TIDMINS
RNS Number : 9867M
Instem plc
27 September 2021
Instem plc
("Instem", the "Company" or the "Group")
Half Year Report
Instem plc (AIM: INS.L), a leading provider of IT solutions to
the global life sciences market, announces its unaudited half year
results for the six months ended 30 June 2021.
Financial Highlights
-- Total Group revenues were up 41 % to GBP 19.8m (H1 2020: GBP14.0m)
-- Recurring revenue (annual support and SaaS) increased 18 % to
GBP 9.9 m (H1 2020: GBP8.4m) with SaaS increasing 29% to GBP4.9m
(H1 2020: GBP3.8m)
-- Organic revenue growth of 8 % to GBP 15.2m (H1 2020: GBP14.0
m ), excluding The Edge Software Consultancy ("The Edge") and
d-Wise Technologies Inc ("d-wise") acquisitions in March and April
2021, respectively
-- Revenue figures stated after a GBP0.65m fair value reduction
to acquired deferred revenue associated with the d-wise
acquisition
-- Organic constant currency revenue growth was 16-%
-- Profit performance
-- Adjusted EBITDA* increased 39% to GBP 4.2m (H1 2020:
GBP3.0m), representing an Adjusted EBITDA margin of 21.0% (H1 2020:
21.3%)
-- Profit before tax of GBP 1.2m (H1 2020: GBP1.9m)
-- Adjusted profit before tax** of GBP2.9m (H1 2020: GBP2.1m)
-- Basic and diluted earnings per share of 4.8 p (H1 2020: 9.5p) and 4.6p (H1 2020: 9.0p)
-- Adjusted basic and diluted earnings per share** of 12.8p (H1
2020: 10.7p) and 12.2p (H1 2020: 10.2p)
-- Profit figures also stated after the GBP0.65m fair value reduction
-- Net cash generated from operations of GBP4.1m (H1 2020 GBP2.8m)
-- Net cash balance*** at 30 June 2021 of GBP10.1m (H1 2020: GBP7.3m)
*Earnings before interest, tax, depreciation, amortisation and
non-recurring items.
**After adjusting for the effect of foreign currency exchange on
the revaluation of inter-company balances included in finance
income/(costs), non-recurring items, amortisation of intangibles on
acquisitions
Profit is adjusted in this way to provide a clearer measure of
underlying operating performance.
*** Gross cash of GBP17.9m less financial liabilities but pre-
IFRS16
Operational Highlights
-- Strong organic growth
-- Continued transition to the SaaS model further increased
earnings visibility and underlying margins across the business
-- The acquisitions of The Edge and d-wise, which transformed
the scale and reach of the business, are integrating well
o Increasing recurring revenues
o Strengthening relationships with clients
o Increasing routes to market and potential cross selling
opportunities
Post-period end Highlights
-- Acquisition of PDS Pathology Data Systems ("PDS") expected to
be immediately earnings enhancing
o Further extends Instem's Study Management and S market share
and deepening relationships with some of its largest clients
Analyst Presentation: 11:30 today
Management will be hosting a presentation via web conference
today at 11:30. Analysts wishing to join should
register their interest by emailing instem@walbrookpr.com or by telephoning 020 7933 8780.
Investor Presentation: 16:00 today
Management will be providing a presentation and hosting an
Investor Q&A session on the results and future prospects today
at 16:00, through the digital platform Investor Meet Company.
Investors can sign up for free and add to attend the presentation
via the following link
https://www.investormeetcompany.com/instem-plc/register-investor
Questions can be submitted pre-event and at any time during the
live presentation via the Investor Meet Company Platform.
Phil Reason, CEO of Instem plc, commented: "As a company, we are
focussed on growing both organically and by acquisition. We are
delighted with the transactions completed during and post the
period end as well as the performance of our existing operations.
We have a scalable platform in place and a highly leverageable
business model underpinning a number of growth opportunities in
existing and adjacent markets.
"We are delighted to have achieved strong organic growth, with
the additions of The Edge, d-wise and, most recently, PDS
underpinning a step change in the scale of the business. Market
conditions remain buoyant and we have a strong pipeline of
opportunities, with a significantly increased target market. The
improvement in our trading profitability in the first half has been
sustained post the period end and, as a result, we now expect
trading performance, excluding any negative impact of the fair
value adjustment to acquired deferred revenue, for the current
financial year to be slightly ahead of the Board's previous
expectations.
"My thanks go to our enlarged global team of over 480 staff, who
have continued to perform exceptionally well whilst working
remotely. We expect that an indefinite blend of home and hybrid
working will provide permanent operational efficiencies while
enhancing staff work-life balance."
For further information, please contact:
Instem plc Via Walbrook PR
Phil Reason, CEO
Nigel Goldsmith, CFO
Singer Capital Markets (Nominated
Adviser & Broker) +44 (0) 20 7496 3000
Peter Steel / Rachel Hayes / Alex
Bond (Investment Banking)
Walbrook Financial PR +44 (0) 20 7933 8780
Nick Rome instem@walbrookpr.com
Tom Cooper
Nicholas Johnson
About Instem
Instem is a leading provider of IT solutions & services to
the life sciences market delivering compelling solutions for Study
Management and Data Collection; Regulatory Solutions for
Submissions and Compliance; and Informatics-based Insight
Generation.
Instem solutions are in use by over 700 customers worldwide,
including all the largest 25 pharmaceutical companies, enabling
clients to bring life enhancing products to market faster. Instem's
portfolio of software solutions increases client productivity by
automating study-related processes while offering the unique
ability to generate new knowledge through the extraction and
harmonisation of actionable scientific information.
Instem products and services address aspects of the entire drug
development value chain, from discovery through to market launch.
Management estimate that over 50% of all drugs on the market have
been through some part of Instem's platform at some stage of their
development.
To learn more about Instem solutions and its mission, please visit www.instem.com
CHAIRMAN'S STATEMENT
In the half year period from January to June, and in the
immediate post-period to September, the shape and scale of our
operations has been transformed by the successful acquisition of
three businesses.
The acquisitions of The Edge and d-wise have significantly
extended the reach of our product and service portfolio, whilst the
acquisition of PDS ensures that our position in the preclinical
space is unrivalled. We are delighted to have added such strong
businesses to our Company.
In July 2020 we specifically raised funds to acquire businesses
that we believed would be transformational to the company by
extending our 'footprint' in the life sciences R&D space and
consequently provide a stronger platform for long term growth. I
believe that we can say this has been achieved in terms of
deploying those funds to increase our scale and provide a platform
for further growth.
We can already see the positive impact from the acquisitions of
The Edge and d-wise, which we are currently integrating into the
business. While they only contributed four and three months
respectively for the period under review, the resultant impact was
significant.
Financial Performance.
Whilst the COVID-19 pandemic affected a number of sectors,
Instem continued to deliver solutions remotely and with minimal
disruption. The Company's performance during the period was
underpinned by further strong organic growth and supplemented by
the contributions from The Edge and d-wise.
-- Revenue increased 41%
-- SaaS Revenue increased 29%
-- Adjusted EBITDA increased 39%
-- Net cash generated from operations of GBP4.1m
Growth in these financial metrics is stated after a GBP0.65m
fair value reduction to acquired deferred revenue associated with
the d-wise acquisition affecting revenue and profit reported in the
period by this same amount. This is discussed in further detail in
the Financial Review section below.
Looking Forwards
We expect that, like The Edge and d-wise, PDS will be earnings
enhancing with all three having brought strong management teams and
synergies to our existing business and client base. These additions
have extended the Company's reach from discovery to clinical trials
across the drug discovery and development lifecycle. The Company is
now even closer to becoming a one-stop shop for life sciences
companies looking for long term partnerships to assist them over
the drug discovery and development landscape.
