 0.2p 0.2p
Diluted earnings per share from discontinued operations 0.0p 0.2p 0.3p
Details of the sale of the subsidiary
In the event the operations of the subsidiary achieve certain performance
criteria during the period ending 31 December 2023 as specified in an 'earn
out' clause in the sale agreement, additional cash consideration of up to
£0.20m will be receivable in addition to the working capital adjustment. At
the time of the sale the fair value of the consideration was determined at
£0.23m and it has been recognised as a financial asset at fair value through
profit or loss.
£000
Consideration received or receivable
Cash 710
Fair value of contingent consideration 230
Total disposal consideration 940
Carrying amount of net assets sold (867)
Gain on sale before income tax and reclassification of foreign currency 72
translation reserve
Income tax -
Gain on sale after income tax 72
The carrying amounts of assets and liabilities as at the date of sale (31
March 2023) were:
31 March
2023
£000
ASSETS
NON-CURRENT ASSETS
Intangible assets 919
Property, plant and equipment 4
Right of use assets 6
Deferred tax asset 4
TOTAL NON-CURRENT ASSETS 933
CURRENT ASSETS
Trade and other receivables 132
Cash and cash equivalents 420
TOTAL CURRENT ASSETS 552
TOTAL ASSETS 1,485
LIABILITIES
CURRENT LIABILITIES
Trade and other payables 48
Deferred income 570
TOTAL CURRENT LIABILITIES 618
TOTAL LIABILITIES 618
EQUITY
Share capital -
Retained earnings 867
TOTAL EQUITY 867
TOTAL EQUITY AND LIABILITIES 1,485
6. 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 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.
The basic and diluted earnings per shares have been calculated:
o for continued operations attributable to the ordinary equity holder and
o for total earning per share attributable to the ordinary equity holder
a) Basic earnings per share
FROM CONTINUED OPERATIONS ATTRIBUTABLE TO THE ORDINARY EQUITY HOLDERS OF THE Unaudited Unaudited Audited
COMPANY
Six months ended Six months ended Year ended
30 June 2023 30 June 2022 31 December 2022
(Loss)/Profit after tax (£000) (31) 1,330 4,750
Weighted average number of shares (000's) 22,795 22,464 22,577
Basic earnings per share (0.1)p 5.9p 21.0p
TOTAL BASIC EARNINGS PER SHARE ATTRIBUTABLE TO THE ORDINARY EQUITY HOLDERS OF Unaudited Unaudited Audited
THE COMPANY
Six months ended Six months ended Year ended
30 June 2023 30 June 2022 31 December 2022
(Loss)/Profit after tax (£000) (21) 1,287 4,697
Weighted average number of shares (000's) 22,795 22,464 22,577
Basic earnings per share (0.1)p 5.7p 20.8p
b) Diluted earnings per share
FROM CONTINUED OPERATIONS ATTRIBUTABLE TO THE ORDINARY EQUITY HOLDERS OF THE Unaudited Unaudited Audited
COMPANY
Six months ended Six months Year ended
30 June 2023 ended 31 December 2022
30 June 2022
(Loss)/Profit after tax (£000) (31) 1,330 4,750
Weighted average number of shares (000's) 22,795 22,464 22,577
Potentially dilutive shares (000's) 1,044 1,073 1,099
Adjusted weighted average number of shares (000's) 23,839 23,537 23,676
Diluted earnings per share (0.1)p 5.7p 20.1p
TOTAL BASIC EARNINGS PER SHARE ATTRIBUTABLE TO THE ORDINARY EQUITY HOLDERS OF Unaudited Unaudited Audited
THE COMPANY
Six months ended Six months Year ended
30 June 2023 ended 31 December 2022
30 June 2022
(Loss)/Profit after tax (£000) (21) 1,287 4,697
Weighted average number of shares (000's) 22,795 22,464 22,577
Potentially dilutive shares (000's) 1,044 1,083 1,109
Adjusted weighted average number of shares (000's) 23,839 23,547 23,686
Diluted earnings per share (0.1)p 5.5p 19.8p
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 2023 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.