In the short term, we will concentrate on the successful
integration of the recently acquired businesses to ensure that we
take best advantage of the opportunities that this platform will
create.
Then, building on this new platform, the Board believes there
are three distinct and deliverable opportunities to enable the
continued and further development of the business:
-- Organic revenue growth from additional market penetration,
cross-selling and the introduction of new products and
services;
-- Margin improvement through conversion to SaaS deployment and extensively leveraging global infrastructure; and
-- Accretive M&A and strategic partnerships in existing
markets, as well as entry into related adjacent areas.
I would like to thank and congratulate our staff for their
performance and contribution during this period and look forward to
updating the market with further developments in due course.
We expect the momentum achieved during H1 and post period-end to
be maintained throughout the remainder of the financial year and we
continue to be excited by the significant potential of the
business. As I said, we are focused on fully integrating the
acquisitions and benefiting from the scale and opportunity they
provide as we look to maximise the potential of the enlarged
Group.
David Gare
Non-Executive Chairman
27 September 2021
CHIEF EXECUTIVE'S REPORT
Strategic Developments
The Company grew strongly during the period, both organically
and acquisitively, supported by a buoyant life sciences R&D
market.
The shift to SaaS continued, with SaaS subscription revenues
growing significantly faster than annual support fees for perpetual
licenses, benefitting from both first time SaaS revenue from new
clients and established clients switching from on-premise to SaaS
deployments. An increasing proportion of SaaS revenues has
bolstered Instem's earnings visibility as well as its underlying
margin through operating leverage. Despite the focus on SaaS,
increased industry study volumes contributed to significant growth
in many contract research organizations ("CROs"), resulting in
increased perpetual licenses orders from long-standing clients. In
the near-term, this will increase future annual support fees and
ultimately SaaS subscriptions as these clients transition from
on-premise deployment.
Significantly improved profitability contributed to the
Company's cash balance of GBP17.9m at the period end, highlighting
strong operational cash generation. This figure is post payment of
the initial acquisition considerations for The Edge and d-wise
transactions and represents a c.GBP3.9m improvement on the GBP14.0m
balance disclosed subsequent to the two transactions.
The Company also benefited from the integration of The Edge,
d-wise and post period end PDS, expanding its reach and
significantly enhancing its scale and growth opportunities.
Once again revenue growth was particularly strong in North
America and China, where successful early-phase R&D is starting
to deliver a healthy pipeline of drug candidates requiring a
significant increase in non-clinical development capacity, where
Instem solutions are particularly strong. Instem remains a
substantial market leader in China.
Market Review
The market backdrop remained favourable for the Group, with
global population growth and life expectancy underpinning increased
demand for successful innovation in life sciences. Growing levels
of investment in the biotech industry - with the pharmaceuticals
sector spending heavily in drug development - including the
provision of therapies and vaccines to treat or prevent COVID-19,
meant that Instem had a strong and growing target market, which was
further enhanced by the acquisitions completed during the
period.
In the pharmaceutical industry, which represents the largest
proportion of Instem's revenue, we refer again to the Pharma
R&D Annual Review, the 2021 version of which was released by
Pharma Intelligence in March 2021. This report shows that the
industry grew strongly in 2020 with a 4.8% increase (2019: 9.6%) in
the total number of drugs in the regulatory stages of global
R&D pipeline, continuing a multi-year growth trend that shows
no sign of abating. The vast majority of the growth in the pipeline
was within the preclinical market - which accounts for the majority
of Instem's business, with the number of drugs at this stage of
development rising 6% to 10,223.
Importantly, the Company grew its reach into the clinical trial
analysis and submission market during the period via the
acquisition of d-wise, further enhancing its capabilities and
potential to deepen relationships with existing clients and attract
new customers.
The modest negative COVID-19 related impact on revenue from the
academic market in FY2020, which was closed or remote for much of
the year, has largely normalized during 2021. However, site-based
professional services delivery for all of our customers remains
restricted, creating a healthy and growing backlog of business to
work through as and when restrictions ease.
Business Performance
Study Management and Data Collection
Strong study demand from the non-clinical CROs has fuelled
growth in licensed users for Instem's Study Management and Data
Collection solutions and encouraged existing clients to take
modules from our portfolio that they had not yet licensed. Clients
have also been upgrading to later versions of our products to
further increase their productivity. We have continued to benefit
from the transition towards SaaS with steady progress again being
made towards our goal of moving all existing on-premise enterprise
software clients to SaaS deployment by the end of 2023 (or having
firm commitments from them to do so).
The majority of the revenue associated with orders in excess of
GBP2.7m, announced for one of our largest clients on 15 December
2020 and in our 14 January 2021 Trading Update, was recognized in
H1 2021 and we continue to collaborate extensively with this
customer as they look for competitive advantage through technology
investment. Most of this additional revenue is study management
related but also includes new S related capabilities, much of which
will benefit the wider S community.
In March 2021 the Company completed the GBP8.5m acquisition of
Discovery technology solutions provider The Edge - broadening I
nstem's reach into the Discovery Study Management market - and
helping it to meet growing interest for the wider sharing of data.
The acquisition also provides scope for increased cross-selling
opportunities as well as enhancing the Company's product range and
routes to market - particularly in the Drug Metabolism &
Pharmacokinetics (DMPK) field.
The Edge extends the Company's reach within existing and new
clients and enhances its technology offering. It is already the
go-to partner for many of Instem's clients looking to revolutionise
their R&D processes, and the combined operations will be able
to provide a simplified service structure.
In Silico Solutions
Our computational toxicology business once again performed ahead
of management expectations as clients sought to leverage predictive
models to complement, or replace, laboratory-based studies.
Collaborations with industry and regulatory authorities continue to
provide high profile Instem thought-leadership in this area,
helping to drive current product adoption and the expansion of the
solution portfolio to introduce new, or materially enhanced,
predictive models. Initial engagements have been successfully
completed using the Predict(TM) In Silico Tox service, launched in
December 2020, and we see further opportunity to expand our
services in this area, some in combination with our KnowledgeScan
based, Target Safety Assessment ("TSA") services.
Growth of TSA Services moderated in H2 2020 and H1 2021 as a
result of the pandemic, but demand has picked up again during the
initial months of H2 2021. This is an area where we have
historically generated significant market awareness and sales
pipeline at scientific conferences, as both Instem staff and
reference clients present a new, "disruptive" approach to the
established method of assessing the potential safety issues of
modulating a biological target thought to offer therapeutic
benefit. We are eagerly awaiting the post COVID-19 return to in
person conferences, which have been further delayed by the Delta
variant. Although we will actively participate in the programme for
the influential "American College of Toxicology" remote annual
meeting in November 2021, the largest event of this type is the
"Society of Toxicology" annual meeting, which is scheduled to be
held in person in San Diego in March 2022.
Regulatory Solutions
The Company's regulatory S solutions lead the FDA (Food and Drug
Administration) mandated market and our leadership position has
been further enhanced with the acquisition of PDS, ranked number
two in the market. As industry familiarity and expertise with S has
improved, CROs in particular are doing more of the S creation work
in-house, the overwhelming majority with Instem technology.
Although this has moderated the volume of S creation out-sourced
services for submission purposes, business is growing for
conversion work for non-submission legacy studies, as clients look
to leverage harmonised data for insight generation. This is also
leading to increased opportunity for our advanced S analytics and
warehousing software solutions.
S continues to expand and evolve, with Instem actively involved
in the standards consortium and taking a lead role during 2021 in
areas such as the "fit for use" pilot of the Developmental and
Reproductive Toxicology version of the standard. The FDA has
announced, after a long period tolerating variable S submission
quality (never a problem with Instem S conversions) while the
industry became more S-literate, that it will more strictly enforce
the S Technical Rejection Criteria, that commenced 15 September
2021. We expect that this can only enhance existing customer and
wider market demand for our industry-leading technology and
consulting services.
Clinical Trial Acceleration Solutions
In April 2021 the Company acquired d-wise for up to $31m and
established the Clinical Trial Acceleration Solutions division.
d-wise adds a market leading position to the Group in an attractive
adjacent area of clinical trial analysis and submission, with good
future visibility through recurring revenue streams and already
contracted, high value consultancy projects. The combined strength
of Instem and d-wise positions the enlarged Group as the foremost
authority and driving force in generating, analysing and leveraging
data from Discovery through late-stage Clinical Trials.
Initial integration of d-wise is largely complete, with a second
phase of integration scheduled for H1 2022 when the transaction
earn-out period has completed. In addition to the established
provision of productised statistical computing environments
("SCEs") for small-midsized pharma companies and CROs; and the
large, customised SCE solutions typically sought by the top 30-40
pharma and CROs, we have been advancing our next generation
solution Aspire(TM), which blends deployment of standardized, next
generation SCE components within custom configurations. We expect
this approach to accelerate the time to client deployment, reducing
client "cost of ownership", while increasing recurring revenue and
project profitability.
Strengthened Team
Carlos Frade recently joined Instem as VP of business
development. Carlos was formerly the VP of Non-clinical R&D at
Xybion and was one of the original architects of the competing
Pristima study management software solution. A highly respected
figure in the life sciences community, Carlos brings with him
decades of experience and success, working closely with customers
and regulators to help streamline their R&D processes.
Post-Period Acquisition
Earlier this month the Company completed the acquisition of life
sciences software company PDS for a total enterprise value of CHF
14.25m (c.GBP11.4m). PDS has been a direct competitor of Instem for
over 25 years, providing software for non-clinical study
management, and software and outsourced services for regulatory
submissions using S. The acquisition further extends Instem's Study
Management and S market share and deepens its relationships with
some of its largest clients with product rationalisation expected
to enhance clients' experience and increase operating margin.
Outlook
As a company, we are focussed on growing both organically and by
acquisition. We are delighted with the transactions completed
during and post the period end as well as the performance of our
existing operations. We have a scalable platform in place and a
highly leverageable business model underpinning a number of growth
opportunities in existing and adjacent markets.
We are delighted to have achieved strong organic growth, with
the additions of The Edge, d-wise and, most recently, PDS
underpinning a step change in the scale of the business. Market
conditions remain buoyant and we have a strong pipeline of
opportunities, with a significantly increased target market. The
improvement in our trading profitability in the first half has been
sustained post the period end and, as a result, we now expect
trading performance, excluding any negative impact of the fair
value adjustment to acquired deferred revenue, for the current
financial year to be slightly ahead of the Board's previous
expectations.
My thanks go to our enlarged global team of over 480 staff, who
have continued to perform exceptionally well whilst working
remotely. We expect that an indefinite blend of home and hybrid
working will provide permanent operational efficiencies while
enhancing staff work-life balance.
Phil Reason
Chief Executive Officer
27 September 2021
Financial Review
Key Performance Indicators (KPIs)
The directors review monthly revenue and operating costs to
ensure that sufficient cash resources are available for the working
capital requirements of the Group.
The primary KPIs at 30 June 2021 were:
6 months to 6 months to 12 months to % Change
30 June 2021 30 June 2020 31 Dec (H1 2020 to H1 2021)
GBP000 GBP000 2020
GBP000
Total revenue 19,826 14,047 28,217 41%
Recurring revenue 9,889 8,357 16,941 18%
Recurring revenue as a percentage of total
revenue 50% 59% 60% -900bps
Adjusted EBITDA 4,161 2,995 5,919 39%
Adjusted EBITDA margin % 21.0% 21.3% 21.0% -30bps
Cash and cash equivalents 17,850 9,132 26,724 95%
In addition, certain non-financial KPIs are periodically
reviewed and assessed, including customer and staff retention
rates.
Instem's revenue model consists of perpetual licence income with
annual support and maintenance contracts, professional fees,
technology enabled outsourced services fees, SaaS subscriptions and
consulting services fees.
There was fair value adjustment on the acquired deferred revenue
from d-wise of GBP0.65m (H1 2020: GBPnil). A provisional fair value
adjustment of GBP1.1m has been made to the opening balance for
d-wise acquired deferred revenue at the acquisition date, which is
being amortised on a straight-line basis during the remaining
period of the relevant customer contracts. The sum of GBP1.0m is
expected to be charged to the 2021 Income Statement, of which
GBP0.65m has been charged in H1. The calculation of the full year
adjustment is ongoing and will be completed during H2 2021. This is
a non-cash item and does not materially impact any period other
than 2021.
Total revenues in the period increased by 41% to GBP19.8m (H1
2020: GBP14.0m). Like-for-like revenues, excluding the impact of
The Edge and d-wise, which were acquired in March 2021 and April
2021 respectively, increased by 8%. Recurring revenue, derived from
support & maintenance contracts and SaaS subscriptions,
increased in the period by 18% to GBP9.9m (H1 2020: GBP8.4m).
Recurring revenue as a percentage of total revenue was 50% (H1
2020: 59%). In absolute terms, recurring revenue increased over the
prior year by GBP1.5m but its percentage of the total decreased due
primarily to the addition of d-wise consulting revenue, which is
shown as non-recurring.
Total operating expenses increased by 41% in the period
reflecting the ongoing investment in operational teams and the
inclusion of The Edge and d-wise costs. Like-for-like operating
costs increased by 3%.
Earnings before interest, tax, depreciation, amortisation,
impairment of goodwill and capitalised development and
non-recurring items (Adjusted EBITDA) increased by 39% to GBP4.2m
(H1 2020: GBP3.0m). For this measure of earnings, the margin as a
percentage of revenue decreased in the period to 21.0% from 21.3%
in H1 2020. Excluding The Edge and d-wise, like-for like Adjusted
EBITDA increased by 27.2% to GBP3.8m in the period.
Non-recurring costs in the period were GBP0.8m (H1 2020:
GBP0.05m), consisting of GBP0.06m for legal expenses associated
with historical contract disputes, GBP0.17m for share based
payments and GBP1.39m for acquisition costs, partially offset by
income of GBP0.8m ($1.1m) for US federal government COVID-19
support loans, which were forgiven during 2021.
The reported profit before tax for the period was GBP1.2m (H1
2020: GBP1.9m). Adjusted profit before tax (i.e. adjusting for the
effect of foreign currency exchange on the revaluation of
inter-company balances included in finance income/(costs),
non-recurring items, impairment of goodwill and capitalised
development plus amortisation of intangibles on acquisitions) was
GBP2.9m (H1 2020: GBP2.1m).
The Group continues to invest in its product portfolio.
Development costs incurred in the period were GBP2.3m (H1 2020:
GBP1.6m), of which GBP1.0m (H1 2020: GBP0.6m) was capitalised.
Basic and diluted earnings per share calculated on an adjusted
basis were 12.8p and 12.2p respectively (H1 2020: 10.7p basic and
10.2p diluted). The reported basic and diluted earnings per share
were 4.8p and 4.6p respectively (H1 2020: 9.5p basic and 9.0p
diluted).
On 1 March 2021, Instem announced the acquisition of The Edge, a
study management software provider based in the UK. The Edge is
focused on improving the efficiency of early-stage drug R&D,
improving productivity and ensuring high-quality data capture. The
consideration payable is up to GBP8.5m, payable as GBP6.0m
initially, satisfied by GBP4.0m in cash from existing reserves and
GBP2.0m via the issuance of 391,920 new ordinary shares in Instem
plc, GBP0.5m of deferred consideration and up to a further GBP2.0m
payable contingent on The Edge's future trading performance, both
amounts payable in cash. In addition, the amount of GBP1.5m was
paid as a net cash adjustment after deducting the estimated debt at
the point of the acquisition.