The adjusted earnings per shares have been calculated:
o for continued operations attributable to the ordinary equity holder and
o for total earning per share attributable to the ordinary equity holder
FROM CONTINUED OPERATIONS ATTRIBUTABLE TO THE ORDINARY EQUITY HOLDERS OF THE
COMPANY
Unaudited Unaudited Audited
Six months ended Six months ended Year ended
30 June 2023 30 June 2022 31 December 2022
(Loss)/Profit after tax (£000) (31) 1,330 4,750
Non-recurring costs 1,042 769 1,208
Non- recurring income (110) - (401)
Amortisation of acquired intangibles 917 977 1,953
Foreign currency exchange (gain)/loss 962 (951) (932)
Finance cost on deferred and contingent consideration 149
455 771
Adjusted profit after tax (£000) 2,929 2,580 7,349
Weighted average number of shares (000's) 22,795 22,464 22,577
Potentially dilutive shares (000's) 1,044 1,073 1,099
Adjusted weighted average number of shares (000's) 23,839 23,537 23,676
Adjusted basic earnings per share 12.8p 11.5p 32.6p
Adjusted diluted earnings per share 12.3p 11.0p 31.0p
TOTAL BASIC EARNINGS PER SHARE ATTRIBUTABLE TO THE ORDINARY EQUITY HOLDERS OF
THE COMPANY
Unaudited Unaudited Audited
Six months ended Six months ended Year ended
30 June 2023 30 June 2022 31 December 2022
(Loss)/Profit after tax (£000) (21) 1,287 4,697
Non-recurring costs 1,042 769 1,208
Non- recurring income (110) - (401)
Amortisation of acquired intangibles 917 977 1,953
Foreign currency exchange (gain)/loss 962 (944) (932)
Finance cost on deferred and contingent consideration 149
455 771
Adjusted profit after tax (£000) 2,939 2,544 7,403
Weighted average number of shares (000's) 22,795 22,464 22,577
Potentially dilutive shares (000's) 1,044 1,083 1,109
Adjusted weighted average number of shares (000's) 23,839 23,547 23,686
Adjusted basic earnings per share 12.9p 11.3p 32.8p
Adjusted diluted earnings per share 12.3p 10.8p 31.3p
7. Non-recurring items
Unaudited Unaudited Audited
Six months ended Six months Year ended
30 June 2023 ended 31 December 2022
30 June 2022
£000 £000
Non-recurring cost £000
Legal cost relating to historical contract dispute - 698 1,129
Acquisition and disposal costs 310 71 79
Associated cost for the Samarind transitional services 77 - -
Provision for US sales tax 655 - -
1,042 769 1,208
Unaudited Unaudited Audited
Six months ended Six months Year ended
30 June 2023 ended 31 December 2022
30 June 2022
£000 £000
Non-recurring income £000
Insurance proceeds relating to historical contract dispute - - (401)
Transitional services related to the Samarind disposal 110 - -
110 - (401)
The non-recurring income of £0.1m included in 2023 relates to the
transitional services that Instem plc has agreed under the Share Purchase
Agreement to provide to the acquirer of Samarind Limited.
The income receivable by Instem for providing those transitional services is
not arising in the course of the Group's ordinary activities and therefore has
been classified as non-recurring income.
Non-recurring costs include disposal costs and the associated cost that Instem
incurred for providing the transitional services relating to the Samarind sale
and provision for US sales tax while awaiting the outcome of the study to
establish whether potential exposure exists.
In 2022 non-recurring items includes the additional provision of €1.2m
(£1.02m) for the full and final settlement regarding a historical contractual
licence dispute that arose in 2017. As previously announced Instem had already
created provision of £0.25m in respect of this dispute in the previous years.
In October 2022, Instem paid €1.48m (£1.3m), of which its insurer agreed to
contribute €0.45m (£0.4m) resulting in a net payment due of approx. €1.0m
(£0.9m). The insurance contribution of €0.45m (£0.4m) was included in
non-recurring income
8. Finance income
Unaudited Unaudited Audited
Six months ended Six months ended Year ended
30 June 2023 30 June 2022 31 December 2022
£000 £000 £000
Foreign exchange gains - 945 932
Right of use interest income 2 2 5
Other interest - 83 86
2 1,030 1,023
9. Finance costs
Unaudited Unaudited Audited
Six months ended Six months ended Year ended
30 June 2023 30 June 2022 31 December 2022
£000 £000 £000
Bank loans and overdrafts 112 116 266
Unwinding discount on deferred consideration 149 455 771
Net charge on pension scheme 44 69 36
Right of use asset interest cost 22 40 69
Foreign exchange losses/(gains) 962 (8) -
1,289 672 1,142
10. Cash and cash equivalents
Audited
Unaudited Unaudited 31 December 2022
30 June 2023 30 June 2022 £000
£000 £000
Cash at bank 8,442 10,280 13,964
Bank balance 8,442 10,280 13,964
11. Banking facility
Audited
Unaudited Unaudited 31 December 2022
30 June 2023 30 June 2022 £000
£000 £000
Bank overdraft 1,028 - -
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. During 2023, the Group drew £1.0m to support the d-Wise final
consideration pay out and the banking facility is not presented net with cash
and cash equivalents. The balance includes interest and the relevant bank fees
for the period ended 30 June 2023.
12. Financial liabilities
An analysis of financial liabilities as presented in the statement of
financial position is as follows:
Unaudited Audited
Unaudited 30 June 2022 31 December 2022
30 June 2023 £000 £000
Current liability £000
Deferred consideration - 4,271 3,605
Contingent consideration - 1,964 2,160
At end of period Current liability - 6,235 5,765
Unaudited Audited
Unaudited 30 June 2022 31 December 2022
30 June 2023 £000 £000
Non-current liability £000
Toxhub deferred liability 155 - -
At end of period Non-current liability 155 - -
On 15 May 2023, the Group launched Centrus, incorporating all of our existing
In Silico Solutions and the Toxhub assets acquired or licensed from the
eTRANSAFE consortium. The Group has taken responsibility for the management
of the Toxhub database and software platform. The value of the Toxhub asset
would be the inherent liability of €0.18m which the Group would be liable to
pay if it decided to cancel its 3-year contract with the platform developer.