On 20 March 2021, Instem exchanged contracts to acquire US-based
clinical trial technology & consulting leader d-wise
Technologies, Inc. (d-wise). The acquisition was completed on 1
April 2021. d-wise adds a market leading position to the Group in
an attractive adjacent area of clinical trial analysis and
submission, with good future visibility through recurring revenue
streams and already contracted, high value consultancy projects.
The combined strength of Instem & d-wise positions the enlarged
Group as the foremost authority and driving force in generating,
analysing and leveraging data from Discovery through late-stage
Clinical Trials. The total consideration is up to $31m comprising
$20m on completion, $8m of deferred consideration and up to a
further $3m which is payable contingent upon the future financial
performance of d-wise. The initial consideration on completion was
satisfied by $13m in cash and $7m via the issuance of 868,203 new
ordinary shares of 10p each in Instem plc. The initial cash payment
was funded from the Group's existing financial resources.
The period saw again strong net cash generated from operations
of GBP4.1m (H1 2020: GBP3.0m), largely due to cash inflows from the
newly acquired businesses, key contracts, outsourced services and
effective working capital management. The Group's cash resources
were used to accelerate the Group's acquisition strategy with the
acquisition of the Edge and d-wise. The net cash used in investing
activities includes the net cash payment of GBP10.6m for purchasing
those subsidiaries (net of cash acquired). The proceeds of GBP0.8m
($1.1m) which were part of the US federal government support for
businesses during the COVID-19 pandemic have been fully forgiven
during 2021. As a result of the above and the positive organic cash
generation achieved in the period, the cash balance decreased from
GBP26.7m to GBP17.9m .
The deficit on the Group's legacy defined benefit pension scheme
was GBP2.7m at 30 June 2021 (H1 2020: GBP4.0m) having improved from
a deficit of GBP3.9m at 31 December 2020. Liabilities decreased
from GBP16.4m at 31 December 2020 to GBP15.9m at 30 June 2021 and
Plan Assets have increased from GBP12.5m at 31 December 2020 to
GBP13.2m at 30 June 2021. The liabilities have fallen in value due
to the rise in corporate bond yields over the period, albeit offset
to some extent by an increase in expected future price inflation
and a modest increase in assumed life expectancy. Positive asset
returns combined with the deficit contributions paid over the
period led to a rise in the value of the Scheme's assets. The
latest triennial actuarial valuation of the Group's defined benefit
pension arrangement as at 5 April 2020, was completed in July 2021,
with the results to be reflected in the Group's Annual Report and
Accounts for the year ending 31 December 2021
Movements in share capital, share premium, merger reserve and
share based payment reserve reflect the exercise of share options
during the period, the fair value of share options granted being
charged to the statement of comprehensive income and the issue of
shares connected to the acquisition of The Edge and d-wise.
In line with previous periods and given our policy of retaining
cash within the business to capitalise on available growth
opportunities, the Board has not recommended the payment of a
dividend.
Principal risks and uncertainties
The principal risks and uncertainties remain unchanged from
those described in our 2020 Annual Report.
Post balance sheet events
On 1 September 2021, Instem announced the acquisition of PDS
Pathology Data Systems Ltd ("PDS"), a life sciences software
company with headquarters in Switzerland and offices in the United
States and Japan. PDS provides software for non-clinical study
management and software and outsourced services for regulatory
submissions using S (the Standard for the Exchange of Non-clinical
Data). The acquisition will enable Instem to concentrate investment
on a single line of S and preclinical study management products,
removing unnecessary duplication in the market. The combination of
technologies and highly experienced teams will enable the Company
to enhance the development and delivery of existing and new
solutions that provide higher value to our clients. The
consideration comprises CHF 8.2m payable to the sellers of PDS on
completion of the acquisition (the "Initial Consideration"), CHF
3.0m of seller loan repayments, CHF 2.0m to satisfy other net PDS
liabilities and CHF 1.0m of deferred consideration (the "Deferred
Consideration"). The Initial Consideration was satisfied by CHF
4.7m in cash (c. GBP3.8m) and CHF 3.5m (c. GBP2.8m) in new ordinary
shares of 10 pence each in the Company (the "Consideration
Shares").
The enlarged share capital of Instem is now 22,189,856 ordinary
shares of 10p each.
Nigel Goldsmith
Chief Financial Officer
27 September 2021
Instem plc
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the six months ended 30 June 2021
Unaudited Unaudited Audited
Six months ended Six months ended Year
30 June 30 June ended 31 December 2020
2021 2020 GBP000
GBP000 GBP000
Note
REVENUE 3 19,826 14,047 28,217
Employee benefits expense (11,504) (8,009) (16,508)
Other expenses (4,161) (3,043) (5,790)
EARNINGS BEFORE INTEREST, TAXATION,
DEPRECIATION, AMORTISATION AND
NON-RECURRING COSTS (ADJUSTED
EBITDA) 4,161 2,995 5,919
Depreciation (123) (76) (138)
Amortisation of intangibles arising on
acquisition (599) (332) (664)
Amortisation of internally generated
intangibles (397) (310) (736)
Amortisation of right of use assets (304) (272) (572)
OPERATING PROFIT BEFORE NON-RECURRING COSTS 2,738 2,005 3,809
Non-recurring costs 6 (817) (49) (606)
----------------- ------------------ ------------------------
OPERATING PROFIT AFTER NON-RECURRING COSTS 1,921 1,956 3,203
Finance income 7 22 67 38
Finance costs 8 (766) (124) (692)
----------------- ------------------ ------------------------
PROFIT BEFORE TAXATION 1,177 1,899 2,549
Taxation (154) (308) (275)
----------------- ------------------ ------------------------
PROFIT FOR THE PERIOD -1,023 1,591 2,274
================= ================== ========================
OTHER COMPREHENSIVE (EXPENSE)/INCOME
Items that will not be reclassified to
profit and loss account
Actuarial (loss)/gain on retirement benefit
obligations 785 (2,525) (2,537)
Deferred tax on actuarial gain & loss (149) 480 518
Deferred tax on share options - - 322
----------------- ------------------ ------------------------
636 (2,045) (1,697)
Items that may be reclassified to profit
and loss account:
Exchange differences on translating foreign
operations 24 77 10
----------------- ------------------ ------------------------
OTHER COMPREHENSIVE INCOME/(EXPENSE) FOR
THE PERIOD 660 (1,968) (1,687)
TOTAL COMPREHENSIVE INCOME/(EXPENSE) FOR
THE PERIOD 1,683 (377) 587
================= ================== ========================
PROFIT ATTRIBUTABLE TO OWNERS OF THE PARENT
COMPANY 1,023 1,591 2,274
================= ================== ========================
TOTAL COMPREHENSIVE INCOME/(EXPENSE)
ATTRIBUTABLE TO OWNERS OF THE PARENT
COMPANY 1,683 (377) 587
================= ================== ========================
Earnings per share from continuing
operations
- Basic 5 4.8p 9.5p 12.3
- Diluted 5 4.6p 9.0p 11.6
Instem plc
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 30 June 2021
Unaudited Unaudited Audited
30 June 30 June 31 December
2021 2020 2020
Note GBP000 GBP000 GBP000
ASSETS
NON-CURRENT ASSETS
Intangible assets 43,098 18,122 18,023
Property, plant and equipment 637 252 238
Right of use assets 2,110 1,982 1,742
Finance lease receivables 105 165 128
TOTAL NON-CURRENT ASSETS 45,950 20,521 20,131
---------- ---------- ------------
CURRENT ASSETS
Inventories 54 39 50
Trade and other receivables 12,250 8,621 6,093
Finance lease receivables 42 19 41
Tax receivable 648 579 724
Cash and cash equivalents 9 17,850 9,132 26,724
---------- ---------- ------------
TOTAL CURRENT ASSETS 30,844 18,390 33,632
---------- ---------- ------------
TOTAL ASSETS 76,794 38,911 53,763
========== ========== ============
LIABILITIES
CURRENT LIABILITIES
Trade and other payables 4,055 2,315 2,958
Deferred income 14,243 11,048 9,878
Tax payable - 425 -
Financial liabilities 4,515 749 268
Lease liabilities 1,079 461 608
Deferred tax liabilities 2,855 31 90
---------- ---------- ------------
TOTAL CURRENT LIABILITIES 26,747 15,029 13,802
---------- ---------- ------------
NON-CURRENT LIABILITIES
Financial liabilities 3,244 1,079 1,131
Retirement benefit obligations 2,729 3,985 3,868
Provision for liabilities and
charges 10 250 250 250
Lease liabilities 1,312 1,927 1,476
---------- ---------- ------------
TOTAL NON-CURRENT LIABILITIES 7,535 7,241 6,725
---------- ---------- ------------
TOTAL LIABILITIES 34,282 22,270 20,527
========== ========== ============
EQUITY
Share capital 2,178 1,667 2,048
Share premium 28,191 13,219 28,172
Merger reserve 9,359 2,432 2,432
Share based payment reserve 1,447 784 930
Translation reserve 116 159 92
Retained earnings 1,221 (1,620) (438)
---------- ---------- ------------
TOTAL EQUITY ATTRIBUTABLE TO OWNERS
OF THE PARENT 42,512 16,641 33,326
---------- ---------- ------------
TOTAL EQUITY AND LIABILITIES 76,794 38,911 53,763
========== ========== ============
Instem plc
CONSOLIDATED STATEMENT OF CASH FLOWS
For the six months ended 30
June 2021 Unaudited Unaudited Audited
Six months ended 30 June Six months ended 30 June Year ended 31 December
Note 2021 2020 2020
GBP000 GBP000 GBP000
CASH FLOWS FROM OPERATING
ACTIVITIES
Profit before taxation 1,177 1,899 2,549
Adjustments for:
Depreciation 123 76 138
Amortisation of intangibles 996 642 1,400
Amortisation of right of use
assets 304 272 572
Share based payment charge 517 130 427
Retirement benefit
obligations (380) (362) (512)
Finance income 7 (22) (67) (38)
US government loans forgiven 6 (805) - -
Finance costs 8 766 124 692
d-wise acquisition cost 12 809 - -
Loss on disposal of fixed
assets 6 - 2
------------------------- ------------------------- -----------------------
CASH FLOWS FROM OPERATIONS
BEFORE MOVEMENTS IN WORKING
CAPITAL 3,491 2,714 5,230
Movements in working capital:
(Increase) in inventories (4) (3) (14)
(Increase)/decrease in trade
and other receivables (151) (1,705) 742
Increase in trade, other
payables and deferred income 746 1,759 1,410
------------------------- ------------------------- -----------------------
NET CASH GENERATED FROM
OPERATIONS 4,082 2,765 7,368
Finance income 3 67 38
Finance costs (482) (124) (648)
Income taxes (485) 315 183
------------------------- ------------------------- -----------------------
NET CASH GENERATED FROM
OPERATING ACTIVITIES 3,118 3,023 6,941
CASH FLOWS FROM INVESTING
ACTIVITIES
Capitalisation of development
costs (922) (600) (1,272)
Purchase of property, plant
and equipment (37) (85) (141)
Payment of deferred
consideration - - (277)
Purchase of subsidiary
undertaking (net of cash
acquired) 11, 12 (10,567) (73) -
------------------------- ------------------------- -----------------------
NET CASH USED IN INVESTING
ACTIVITIES (11,526) (758) (1,690)
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from issue of share
capital 22 89 15,423
Proceeds from US government
loan - 901 810
Repayment of lease
liabilities (367) (327) (621)
Receipts from sublease of
asset 22 25 40
Repayment of lease capital - (15) (15)
------------------------- ------------------------- -----------------------
NET CASH (USED)/GENERATED
FROM FINANCING ACTIVITIES (323) 673 15,637
NET (DECREASE) /INCREASE IN
CASH AND CASH EQUIVALENTS (8,731) 2,938 20,888
Cash and cash equivalents at
start of period 26,724 5,957 5,957
Effect of exchange rate
changes on the balance of
cash held in foreign
currencies (143) 237 (121)
------------------------- ------------------------- -----------------------
CASH AND CASH EQUIVALENTS AT OF PERIOD 17,850 9,132 26,724
========================= ========================= =======================
Instem plc
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the six months ended 30 June 2021
Share based
payment
Share Share Merger reserve Translation Retained Total
capital premium reserve reserve earnings equity
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Balance as at 1
January 2020 -
(Audited) 1,662 13,135 2,432 654 82 (1,166) 16,799
Profit for the
period - - - - - 1,591 1,591
Other
comprehensive
income/(expense) - - - - 77 (2,045) (1,968)
---------- ---------- ---------- -------------- ------------- ---------- ----------
Total
comprehensive
income - - - - 77 (454) (377)
Shares issued 5 84 - - - - 89
Share based
payment - - - 130 - - 130
---------- ---------- ---------- -------------- ------------- ---------- ----------
Balance as at 30
June 2020
(Unaudited) 1,667 13,219 2,432 784 159 (1,620) 16,641
Profit for the
period - - - - - 683 683
Other
comprehensive
(expense)/income - - - - (67) 348 281
---------- ---------- ---------- -------------- ------------- ---------- ----------
Total
comprehensive
expense - - - - (67) 1,031 964
Shares issued 381 14,953 - - - - 15,334
Share based
payment - - - 297 - - 297
Reserve transfer
on lapse of
share options - - - (65) - 65 -
Reserve transfer
on exercise of
share options - - - (86) - 86 -
---------- ---------- ---------- -------------- ------------- ---------- ----------
Balance as at 31
December 2020
(Audited) 2,048 28,172 2,432 930 92 (438) 33,236
Profit for the
period 1,023 1,023
Other
comprehensive
income 24 636 660
---------- ---------- ---------- -------------- ------------- ---------- ----------
Total
comprehensive
income - - - - 24 1,659 1,683
Shares issued 130 19 6,927 - - - 7,076
Share based
payment - - - 517 - - 517
---------- ---------- ---------- -------------- ------------- ---------- ----------
Balance as at 30
June 2021
(Unaudited) 2,178 28,191 9,359 1,447 116 1,221 42,512
========== ========== ========== ============== ============= ========== ==========
NOTES TO THE FINANCIAL INFORMATION
For the six months ended 30 June 2021
1. General information
The principal activity and nature of operations of the Group is
the provision of world class IT solutions and services to the life
sciences research and development market. Instem's solutions for
data collection, management and analysis are used by customers
worldwide to meet the needs of life science organisations for
data-driven decision making leading to safer, more effective
products. Instem plc is a public limited company, listed on AIM,
incorporated in England and Wales under the Companies Act 2006 and
domiciled in England. The registered office is Diamond Way, Stone
Business Park, Stone, Staffordshire ST15 0SD, UK.
2. Basis of preparation and accounting policies
Basis of preparation
The Group's half-yearly financial information, which is
unaudited, consolidates the results of Instem plc and its
subsidiary undertakings made up to 30 June 2021. The Group's
accounting reference date is 31 December.
The consolidated financial information is presented in Pounds
Sterling (GBP) which is also the functional currency of the
parent.
The financial information contained in this half year financial
report does not constitute statutory accounts as defined in section
434 of the Companies Act 2006. It does not therefore include all of
the information and disclosures required in the annual financial
statements.