13. Share Capital
The share capital of Instem plc consists
of fully paid ordinary shares with a nominal value of 10p per share.
30 June 2023 30 June 2022 31 December 2022
No. of shares No. of shares No. of shares
Shares issued:
Beginning of the period 22,704,308 22,189,856 22,189,856
Issued on exercise of employee share options 87,884 190,000 217,500
Issued on exercise of employee share options through Employee Benefit Trust 97,241 - -
Share issue on acquisition of d-Wise - 296,952 296,952
Total shares issued and fully paid at end of period 22,889,433 22,676,808 22,704,308
Additional shares were issued during 2023
relating to share-based payments.
On 24 February 2023, Instem Plc group established an Employee Benefit Trust
(EBT) for the employees' nil cost share options awards.
All issued shares are fully paid. At 30 June 2023 the Instem plc Group
Employee Benefit Trust held nil shares in the Company. During the year the
Employee Benefit Trust acquired 97,241 shares, representing 0.4% of the issued
share capital of the Company, for total consideration of £nil. During the
year the Employee Benefit Trust disposed of 71,892 shares, representing 0.3%
of the issued share capital of the Company, for total consideration of
£443,515. The maximum number of shares held by the Employee Benefit Trust
during the year was 97,241, representing 0.4% of the issued share capital of
the Company.
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 the 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.
14. Subsequent Events
No adjusting events have occurred between the 30 June 2023 reporting date and
the date of approval of this Interim Report.
On 30 August 2023 the board of directors of Ichor Management Limited ("Bidco")
and the board of directors of Instem plc ("Instem") announced that they had
reached agreement on the terms of a recommended cash offer to be made by Bidco
for the entire issued and to be issued ordinary share capital of Instem (the
"Acquisition"). It is intended that the Acquisition will be implemented by way
of a scheme of arrangement under Part 26 of the Companies Act.
Under the terms of the Acquisition, each Instem Shareholder will be entitled
to receive 833 pence in cash per Instem Share. The Acquisition values the
entire issued and to be issued ordinary share capital of Instem at
approximately £203 million.
15. Availability of this Interim Announcement
Copies of the 2023 Interim Report for Instem plc will be available from the
Group's website at www.instem.com (http://www.instem.com) .
16. Profit Forecasts
The following statements (together "the Profit Forecasts") included in these
unaudited half year results for the six months ended 30 June 2023 constitute
ordinary course profit forecasts for the purposes of Rule 28 of the City Code
on Takeovers and Mergers ("the Takeover Code"):
"Adjusted EBITDA for the current year is now expected to be no greater than
£11.1m."
"The Board also notes that, excluding £1.7m of costs associated with Toxhub
now expected to be incurred in FY23, the implied FY23 Adjusted EBITDA would be
no greater than £12.8m, materially below the Board's expectations at the
beginning of the year."
As required by Rule 28 of the Takeover Code, the Board confirms that, as at
the date of this announcement, the Profit Forecasts remain valid and that they
have been properly compiled on the basis of the assumptions stated below and
that the basis of accounting used is consistent with Instem's accounting
policies which are in accordance with International Financial Reporting
Standards and those that Instem applied in preparing its financial statements
for the year ended 31 December 2022.
Further information on the basis of preparation of the Profit Forecasts,
including the principal assumptions on which they are based, is set out below.
Basis of preparation and principal assumptions
The Profit Forecasts are based on the assumptions listed below.
Factors outside the influence or control of the Board
· There will be no material changes to existing prevailing
macroeconomic or political conditions in the markets and regions in which
Instem operates.
· There will be no material changes in market conditions in
relation to either customer demand or the overall competitive environment.
· The interest, inflation and tax rates in the markets and regions
in which Instem operates will remain materially unchanged from the prevailing
rates.
· There will be no material adverse events that will have a
significant impact on Instem's financial performance.
· There will be no business disruptions that materially affect
Instem or its key customers, including, but without limitation, natural
disasters, lockdowns, acts of terrorism, technological issues or supply chain
disruptions.
· There will be no material changes to the prevailing foreign
exchange rates that will have a significant impact on Instem's revenue or cost
base.
· There will be no material changes in legislation or regulatory
requirements impacting on Instem's operations or on its accounting policies.
· There will be no material litigation or contractual disputes in
relation to any of Instem's operations.
· There will be no change in general sentiment towards the Group
and/or its operations which has an impact on its ability to attract customers
and to operate its business.
Factors within the influence or control of the Board
· There will be no material change to the present executive
management of Instem.
· There will be no material change in the operational strategy of
Instem.
· There will be no material adverse change in Instem's ability to
maintain customer and partner relationships.
· There will be no material acquisitions or disposals.
· There will be no material strategic investments over and above
those currently planned.
· There will be no material change in the dividend or capital
allocation policies of Instem.
· There will be no material change in relation to Instem's
assumptions in the period covered by the Instem Profit Forecasts in relation
to Instem's ability to execute on new initiatives, including, amongst others,
Toxhub.
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