The financial information for the six months ended 30 June 2021
and 30 June 2020 is unaudited.
Instem plc's consolidated statutory accounts for the year ended
31 December 2020, prepared under IFRS, have been delivered to the
Registrar of Companies. The report of the auditors on these
accounts was unqualified and did not contain a statement under
Section 498 (2) or (3) of the Companies Act 2006.
Significant accounting policies
The accounting policies used in the preparation of the financial
information for the six months ended 30 June 2021 are in accordance
with the recognition and measurement criteria of international
accounting standards and are consistent with those which will be
adopted in the annual statutory financial statements for the year
ending 31 December 2021.
While the financial information included has been prepared in
accordance with the recognition and measurement criteria of
International Financial Reporting Standards (IFRS), these financial
statements do not contain sufficient information to comply with
IFRS's.
Instem plc and its subsidiaries have not applied IAS 34, Interim
Financial Reporting, which is not mandatory for UK AIM listed
groups, in the preparation of this half-yearly financial
report.
Significant judgement and estimates
The judgements and estimations that management have made for the
six months ended 30 June 2021 are consistent with those reported in
the annual statutory financial statements for the year ended 31
December 2020.
2. Basis of preparation and accounting policies (continued)
Going concern
The Directors continue to adopt the going concern basis of
accounting in preparing these financial statements, which the
Directors believe is appropriate given the Group's trading
performance and financial liquidity. At 30 June 2021, the Group had
cash balances of GBP17.9m together with GBP0.5m of unused banking
facilities.
The uncertainty regarding the impact on the Group of COVID-19
has been considered as part of the Group's adoption of the going
concern basis. In the period to 30 June 2021, we have not observed
any material detriment to our overall existing business or in the
level of new business opportunities that are being presented to us
in the markets in which we operate and we do not anticipate any
during the next 12 months.
Cash and cash equivalents
Cash and cash equivalents for the purposes of the Statement of
Cash Flows comprise the net of cash and overdraft balances that are
shown in the Statement of Financial Position in Cash and Cash
Equivalents.
3. Segmental Reporting
The business is organised into four operating segments to better
manage and report revenues; Study Management, Regulatory Solutions,
In Silico Solutions and Clinical Trials Acceleration. The fourth
segment was established after the d-wise acquisition on 01 April
2021.
Certain direct costs are allocated to the revenue streams whilst
the majority of costs are recorded and reported centrally,
primarily supporting Study Management and Regulatory Solutions.
Whilst the expectation in future years is to allocate more
centrally held operational costs to the individual segments, it
will take time for the allocations to be sufficiently accurate for
the Board to use segmental cost information for meaningful decision
making. A higher proportion of central costs were allocated to the
operating segments during H1 2021 compared with 2020.
The operations of the Group are managed centrally with
group-wide functions including sales, marketing, software
development, customer support, IT, human resources and finance
& administration .
Unaudited six months Study Management Regulatory In Silico Clinical
ended Solutions Solutions Trials Total
30 June 2021 Acceleration
GBP000 GBP000 GBP000 GBP000 GBP000
Total revenue 9,798 4,686 1,487 3,855 19,826
Direct attributable
costs (2,024) (1,113) (771) (2,477) (6,385)
----------------- ----------- --------------- -------------- --------
Contribution to indirect
overheads 7,774 3,573 716 1,378 13,441
Contribution to indirect
overheads % 79.3% 76.2% 48.2% 35.7% 67.7%
Central unallocated
indirect costs (9,280)
______
Adjusted EBITDA 4,161
Unaudited six months Study Management Regulatory In Silico Clinical
ended Solutions Solutions Trials Total
30 June 2020 Acceleration
GBP000 GBP000 GBP000 GBP000 GBP000
Total revenue 7,057 5,278 1,712 - 14,047
Direct attributable
costs (1,765) (980) (788) - (3,533)
----------------- ----------- ----------- -------------- --------
Contribution to indirect
overheads 5,292 4,298 924 - 10,514
Contribution to indirect
overheads % 75.0% 81.4% 54.0% - 74.9%
Central unallocated
indirect costs (7,519)
______
Adjusted EBITDA 2,995
Audited year ended Study Management Regulatory In Silico Clinical
31 December 2020 Solutions Solutions Trials Total
Acceleration
GBP000 GBP000 GBP000 GBP000 GBP000
Total revenue 15,054 9,839 3,324 - 28,217
Direct attributable
costs (3,516) (2,046) (1,630) - (7,192)
----------------- ----------- ----------- -------------- ---------
Contribution to indirect
overheads 11,538 7,793 1,694 - 21,025
Contribution to indirect
overheads % 76.6% 79.2% 51.0% - 74.5%
Central unallocated
indirect costs (15,106)
______
Adjusted EBITDA 5,919
4. Key performance measures
Unaudited Unaudited Audited
Six months ended Six months ended Year ended
30 June 2021 30 June 2020 31 December 2020
GBP000 GBP000 GBP000
a) Recurring revenue
Support fees 4,988 4,588 8,917
SaaS subscriptions 4,901 3,769 8,024
------------------- ------------------- -------------------
Recurring revenue 9,889 8,357 16,941
Licence fees 3,086 1,510 3,477
Product services 1,509 739 1,603
Outsourced services 2,594 3,441 6,196
Consulting 2,748 - -
------------------- ------------------- -------------------
Total revenue 19,826 14,047 28,217
b) Adjusted EBITDA
EBITDA 3,344 2,946 5,313
Non-recurring costs (see note 6) 817 49 606
------------------- ------------------- -------------------
Adjusted EBITDA 4,161 2,995 5,919
Adjusted profit after tax and bank balance performance measures
are detailed in notes 5 and 9.
5. Earnings per share
Basic earnings per share are calculated by dividing the profit
attributable to ordinary shareholders by the weighted average
number of ordinary shares in issue during the period. Diluted
earnings per share is calculated by adjusting the weighted number
of ordinary shares outstanding to assume conversion of all dilutive
potential shares arising from the share option scheme. The dilutive
impact of the share options is calculated by determining the number
of shares that could have been acquired at fair value (determined
as the average market share price of the Company's shares) based on
the monetary value of the subscription rights attached to the
outstanding share options.
a) Basic earnings per share
Unaudited Unaudited Audited
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2020
2021 2020
Profit after tax (GBP000) 1,023 1,591 2,274
------------ ------------ -------------
Weighted average number of
shares (000's) 21,145 16,662 18,421
------------ ------------ -------------
Basic earnings per share 4.8p 9.5p 12.3
============ ============ =============
b) Diluted earnings per share
Unaudited Unaudited
Six months Six months Audited
ended ended Year ended
30 June 30 June 31 December
2021 2020 2020
Profit after tax (GBP000) 1,023 1,591 2,274
------------ ------------ -------------
Weighted average number of
shares (000's) 21,145 16,662 18,421
Potentially dilutive shares
(000's) 1,023 948 1,231
Adjusted weighted average number
of shares (000's) 22,168 17,610 19,652
------------ ------------ -------------
Diluted earnings per share 4.6p 9.0p 11.6
============ ============ =============
c) Adjusted earnings per share
Adjusted earnings per share is calculated after adjusting for
the effect of foreign currency exchange on the revaluation of
inter-company balances included in finance income/(costs),
non-recurring items and amortisation of intangibles on
acquisitions. Diluted adjusted earnings per share is calculated by
adjusting the weighted number of ordinary shares outstanding to
assume conversion of all dilutive potential shares arising from the
share option scheme. The dilutive impact of the share options is
calculated by determining the number of shares that could have been
acquired at fair value (determined as the average market share
price of the Company's shares) based on the monetary value of the
subscription rights attached to the outstanding share options.
Unaudited Unaudited
Six months Six months Audited
ended ended Year ended
30 June 30 June 31 December
2021 2020 2020
Profit after tax (GBP000) 1,023 1,591 2,274
Non-recurring costs 817 49 606
Amortisation of acquired intangibles
(GBP000) 599 332 664
Foreign exchange loss/(gain)
on revaluation of intergroup
balances (GBP000) 268 (181) 208
Adjusted profit after tax (GBP000) 2,707 1,791 3,752
------- ------- -------
Weighted average number of
shares (000's) 21,145 16,662 18,421
Potentially dilutive shares
(000's) 1,023 948 1,231
------- ------- -------
Adjusted weighted average number
of shares (000's) 22,168 17,610 19,652
------- ------- -------
Adjusted basic earnings per
share 12.8p 10.7p 20.4p
======= ======= =======
Adjusted diluted earnings per
share 12.2p 10.2p 19.1p
======= ======= =======
6. Non-recurring costs
Unaudited Unaudited
Six months Six months Audited
ended ended Year ended
30 June 30 June 31 December
2021 2020 2020
GBP000 GBP000 GBP000
Guaranteed Minimum Pension
(GMP) equalisation provision - - 5
Legal cost relating to historical
contract disputes 62 49 149
Share based payment 170 - -
US government loans forgiven (805) - -
Acquisition costs 1,390 - 452
817 49 606
------------ ------------ -------------
7. Finance income
Unaudited Unaudited
Six months Six months Audited
ended ended Year ended
30 June 30 June 31 December
2021 2020 2020
GBP000 GBP000 GBP000
Foreign exchange gains - 62 -
Right of use interest income 3 - 7
Other interest 19 5 31
------------ ------------ -------------
22 67 38
============ ============ =============
8. Finance costs
Unaudited Unaudited
Six months Six months Audited
ended ended Year ended
30 June 30 June 31 December
2021 2020 2020
GBP000 GBP000 GBP000
Bank loans and overdrafts 43 19 38
Unwinding discount on deferred
consideration 318 40 70
Net interest charge on pension
scheme 26 18 34
Right of use asset interest
cost 121 47 96
Foreign exchange losses 258 - 454
------------ ------------ -------------
766 124 692
============ ============ =============
9. Cash and cash equivalents
Unaudited Unaudited Audited
30 June 30 June 31 December
2021 2020 2020
GBP000 GBP000 GBP000
Cash at bank 26,848 18,130 35,722
Bank overdraft (8,998) (8,998) (8,998)
Bank balance 17,850 9,132 26,724
============ ============ =============
10. Provision for liabilities and charges
Unaudited Unaudited Audited
30 June 30 June 31 December
2021 2020 2020
GBP000 GBP000 GBP000
At beginning of the period 250 250 250
Movement in provision - - -
At end of period 250 250 250
============ ========== =============
The provision relates to potential costs arising from historical
contract disputes (see note 6 for associated legal fees).
11. Acquisition of The Edge Software Consultancy Ltd ('The Edge')
On 1 March 2021, Instem acquired 100% of the issued share
capital of The Edge. The acquisition has increased the group's
market share in the global Life Science Sector and complements the
group in continuing its expansion and development in this
industry.
Proportion
of voting
equity
interests
Date of acquired Consideration
Company Principal activity acquisition % GBP000
Provider of Discovery
Technology Solutions
software and services
to Life Science 1 March
The Edge sector 2021 100 9,230
Details of the purchase consideration, the net assets acquired
and goodwill are as follows:
Consideration
GBP000
Initial cash consideration 4,000
Initial share consideration 2,009
Deferred consideration - cash payable March
2022 500
Contingent consideration - cash payable by
June 2022 1,000
Contingent consideration - cash payable March
2023 1,000
Net cash adjustment (after deduction of estimated
debt) 1,500
Working capital and cash adjustment - cash
receivable March 2022 (67)
Total consideration 9,942
Discounting of estimated future cashflows (712)
Present value of consideration 9,230
The initial share consideration was satisfied by the issue of
391,920 new Instem plc ordinary shares at a value of GBP2.0m which
was based on the published share price. The premium arising on the
share issue of GBP2.0m has been credited to the merger relief
reserve.
The deferred consideration is not based on any performance
related conditions and is payable in March 2022. The contingent
consideration is based on certain performance related conditions in
the twelve- month period post-completion. The contingent
consideration in the table above is based on the forecast estimate
that the performance related conditions will be fully met and the
full consideration will be payable. The contingent consideration
was re-measured at the reporting date. The deferred consideration
had been discounted using Instem's estimated cost of borrowing and
the contingent consideration has been discounted using the Internal
Rate of Return ('IRR').
Acquisition related costs amounting to GBP0.2m have been
recognised as an expense within non-recurring items in the
Consolidated Statement of Comprehensive Income.
Fair value of assets acquired and liabilities recognised at the
date of acquisition
Fair Value
GBP000
Non-Current Assets
Customer relationships 2,550
Intellectual property 1,342
Brand 105
Right of use assets 37
Current Assets
Cash and cash equivalents 2,570
Trade and other receivables 407
Deferred tax asset 64
Current Liabilities
Trade and other payables (430)
Deferred income (555)
Lease liabilities (36)
Non-Current Liabilities
Deferred tax on acquisition (759)
Fair value of identifiable net assets
acquired 5,295
Goodwill arising on acquisition
GBP000
Consideration transferred 9,230
Less: fair value of identifiable
net assets (5,295)
Goodwill arising on acquisition 3,935
Goodwill
Goodwill of GBP3.9m primarily relates to the ability to generate
growth from new customers, synergies provided by the Group and the
skill and expertise of The Edge's staff.
Identifiable net assets
A provisional fair value exercise to determine the fair value of
assets and liabilities acquired has been carried out. Fair values
are provisional as they are within the twelve month hindsight
period to adjust fair values. No fair value adjustments have been
made to the assets and labilities acquired.
The fair value of intangible assets are:
-- Customer relationships of GBP2.6m calculated using the income
approach - excess earnings. Acquired customer relationships
consisting of ongoing relationships with companies to which The
Edge provides annual licenses, maintenance assistance and bespoke
services.
-- Intellectual property of GBP1.3m calculated using the income
approach - relief from royalty. Two proprietary software packages
were acquired, namely BioRails and Morphit.
-- Brands of GBP0.1m calculated using the income approach -
relief from royalty. 'The Edge' brand and sub-brands (principally
BioRails and Morphit) are considered in aggregate a separable
intangible asset and a driver of the overall business model.
Acquired receivables
The fair value of acquired trade receivables is GBP0.079m as no
loss allowance was required to be recognised on acquisition.
Impact of acquisition on the results of the Group
Profit for the half year includes a profit of GBP0.5m
attributable to the additional business generated by The Edge from
the date of acquisition. Revenue for the half year includes GBP0.8m
in respect of The Edge.
If this business combination had been effected at 1 January
2021, the revenue of The Edge would have been GBP1.0m and the
profit for the half year would have been GBP0.5m. These values do
not represent a measure of the performance of The Edge as the
company's accounting policy have been changed at the acquisition
date to comply with the policies of the Group.
Purchase consideration - cash outflow
GBP000
Outflow of cash to acquire subsidiary,
net of cash acquired
Initial cash consideration 4,000
Net cash adjustment (after deduction
of estimated debt) 1,500
Less: Balance acquired
Cash (2,570)
Net outflow of cash - investing
activities 2,930
12. Acquisition of d-wiseTechnologies, Inc
On 20 March 2021, Instem exchanged contracts to acquire the 100%
of the issued share capital of US-based clinical trial technology
& consulting leader d-wise Technologies, Inc ("d-wise"). The
acquisition was completed on 1 April 2021. The acquisition has
increased the group's market share in the global Life Science
Sector and complements the group by entering an attractive adjacent
area of clinical trial analysis and submission.
Proportion
of voting
equity
interests
Date of acquired Consideration
Company Principal activity acquisition % GBP000
Provider of clinical
trial acceleration
solutions to Life 1 April
d-wise Inc Science sector 2021 100 18,904
Details of the purchase consideration, the net assets acquired
and goodwill are as follows:
Consideration
$000 GBP000
Initial cash consideration 13,000 9,437
Initial share consideration 7,000 5,044
Deferred consideration (1 April 2022) - To
be settled in cash 1,480 1,074
Deferred consideration (1 April 2022) - To
be settled in shares 408 296
Deferred consideration (1 April 20233) - To
be settled in cash 2,058 1,494
Contingent consideration (1 March 2022) -
To be settled in cash or shares 1,500 1,089
Contingent consideration (1 March 2023) -
To be settled in cash 1,500 1,089
Working capital adjustment - (Q3 2021) - To
be settled in cash 5 4
Total consideration 26,951 19,527
Discounting of estimated future cashflows (623)
Present value of consideration 18,904
The initial share consideration was satisfied by the issue of
868,203 new Instem plc ordinary shares at a value of $7.0m
(GBP5.0m) which was based on the published share price. The premium
arising on the share issue of GBP5.0m has been credited to the
merger relief reserve.
The deferred consideration is not based on any performance
related conditions and is payable in two instalments in April 2022
and 2023. The contingent consideration is based on certain
performance related conditions in the twelve-month period
post-completion. The deferred consideration has been discounted
using the interest rate as defined in the share purchase agreement
and the contingent consideration has been discounted using the
IRR.
The contingent consideration in the table above is based on the
forecast estimate that the performance related conditions will be
fully met and the full consideration will be payable. The
contingent consideration was re-measured at the reporting date.
An amount of $4.3m (GBP3.1m) which is contingent on the
continued employment of certain of the former d-wise management has
been excluded from the total purchase consideration and is instead
treated as an expense in non-recurring costs as it incurred. The
above treatment will not affect the Group's cash position as the
total consideration payable remains at $31m.
Acquisition related costs amounting to GBP1.2m have been
recognised as an expense within non-recurring items in the
Consolidated Statement of Comprehensive Income.
Fair value of assets acquired and liabilities recognised at the
date of acquisition
Fair Value
GBP000
3 Non-Current Assets
Customer relationships 5,770
Intellectual property 1,061
Brand names 1,134
Property, plant and equipment 491
Right of use assets 662
Current Assets
Trade and other receivables 5,766
Cash and cash equivalents 1,800
Current Liabilities
Trade and other payables (1,633)
Deferred income (2,693)
Financial Liabilities (48)
Lease liability (662)
Non-Current Liabilities
Deferred tax on acquisition (1,991)
Fair value of identifiable net liabilities
acquired 9,655
Goodwill arising on acquisition
GBP000
Consideration transferred 18,904
Less: fair value of identifiable
net assets (9,655)
Goodwill arising on acquisition 9,249
Goodwill
Goodwill of GBP9.2m primarily relates to the ability to enter an
attractive adjacent area of clinical trial analysis and submission,
generating growth from new customers, synergies provided by the
Group and the skill and expertise of the d-wise staff.
Identifiable net assets
A provisional fair value exercise to determine the fair value of
assets and liabilities acquired has been carried out. Fair values
are provisional as they are within the twelve month hindsight
period to adjust fair values. Except for the Deferred revenue no
other fair value adjustments have been made to the assets and
liabilities acquired.
The fair value of intangible assets are:
-- Customer relationships of GBP5.8m calculated using the income
approach - excess earnings. Acquired customer relationships
consisting of ongoing relationships with companies to which d-wise
provides hosting and consultancy services, support and maintenance
and product licences.
-- Intellectual property of GBP1.1m calculated using the income
approach - relief from royalty. Two proprietary software products
were acquired, namely Blur and Reveal.
-- Brands of GBP1.1m calculated using the income approach -
relief from royalty. The 'd-wise' brand is a separable intangible
asset and a driver of the overall business model in the fair value
measurement and the proportion of overall enterprise value
attributed to the brand. The brand has been trading since 2003 and
is well established within the pharmaceutical industry.
Acquired receivables
The fair value of acquired trade receivables is GBP5.1m as no
loss allowance was required to be recognised on acquisition.
Impact of acquisition on the results of the Group
Profit for the half year includes a loss of GBP0.3m attributable
to the additional business generated by d-wise from the date of
acquisition. The loss was incurred due to the fair value adjustment
on the acquired deferred revenue of GBP0.6m. Revenue for the half
year includes GBP3.9m in respect of d-wise.
If this business combination had been effected at 1 January
2021, the revenue of d-wise would have been GBP9.2m and the profit
for the half year would have been GBP0.4m. The directors consider
these values represent an approximate measure of the performance of
d-wise on a half year basis as the fair value adjustment on the
acquired deferred revenue was not determined to provide a reference
point for comparison in future years.
Purchase consideration - cash outflow
GBP000
Outflow of cash to acquire subsidiary,
net of cash acquired
Initial cash consideration 9,437
Less: Balance acquired
Cash (1,800)
Net outflow of cash - investing
activities 7,637
13. Subsequent Events
No adjusting events have occurred between the 30 June 2021
reporting date and the date of approval of this Interim Report.
The latest triennial actuarial valuation of the Group's defined
benefit pension arrangement as at 5 April 2020 was completed in
July 2021. The outcome of the valuation will be disclosed in the
Group's full year results for 2021. The next valuation of the
Scheme is due as at 5 April 2023.
On 1 September 2021, Instem announced the acquisition of PDS
Pathology Data Systems Ltd ("PDS"), a life sciences software
company with headquarters in Switzerland and offices in the United
States and Japan. PDS has been a direct competitor of Instem for
over 25 years. PDS provides software for non-clinical study
management and software and outsourced services for regulatory
submissions using SEND (the Standard for the Exchange of
Non-clinical Data). In the year ended December 2020, PDS had
unaudited, normalised profits before tax of CHF 0.75m (c. GBP0.6m)
on sales of CHF 6.5m (c. GBP5.1m), of which CHF 2.3m (c. GBP1.8m)
was recurring SaaS and software maintenance revenue. As at 31
December 2020, PDS had net liabilities of CHF 1.5m (c. GBP1.2m),
including loans from its shareholders of approximately CHF 3.0m (c.
GBP2.4m). These loans were settled in full out of the proceeds
received by PDS shareholders. The Acquisition will enable Instem to
concentrate investment on a single line of SEND and preclinical
study management products, removing unnecessary duplication in the
market. The combination of technologies and highly experienced
teams will enable the Company to enhance the development and
delivery of existing and new solutions that provide higher value to
its clients. The consideration comprises CHF 8.2m paid to the
sellers of PDS on completion of the Acquisition (the "Initial
Consideration"), CHF 3.0m of seller loan repayments, CHF 2.0m to
satisfy other net PDS liabilities and CHF 1.0m of deferred
consideration (the "Deferred Consideration"). The Initial
Consideration was satisfied by CHF 4.7m in cash (c. GBP3.8m) and
CHF 3.5m (c. GBP2.8m) in new ordinary shares of 10 pence each in
the Company (the "Consideration Shares"), equating to the issue of
359,157 shares at a deemed price of a 777 pence per share. The cash
payment, loan repayments and other net liabilities payments are
being funded from the Group's existing financial resources.
14. Availability of this Interim Announcement
Copies of the 2021 Interim Report for Instem plc will be
available from the Group's website at www.instem.com.
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END
IR GGGDCRBDDGBR
(END) Dow Jones Newswires
September 27, 2021 02:00 ET (06:00 GMT)
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